“Beer in 2018: How we got here and where we’re going”
Let’s start with the (first) elephant in the room: the battle for market share between macro and craft brewers. Where does it stand in 2018? A quick look at the latest IRI report shows me that Anheuser-Busch InBev, MillerCoors Brewing, Constellation Brands, and HEINEKEN USA combine for $17.61B in 2018 US beer sales – out of $21.59B in total US beer sales in 2018.
The industry is in an interesting place right now. While volumes are flat to down, dollars are up and the shift to the high end continues as consumers shift to higher end products, Brewers, importers, distributors and retailers continue to react to these marketplace changes in different ways. Consumers are not the same as they were 10-20 years ago and the marketplace is responding to those changes.
Going a step further, accounting for the many forces/trends at play, where do you see this heading in 5 years from now? Will American craft beer continue to erode macro domestic market share?
I believe this is a pivotal time for beer. The economy and its people are changing. We are about to see significant industry reactions to both factors that will drive the industry in new directions over the next five years. From a demographic viewpoint, the millennial generation is over 21 now, many are starting their working careers, moving into professional life, and some are even starting to form households and start families. This is going to be huge – it will impact the alcohol beverage market in ways we have not seen before. When we look at what, where and how this generation consumed beverage since 2010, the next five years will not be the same. The big question is, where does the high-end fit into this new marketplace? Will high-end beer (craft-imports-FMBs) be the affordable luxury for this new generation of adults with jobs, houses and kids?
Is there an equilibrium you envision? And if so, what gets us to that point?
The beer market is very turbulent right now and a lot is changing. The rise of the high-end from roughly 25% in 2008 to about 40% of total volumes in 2017 was fascinating to observe. Thousands of small brewers entered the market to satisfy consumers’ demand for locally-made full flavored beers, that turned into innovations and new styles of beer that many of us find almost impossible to keep up with. Distributors went from carrying around 200 SKUs on average to over 1,000 and the business got more complex and absolutely more sophisticated for all three tiers. With 40% high-end, the entire industry cannot be 100% high end, something must be in the middle and low end. Both Craft and Imports have seen slower growth rates as their share of volumes have grown. We are getting close to that equilibrium point where they may well reach their market share potential.
How has the economy changed what, where and how people drink over the past ten years?
The economy has driven the beer market the same way that demographics have. Since the end of the Recession in 2010, we have seen the rise of many more service and tech oriented jobs over manufacturing and construction. A younger and urban workforce focused on service, healthcare, and tech jobs certainly helped push the high end of the market. But these are not the “thirsty jobs” that drive segments of the beer industry such as premium lights. However, the recent economic news of an upturn in both manufacturing and construction jobs along with increases in related wages may yet prove to be a boost to premium and value segments.
Finally, how have demographics changed what, where and how people drink over the past ten years?
We are at point where three out of every four people are over the age of 21. That is huge. There are fewer (about 13 million) people under the age of 21 today that there were in 2010. At the same time, we are on the cusp of having millions of baby boomers retire. They will begin living on fix incomes but with much more leisure time than ever before. This will change where, what and how people drink in the years to come.
Lester thank you so much for sharing your insights today. We can’t wait to hear more about this at eBev in Las Vegas next month: http://ebevseries.com
Your Welcome. See you in Vegas!
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