Comment - Is Big Beer in Denial in the US?
Let's have some honest talk about why US beer brands lost relevance
Shouldn't we be hearing a bit more humility from certain sections of the North American beer industry, given the ongoing floundering of key brands?
There is growing optimism around the delapidated US beer industry. This is no mean feat, considering that major brewers are still running to stand still on volume sales and official figures show that beer is still losing market share to spirits. This has been going on for years. Now, though, it strikes me that big beer is attempting to redeem itself without necessarily confessing its sins; and that may bode ill over the longer-term.
In its full-year results conference yesterday (16 February), Molson Coors conceded that its overall volumes, which incorporate MillerCoors in the US, have continued to drop in the first few weeks of 2012. In 2011, MillerCoors' sales to wholesalers dropped by 3% in volume. Sure, this slowed to 1.6% in the fourth quarter, but that still isn't growth.
Nevertheless, brewers and analysts say they are optimistic that price tweaks, new products and cost cutting can create value in the market. Rabobank expects the US to contribute to 12% of global beer sector value growth over the next 12 months.
Following Molson Coors' and MillerCoors' results, analysts at Stifel Nicolaus said: "We take the results as another indicator US brewer profitability is improving." Another analyst I spoke to recently believes that the market might turn out to be far too pessimistic about US beer in 2012.
This may be so. But, it's not going to be great either way. Necessarily, we've all recalibrated our expectations for big beer brands in the US: stability is welcome, growth is a bonus.
Still, analysts' optimism is reinforced by the trade. "We just get a better sense of momentum for this year," MillerCoors' CEO, Tom Long, told analysts yesterday. MillerCoors reckons that premium light beer drinkers are twice as loyal as craft beer drinkers and Long is keen to "get back on the front foot" with this army of beer swillers.
Molson Coors, meanwhile, is probably correct when it says that, despite all the excitement around craft beer, restoring the health of its big lager brands is key to its finances. "We've got to get our power brands moving forward, that'll make the difference," its management told analysts yesterday. The brewer will spend at least an extra US$30m to market its main brands, such as Coors Light and Canadian, this year.
This seems reasonable, but I'd like to see big brewers talking more openly about what they have got wrong. There is some serious work behind the scenes, of course. Still, sometimes I get the impression that some people believe extra sports marketing and a couple of brand extensions will be enough to restore former glories.
And yet, I don't think it's that easy to rewind the clock.
There is a paradox in the US drinks market right now. Beer overall is losing market share to spirits and wine. Yet, craft beer sales suggest interest in beer among Americans is blossoming.
Naturally, the big brewers have leapt into the craft sector. But, somehow, this lacks sincerity if no one is going to really engage on how several big beer brands have lost relevance with enough consumers to damage group sales. The Beer Institute's recent release on 2011 value sales is a good example of denial in some quarters of the industry. While spirits eats into beer sales, the Beer Institute seems content to merely declare that beer is still the best.
For all the current optimism, I'm not hearing much humility about past mistakes.
I don't think that brewers can skip this stage in the redemption process if they want to rebuild the industry for the long-term. Put another way, a future in which brewers squeeze extra cents out of a disinterested public doesn't look sustainable.
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