The US beer market - where consumer evolution makes for a level playing field - analysis

In a developed market where the top two players account for over two-thirds of total volumes, smaller players would be forgiven for thinking they had far less to go at, compared to in the newer, emerging markets. But, present size is not relative to future growth potential, as one analyst has explored this week.

In the US, Anheuser-Busch InBev and MillerCoors dominate the brewing landscape. The two companies account for around 70% of beer volumes between them, predominantly through the Budweiser and Miller stables, and their respective Light/Lite cousins. This high level of consolidation, however, counts for little when the country's consumers are changing as rapidly as they appear to be in the US.

In a client note yesterday, analysts at Cowen & Co drew comparisons between the beer and soft drinks sectors in the US, concluding that "consolidated industries are fertile ground for smaller, number three competitors". In the country's soft drinks sector, Coca-Cola Co and PepsiCo cast the largest shadow, with almost 70% soda/CSD volume share between them. It is number three Dr Pepper Snapple, however, that "has been outperforming KO and PEP fairly consistently on a long-term basis", writes Vivien Azer. Consumers' movement away from cola flavours has played into Dr Pepper Snapple's hands and " reflects the benefits of pure-play exposure to growing sub-categories", according to Azer.

In beer, a similar situation is developing. Much as Budweiser and Miller have been losing share to wines and spirits in recent years, consumers in the US have not given up on beer altogether, a fact underlined by the growing popularity of both craft and imported beer offerings. Combined, says Azer, craft and imports account for around 27% of total beer volumes in the US. "We view the import/craft beer category as meaningfully under-developed," says Azer, contrasting their combined footprint with the 52% share of CSDs that is held by non-colas.

A major opportunity, Azer believes, exists in the broader changes being witnessed in the country's consumer base. "Multi-cultural and Millennial preferences are aligned in terms of driving this evolution," she says. "Multi-cultural consumers under-index in beer, while Millennials are increasingly showing greater preferences for wine and spirits (though beer continues to hold a majority preference).

"That said," Azer continues, "within beer, there is a clear shift towards imported beer, which over-indexes to multi-culturals, as well as craft beer. Despite these share shifts to imports and craft, the beer category remains far more consolidated than either soda or cigarettes, which should create fairly sizeable opportunities for the non-Big Two companies in the category."

Best placed to benefit from these shifts, according to Cowen & Co, is Constellation Brands; the third-largest beer company in the US through its ownership in the country of the Corona, Modelo and Pacifico Mexican beer brands. "With [Constellation's] share meaningfully trailing MillerCoors," Azer says, "and, given their portfolio's outsized preference among multi-culturals, closing this gap represents a meaningful market share opportunity in beer."

Cowen's conclusions, then, will be music to the ears of not only Constellation, but also the flood of craft brewers who have succeeded in seizing share at the expense of AB InBev and MillerCoors. If these smaller players can also pull the newer wine and spirits consumers back into beer, their future will be even brighter outside of the shadow of the top two.

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