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9/4/2018 America's long love affair with beer is on the rocks

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Amer ica's long lov e affair with beer is on the r ocks

Saabira Chaudhuri, Annie Gasparro 8/1/2018

An American walks int o a bar. “What’ll it be?” says the b artender .

For years, mor e likely than not, the answ er would hav e been: “Mak e it a beer.”

Not anymor e. Last year, for the fir st time, Americans r eaching for a drink mor e often

chose a glass o f wine or a cock tail.

U.S. drinkers, p articularly y oung ones, ar e having relationship pr oblems with the national

beverage. It’ s no longer true they star t out favoring mild pilsner s and low‐calorie beer s,

then graduate to har der stuff lat er in life, if at all. Now they ar e thinking about other

things: taste, value, beer bellies.

Brenden K ennedy, a 32‐y ear‐old New Y ork marketing executive, can’t r emember the last

time he drank a beer . His parents drank Bud Light. When he hit drinking age, he t ended to

reach for a pr osecco.

“When I drink beer , it always feels very heavy , like empty calories, and I don’t find it’ s refr eshing unless it’ s super, super cold, ”

he says. “The flavor has nev er really appealed t o me, and it doesn’t feel sophisticat ed.”

Accor ding t o the Beer Institut e, a trade group, drinkers chose beer just 49.7% o f the time last year, down fr om 60.8% in the

mid‐90s. Among 21‐ t o 27‐year‐olds, the decline has been sharper . Anheuser‐Busch InBev SA , Budweiser’s owner , found that

in 2016, just 43% o f alcohol consumed by y oung drinkers was beer . In 2006, it was 65%.

Per ‐capita beer consumption in the U.S. fell t o 73.4 liters last y ear, from 80.2 in 2010 and 83.2 lit ers in 2000, accor ding to IWSR,

a drinks mark et resear ch firm. Ger many, by comp arison, consumed 103 lit ers a per son last y ear.

John Saput o owns beer distribut orships in Florida and Ohio. He r ealized the industry had a problem a few y ears ago when he

went out with a t eam of young radio‐ad sales people who want ed him to advertise Budw eiser and Bud Light on a local station.

When it came t o their own drinks, some o f them ordered wine—and “ even a liquor drink with a fr eaking umbrella in it,” he

recalls. “ These kids, they don’t ev en drink our product.”

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In some ways, big br ewers ar e facing the same seismic shif ts in taste as other lar ge consumer‐goods and p ackaged‐food

giants. Consumer s, especially younger ones, ar e gravitating toward smaller brands mark eted as healthier , more natural or

made closer t o home. Brands such as K ellogg’s cereal, Campbell’ s soup and Aunt Jemima p ancake mix ar e all feeling the pinch.

Mass‐mark et beer mak ers ar e losing drink ers t o an explosion o f spirits brands, such as Tit o’s v odka, owned by Fif th Generation

Inc. Craft beer br ewers r ode that wav e, too, but their v olumes haven’t come close t o making up for declines in mainstr eam

beer. Mor e recently , craft‐beer sales also hav e slowed.

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Miller Lit e, Coors Light, Bud and Bud Light hav e all lost share to upstar t labels. “ The big things ar e declining. The smaller

things are growing, ” AB InBev Chief Ex ecutive Carlos Brit o told inv estors in Mar ch.

Demographics also ar e at work. Industr y resear ch has shown y oung white males still pr efer beer, but their number s are

declining as a per centage of the population. African‐Americans fav or spirits, and the percentage of liquor consumer s that are

Hispanic is rising, the r esearch shows.

Women’ s per‐capita alcohol consumption has risen, but they pr efer wine and cocktails. Millennials drink less than older

generations, hitting alcohol v olumes more broadly .

Nashville‐b ased Mike Baker, 26, drinks only a couple o f times a week. “A lot o f friends o f mine are very health conscious, ” he

says. “They think drinking might add a few extra pounds and hav e long‐term consequences. ” When Mr. Baker does drink , he

reaches for a bourbon or a craf t beer.

The beer industr y has tried to make up for declining v olume by increasing prices. That has helped mak e whiskey and wine

relativ ely mor e affordable. Beer prices r ose 42% between 2000 and 2017, comp ared with 11% for wine and 19% for spirits,

accor ding t o a Brewers Association analysis o f data from the Bur eau of Labor S tatistics.

As sales slide, a sense o f crisis has taken hold of the industr y. In May , Molson Coor s Brewing Co. r eported a 3.1% dr op in U.S.

second‐quar ter sales driv en by lower volumes o f its light beer s. Last week, AB InBev—which swallow ed SABMiller PLC in 2016

to solidif y its title as w orld’s biggest br ewer— also r eported U.S. r evenue fell 3.1% in the second quar ter on low er volumes. On

Monday , Dutch br ewer Heinek en NV reported its U.S. beer v olumes declined in the fir st half, blaming the consumer shif t from

lager t o craft beer and spirits.

“Every consumer t oday drinks on av erage one bottle o f beer less a week than they did 20 y ears ago, ” Heinek en’s U.S. CEO ,

Ronald den Elzen, t old an industry conference last y ear. “If this is not a wak e‐up call that we have to do something, I don’t

know what is. ”

America has long been a nation o f beer drinkers. Thr ough the 1600s, the “or dinary,” akin t o the local pub, flourished acr oss

New England. The Dutch West India Co. built America’ s first lar ge br ewer in 1632.

Today’ s big beer brands trace their ancestr y to Ger man‐style lager s that made their way t o the U.S. in the mid‐1800s, along

with waves of Ger man immigrants. Adolphus Busch was one o f them. He married the daughter of Eberhar d Anheuser , another

local brewer, and ev entually w ent to work for his father ‐in‐law. In 1876, he r olled out America’ s first Budw eiser.

Mr. Busch was the fir st U.S. brewer t o pasteurize beer t o prevent spoilage. He built a netw ork of ice houses near railr oad lines,

allowing him t o distribute his brew widely . Anheuser ‐Busch, having sur vived Pr ohibition by using its r efrigerated trucks t o sell

ice cream, ev entually surp assed Schlitz as America’ s biggest brewer.

In the 70s, Philip Morris Cos.‐owned Miller mount ed a serious challenge, eventually creating Miller Lit e. Anheuser‐Busch

answered with “Budw eiser Light.” Bud Light, as it was lat er re‐christ ened, was br ewed and mark eted as a low er‐alcohol, low‐

calorie, mild‐tasting “ sessionable” beer. You could drink mor e in a single session without feeling t oo drunk or bloated.

“Thr ough the 90s, the brand was ripping, ” says Andy Goeler who ran it in the 1990s. “It was a time when big was good. Levi’ s

was good. McDonald’s was good. Budweiser was good.”

Bud Light eventually overtook Budw eiser as America’ s best‐selling beer—a title it still holds.

Yet ther e were signs o f trouble. Eur opean and Mexican impor ts and upstart craft brews, such as Samuel Adams, attract ed

drinkers looking for something new . A bourbon renaissance—and the Cosmo‐sipping cast o f “Sex and the City”—helped

reinvigorat e America’ s cocktail cultur e.

After liquor mak ers ended a decades‐old v oluntary ban on T V and radio ads, Diageo PL C, the spirits giant that owns Johnnie

Walk er and Smir noff, ramped up U.S. adv ertising.

“W e didn’t see that as competition, ” says Tony Ponturo, a for mer mark eting executive at Anheuser ‐Busch. “It wasn’t beer .” 9/4/2018 America's long love affair with beer is on the rocks

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Budweiser v olumes peak ed in 1988. Bud Light hit its own peak in 2008, accor ding to estimat es from Beer Mark eter ’s Insights, a

trade publication.

The same y ear, SABMiller and Molson Coor s Brewing Co. mer ged their U.S. operations. A few months lat er, August Adolphus

Busch IV , the great‐gr eat grandson o f Anheuser‐Busch’s co‐founder , orchestrat ed a sale t o InBev, the beer giant contr olled by

Brazilian private‐equity fir m 3G Capital P artner s.

Anyssa Ar mbrust, 24, says that when she star ted t ending b ar in the Chicago ar ea a few years ago, craf t beer was on the rise.

Now, she says, a lot o f young people ar e opting for vodka with either club soda or wat er. “ They think if they get v odka and

water, they’r e hydrating at the same time, so it’ s healthier.”

Beer mak ers hav e begun tr ying to work t ogether t o do something about the thr eat—a departur e for an industr y that has been

a hotbed of infighting and litigation. “W e need to be pro‐beer fir st and try to differ entiate our cat egory from wine and spirits,

and w e need t o do that t ogether,” said Molson Coor s’s U.S. CEO Gavin Hatt ersley at an industr y conference last y ear.

Early this y ear, top ex ecutiv es from AB InBev , Heineken and Molson Coor s gathered in Arlingt on, Va., to discuss ways t o pool

resour ces and mark et beer more generally. No concrete plans hav e sprung from the summit, and comp anies haven’t

committed any funding, ex ecutives say.

This spring, AB InBev bought a comp any that owns a string of small gin, vodka and whisk ey brands and t ook a stake in a

California winemak er. Ex ecutiv es are targeting Hisp anics with Sp anish‐language ads. Last w eek, the comp any said it was

creating a new position: a head o f nonalcoholic drinks.

AB InBev’s CEO, Mr. Brit o, says the futur e is still bright for big beer brands in the U.S., and that AB InBev has become mor e

focused on profitability . Higher‐price beer s such as Michelob Ultra, S tella Ar tois and Bud Ice, he says, ar e gaining market share.

“If you look at our por tfolio in the U.S., w e’ve been tr ying to rejig it, tr ying to add new things that w e think are growth engines

for the futur e,” he said in Mar ch.

Budweiser t eamed up this summer with whisk ey maker Jim Beam, o ffering shot‐and‐chaser specials at b ars acr oss the countr y.

It also is r olling out a new Budw eiser beer, aged with bourbon‐b arrel stav es.

“It brings nor mal bourbon drink ers t o beer ,” says T ravis Moor e, senior br ewmaster at Budw eiser’s S t. Louis br ewery.

The new br ew, which hits st ores and r estaurants in August, is called Budw eiser Reserve Copper Lager . It is aimed at “ entry‐lev el

drink ers,” age 21 t o 24, says Julia Mize, who pr omotes beer for AB InBev . “People who ar e in their 50s gr ew up with Bud

because it was the No. 1 beer when they tur ned 21.” Now, she says, y oung adults hav e so many other options.

Another recent limit ed‐edition Budw eiser is Freedom Reserve R ed Lager , which began appearing on shelv es this summer. And

last fall, the comp any began selling 1933 R epeal Reserve Amber Lager , which has a slightly higher alcohol cont ent.

The company is hoping the new pr oducts will reinvigorate drinkers’ int erest in Budw eiser, which last y ear fell off the list o f

America’s top thr ee best ‐selling beer s. It now ranks four th.

AB InBev is working to persuade consumer s to choose some o f its other beers over wine or cock tails during meals. Among

other things, it has launched an or ganic version o f Michelob Ultra and fruit ‐flavored v ersions o f Bud Light.

The comp any put Mr . Goeler, who managed the brand in the 1990s, b ack in charge of Bud Light, and the comp any launched a

big‐budget ad campaign about a medieval king with a penchant for Bud Light and a made‐up t oast, “Dilly Dilly .”

AB InBev says Bud Light is luring drink ers fr om similarly priced riv als. But the brand is still losing v olume and overall market

share. Last y ear, Bud Light held 15.2% o f the market, down fr om 19.5% at its peak , according to Beer Mark eter ’s Insights’

estimat es. AB InBev sold 31.6 million b arrels o f Bud Light in 2017, down fr om 41.7 million barrels in 2008.

Kaitlin Mey er, 30, w orks in the financial industr y in Chicago. She says she hasn’t drunk beer since college. “Y ou get full after

beer ,” she says. “Wine is mor e drinkable. I’ll drink vodka if I’m at a bar that has cheap wine. ”