Want a Bud? No, I'll take a Goose Island

January 23, 2014 04:47 AM
Light Beer Brands Victims of Big Brewer Push Into Craft

Goose Island is the new Bud. So are Shock Top and ZiegenBock. And Leinenkugel’s and Blue Moon, for that matter, could be called the new Coors or Miller.

Those brands are all owned by the world’s biggest brewers, which are aggressively rolling out products designed to appeal to fans of craft beer. But they’re not putting the microbrewers who started the movement out of business.

Instead, the new labels are taking sales from already- troubled mass-market brands owned by the industry giants peddling these crafty brews. Analysts say that may actually be a boon for their owners as margins can be “considerably higher” for craft beers, according to researcher Canadean.

“I don’t really drink Bud Light anymore,” said Tait Foster, a 27-year-old who works at a foreign policy research group in New York. Instead, he’s started sampling a wider range of brews such as Goose Island and Blue Moon. “Bud Light, Coors and all those others are like beer-flavored water.”

Sales of craft beers grew 16% in volume over the past year versus a 1.7% decline for the biggest U.S. beer brands, according to researcher Symphony IRI Group. Sales of Bud Light were off by 1.3% and Miller Lite slid 4.4%.

That’s prompted multinationals like Anheuser-Busch InBev NV and MillerCoors LLC, with about 75% of the U.S. market between them, to introduce their own craft-like brews -- many of which make little or no mention of their corporate parentage.

Hard Ciders

AB InBev paid $38.8 million for Goose Island in 2011, five years after it signed a distribution deal with the Chicago brewer. And in 2006 it created Shock Top, a Belgian-style wheat ale, to take on Blue Moon, the biggest of the craft-like labels owned by industry leaders. The Goose Island brands soared 69% last year, AB InBev said, citing Symphony IRI data, while Shock Top beers jumped 14%.

MillerCoors, co-owned by SABMiller Plc and Molson Coors Brewing Co., in 2010 set up a unit called Tenth & Blake to focus on Blue Moon and other niche brews as well as premium imports such as Pilsner Urquell from the Czech Republic and Cusquena from Peru. Today, it has more than a dozen brands, including two hard ciders.

“We looked at where the growth sectors were, and craft was exploding,” said Tom Cardella, president of Tenth & Blake. “When you look at the marketing of craft, it requires a different approach.”

Mid-Sized Labels

AB InBev’s shares slid 1% to 75.71 euros at 3:48 p.m. in Brussels trading, giving the company a market value of about 122 billion euros. MillerCoors co-owner SABMiller’s shares slid 1.6% to 2,991 pence in London, and Molson Coors Brewing’s shares fell 1% in New York to $54.75.

As the popularity of these beers cuts into sales of the biggest brands, it’s fostering a new crop of mid-sized labels, according to Trevor Stirling, an analyst at Sanford C. Bernstein. Moreover, craft brews are wooing drinkers back from wine and spirits. While craft beer currently has only about 6% of the market, that share could more than triple in the next five years, Canadean predicts.

“There’s a new generation choosing a much broader repertoire of drinks,” Stirling said. “It’s virtually inevitable that the larger brands will lose market share to craft.”

Lighter Beers

That’s not to say that the big brands are going to give up on their mass market brews anytime soon. With about 21% of the beer market by volume, Bud Light alone is about triple the size of the entire craft sector, Symphony IRI data show.

“I don’t see the era of big brands being over, but more that there’ll be a bigger mix of beers,” said Lawrence Hutter, who heads the European corporate solutions unit at consultant Alvarez & Marsal. “Don’t forget people still like those lighter, lager-style beers; They’re very drinkable”

The U.S. Brewers Association defines “craft” as beers with annual sales below 6 million barrels and ownership by a big player of no more than 25%. Despite the industry’s homespun image, 60% of drinkers don’t give much thought to what company owns the brand of beer they drink, according to a survey by AB InBev.

“It’s kind of a disconnect for me that being bigger is necessarily bad,” said Paul Chibe, head of U.S. marketing at AB InBev. “What’s important is that if a beer gets bigger, it has to stay true to what it is.”

Rich Uncle

Even as the giant brewers lose share with their leading brands, the shift could shore up their profits since their craft-like beers enjoy higher margins, analysts and the companies say. Goose Island retails for an average of about $33.10 per case versus $20.17 for Bud Light, according to Symphony IRI. Some offshoots can be far pricier. Goose Island sells a brew called Bourbon County Stout one day a year, the Friday after Thanksgiving, at about $25 for a four-pack of 12-ounce bottles.

The higher prices help offset the added costs the industry’s giants face in producing more small brands. They are typically more labor-intensive, use a wider range of ingredients, and have more elaborate packaging and marketing.

The big companies also gain an edge over smaller rivals by producing the craft-like brands in their industrial-scale breweries. Blue Moon is brewed at MillerCoors’ facilities across the U.S. And some Goose Island beers are made by AB InBev in Fort Collins, Colorado, and Baldwinsville, New York, in addition to the brand’s original brewery in Chicago.

“We’ve been a great home for craft brands like Goose Island,” helping out with additional production capacity as their popularity grows, said AB InBev marketing boss Chibe, who plans to leave his job in February. “They have their own leadership team, their own innovation group, the brewers do their own things. We primarily behave as the rich uncle. When they need resources, we give it to them.”


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