The High-End of the Beer Business

At the end of 2014, a significant and fundamental change occurred in the U.S. beer industry. The change occurred when volume growth from high-end beer segments compensated for the lost volumes posted in the lower-end segments. This marked a “structural” change in the beer industry where “Joe Sixpack,” the middle class blue collar consumer, may no longer drive future growth in the industry.

In 2015, that shift of consumer spending into the high-end continues. Keep in mind, this is certainly not unique to beer; this trend can be observed across consumer good segments from coffee and cupcakes to “Glamour” laundry detergent. 

With American “Craft Beer” Week underway, let’s take a step back from the old industry habit of classifying volumes into traditional segments and adopt a more direct approach by quantifying the industry based on simple price segments.

For this example, let's use data from Nielsen that ranks the top 250 brands in the industry for the first quarter of 2015 by average case price. From this ranking, we can create three distinct price segments with associated case volumes for YTD 2014 and YTD 2015. With brands segmented on price, we include all styles and types of malt beverages regardless of the brewer or importer.

In Table 1, the top 250 brands show total volume growth of 0.4 percent and total gain of more than 1 million new cases. Also note that all the gain is attributed to the high-end with 4.6 million new cases.

The data in the table above show a total gain of 4.6 million cases for high-end volumes. However, the 2015 volume growth is skewed by the introduction of several new brands into the high-end category from ABI, MillerCoors, Sierra Nevada and New Belgium – brands that did not exist in 2014 but exist in 2015. In fact, more than 1 million cases of new brands were introduced into the top 250 list all in the high-end segment in 2015. In order to make a more accurate comparison between the two years, we can remove the “new” brands from the rankings to create Table 2, below.

Overall, the data still show the significant shift in share between low-end and high-end segments with basically flat total volume growth between the two years. High-end share in the top selling brands gained almost two full share points, growing from 23 percent of the market to 25 percent and taking the majorty of market share from the low-end. These trends suggest the industry will continue to benefit from expanding high-end segments.

The data also demonstrate four broad concepts for the total alcohol beverage industry to watch closely over the next year or two:

  1. 1) Millennials aging into the industry;
  2. 2) Baby boomers aging out of the industry;
  3. 3) Existing drinkers trading up into higher price segments;
  4. 4) Existing drinkers trading down into lower price segments.

All four of these scenarios will drive potenial volume gains and losses across all the price segments and will keep the industry competitive and dynamic. Shifting consumer preferences are changing the industry every day. The continued success of the high-end presents opportunity for brewers, distributors and retailers to maintain and attract new consumers each and every day.

More importantly, today’s high-end share is the accumulation of years of slow and steady industry change. The “high-end” transformation has been underway since 1990, where it held less than a 3 percent share of the market. Today, the evolution of the high-end cumulates in today’s 25 share of the marketplace and its new-found ability to change trends in the total industry.

2015 Q1 Industry Review

First quarter numbers for 2015 are trickling in and mixed signals abound in both the economy and in the beer business. U.S. Gross Domestic Product posted an anemic 0.2 percent growth rate for the first quarter. Contributing factors to the slowdown include lower exports from a higher dollar, lower fixed investments caused by lower gas prices, and decreased consumer spending attributed to a cold and miserable February. However, the first quarter slowdown is temporary. April’s employment gains of 223,000 jobs – fueled by education, health care and professional business services – suggest that the economy will continue to expand in 2015. 

Mirroring the slowdown in the U.S. economy, the beer business posted a quarterly volume decrease of 1.4 percent coming off a 0.4 percent gain in the first quarter of 2014. According to TTB and Commerce Department data, domestic malt beverage volumes fell by 3.7 percent while imports rose 12.9 percent. Cider volumes also rose but show a significant shift, with imported volumes almost tripling, while domestic volumes increased by a meager 10 percent for the first two months of 2015  (a 10 percent growth rate for domestic volume is a slowdown when coming off a 60 percent increase for CY 2014).

Despite the poor shipment performance and inventory adjustments around the industry, both IRI and Nielsen data for off-premise channels show sales to consumer posting around 1 percent increases year-to-date. With the industry’s biggest selling season right around the corner, the opportunity for the industry to grow in 2015 remains likely. 

To receive additional information, please contact NBWA Chief Economist Lester Jones at ljones@nbwa.org.