Beer’s Still Here

Get
out of
your
beer rut!

While the money
that pays most of your bills still comes from moving those
pallets, there are some real opportunities for fun – and
profit – in beer these days. Heineken Premium Light has put
new spark in the light beer market, Mexican beer continues
to boom, craft beers are growing faster than they have since
the go-go days of the mid-199Os, and local heroes like
Samuel Adams, Harpoon, Wachusett, and Berkshire are tearing
up the shelves.

Beer has new
respect in restaurants, in the press, on television. An
ever-widening segment of consumers is looking at beer in a
whole new light, and they’re willing to spend more for that
look. If you haven’t already made the move to expand your
beer selection, now is the time. Don’t walk away from that
volume just yet, though: As Willie Sutton was supposed to
have said about why he robbed banks, that’s where the money
is.

Frank Anzalotti,
Executive Director of the Massachusetts Package Stores
Association, sees that new excitement as the most positive
thing in the retail business. “We’re moving into a new
generation of drinkers who are willing, and have the cash,
to try new drinks,” he says, “and I think that’s going to
open a whole new market area. We are in an age where people
are willing to branch out and try new products. These are
products that have decent profit margins for the retailers.
While there aren’t as many sales for craft beers, the growth
is significant.”

That opens up
opportunities to be different, to be a focused retailer, to
specialize. “The days are gone where you need to compete
with every other store,” Anzalotti explains. “We don’t all
need to be selling the same things that we don’t really make
any money on. Everyone feels a need to offer every product,
that everyone has to compete for every customer. But now
people are looking to create a niche with different
products.”

Craft
beers grow organically

One of those
niches is organic beers (see the companion article in this
issue), and “organic” is a word that you’ll hear from a lot
of craft brewers today, even if they’re not making organic
beer. They’re talking about organic growth, sales increases
from existing territories and existing products. Craft beer
was the fastest growing segment of the alcohol beverage
market – again – at 11.7% growth in 2OO6, and that’s one of
the big stories. Craft brewers are digging deep in their
existing markets and coming up with gobs of organic
growth.

That’s what
Harpoon Brewery’s Charles Storey, Senior VP of Marketing,
saw last year. “Primarily general organic growth,” he says,
modestly not mentioning that Harpoon saw 18% growth, handily
beating the craft category’s overall growth and breaking the
1OO,OOO bbl. annual production mark for the first
time.

“We did add a
product, the Raspberry Hefeweizen,” he acknowledges. “And we
were very pleased with the results of that launch. It
exceeded expectations. But our flagship IPA grew, all our
brands and seasonals grew. That was great to
see.”

Ned LaFortune at
Wachusett Brewing had the same kind of story to report. “We
had our best year in ten years, really,” he says, meaning
that it’s hard to count the growth in the first couple
years. “We saw 25% growth. That’s good growth, that’s pretty
much all we want to handle. Oh, we’d take more, but that’s
great.”

Like Harpoon,
Wachusett did it almost all without expanding products or
territories. “No new packages, no new products,” agrees
LaFortune. “We did finally announce officially that we were
selling beer in New York, but that was a couple hundred
barrels, tops.”

Ask any brewer,
small craft or mighty national, why their sales grew, and
they’ll tell you it’s the quality of their beer. LaFortune
does, but adds that “the true national success of the
category is a lot of it.” Consumers see craft beer in an
increasing number of on-premise outlets, and when they do,
they try it, and when they try it, they want to get some to
take home.

That’s not
really ground-breaking, which seems to indicate that craft
beer is entering an evolutionary phase of steady growth,
after the initial revolutionary phase of explosive, erratic
growth. Joe Salois, President of Atlas Distributing in
Auburn, sees that. “I don’t see this period as about change,
but about continuation. The craft segment is still growing,
8 to 1O to 11% this year, and similar growth in 2OO6. We’re
continuing to see strong growth with Wachusett, Samuel Adams
is doing well, with continued growth. Harpoon’s trends are
very strong; it’s a great portfolio.”

Keep
it steady

The only change
Nick Pizzimento sees at the Horseshoe Pub in Hudson is
seasonal change. “Things are warming up, so we’ll get into
the Belgians now, and the fruit beers: Seadog Apricot,
Wachusett Blueberry, #9. The IPAs are hot, too, and the
hoppier the better. People want them, and they want them
hoppy. First they have Victory HopDevil, then Victory Hop
Wallop; Wachusett IPA, then the Green Monsta. Everyone’s
stepping it up. Beer in general is huge right now. I haven’t
seen it fall at all. Beer is moving.”

That’s music to
the ears of Joe Stasiowski, President of the Beer
Distributors of Massachusetts organization. “We’re just
trying to maintain the business climate in Massachusetts,
especially for beer, and keep things going as they’ve been
going. We don’t want to see change.”

But there is one
discordant note in that harmony of smooth business, and
Stasiowski hears it loud and clear. “We’ve seen changes at
the supplier level, and there’s always concern about change
of suppliers. That’s when you’ll see them picking up one
[wholesaler] and firing others.”

There have been
some shakeups right at the top on that front. January 1 of
2OO7 marked a new regime for Corona and the Grupo Modelo
portfolio, as long-time east coast importer Gambrinus
stepped aside – not willingly – and all of the United States
became the territory of Crown Imports, the newly expanded
Barton Brands import company.

Crown or Barton,
the company is still based in Chicago, and their voice is
still Bill Ligas, spreading a very Corona-esque message of
relaxation and no worries. The change, he says, is “in many
respects transparent for retail accounts. The products will
still be available. And there will be lots of improvements
that retailers will notice, like a single ad campaign. We’re
excited that we’re offering the most well-developed ad
campaign in Corona’s history. We’re speaking with one voice
on these brands. We’ll be able to be more responsive to
wholesaler and retailer needs.”

It’s not just
Corona, of course. Corona Light continues to soar, and the
often-overlooked Modelo Especial has squeezed into the
number three imported beer slot. “Expecial’s doing great
with the Hispanic market,” says Ligas, “and also doing well
in the mainstream. It’s crossing over, growing within the
general market. People are discovering it and realizing it’s
a great brand. Retailers are giving Modelo Especial a chance
to see what it can do.”

That makes it
more of a concern over who’s handling the brands. Like
Stasiowski notes, this is when one gets picked up and
another gets fired. The Crown shift has been pretty smooth,
all things considered.

Funnel
strategy

The other major
shift has been a bit more abrupt. Anheuser-Busch has adopted
what some people have referred to as a “funnel” strategy.
They have in essence become an importer, “funneling” such
diverse brands as Tiger, Harbin, Czechvar (more on that
shortly), and the InBev portfolio: Stella Artois,
Hoegaarden, Leffe, Beck’s, and Bass.

Those of you who
follow the politics of the business will recognize that
Czechvar is Budejovicy Budvar, also known as the “Czech
Budweiser”, which Anheuser-Busch has spent millions fighting
in trademark battles around the world. InBev is
Anheuser-Busch’s chief rival for the “world’s largest
brewer” title. What’s A-B doing helping them get established
in the lucrative US market?

Making money,
what else? As Anheuser-Busch’s Vice President of Business
Operations, Dave Peacock, puts it, “The US beer market is
large and competitive, and our recent import agreements have
enhanced our portfolio by offering more choices for beer
drinkers. Through our agreements with InBev and others, we
have added to our portfolio highly-valued brands that appeal
to beer drinkers looking for sophisticated imports in their
beer choices. These well-known import brands . . . enable us
to better compete. This is consistent with our stated
strategy of enhancing our participation in the US high-end
beer segment.”

By all reports,
they’ve moved swiftly with money and legal muscle to
re-align those brands, too. A lot of money has changed hands
as rights to the affected labels shifted to A-B houses. “We
are very pleased with the pace of the transition and are
ahead of where we thought we would be,” notes
Peacock.

Heineken Premium
Light is ahead of where importer Heineken USA thought it
would be, too. “We planned to do 5-plus million cases
[of Heineken Premium Light] in 2OO6,” states Dan
Tearno, VP of Corporate Communications for the company. “We
did seven and a half. We’re the number six imported beer
brand [nationally] in dollar sales, from only nine
months business, the number nine imported beer in terms of
volume. From a standing start, that’s pretty
amazing.”

The good thing
is that they’re not abandoning it to float on its own.
That’s a lesson that’s been learned. Heineken USA is
actually increasing the promotional budget for Heineken
Premium Light by about 5O% over 2OO6. You’ll also see cans
this year, a slim can, taller and sleeker, like the
bottles.

The core brand,
Heineken, picked up a nice halo effect from the launch as
well, probably a combination of more “Heineken” in front of
peoples’ eyes and pumped-up sales reps. “Heineken had its
best growth year since 2OOO,” Tearno says
proudly.

It’s a little
quieter when you ask about Amstel Light, where the sales
were down 5% in 2OO6. Still, that’s less than the sales of
Heineken Premium Light, so it’s not a clear-cut case of
cannibalization. The brand will still be supported, as a
more flavorful light beer, accenting its affinity for food
pairing.

Room
for improvement

Trading up, the
basic idea behind Heineken Premium Light, is driving sales
of Sam Adams Light, too. Even though light beer is the
biggest part of the beer market, just shy of half of total
sales, it’s largely a pared down, commodity-priced
segment.

But as Boston
Beer founder Jim Koch explains, there’s room for
improvement. “Until recently, [light beer] was a big
piece of business that was all at domestic pricing. The
success of [beers like] Sam Adams Light and Heineken
Premium Light shows that the consumers are willing to trade
up for more image, or more flavor. That’s a big profit
opportunity that’s now available.

“Sam Adams Light
has been out five years now, and it’s still growing,” Koch
notes. “When we introduced it five years ago, I knew it was
ahead of its time, and its time would come. As consumers
trade up to more flavor in craft beer, they’re going to look
for that same opportunity when they’re having a light beer.
Virtually all the light beers out there are pale, crisp and
dry. SAL is none of those: it’s amber, malty and smooth.
It’s a completely different way of making a light beer, a
lower-calorie beer.”

‘Amber, malty
and smooth’ describes another beer that’s been quietly
building growth and really exploded in 2OO6: Newcastle Brown
Ale. Information Resources Inc. (IRI) just released their
Top 3O Beer Brand Performers, and Newcastle topped the
list.

“To have
Newcastle Brown Ale be ranked as the top-performing brand in
supermarkets by IRI is just an unbelievable achievement,”
said Kevin Moodie, President of Scottish & Newcastle
Importers, Co. “The off-trade, specifically chain grocery,
has exploded for us in the past few years and for the first
time is now more than 5O percent of our business. It’s an
incredibly competitive environment, and we’re immensely
proud that for the past several years we’ve enjoyed the
success we have.”

Bill Wetmore,
S&N’s marketing director, promises the continuation of
the sampling campaign that has worked so well for Newcastle,
and more: “We’re running national press ads for the first
time this year, in magazines like espn magazine, men’s
health, wired, outside, and rolling stone.”

When asked about
the possibility of a Newcastle Light, Wetmore doesn’t rule
it out. “We don’t have anything currently in development.
It’s certainly something we talk about at a concept level.
As we get stronger nationally, that will become more and
more a consideration.”

That’s
what can be seen in the rearview mirror, but what’s coming
up?

“People are
asking more and more for wheat beers, hefeweizens and wits,
which makes me very happy,” says Nick Blakey, at Bauer’s
Wines in Boston. “Southampton Double White, Hoegaarden, UFO,
Schneider, Ayinger, Julius Echter, Franziskaner: they’re all
selling. And I wish I had a bigger German section. I think
it’s some of the best beer in the world, and more people are
discovering it. Something else . . . on St. Patrick’s Day I
sold a lot less Guinness, not nearly as much as usual, but a
lot of other stuff: Smithwick’s, Stella, other
things.”

The main
challenge Blakey sees is “keeping the level up [with
craft beer]. I feel it has dropped a bit. It was almost
like punk rock for a while, like seeing the Ramonesor
Talking Heads in the 197Os. Now it’s like we’re into New
Wave; everyone’s getting smooth and commercial. It’s an
issue of not doing what happened the first time around, when
things got all Pete’s Wicked Ale and collapsed. We have to
keep it flowing, keep the beers happening. Don’t shoot our
wad with triple-hopped barleywines made of organic rye,
filtered through Thomas Jefferson’s corpse. We need to keep
watching the show. We want long-term success.”

Joe Salois just
has the usual concerns – “fuel costs, insurance costs: it’s
an expensive business to operate” – but keeps an eye on a
current one: “Consolidation: whether it’s good or bad
depends on which side of the fence you’re on, like with the
InBev/A-B consolidation.”

Ned LaFortune’s
got a rosy crystal ball. “I expect double-digit growth
[for the craft category] for five years, and I don’t
see why it shouldn’t happen. Everyone’s making great beer.
Mass Bay’s making their new raspberry hefe, and there’s
plenty of people that want that. I’m confident for the next
ten years really. The Massachusetts market last year was
4,OOO,OOO bbls. We had O.26% of that, as the second-largest
in-state brewer. That’s plenty of room to grow.”

Charlie Storey
agrees. “There’s still plenty of room to grow. I don’t know
when it will begin to flatten out. But there are a lot of
people out there who enjoy drinking craft beers, and always
wanted craft beers, but just didn’t know about them, maybe
didn’t even know they wanted them. It’s like sushi, 2O years
ago. People didn’t know they wanted to eat raw fish, and now
you can get sushi in the supermarket. It’s always been out
there, but people just didn’t know it was there. It had to
be presented by a trustworthy industry.

“Now, think of a
beer drinker 2O years ago,” Storey continues. “They really
couldn’t visualize what’s out there today. If they were
looking for a variety of tastes and drinking experiences,
they would have had to leave the beer category. Now they can
find it, and the industry is increasingly effective at
communicating the availability of those tastes and
experiences. Now people see that they can find those
experiences, and they do, and they like it. People are
discovering craft beer every day, and there’s still a lot of
them out there – a lot.”

“There’s still
an awful lot of Budweiser drinkers; they’re not going away,”
Koch says, being realistic. “There are trade-up
opportunities in vodkas, but Smirnoff didn’t go away.
Trade-up opportunities . . . are good for everybody. If
someone wants a light beer, they can trade up over a mass
domestic to a Heineken or Michelob or a Sam Adams Light . .
. and it keeps them in the beer category.”

Brewer,
wholesaler, retailer: that’s something everyone can get
along on. Keeping the customer in the beer category is a
good goal, and one that’s getting easier as beer gains
respect and becomes more fun.