Budweiser and the Craft Beer Fallacy – How Myths Hide Trends

No Anheuser-Busch

It is that time of year when many of us celebrate with an alcoholic beverage. But increasingly in America, that beverage is not beer. Since 2008, American beer sales have fallen about 4%.

The biggest beer brands are suffering the greatest declines

But that decline has not been equally applied to all brands. The biggest, old line brands have suffered terribly. Nearly gone are old brands like Milwaukee’s Best, which were best known for being low priced – and certainly not focused on taste. But the most hurt, based on volume declines, have been what were once the largest brands; Budweiser, Miller Lite and Miller High Life. These have lost more than a quarter of their volume, losing a whopping 13million barrels/year of demand. These 3 brand declines account for 6% reduction in the entire beer market.

The popular myth is that this has been due to the rising sales of craft beers. And there is no doubt, craft beer sales have done well. Sales are up 80%. Many articles (including the WSJ) tout the growth of craft beers, which are ostensibly more tasty and appealing, as being the reason old-line brands have declined. It is an easy explanation to accept, and has largely gone unchallenged. Even the brewer of Budweiser, Annheuser-Busch InBev, has reacted to this argument by taking the surprising action of dropping clydesdale horses from their ads after 81 years – in an effort to woo craft beer drinkers, which are thought to be younger and less sentimental about large horses.

This sounds good. Too bad it’s the wrong conclusion.

Realize that craft beer sales are up from a small base, and today ALL craft beer sales still account for only 7.6% of the market. In fact, ALL craft beers combined sell only the same volume as the now smaller Budweiser.

The problem with Budweiser sales – and sales of other big name brand beers – is a change in demographics.

Drinkers of Budweiser and Lite are simply older. These brands rose to tremendous dominance in the 1970s. Many of those who loved this brand are now older – or dead. Where a hard working fellow in his 30s or 40s might enjoy a six pack after work, today that Boomer (if still alive) is somewhere between late 50s and 70s. Now, a single beer, or maybe two, will suffice thank you very much. And, equally challenging for sales, today’s Boomer is more often drinking a hard liquor cocktail, and a glass of wine with dinner. Beer drinking has its place, but less often and in lower quantities.

Hispanics are a growing demographic. 

Hispanics are the largest non-white population in America, at 54million, and represent over 17% of all Americans.  With a growth rate of 2.1%, Hispanics are also one of the fastest growing demographic segments – and increasingly important given their already large size.  Hispanics are truly becoming a powerful buying group in American economics.

Just as declines in Boomer population and consumption has hurt the once great beer brands, we can look at the growth in Hispanic demographics and see a link to sales of growing brands.  Two significant (non-craft volume) beer brands that more than doubled sales since 2008 are Modelo Especial and Dos Equis.  In fact, these were the 2 fastest growing brands in America, even though the first does no English language advertising at all, and the latter only lightly funds advertising with an iconic multi-year campaign.  Together their sales total almost 5.4M barrels – which makes these 2 brands equal to 1/3 the ENTIRE craft beer marketplace.  And growing 33% faster!

Don’t chase myths, chase trends to grow

Chasing the myth of craft sales is doing nothing for InBev and MillerCoors as they try to defend and extend outdated brands.  On the other hand, Heineken controls Dos Equis, and Constellation Brands controls Modelo Especial.  These two companies are squarely aligned with demographic trends, and well positioned for growth.

Be careful the next time you hear some simple explanation for why a product or service is declining.  The answer might sound appealing, but have little economic basis.  Instead, it is much smarter to look at big trends and you’ll likely see why in the same market one product is growing, while another is declining.  Trends – such as demographics – often explain a lot about what is really happening, and lead you to invest much smarter.

Source: http://www.forbes.com/

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