By Margaret Webb Pressler
Washington Post Staff Writer
Sunday, October 9, 2005
When a huge consumer products company starts slipping in sales or market share, even just a little bit, it can be a sign of a much bigger problem. And that explains why beer executives are on the offensive these days.
Though beer is still the most-quaffed alcoholic beverage in the country by far, it is slowly losing its grip around the marketplace edges: among new drinkers, among aging baby boomers and among other Americans whose tastes are gradually becoming more sophisticated. More and more, when people kick back with friends and enjoy a drink, they're not choosing beer.
From 1998 through last year, beer's share of all alcohol servings slipped from 59.6 percent to 58.1 percent, according to Adams Beverage Group, a market research company. By contrast, consumption of spirits and wine has been inching up for several years, reaching 28.5 percent and 13.4 percent respectively last year.
The beer industry is madly trying to figure out how to reverse this trend, which industry insiders insist is cyclical but which some analysts warn could represent a more long-term change in who drinks what and when.
"Demographic trends are working against the brewers," said Bonnie Herzog, a beverage industry analyst for Citigroup.
Younger consumers raised on an ever-growing array of soda flavors and juice drinks, Herzog and others say, are finding the transition into alcohol a little easier with mixed drinks, which can be sweeter than beer and personalized to one's own taste. Baby boomers, meanwhile, are gradually transitioning from beer to wine and cocktails. And across the board, beer is suffering from a bit of an image problem.
The core consumer of a cold brew is widely thought to be either the football-loving couch potato or anyone with a household income below $45,000 a year. But in today's Internet-savvy, consumer-driven culture, those are not exactly the beacons of a populace that increasingly buys well-designed home products at Target and flips longingly through the Pottery Barn catalogue.
"The industry was very complacent in the last couple of years," said Robert C. Lachky, executive vice president of global industry development for Anheuser-Busch Inc. "Frankly, the back door was left open."
But brewers say they get it now. They say they're on it, even though the industry continued to dip through the first half of this year, according to researchers who follow beer sales. Indeed, there is a lot going on: Companies are investing heavily in new product development, new packaging and new marketing -- all aimed at getting people to turn to beer for more "drinking occasions."
At the core, what many industry executives say they really need to do right now is make beer cool again.Changing Habits
This problem crept up on the beer industry when it wasn't looking. Beer had been so strong for so many years, while wine and spirits wallowed in the doldrums, that it was easy for companies to forget that beer drinkers were not necessarily forever.
"If you told me 15 or 20 years ago that spirits would be growing in the 2 to 3 percent range and beer would be declining, I would've laughed," said John Michalik, North American director for the London-based beverage consulting firm Canadean Ltd.
The result was that after decades of success selling a cold one to the baby boomers, the big brewers hardly noticed 10 years ago when boomers' tastes started to change as they approached 50.
"There was a general assumption -- that is proving somewhat erroneous -- that the baby boomers would continue with the consumption patterns that they established in their youth," said Benj Steinman, editor of Beer Marketer's Insights, an industry trade publication. "Instead, they're doing more like what prior generations did as they got older, and switching their drinking habits to wine and spirits."
Older drinkers have always favored hard liquor and wine, primarily because it's less filling -- simply less liquid -- for the same effect, Steinman said. Helping the wine industry, too, has been a run of press supporting the positive health effects of red wine and moderate alcohol consumption in general.
In and of itself, this trend would not be especially troublesome for beer, but it has happened at the same time that beer has lost its edge among younger drinkers as well.
The beer companies had always counted on the "echo boom" -- the children of the baby boom -- to provide the next wave of 21- to 27-year-oldbuyers. But these young adults turned out to have a much different view of themselves and their choices, from the particular coffee drinks they prefer at Starbucks to the bottled water they tote around to the alcoholic beverages they start ordering. Increasingly, these younger drinkers have been turning to a variety of cocktails -- appletini, anyone? -- drinks that say more about who they are than does a simple bottle of beer.
"Young adults are a generation of people who can alter pretty much everything, or at least customize everything to their lifestyle. And beer is beer," said Neal Stewart, marketing director for the Pabst Brewing Co., the nation's fourth-biggest beer producer. "There's different flavors and brands, but with a mixed drink you can customize that a million different ways."
The liquor industry has capitalized on this trend by aggressively marketing to younger drinkers with ads that tout the cool and sexy aspects of a mixed drink. They've pushed especially hard to market to consumers in bars and restaurants as well, while the beer industry took that vital avenue of business development for granted.It's the Weather
A convergence of cultural and economic forces have also conspired to depress beer sales. After hovering at around 1 percent growth, or a little less, for several years, U.S. shipments of beer dropped 0.5 percent in 2003, rose slightly in 2004, but fell 1.2 percent in the first six months of this year, according to Beer Marketer's Insights.
Beer industry executives say sales have been hurt by a decline in disposable income among lower-income consumers, especially since the rise in gasoline prices and decline in blue-collar employment, long a target market.
"If you look at our key demographic of 21- to 34-year-olds, there are more kids going to college, they have college debt, more young people have credit cards, there are higher gas prices," said Jeff Becker, president of the Beer Institute, an industry trade group. "That beer at the end of the day has become a luxury."
Becker even pulled out a classic excuse from the retail industry: the weather. "We've had some of the wettest weather at key times for us that we've seen in the past decade," he said. "When it's too hot or too cold or rainy, it does affect people's beer consumption."
(On the other hand, Steinman said beer suppliers in Houston were reporting the best sales ever just before the arrival of Hurricane Rita.)
Along with lack of growth in real incomes, lost manufacturing jobs and rising household expenses, beer companies are feeling the effect of consumers "trading up."
Across many consumer product industries, manufacturers are finding that people want better things: richer coffee, tastier food, bigger houses, silkier sheets, extra amenities in cars, higher design in their home furnishings and more luxurious bathrooms. Manufacturers and designers are scrambling to bring what's often called "a higher taste profile" to the masses. Kmart linked up with Martha Stewart. Target promotes designers Michael Graves, Isaac Mizrahi and Todd Oldham, among others. Design catalogues stream through people's mailboxes, and home remodeling shows proliferate on cable.
That is playing out in the beer industry, too, experts say.
"If you look at what's growing in the beer industry, it's import and craft beers. They're higher priced and perceived as luxury products," said Harry Schuhmacher, publisher of Beer Business Daily, an industry newsletter. "And so if you look at the whole alcohol category, people perceive wine and spirits as high-end, so there's some trading up between beer and wine and spirits."
One of the ways the beer industry has tried to counteract the slide in sales is by cutting prices. After regularly increasing the price of a six-pack through much of the 1990s, in the past two years the price of mass-market beer has been sliding. Just last month, Anheuser-Busch announced it would again forgo the traditional autumn price hike for its beer.
Industry observers worry that such an approach only makes the brewers' problems worse in the long run.
"If you fight on price, it's not necessarily helping the brand image of beer," said analyst Herzog. "It could be hurting the brand equity."
Beyond pricing, though, the nation's two biggest brewers have taken markedly different approaches to tackling the industry's woes. For Anheuser-Busch, the defense is built largely around new products -- innovative malt-based beverages that company executives believe will increase the number of occasions that people drink beer or any other Anheuser-Busch product. At SABMiller PLC, the focus is on marketing to improve the image of beer, thereby making it a more acceptable choice for more consumers in a wider variety of settings.Miller Takes a Chance
It has been hard to miss the new ad campaign from Miller on television these days. The company has chosen high-profile shows to run its new campaign for subpremium Miller High Life beer, including a debut on the season premieres of "Survivor: Guatemala" and "The Apprentice."
The commercial is a highly evocative series of historic and sophisticated images that tout the American heritage of Miller and the good times and good feelings that are so, well, American (notwithstanding the fact that Miller is now owned by a British conglomerate).
In its softness and approach, the ad is clearly aimed at a more educated and more female audience than the traditional sports-centered beer commercials so familiar to viewers.
Not only are versions of Miller's new commercial airing at an unheard-of length of 90 seconds, they have even popped up on morning cable news programming. That's gotten the company a lot of buzz in the industry.
"You don't play beer ads in the morning and you don't play beer ads on the news, so they're going against all kinds of conventions," said newsletter publisher Shumaker. "When you do things against convention, you own it. It puts your thinking on edge."
Miller executives believe that they marketed their way into this corner and they can market their way out of it. Tom Long, the chief marketing officer for Miller, offers as proof the fact that some beers in the industry are doing well -- such as imports and craft beers -- while others are not. Those that are selling well, he said, have a story, an image, a resonance with consumers.
"It really comes down, just like it does in any other business, to differentiating the brands and giving them distinct personalities," he said. It's also important to focus on where brands came from and how they're made "so they have the personal authenticity that people are searching for now," Long said.
What's not working for the industry now is the typical young-stupid-male advertising approach, Long said. There is still a core market for beer that resides with young men, but even those young men may see themselves differently from the way they used to. The industry needs a different definition, he says.
"The problem in American beer is sameness -- one big mass of couch-potato jokes thrown at American males in a way that was okay 10 years ago," Long said. Now, though, "adoption leaders and style leaders aren't seeing themselves in that imagery."Just Add Ginseng
Long's constant harping about football and couch-potato messages is aimed squarely not only at his own company, but at his main competitor, Anheuser-Busch. As the beer behemoth, with greater than 50 percent market share, Anheuser is a powerful force.
The only problem, analysts say, is the industry leader hasn't really been leading much lately, except with price cuts.
"It does sound like they don't even have an understanding of the marketplace," Herzog said. "How did they even allow this to happen?"
Lachky of Anheuser is open to taking some blame. "I don't think beer companies have done a very good job in the last five years of protecting the on-premise environment -- the restaurants, the bars, the taverns," he said. "That's where the hard liquor people have come in with a very aggressive form of marketing."
Yet Lachky's salvo isn't to fight marketing with marketing -- it's innovation. The problem, he says, is that people don't think of beer as appropriate for as many occasions as they could, so Anheuser is going to give them the products that do seem appropriate.
The company has unveiled a dizzying array of new brands and new packaging in the past two years, most recently a product called Tilt, which is a beer that contains ginseng and caffeine. It has made large, eye-catching aluminum bottles and partnered with Bacardi to make Bacardi Silver, a malt-based beverage that is sort of a hip alternative to a wine cooler.
"They're transitioning from being Budweiser to being a malt-based alcohol producer," said Schuhmacher of Beer Business Daily. "They have tremendous capabilities, tremendous manufacturing capabilities that people may not realize."
They'll realize it soon, as there are lots more products coming from Anheuser-Busch. You'll see products with flavors and colors that add individuality to bottled drinks and flexibility to draft beer in bar settings. Feel like a spicy mango beer? It's being tested right now.
"They're beertails or beertinis -- fun drinks that are meant to excite," Lachky said. On its Web site, Anheuser-Busch also offers recipes for mixed drinks that use beer as a base.
Next spring the company is introducing Bistro8, a malt-based beverage that Lachky says "acts" like a wine, with a complex flavor, a little carbonation and a light finish. "It's perfect for food," he said. It has done well in testing in Florida and South Carolina, especially among women.
Of course, none of these products is going to lift Budweiser to greater heights, but over time they will hopefully push consumers back into the beer fold, Lachky said, and encourage people to be more accepting of beer. Anheuser-Busch isn't trying to replicate Bud Light's volume but to "fill white space," he said -- get to all those moments when people could drink a beer but are instead reaching for something else.
"You're basically asking consumers to experience malt-based beverages other than in a 16-ounce glass," Lachky said.
Of course, executives and industry observers predict no overnight miracles. Depending on whom you ask, the industry's slump is either part of a cycle that will take time to run its course or a structural change that will take concerted effort to reverse, if that's even possible.
Insiders like the Beer Institute's Becker point out that beer sales have ticked up in the past month or so, a fact he attributes to beer companies "working it a lot harder." But these are big issues, no matter what their genesis, say longtime observers.
"It took a while to get into it," Steinman said. "It's going to take a while to get out of it."