Is the Great Beer Recession Over?
For commercial beer manufacturers, the United States is the most important market, and after the Great Beer Recession of 2009 to 2011, sales figures are finally looking up for big beer companies like Anheuser-Busch InBev (NYSE:BUD).
Beer drinkers in the United States are hugely important to the Budweiser maker. The region accounts for approximately 40 percent of the company’s operating profit and one-third of its sales, reported The Wall Street Journal. So when beer drinkers, especially among the country’s blue-collar workers, lowered their consumption during the recession, AB InBev took a tough hit. But with employment conditions slowly improving alongside the economic recovery, Americans are drinking more beer.
According to preliminary numbers tabulated by Beverage Marketing, beer sales in the United States rose 1.4 percent in 2012 — the first increase in four years reported the New York Post. The problem for AB InBev is that the growth was spurred by the continued rise of craft beers and imported beer, segments that are not the company’s strongest suit. But AB InBev is working to expand beyond Budweiser, its staple, flagship lager…
American beer has undergone a metamorphosis since the 1970s. Three decades ago the only American beer available to consumers was what the Brewers Association now terms a “mass-produced commodity with little or no character, tradition or culture worth mentioning.”
While that pale lager has not disappeared from breweries or grocery store shelves, commercial-style beer no longer dominates the industry. Small-scale, tradition-inspired breweries have grown, and in the first half of 2012, craft beer sales represented 6 percent of all beer sold in the United States.
Now, big brewers like AB InBev must respond to the success of the craft breweries in order to minimize their loss of market share.
Commercial brewers have followed several strategies to take advantage of Americans’ changing beer tastes. Manufacturers have bought craft breweries, as AB InBev did with Shock Top, and they have developed variations of their mainstream beers, as the company has tried to do with Bud Light Platinum.
“We feel much better about U.S. trends,” Chief Financial Officer Felipe Dutra told the Journal following the release of company’s fourth-quarter earnings last week.
While demand for the fermented hop beverage has largely been stagnant in recent years — as it often is in mature markets — AB InBev experienced an increase in volumes last year, pushed up by higher-margin craft brews and beers in higher-priced ranges such as Bud Light Platinum.
The beer manufacturer has also looked to gain a foothold in the imported beer market. Antitrust concerns by U.S. regulators have the potential to derail its planned $20.1 billion acquisition of Grupo Modelo (GPMCF.PK), but if the deal is approved, AB InBev will have the best-selling imported beer in the United States — Corona Extra — in its beer lineup.
It is clear that large beer manufacturers are slowly responding to the changing beer drinking trends in the United States, with particular attention being given to craft brews. In part, thanks to these adjustments, beer sales began to revive in 2012, and the increase in beer volumes throughout North America have helped beer manufacturers make gains on the stock chart as well. Investors have bid shares of Anheuser-Busch InBev up approximately 40 percent over the past 12 months, while shares of the manufacturer of Sam Adams, Boston Beer Company (NYSE:SAM), were up 61 percent in the same period.