Larry Nelson

Larry Nelson

You wouldn’t think the normally jovial Leo Kiely akin to a harbinger of doom. Yet for the veteran US beer man, who in 1993 joined Coors and today heads the energetic efforts of an increasingly muscular MillerCoors, times have never been tougher, writes Larry Nelson.

On the face of it, MillerCoors' fourth quarter numbers certainly offer little scope for optimism. Sales to wholesalers declined 4.2% in the fourth quarter. As for sales to retailers, above-premium domestic brand volumes such as Miller Chill were hit hardest. Miller Lite and Coors Light also both declined; one of the few brands to add sales was economy label Keystone Light. Meanwhile, sales of Blue Moon, described as a ‘craft’ beer, increased.

For Kiely the culprit is clear, a sluggish US economy with unemployment hovering around 9%, hitting the beer industry’s core consumers who are spending less frequently or trading down. “It was easily the most challenging quarter I have seen in the beer business, where persistent high nationwide unemployment depressed industry volumes and in turn our results.”

In no way is MillerCoors alone in this malaise. Internal A-B InBev sales figures leaked to the hometown St Louis Post-Dispatch reported a 12.2% drop in total beer volume, both domestic and imports, for January, to 4.45 million barrels. A-B InBev’s US beer volumes fell almost 2% in 2009 compared to the previous year.

Imports fared little better. For the first half of 2009, Heineken USA’s beer volumes were 8% lower, with Dutch brands down 12% compared to one per cent for then-FEMSA owned brands.

The Beer Institute’s figures for full-year 2009 have domestic beer volumes dropping by 2m barrels over 2008’s performance. Imports fared worse, with an almost 10% drop in barrelage for figures available for the first 11 months of 2009.

Compare and contrast, then, the bullish performance of America’s craft brewing industry. Their trade body, the Brewers Association, reported a 5% volume increase and 9% sales uplift for the first six months of 2009. (Full year figures won’t be available until April.)

This isn’t some against-the-grain statistical blip. For full year 2008 Brewers Association member volumes rose 5.8% and sales increased a full 10.5% over ’07, a strong result keeping in mind the whirlwind that felled the US and global economies from September onwards. This year craft brewers volumes will approach 9m barrels, good for more than a 4% share of the country’s 200m-plus barrel thirst.

What can be made of this? First, the growth of craft brewing is sustainable. There have been false dawns before, as when a spurt at the end of the 1990s collapsed at the start of this decade. The veterans of the industry have become savvier in regards to branding; their sales teams argue that their higher priced products offer bar owners better profit margins.

There are also arguably demographics in craft brewer’s favour, skewing towards younger consumers with more disposable income, or at least without a mortgage weighing down their finances. (A visit to the tasting halls of the annual Great American Beer Festival in Denver is always a shock for English visitors. The people loving beer who throng the halls are so much younger than those at comparable British festivals.)

Both MillerCoors and A-B InBev understand and ape this dynamic. A-B – before InBev swooped – busied itself acquiring shares in microbrewers, such as Redhook. A-B, through a series of small operating companies, had been launching microbrews of its own; its millions of barrels breweries had also been encouraged to create their own microbrews for their neighbouring markets. Miller, pre-Coors nuptials, bought Wisconsin micro neighbour Leinenkugel back in 1988; Coors, meanwhile, developed its successful Belgian-style wheat beer Blue Moon out of its Sandlot microbrewery located in Denver’s baseball stadium.

And yet, returning to Miller Coors, the commercial success of the brewer’s past twelve months has been the growth of MGD 64, with volumes now over 1m barrels from a standing start last summer. This is a beer that does what it says on the label, a lighter than light concoction with just 64 calories per 12oz serving, compared, according to MillerCoors, to the 110 calories weighing down a similar serving size of Bud Light.

First to market yet already aped: A-B InBev has responded with Budweiser Select 55, launched during this year’s Super Bowl telecast and trumpeted as the world’s lightest beer. Select 55 undercuts not only MGD 64 but also A-B stablemates Bud Light and Michelob Ultra (95 calories per serving).

The instant success of MGD 64 is hard to ignore yet one wonders about its long-term potential. It wasn’t so long ago that Heineken Light was launched in the US, and while the beer has been successful its existence is arguably the primary reason why sales of Amstel Light have been in double digit decline since 2008. For MillerCoors, while MGD 64 volumes rose in the fourth quarter there was an offset with a mid-single digit decline in Miller Lite volumes.

The problem is that it’s just not clear that beers sold on health – fewer calories, fewer carbs – really sit well with the overall brand propositions. Bud Light is being pushed hard these days as the start to a good time. There’s not a clear conception that people quaff beer because it’s the healthier choice; at some point you opt for minerals waters, fruits juices, energy drinks rather than what is euphemistically described as a “crisp, refreshing taste.”

The US economy is in the tank; there’s no crystal ball here but beer sales for the big boys will improve as unemployment figures decline and the nation returns to work. MillerCoors is also working on new packaging formats that it believes in the short term will stimulate interest in its long-standing brands.
But the real takeaway from the US beer industry’s difficult 2009 is this: sales of beers that offer taste and flavour added both volume and above-volume sales.

Why, then, should the market leaders be so desperate to launch products with ever-less body and flavour?

Larry Nelson is editor of Brewers' Guardian.