Big beer makers still see glass as half full
Unemployment is still taking a toll on some of America’s best beer customers: men in their 20s and 30s.
But don’t count big beer out yet. It’s beginning to show signs of improvement.
Last week, Chicago-based MillerCoors cited continued sales declines for major brands such as Miller Lite and Coors Light, and even steeper declines for value-price brands.
“We’re in unprecedented water in the beer business,” MillerCoors Chief Executive Leo Kiely said, noting that U.S. beer sales have posted moderate increases annually, with the exception of 1992. “But for 30 years this business has been on a march and for all of us — the brewers, distributors and our retailers, it’s really unusual to have a downturn impact beer the way it has.”
Last fall, big-beer sales began to decline precipitously, and the market has yet to recover. For the year, beer sales are expected to fall 2% to 3% by volume. A big reason for that, Kiely said, has been a disproportionate level of unemployment in the key beer-drinking segment, men ages 21 to 35.
“Since the beginning of the downturn, beer held up pretty well, and some of that I think has to do with the dynamic of unemployment checks,” he said, noting a trade down by consumers at the time from Miller Lite to lower-priced brands. “But volume held up pretty well until last September and then we saw it shelf down.”
At that point, Kiely said, the industry “ran out of gas.” The resurgence for brands such as Miller High Life “couldn’t sustain itself,” he said. And since volumes remained relatively constant for a year into the downturn, Kiely suspects many unemployment checks began to run out around that time.
“People started getting really nervous about not having money, and if you look at unemployment of 20- to 30-year-old males, you’re looking at a number … very close to 14% to 15%, and that really hit us,” he said.
Kiely isn’t predicting a recovery until unemployment reaches more normal levels. However, he said, the company has seen signs of improvement in some of its key brands. Miller Lite, for instance, launched a “vortex” bottle (which has a swirl at the top, intended to enhance its flavor) in the spring. Kiely says this bottle helped generate a 6% improvement in the brand’s sales by volume.
“People like to experiment in the beer business. They like to try new things,” Kiely said. “The experience of the vortex bottle is real. You feel more of the head notes of the beer. People like that.”
Grocery scanner data from SymphonyIRI Group, a market research firm, supports a recent lift in three of the four biggest beer brands. Miller Lite, Bud Light and Budweiser sales are down 2% to 8% for the 52 weeks that ended Oct. 3. Only Coors Light sales are up, by 1%. However, for the 13 weeks that ended Oct. 3, Miller Light, Coors Light and Bud Light sales are up, between 0.65% for Miller Lite and 3.4% for Coors Light.
SymphonyIRI figures do not include sales at Wal-Mart Stores Inc. and club stores.
For the last four weeks, the data are even more promising, with Miller Lite sales up 1.75%, Coors Light sales up 5% and Bud Light sales up 4%. Only Budweiser sales continued to fall, off 4%.
Still, earnings for big beer look better than revenue. MillerCoors said last week that net income for the third quarter, excluding special items, increased, 37% to $334 million, thanks to cost cutting and price increases.
In a report following the earnings release, UBS analyst Kaumil S. Gajrawala wrote that MillerCoors’ profit growth should accelerate in the fourth quarter. Gajrawala also expressed optimism for Molson Coors Brewing Co. and the U.S. beer business in 2011, based on stronger pricing power and improving volume trends. MillerCoors is a joint venture of Denver-based Molson Coors and London-based SABMiller.
Anheuser-Busch InBev also released earnings last week, similarly reporting earnings improvements despite continuing volume declines in the U.S.
As for the craft beer explosion that some expect to signal the death knell for big beer? Kiely doesn’t sound worried.
“It’s great for beer,” Kiely said. “It gives us talk value as a category, up against wine, for example, and it really engages our key beer drinkers. They really want to know where the beer comes from and talk about it.”
Kiely said the company’s main objectives are to build sales in so-called premium lights and in the craft and import business. “We have a great platform to start from,” he said, pointing to its Leinenkugel and Blue Moon brands.
Another bonus for Blue Moon is that, unlike with other beers, women account for half the drinkers. Men, however, account for 60% to 70% of the volume.
