Beer's Stay-At-Home Image May Give It Boost In Downturn
January 14 2009 - 11:09AM
Dow Jones News
Consumers are raising their glasses to a cold mug of beer as the
U.S. economy has tipped into recession.
Alcoholic drinks have seen slower growth rates as consumers have
cut spending. But beer may be gaining a slight edge in the downturn
because of its perception as a drink that can be downed at home
watching a game or kicking back with friends. That may aid beer
sellers in the U.S. like Anheuser-Busch InBev (ABI.BT), SABMiller
(SBMRY) and Molson Coors Brewing Co. (TAP).
"The gap in growth rates between beer, wine and spirits has been
narrowing," said Brian Sudano, managing director at consultancy
Beverage Marketing. "As economies go down, there are a lot less
parties. Beer is more of a casual, affiliation with friends,
watching the game at home on television" drink.
In recent years, beer has lost market share to spirits and wines
in the U.S. as younger people turned to wine from beer. Sudano
doesn't believe that trend has been reversed. But faced with hard
times and leaner wallets, consumers may be more willing to reach
for a cold brew.
"If the economy continues to struggle, we could see in the first
half of next year beer gain a little share. But it's still too
early to tell," he said.
So far, beer companies have reported fairly robust profits.
In November last year, MillerCoors, the North American joint
venture of SABMiller and Molson Coors, posted a 13% jump in its
third-quarter profit and said revenue growth outlook for the rest
of the year was strong. Sudano predicts strong growth for the joint
venture because of gains from the Coors brand. Anheuser-Busch in
November won some praise from analysts after it announced its last
earnings report as an independent company. The company reported a
6.5% jump in net sales and an expansion in gross margins. Anheuser
has since merged with InBev.
"We are seeing some pretty aggressive pricing from beer, whereas
pricing for wines and spirits seems to have dropped off," said
Richard Hurst, a senior vice president at market researcher
Nielsen.
According to Nielsen, dollar volumes for beer grew 2.9% in 2008,
compared with about 3.2% in 2007. Dollar volume for wine rose 4.7%
for 2008 as of mid December, compared with a 6.1% rise in the
previous year. The Nielsen data reflects sales at food, drug,
liquor and convenience stores, but excludes restaurant sales of
alcohol and sales at some big-box retailers like Wal-Mart.
"The beer business is actually accelerating in general during
the economic downturn," said Constellation Brands Inc. (STZ) Chief
Executive Rob Sands in a recent conference call. Constellation is
the world's largest wine company by volumes, but has a beer joint
venture with Mexico's Grupo Modelo (GPMCY) called Crown Imports.
The company said it continues to see a slight slowing in the U.S.
wine category.
"Consumers simply aren't digging in their pockets anymore to buy
those $25 to $30" bottles of wine, said beverage industry
consultant Tom Pirko.
Beer, like other alcohol categories, faces its own set of
challenges as consumers become more thrifty. Sales of alcohol in
bars and restaurants have fallen, as consumers spend less on eating
out. Consumers are showing signs of changing many consumption
patterns.
"I think you are seeing what we would call trading-down activity
in alcoholic beverages," said Lauren Torres, an analyst at HSBC
Global Research, noting there has been an improvement in the beer
market this year. "People are changing their habits. For instance,
they're not consuming as much in bars and restaurants, but they are
still consuming at home."
Indeed, a stratification is even seen among beer companies, with
imported beers that are more expensive faring worse than many of
the more mainstream commercial labels, such as Anheuser-Busch's
BudWeiser, Miller and Coors.
Domestic brands continue to perform well, said Nielsen's
Hurst.
The broad alcohol sector also had a weak December by some
measures.
"Coming into 2008, the business had a lot of momentum behind
it," said Hurst. "Since then, it's been a lot more difficult to
analyze and track what the longer term trends are. One of the
things we've noticed is that December looked like a very slow month
[with] a lot of declines in each of the categories."
But despite the pressures from a weaker economy, the major beer
businesses in the U.S. may be able to benefit by cutting costs,
particularly given the recent consolidation in the industry. Cost
synergies were touted as one the big advantages of the newly formed
MillerCoors joint venture, and Anheuser's new parent InBev is
famous for being aggressive in pushing both sales and cost
cuts.
-By Anjali Cordeiro, Dow Jones Newswires; 201-938-2408;
anjali.cordeiro@dowjones.com
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