A Different Perspective on Category Health | NBWA: America's Beer and Beverage Distributors

Some believe the beer industry has lost a generation of drinkers over the past few years – I do not agree. Our industry faces many challenges, but the idea that we have lost a generation of drinkers fails to recognize that we have not even begun to “win” over new consumers. In the most competitive marketplace the industry has ever faced, how do we say we lost the battle before the battle has really begun?

The current declines in per capita beer consumption is a direct result of changing demographics, more liberal alcohol policies, labor market forces and direct competition from thousands of new choices for liquid refreshment – variables that are beyond the industry’s direct control. From a demographic viewpoint, the new legal drinking age (LDA) consumers may have all turned 21 and are rapidly adapting to life as legal drinking age adults. But among all the competing products, have these new consumers really had enough time to sample and develop any kind of real segment or even brand loyalty?

More Industry Players than Ever

Consider what new consumers are up against: According to permit count data from the U.S. Tax and Trade Bureau, the number of alcohol beverage manufactures in the United States has more than doubled in the past seven years. These manufacturers include all beer, wine, and spirits permittees. Moreover, each one of these domestic manufactures offer several styles or brands. In addition, there are thousands of beverage importers from around the world adding an even greater degree of fragmentation for consumers. At the same time, the population is only growing 0.8 percent per year. How long does it really take for a consumer to sample though so much choice and variety? How long will it take for them to find and settle on a trusted brand? The cohort of new LDA consumers are just now starting to pursue real careers, earn real wages and form households. Each new LDA consumer is facing an ever-increasing array of choices. We must consider what lies ahead for the beer industry and seize every opportunity to attract and maintain brand loyal consumers.

When we look back to the analytics and insights we used just a few years ago, the question of how we track and measure the industry is as challenging as attracting and retaining consumers. Data from Nielsen, TDLinx™ Account Tracker, show the total number of retail accounts has grown from 550,000 in 2010 to more than 640,000 in 2017. Furthermore, roughly two thirds of these accounts are classified as independent retailers and are much more difficult to track. These new retailers do not necessarily include the thousands of new and independent brewers, vintners and distillers who have developed their own premise channels that primarily rely on direct-to-consumer sales. Following a similar trend for manufactures, the increase in retail outlets far outpaces the growth of population and new LDA consumers.

More Industry Players Do Not Create More Demand

While the growth of new manufactures and new retailers outpaces the growth of the population, the relative amount of alcohol the country consumes remains flat. Since 2010, the total amount of ethanol U.S. consumers drink per capita has remained around 2.5 gallons per person. More suppliers and retail outlets do not translate into higher levels of consumption. Each year, as population grows by about 1 percent, the total amount of ethanol sold tracks the population growth closely, with only a slight impact from economic growth. When we place fixed per capita consumption in perspective with many more industry players, the challenges to tracking consumption become significantly more difficult, relative to a few years ago. The need for the beer industry to cooperate more closely, more effectively and more efficiently is more important than ever.

Alcohol is Not an Economic Development Tool

The industry now has more suppliers and retailers than ever before. But there is also a persistent theme in economic development discussions these days that alcohol beverages can and will add to state coffers through increased tax collections. This is simply not the case. Recognizing a fixed amount of alcohol consumption at 2.5 gallons per person means there is actually very little room to grow state revenues through alcohol. This reality is validated by looking at state alcohol and license collections reported by the U.S. Census Bureau’s Census of State Revenues. The data presented in the chart show real (inflation adjusted) state sales and license tax collections from all alcohol beverages from 2010 to 2016. These data show, on a per capita basis, the amount of sales tax and license collections from around the country have not increased with more suppliers and/or retailers. Note: we did not use federal and/or state excise tax collections in this example because a significant shift in volumes over time to small suppliers significantly drives down the real value.         

A lot has changed since the end of the Great Recession. Over the past seven years a new generation of LDA consumers has emerged and they are overwhelmed with choice and variety. They are unbranded and uncontrolled and open for both new and established brands to win them over. Thanks to unique and efficient independent, three-tier marketplaces, suppliers, distributors and retailers have a chance to succeed. The battle, really, has just begun.