Insights & Advice

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Will beer become an acquired taste?

Twenty-five years ago American beer had more in common with spring water than with one of the oldest beverages of the human race. Today, thanks to a return to the methods of the past, microbreweries and craft beer brewers are hoping to create a renaissance among beer drinkers in America.

Overall, beer consumption in America has seen a steady decline for the past twenty years as consumers abandoned the practically tasteless, calorie-loaded brews in favor of new product offerings in the wine and spirits industries. In hindsight, the launch of Lite beers only made the matter worse. Beer experts debate whether the consolidation among American brewers using mass production techniques accelerated that downtrend or was simply a survival response in the face of disappearing profits and plummeting sales.

It doesn’t matter, since the end result was the same. Today, two mega companies (Anheuser-Busch InBev and Miller Coors) control 90% of the American market. That amounts to roughly $200 billion in sales, or 2.787 billion cases last year, a 1.3% decline from the prior year. The two big companies now have so many brands that your local bar can offer eight different brands of beer on tap and, unknown to you, all of them are made by the same company using roughly the same brewing procedures and priced carefully to create an illusion of real choice.

.However, there is a burgeoning niche market of craft beers with names like “Flying Dog”, “Green Pig” and “Sierra Nevada” that have wrestled a 6% market share from the big guys largely built on a return to producing beer in smaller batches with the highest quality ingredients. These mini-breweries have been embraced by as many as 50 million Americans. The segment grew 15% in volume and 17% in dollars last year equating to about $10.2 billion in sales. There are 2,347 craft breweries operating in this country as of last year, comprising 1,132 brewpubs and 97 regional craft breweries, according to the Brewers Association. Most beer industry analysts expect that the craft beer market share will continue to climb as more consumers are willing to pay up for tastier brews with hints of dark molasses, cherries and other exotic flavors.

The blossoming renaissance in demand for beer produced by small, independent brewers can be traced back to Boston Beer Co, the brewer of Samuel Adams beer almost thirty years ago. Since then the market and the microbreweries have expanded to the point where the market is becoming even more segmented.

For example, a distinction is growing between microbreweries, especially regionals such as Sam Adams and Yuengling, which now account for as much as 1% of the overall beer market, and those breweries that produce no more than 6 million barrels of beer annually. They can usually be found within 10 miles of their customers.

Craft brewers, according to the criteria, should be independent, with less than 25% of their brewery owned or controlled by another alcoholic beverage industry member. Brewers should have at least 50% of its volume composed of all malt beers, which uses adjuncts to enhance rather than lighten flavor. Craft brewers, like great chefs, take the basic ingredients of beer—water, yeast, malt and hops—and produce wonderful and unusual flavors through innovation and education.

Recently, the two big brewers have been muscling their way into the micro and mini markets producing their own brands disguised as craft beers. The attraction of higher profitability and additional growth, given that craft beers can cost twice the price (if not more) of a mass produced domestic beer, makes that market irresistible.

The competition within the beer sector has always been fierce. There are now more breweries in this country than before Prohibition.  It will be interesting to see whether once again the big guys, through money and clout, force the crafters off the shelf and out of the bars.  In the end, I believe, it will come down to whether America’s consumers are willing to pay up for a sip, rather than a gulp, and acquire a taste for truly exceptional beer.

Posted in A Few Dollars More, Portfolio Advice