U.S. Beers Getting Ready for Heated Selling Season
Friday, May 24, 2002
NEW YORK — Summer may be the time to sit back and chill with a cold beer, but this year more new brews and malt drinks are trying to crash the backyard barbecue.
Consumers in the U.S. market will find a bevy of new malt-based drinks and some higher beer prices this summer, as companies gear up for what is expected to be a heated selling season.
The weeks between Memorial Day weekend and Labor Day are a key time for beverage makers, as consumers stock up on drinks for barbecues, trips to the beach and other events.
This year the race has taken on a new turn, as the top U.S. brewers are promoting new alternative malt drinks, or malternatives, to compete in a segment of the market that is growing rapidly compared with typical brews.
Analysts are eager to learn how the string of "malternatives" -- ranging from vodka-flavored drinks to a whiskey and cola flavored offering -- will affect sales of beer.
"What we're going to end up seeing is a situation where there are just too many new products," said J.P. Morgan beverage analyst John Faucher. "I think the vast majority of them are not going to meet expectations."
The giants have a lot to lose -- or gain. For a company like Adolph Coors Co. (RKY), consumers switching to malternatives could mean a major drop for Coors Light -- which accounts for most of its volume. To that end, the company is blitzing the media with Coors Light advertising and revamping its own malternative, Zima, which has been out for almost a decade. It is also rolling out Vibe, a malt drink aimed at men.
Malternatives, barely a blip on beer makers' radar screens just a few years ago, now account for more than 2 percent of the industry's market share and an even higher percentage of revenue since they often sell at premium prices.
Still, big beer has faced other summertime challengers and managed to remain the toast of the party. Other recent offerings showed strong promise in the beginning and then faded, industry watchers said, recalling ice beers, dry beers, wine coolers and exotic microbrews.
The flavored drinks being introduced this year follow the success of Diageo Plc (DEO)'s Smirnoff Ice, a malt drink that hit the U.S. market in January 2001. So far in 2002, brewers have teamed up big brand names in the spirits industry on at least six new malt-based offerings based on liquor flavors.
Plus, two niche light beers are making their debut as light beers keep growing at a more rapid clip than regular beers.
Top brewer Anheuser-Busch Cos. (BUD) has introduced low-carbohydrate Michelob Ultra in some areas. That beer will be available nationally in September, while Boston Beer Co Inc. is already rolling out Sam Adams Light in certain spots as it looks to capture part of the light beer market.
Still, such drinks are small compared to Bud Light and other major light beers. Boston Beer Chairman Jim Koch said he is "not trying to compete with the big guys" -- Anheuser-Busch, Philip Morris Cos. (MO), Miller Brewing Co. and Coors -- with his company's first light beer. But he hopes that his new beer can find a niche in the premium light market.
MALTERNATIVES GRAB ATTENTION BUT LIGHTS STILL STRONG
The new offerings so far are not chipping away at light beers as much as had been anticipated, industry watchers said.
Morgan Stanley analyst Bill Pecoriello said that light beers have shown no negative impact from the new malternatives so far, but he and others note that it's very early to see substantial data since the drinks are still coming out.
Anheuser-Busch brought out its Bacardi Silver malternative in February, but other drinks such as SKYY Blue from Miller and Skyy Spirits are new to the market.
Dan Tearno, vice president of corporate affairs for Heineken USA, said he does not think malternatives have had much of an impact on imported beers.
Also, while the trial of new drinks may be high, it will take time to tell how many consumers make repeat purchases.
PRICE INCREASES IN PLACE
Demographics is a key for the industry, as younger people tend to drink more and are willing to pay more for their drinks. Malternatives are being targeted to younger drinkers and are priced at a premium compared with typical beers, and beer prices in general have increased a little bit this year.
"A number of brewers have raised prices already and are continuing to do so, and we're taking selected price increases around the country," Heineken USA's Tearno said.
The growth of the younger consumer market is a shift that the big brewers are looking at. The 21-to-27 year-old age group is key to success, said Ed Gawronski, vice president of market and business insights at Miller.
"Everyone has taken the opportunity to take pricing up," as the younger population has climbed, Faucher said. Still, the price increases taken on beer recently have been "relatively modest," he said.
Weather can also have a major impact on the sector.
UBS Warburg beverage analyst Caroline Levy said in a recent note that over the past nine quarters, Anheuser-Busch and Coors had much stronger volume growth in significantly drier quarters than in "wet" ones. Also, the companies had high volume growth in warmer quarters compared with results in cooler ones.
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