AB InBev, others note lower volumes in U.S. as drinkers shift to
the hard stuff
By Saabira Chaudhuri and Nick Kostov
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 10, 2018).
American drinkers are abandoning beer for harder stuff,
squeezing the world's biggest brewers.
Anheuser-Busch InBev SA, Molson Coors Brewing Co. and Heineken
NV all reported sharply lower U.S. beer volume in the first quarter
compared with a year earlier as drinkers turn to other alcoholic
beverages, such as wine or whiskey.
AB InBev said its volumes fell 4.1% in North America, partly
because of weakness in the company's core Bud and Bud Light brands.
Last month, Heineken said its volumes fell by a high-single-digit
percentage in a declining U.S. beer market, without being specific.
And last week, Molson Coors said its U.S. sales fell 5.8%, driven
by a 3.8% drop in domestic brand volumes. That sent its share price
tumbling 15% in a single day, to a four-year low.
Executives blamed a much colder start to the year compared with
2017, when warmer weather drove brisk sales. Despite the volume
drop, AB InBev said it raised prices and boosted revenue per
hectoliter. Strong volumes in markets such as Mexico, Colombia and
Argentina helped, too. Shares rose early Wednesday in Belgium,
before ending the day flat.
Still, the industrywide volume declines were sharper than
expected, punctuating years of slowing growth amid broader
headwinds.
Alcohol consumption overall is stalling. That has intensified a
fight between brewers, distillers and winemakers for a more limited
pool of drinkers. In that booze battle, beer has been losing out,
especially among younger drinkers.
"Growth in wine and spirits has continued," Gavin Hattersley,
chief executive of MillerCoors, the U.S. unit of Molson Coors, told
analysts after reporting its own falling sales last week.
Millennial drinkers are "shifting from beer to wine and spirits,"
he said.
At the same time, consumers more broadly have been turning away
from bigger brands -- in categories such as frozen food and
deodorant -- toward smaller ones they see as healthier, more
natural or made locally. Craft breweries have capitalized on that
trend in recent years, and many bigger breweries have snapped them
up or marketed their own small brews. But even craft-beer sales
have started to slow recently, and the sector's smaller volumes
haven't been able to make up for declines in the mass-market
brands.
AB InBev sold 4.3 million liters, or about 1.1 million gallons,
of Bud Light, America's best-selling beer, in 2017, according to
Euromonitor. That is off 16% from 2012. Euromonitor estimates
overall beer volumes will slip 0.3% this year after a 0.6% decline
in 2017.
Demographics are a significant headache for beer makers. For
decades, beer has been the entry-level alcohol for younger
drinkers. Typically, they would switch to more exotic drinks much
later in life, if at all. That is no longer the case. In 2006,
nearly 65% of alcohol consumed by Americans aged 21 to 27 was beer,
according to data from AB InBev. By 2016, that had fallen to
43%.
The proportion of young white males -- long beer's core drinking
demographic group -- is dropping. The share of Hispanics and
African-Americans, who generally drink less and favor spirits when
they do, is growing. Women were never big beer drinkers, having
long ago gravitated to wine. Recently, they are drinking more
spirits, including whiskey, after heavy marketing by
distillers.
Brewers for decades have relied on beer's relatively low
alcohol-by-volume content to give it an edge over spirits on
taxation, distribution and advertising. But even some of those
advantages are being eroded. Last year, the National Football
League lifted a ban on liquor ads.
While beer has long labeled itself as a drink of moderation,
liquor makers are fighting back and highlighting the low calorie
and carb counts in hard spirits.
All this is costing the brewing industry drinkers. Beer's share
of the U.S. alcohol market by value fell to 45.6% in 2017, from
48.2%, in 2010, according to Euromonitor. Spirits' share jumped to
31.7%, from 29.6%, while wine held its ground at 19.7%.
AB InBev said Wednesday that its Bud Light and Budweiser brands
continued to lose U.S. market share in the first quarter --
shedding more than a percentage point between the two brands. The
brewer is in the midst of a yearslong effort to turn around both
brands.
The company has poured advertising dollars into a series of
marketing campaigns, with mixed results. The latest, Bud Light's
"Dilly Dilly" campaign -- which follows a medieval king with a
taste for Bud Light -- has become a cultural meme, but it hasn't
lifted sales. AB InBev said Wednesday it is "seeing consistent
improvements in brand health and market share trends" at Bud Light,
although it added that it still faces challenges.
AB InBev has said it isn't giving up on those mass-market
brands, but is more focused on offering drinkers more choice and
persuading them to buy more expensive beer. The company recently
rolled out its higher-priced Michelob Ultra Pure Gold, made with
organic grains. It is also now selling Bud Light Orange and a new
version of its Bud Light Lime. Both are brewed with real citrus
peels.
The Belgium-based brewer, which completed its $100-billion-plus
purchase of rival SABMiller in 2016, has been squeezing costs and
boosting margins. Its shift toward higher-end beers has also
bolstered its results. Despite the big drop in volumes, U.S.
revenue per hectoliter rose 1.9% in the first quarter, thanks in
part to sales of higher-priced beers.
Net profit fell 28% to $1.02 billion in the latest quarter,
compared with a year earlier. The result largely stemmed from
higher finance costs and an unflattering comparison with last
year's first quarter, when AB InBev benefited from government
incentives in China and lower costs in Africa.
AB InBev said earnings before interest, taxes, depreciation and
amortization -- a crucial measure watched by analysts -- rose 6.6%
to $4.99 billion in the first quarter, topping analyst expectations
for a 4.7% gain. Revenue increased 1.2% to $13.07 billion from
$12.92 billion.
Not all big beer makers are struggling. Mexican imports from
Constellation Brands Inc., which acquired the U.S. distribution
rights to Corona and Modelo in 2013, have been a bright spot. In
March, Chief Executive Robert Sands said the company is targeting
net sales and operating income growth of between 9% and 11% for its
beer business for fiscal 2019, significantly higher than the 2% to
4% target it set for its wine-and-spirits business.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Nick
Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
May 10, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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