While nothing is recession proof, craft beer is making a strong case for that point.

The craft beer industry has no problem telling folks how fast it’s growing, but now a market research firm says that small brewers’ recession-era growth should make Budweiser and Coors beware.

 

The research organization Mintel reports that sales of craft beers, including Boston Beer Company‘s Samuel Adams brand, the Craft Brew Alliance’s Widmer Brothers and Chico, Calif., mainstay Sierra Nevada, more than doubled from $5.7 billion in 2007 to $12 billion in 2012.

 

About 24% of beer drinkers told Mintel that they drank more craft beer sold at stores in 2012 than they did compared to 2011, while 22% upped their craft beer drinking in bars.

 

The Brewers Association craft beer industry group has been crowing about that growth for the last few years, and says craft beer expanded 13% by volume and 15% in sales back in 2011 alone. Meanwhile, the total number of breweries in the U.S. rose from 1,793 in 2010 to 2,336 at the end of December. That easily surpasses the 2,011 breweries operating here in 1887, when brewing hit its peak with help from European immigrants who brought their home countries’ brewing traditions along for the ride.

 

Existing craft brewers are seeing huge growth as well. Boston Beer’s production has increased 25% since 2007 and surpassed 2 million barrels for the first time in 2009 — at the peak of the financial crisis — according to Beer Marketer’s Insights. Sierra Nevada saw sales increase 23% during that span and announced plans last year to expand operations to an East Coast brewery in Asheville, N.C. New Belgium Brewing in Fort Collins, Colo., which has increased production 33% since 2007, will be joining Sierra in Asheville and bulking up its brewing capacity as well. Meanwhile, Lagunitas Brewing Company, out of Petaluma, Calif., has more than tripled its output since 2007 and has plans to open a new brewery and tap room in Chicago this year.

 

Craft beer is a tiny pour in the beer industry’s $78 billion stein, but its take is rising. The Brewers’ Association says craft beer accounted for 5.7% of all beer by volume in 2011 while bringing in 9.1% of the industry’s sales.

 

That’s pretty small, considering one out of every five beers sold in the U.S. is a Bud Light, but Anheuser-Busch InBev and MolsonCoors’ combined 76.5% share of the U.S. beer market is dwindling. The big breweries dropped production 3% apiece in 2011 as craft beer sucked up market share, and both are putting more emphasis on craft-style brands like Leinenkugel’s, Goose Island and Blue Moon. Drinkers seem just fine savoring the craft brewers’ slow-building results.

Source: http://money.msn.com/

Budweiser is not the ubiquitous brand you may think it to be.  You see, there has been an argument over who owns the rights to the name Budweiser for over 100 years, with no end in sight.  Here’s hoping the little guy wins.

The dispute appears likely to continue a while longer now, because settlement talks between state-owned Budejovicky Budvar and Anheuser-Busch, a U.S. company now part of AB InBev, have collapsed, according to Budvar’s director general, Jiri Bocek.

 

The dispute is over exclusive rights — when only one of the companies is allowed to use the Budweiser name in any given country. The larger company, AB InBev, is keen to expand its exports and market its beers under the Budweiser brand. But Budvar says giving up its exclusive rights to the name would threaten to wipe out its own brand.

 

Budvar recently rejected a proposal for a global settlement by AB InBev, which in turn refused a counteroffer. Bocek said negotiations on these proposals, details of which he could not provide, were over.

 

“Any new deal proposed by Anheuser-Busch wouldn’t be working for us,” he told The Associated Press in a rare interview with a major foreign news organization. AB InBev declined to comment on details of the talks.

 

The brewers last agreed on a global settlement in 1939 in a pact that gave Anheuser-Busch sole rights to the name Budweiser in all American territories north of Panama. But the peace did not last long as the two companies expanded exports to new markets.

 

Though AB InBev is far larger than Budvar — it produces 270 times more beer — the Czech company has been punching above its weight in the legal arena. It won 88 of 124 disputes between 2000 and 2011 and holds exclusive rights in 68 countries, mostly in Europe, preventing AB Inbev from selling its Budweiser brand in some key markets, including Germany.

 

When the companies do not have exclusive rights to the Budweiser brand in a country, they resort to using slightly altered names. AB Inbev sells its Budweiser as Bud in many European countries. Budvar sells its lager as Czechvar in the U.S.

 

One of the issues, Bocek said, is that AB Inbev is not satisfied with sharing the brand name.

 

“Their goal is to gain exclusivity for their Budweiser all around the world,” said Bocek, who as head of Budvar the past 21 years has raised the heat on the larger rival.

 

Co-existence is possible, however. In fact, the two companies already share the Budweiser name in Britain.

 

Both brewers were granted the right to use the name in 2000 after a British court ruled that drinkers were aware of the difference between the two beers. An appeals court this summer rejected AB InBev’s request to have Budvar’s trademark declared invalid.

Let us weep crocodile tears for InBev.

AB InBev is not happy.

 

“Our concern is that coexistence on the U.K. market with the Budweiser brand will lead to consumer confusion,” said Karen Couck, the spokeswoman for AB Inbev. “We want to make sure that when our customers order a Budweiser that they receive the clean, crisp taste of the global brand we have created.”

 

But most beer drinkers would easily spot the difference, says Iain Loe, former research manager for Britain’s Campaign for Real Ale, a consumer rights organization.

 

Budvar has “a full bodied taste” while “AB’s Budweiser has little taste, or in the words of AB InBev, a clean taste,” said Loe. “Customers know which beer is which.”

 

The companies’ claims to the Budweiser name are built on two main arguments — geography and history.

Who was first?

Budejovicky Budvar was founded in 1895 in the southern city of Ceske Budejovice — called Budweis at the time by the German-speaking people who formed about 40% of the area’s population. Beer has been brewed here since 1265 and has been known for centuries as Budweiser.

 

Budvar argues that only beer brewed in this corner of the Czech Republic can be called Budweiser.

 

The founders of Anheuser-Busch in St. Louis used the name for their product because it was so well-known. The brewer, founded in 1852, began producing Budweiser, America’s first national beer brand, in 1876 — 19 years before Budvar was founded.

 

The two companies have been in a legal battle since 1906. Today, the dispute is being waged through 61 lawsuits in 11 countries.

 

Budvar has some leverage in the dispute in that AB InBev may be missing out on a larger bulk of sales until a settlement is found, since its operations are so much bigger. It brewed 349.8 million hectoliters last year compared with Budvar’s 1.32 million hectoliters. That’s the equivalent of 73.9 billion pints against 279 million pints.

 

“Budvar blocks the markets where AB InBev, due to its trading power, marketing and distribution potential, would likely gain significantly more,” said Karel Potmesil an analyst at stock brokerage Cyrrus AS. “The dispute limits the development of the brands that the company considers the most valuable in the industry.”

 

If the issue is frustrating AB InBev, the company is not showing it.

 

“The dispute has not hindered our global expansion,” said Couck, the spokeswoman.

 

She cited figures showing AB InBev’s global sales were up 3.1% in 2011 and 6.2% the first nine months of 2012. The U.S. Budweiser is brewed in more than 15 countries and sold in more than 80 others. Its key markets are the United States, China, Canada and Britain.

 

Budvar holds rights for Germany and other European markets as well as 11 Asian countries, including Japan, Korea, China and Vietnam.

 

“It’s certainly quite unpleasant for AB InBev that it cannot sell the well-known brand it has developed on some key markets, especially in Germany, which is the most important market for Budvar,” said Potmesil.

 

Budvar is also being hurt by the legal standoff: because of the legal issues, it takes seven to 10 years for the company to enter a new market.

 

But Potmesil noted Budvar does not gain much by entering new markets. It has a smaller marketing budget and its beer typically costs more, which hurts sales in lower-income countries like China.

 

In the end, the dispute mainly provides Budvar with protection against competition from AB InBev. Against such a large rival, Bocek said, it is essential that Budvar use all the legal leverage it can. “We have a right to exist,” he said.

Source: http://www.usatoday.com/

 

As a teenager stacking barrels after school at his family’s brewery in Pottsville, Pennsylvania, Richard L. “Dick” Yuengling, Jr. was encouraged by plant workers to avoid a career in the family business. America’s taste for national brands such as Budweiser, Coors and Miller, they said, was going to put them all out of a job.

Undeterred, Yuengling bought D.G Yuengling & Son Inc. from his father in 1985, and built it into the maker of the country’s best-selling craft beer brand. As the company’s value soared in the past decade amid a surge in demand for craft brews, Yuengling became a billionaire.

Cases of lager roll off the assembly line at the Yuengling brewery in Pottsvillle. Photographer: Mike Mergen/Bloomberg

“We stay nuts and bolts — we make beer,” Yuengling, 69, said in an interview last month on the floor of his brewery in Pottsville, an old coal town 75 miles northeast of Philadelphia. “People pick up our products today because they are tasteful and they have character.”

D.G Yuengling & Son sold more than 2.5 million barrels of beer last year, a 15 percent increase from 2010, according to the company. Its flagship offering, Yuengling Traditional Lager, a medium-body brew, was the best-selling super-premium beer and the fifteenth most-popular beer total in the U.S. in 2011, according to Norwalk, Connecticut-based industry researcher Beverage Information Group. The lager and five other beer varietals helped Yuengling passBoston Beer Co. (SAM), the maker of the Sam Adams brands, as the largest U.S.-owned beer maker by volume sold in 2011.

“Dick is an American original,” said Jim Koch, CEO of Boston Beer, in a phone interview. “For years, people thought they were smarter than Dick and told him to do things differently. He never did, and for 27 years he has proved them wrong.”

Small Footprint

Yuengling said the company has little debt and keeps its marketing and distribution costs lower than most of its peers by having a smaller geographic footprint — its beers are only available in 14 U.S. states — and selling more draft beer, which has bigger profit margins and constitutes 30 percent of its business, three times the industry average, according to Yuengling.

Based on the company’s stated 2012 production of 2.9 million barrels and the enterprise value-to-earnings before interest, taxes, depreciation and amortization multiple of Boston Beer, closely held Yuengling is valued at $1.8 billion, according to data compiled by Bloomberg. Enterprise value is defined as market capitalization plus total debt minus cash.

Yuengling declined to comment on the company’s value or profitability. He has never appeared on an international wealth ranking.

‘Doing Well’

“I know we’re doing well,” Yuengling said, smoking a Marlboro Light while sitting in his brewery’s tasting room. “We’re okay financially. We can go to wherever we want to go to open new states, there’s a lot of distributors who want our brand. It’s a good addition to anyone’s portfolio because it’s profitable to them.”

Together, Belgium-based Anheuser-Busch InBev NV (ABI), which sells more than 200 brands, and MillerCoors LLC, a 70-brand joint venture of London-based SABMiller Plc (SAB) and Denver-based Miller Coors Brewing Co., control almost 80 percent of the U.S. beer market, according to data compiled by Bloomberg. Imported beer accounts for about another 14 percent of the business. Yuengling and other craft breweries make up the rest.

“The industry isn’t growing so much, so the gains that the Sam Adams and Yuengling brands are making are coming out of someone else’s pocket,” said Kenneth Shea, a beverage industry analyst with Bloomberg Industries in Princeton, New Jersey.

Beer Consumption

While U.S. beer consumption fell 1.3 percent in 2011 to 2.78 billion cases, the super-premium, craft beer and malt beverage segment grew almost eight percent, according to Beverage Information Group. Wine grew 3.1 percent and spirits grew 3.4 percent in the same period.

To counter the rise of brands such as Sam Adams and Yuengling, beer makers are buying or creating their own craft beers. In 1995, MillerCoors released Blue Moon, a medium-bodied fruity beer often served with an orange slice. Sales of Blue Moon increased 21 percent in 2011 to narrow Yuengling’s sales lead to about 935,000 barrels.

Yuengling’s roots in the U.S. date to 1829, when his German immigrant great-great-grandfather, David G. Yuengling, built a brewery in Pottsville to serve the region’s expanding German beer-drinking population. His first year of production yielded 600 barrels.

In 1831, the facility burned down and a new one was built closer to a spring that now lies in the center of town. That brewery still stands, producing as much as 600,000 barrels annually and giving Yuengling the enviable marketing claim as America’s oldest brewery.

Alcohol Abolition

The company expanded with the rise in beer-drinking immigrants in the northeastern U.S. Wagons full of beer from local breweries, including Yuengling, would park outside Pennsylvania coal mines to serve the workers before, during and after work.

Prohibition, a period from 1920 to 1933 when the U.S. outlawed the production and sale of alcoholic beverages, pushed the business to the edge of being shuttered, according to “Yuengling: A History of America’s Oldest Brewery,” by Mark A. Noon.

The company weathered the period by opening a creamery, producing legal near-beer with 0.5 percent alcohol, an alcohol- free children’s version and a 2 percent alcohol elixir available only at pharmacies.

Grain Rationing

Dick Yuengling grew up in Pottsville watching Brooklyn Dodgers and New York Yankees baseball games on the first cable television system, installed in the area in 1948. By the time he was 10, he said knew he wanted to take over the family business.

He began working part time at the brewery with his father and grandfather five years later. At the time, Yuengling and other regional breweries were coming under increasing pressure from national brands, which were expanding amid a barrage of TV ads and shifting consumer tastes for lighter-tasting brews.

During World War II, brands such as Budweiser and Coors began using less grain in their beers as the U.S. government rationed commodities for the war effort. Following the conflict, they didn’t restore their recipes because their customers liked the lighter beers. Yuengling, which didn’t alter its recipe much during or after the war, was getting bypassed in the market.

“We were out of business and too dumb to know it,” Yuengling said. “All the breweries in the ‘60s and early ‘70s were going under.’’

Pottsville Pricing

Yuengling pushed his father to cut costs by automating their bottling operations, one of many initiatives that the two butted heads over. Tired of the fighting, Yuengling left the business in 1973 to start a beer and wine distributorship. He returned to the family business 11 years later as his father developed Alzheimer’s disease.

In 1985, he sold the distribution company and purchased the company from his father for an undisclosed sum. Annual production was 137,000 barrels that year.

At Maroons, a Pottsville bar named for the local National Football League franchise locals contend won the national title in 1925, Yuengling paraphernalia lines the walls along with sports memorabilia. Five Yuengling offerings are on tap.

As with other watering holes in the city of 14,000, a Yuengling draft costs $2.50, based on a company policy to keep prices low for its beer in Pottsville. The practice, Yuengling said, is to thank local customers who have remained loyal to the brand and its unchanging flavor as Budweiser, Miller and other brands grew through ubiquitous marketing campaigns.

Tampa Brewery

Outside Pottsville, where the company employs 175 people, Yuengling’s strategy is to sell their products within 75 cents of the cost of a Budweiser and Miller in bars, and close to them in retail stores. Shadowing national brands on price contrasts with other craft brewers, who aim to sell their products at a premium, according to Boston Beer’s Koch.

That strategy has allowed Yuengling to increase sales volume more than 2,000 percent since he bought the company. In his first decade of ownership, word of mouth was enough to double the business.

By 1999, he was having trouble meeting demand. Yuengling decided to pull his product out ofNew England and other markets to focus on the Pennsylvania while building a second, $50 million brewery in Pottsville.

That year another chance to expand presented itself when the family owners of Stroh Brewery Co., a Detroit-based brewer founded in 1850, decided to shutter most of its business. Yuengling bought Stroh’s 1.6 million barrel capacity plant in Tampa, Florida. Within six months, it allowed him to fill every order.

‘Drinking Better’

Two years later, the second Pottsville brewery opened and Yuengling began broad selling in the south. The added capacity dovetailed with momentum in the craft beer movement –encouraged by consumers who demanded more flavors — that has enabled brands such as Yuengling and Sam Adams to grow in a tepid market.

‘‘It’s simple: people are drinking less and drinking better,” said Koch. “There’s not much more to it than that. We’ve seen the same trend before in wine and in hard liquor.”

Yuengling, who expanded into Ohio in 2011, says he has no immediate plans to further expand capacity or enter new markets.

“Run your brewery at capacity or close to it, that’s how you are successful financially,” he said.

His market share is about 10 to 15 percent in the states he sells in, good enough for a national market share of about 1.2 percent, according to Bloomberg Industry’s Shea.

Jeans, Sneakers

Yuengling doesn’t exhibit the kind of wealth his business affords him, preferring to wear blue jeans, sneakers and Yuengling-logoed shirts around the office. He lives 20 blocks from the brewery, and is known to get up before sunrise to plow snow.

In the evening, he drinks a couple of beers. If Yuengling isn’t for sale, he’ll drink Sam Adams or Sierra Nevada. Associates who order wine or cocktails are viewed with suspicion.

“We’re in the beer business, so that’s what I support,” he said. “I find it kind of strange that beer wholesale owners, I see them with a glass of wine sometimes. What the hell are you doing here? You’re promoting a competitor!”

‘American-Owned’

Yuengling says he has no plans to sell the company in a public offering or to a potential buyer. He hears out investment banker pitches and then sets them aside. The dominant beer makers have stopped asking if he’s interested in selling. Two of Yuengling’s four daughters, Jennifer and Wendy, hold management positions at the company. He hopes a third, who clashed with him much like he butted heads with his father, will want to return to the business too.

“We put ‘American-owned, family operated’ right on the case. And you know what? It means something to some consumers,” he said, a smile emerging as he pulled a drag from his cigarette. “It doesn’t mean something to everybody. But they are anti-corporate America, the younger people today, and maybe rightfully so.”

 

Source: http://www.bloomberg.com/news/2012-12-17/yuengling-beer-billionaire-beats-sam-adams-in-craft-craze.html