Big Imported Beers
Imports are still growing, with expanded portfolios and new promotions.
Imported beers have been on a tear, a wild speeding rush in the U.S. market that took them from a piddling 1 percent of total beer sales in the mid-1980s to 12 percent in today’s market. That’s a huge move, and it speaks volumes about the robust U.S. economy as well as the stumbles by major American brewers. While imports look bullet-proof, anyone with a speck of mathematical ability can see that the ride has to end sometime.
But one thing seems certain: it hasn’t ended yet. The major imported beer brands Corona, Heineken, Labatt Blue have achieved iconic status (albeit regionally, in Blue’s case) and aren’t going to slip or go away anytime soon. But just how well imported beers have been doing showed when their overall growth slowed to 1.4 percent in 2004, and the immediate reaction was “What’s wrong? Is this a trend?”
When annual growth is “only” 4.5 million cases, that’s the kind of “wrong” most salespeople would be glad have a truckload of. People continue to order imports and show the kind of brand loyalty to them that used to be common before the beer market fragmented in the 1990s.
So what can you look for in 2005? It’s not going to be just the same old same old. There are some interesting developments taking place. For instance, there’s a big shakeup going on in the Mexican segment (see sidebar page 44).
What else? Heineken USA has doubled the size of its portfolio. InBev (formerly InterBrew) is making some big moves and will launch its Brazilian import, Brahma, in the U.S. and globally in June. And as Bill Wetmore at Scottish & Newcastle importers said, “Currency’s not fun right now.” In addition, craft-brewed beer growth out-paced imports for the second year in a row, and not just in percentages this year, but in actual increased volume as well.
Let’s start with the fiscal issue. You can’t pick up a newspaper without realizing that the U.S. dollar has been taking a beating recently. That has an immediate effect on a lot of things, including the price of imports. The price of an imported automobile is something you only face once in a while; the price of imported beers is something you might face every day. With the dollar dropping sharply against the Euro, it’s something the importers have to face as well.
Are prices headed up? No one really wants to put in a price increase just to stay even. “I can’t discuss pricing issues,” admitted Dan Tearno, Heineken USA spokesman. “It’s our plan to do the best we can with what we can control: exciting packaging and promotions for beer drinkers 21 and older. Currency…is what it is.”
Wetmore had a similar “wait and see” message about Newcastle Brown. “We have not taken a price increase of late, and we don’t have one scheduled,” he said. “Of course, we are sensitive to currency changes.”
It’s probably going to be a case of waiting for a major leader in the category to break ranks and raise prices, at which point everyone will follow. Currency fluctuations don’t help anyone.
Anyone but domestic producers, that is. Craft-brewed beers grew at a rate that was over four times faster than imports in 2004, and they’re still looking strong in 2005. Keith Schlabs, beverage director for the Flying Saucer chain headquartered in Dallas, sees ample evidence of that. “I’m seeing American extreme beers excel: Stone, Dogfish Head, and Avery are red-hot right now,” he said. “We’re seeing a lot of growth in those areas. We’re giving handles to these guys over the imports right now.”
Flying Saucer tends to emphasize the more assertive beers the imports they carry tend to be the smaller beers from England and Belgium but it’s still a point worth looking at in light of the year’s numbers. Is this a major trend, a boomeranging similar to the way micros slid into the doldrums in the mid-1990s and imports caught fire?
Tearno sees it as just two sides of the same coin. “It’s a situation where people have been willing, and still are willing, to pay more for what they feel is a better beer,” he said. “That started in the early 1990s with the micros. Then in the late 1990s and early 2000s, the imports grew on the same idea. But a quality beer is a quality beer, whether it’s brewed in Colorado or Amsterdam. If people are willing to pay a premium price for it, I think that’s good news for everyone in the industry.”
Wetmore was pretty even-handed about it as well. “There’s not a clean line between Sierra Nevada, Fat Tire, and Newcastle,” he said. “Consumers will move back and forth among those brands. They’re all high-quality, with good taste. Those products, and smaller products on a regional scale, have done a good job. The craft beer business has helped Newcastle by broadening people’s horizons on the kind of beers they’ll try.”
MANY, MANY TAPS
Wetmore then made another very good point. “It’s helped make the taphandle selection broader,” he said. “It’s brought a lot of new taphandles into the business overall. If your bar goes from four handles to 12, it provides the consumer with a greater range of options, and in turn it allows more competition among beers for those handles. We’ve done well there, and we’re grateful for the opportunity.”
Don’t get the idea that Schlabs simply wrote off mainstream imports. “Stella Artois is penetrating into our markets,” he noted. “They’ll do well, they have marketing power behind them. And they’ll train your people right.”
Stella Artois, of course, is the main brand of the world’s largest brewer, InBev. Interbrew, as the company was formerly known, kept a pretty low profile in the U.S., and the Brazilian company it merged with to become the world’s largest brewer, AmBev, had next to no presence here. Now they have merged, and InBev USA is ready to move on the U.S. market in a big way.
InBev has quite a large portfolio: Stella Artois, Beck’s, Rolling Rock, Labatt Blue and Blue Light, Bass Ale, as well as a host of smaller, specialty brands like Hoegaarden, Leffe, Staropramen, and Boddington’s. But while InBev USA is the heir to Labatt USA, the new company did not inherit Labatt’s Mexican brands, the FEMSA beers like Tecate and Dos Equis.
Expect InBev to lean hard on their European roots as they make a major move on the world’s biggest premium-priced beer market. “InBev USA had an excellent year in 2004, with depletions up over 4 percent,” noted InBev spokesperson Brenda Williams. “Some of the highlights included another exceptional year for Stella Artois up more than 50 percent. Stella Artois continues to be the fastest growing major European brand in the country, for the third year in a row. Stella Artois will continue its roll out to national distribution in 2005.”
More Euro-brew: InBev will continue to push Beck’s with their “Life Beckons” campaign, and will add some serious marketing push to the new Beck’s Premier Light. “We are very excited about early enthusiasm from retailers for Beck’s Premier Light,” said Victor Melendez, the importer’s head of European brand marketing. “It’s a fantastic tasting beer that stays true to its German roots in both taste and its brewing process. Not only does the beer have incredibly low calories, but it is the lowest low calorie import to hit the U.S. market.” A truly astonishing 64 calories per 12 oz. bottle is the figure given. The national roll-out will be completed by summer.
InBev has also found new life in Bass Ale. The brand was skidding after a loss of focus when it changed hands, but InBev has made a nice recovery, and Bass saw growth in the second half of 2004.
INBEV’S BRAHMA LAUNCH
But the big play in the InBev corner is bringing out their big Brazilian, Brahma, in both off- and on-premise markets, in June. Huge in Brazil, but virtually unknown in the U.S., it may appear like a risk but there are several factors in its favor.
First, Latin influence is hot right now…and most Anglos can’t tell the difference between Spanish-fueled Latino and Brazil’s Portuguese samba beat; it’s all Latin America to them. Add to that the growing popularity of Brazilian rodizio restaurants that will almost automatically provide a base market for the beer.
Now, add to that the marketing power of the world’s largest brewer, and you have a real X-factor in the Brahma launch this summer. InBev has an unusual opportunity as the focus of Mexican brands may be directed elsewhere; Heineken USA will need time to get up to speed with FEMSA, and Modelo may be busy fighting with its importers.
Heineken USA is coming off 2004 with solid 5 percent growth, and is ready for 2005 with some innovative promotions and packages. “It would be premature to talk about 2005 with only one month done,” said Tearno in early March. “But we’re quite optimistic. We have some packaging innovations coming online. We have a 4.75 liter draft package coming on, and it’s not just a big can. It’s really draft, with a CO2 widget in it.”
Newcastle Brown Ale has been surging recently, and 2004 saw that continue with 8 percent growth for the brand. “We had a tremendous year,” said Wetmore, “and moved up to number 14 overall in imports. What was really great was that in dollar sales we were 11th.” He hopes to continue that growth in on-premise in 2005. “We have on-premise teams of what we call ‘Ale Blazers,’ two women and a gentleman,” he explained, “doing in-bar promotions to drive sampling of Newcastle.”
Wetmore acknowledged that 2004 was not as strong for imports as previous years, but pointed out his brand’s strength in that respect. “We are able to ride it out better because we have a unique proposition,” he said. “There’s not another beer like us, that offers more flavor and drinkability. We’re unique as a brown ale for the most part. We’ve got new advertising out in April that reinforces that message; we’re the brand that fits in that slot. If you want a beer that isn’t just lawnmower beer, but doesn’t abuse your tastebuds, we’re there. It really ties into our Best of Both Worlds promotion.”
Why no talk about the number one import brand, Corona? Well, it was a record year on the number of cases, according to Bill Ligas of Barton Brands, “a strong year.” But no one at Barton or Gambrinus wanted to get too specific about numbers. Number two brand Heineken was up 5%, InBev was up 4 percent overall including number three brand Labatt Blue, Newcastle was up 8 percent…but imports were only up 1.4 percent overall. Do the math, and you’ll realize that Corona didn’t post the double digit growth we’ve been accustomed to.
But don’t read too much into that. Corona has such a huge base that it’s in a class by itself among imports. The brand is still immensely popular, and still thinking big. “There’s support throughout the year for Corona and Corona Light from POS, outdoor, print, radio, and TV,” Ligas said. “Modelo Especial also gets that kind of year-round support, largely in Spanish. There’s a wide array of promotional support as well: Corona and its sponsorship of Jimmy Buffett, for instance, that’s continuing. Corona has all kinds of support in a wide variety of avenues. Last year was the biggest year for support, and that continues this year.”
When it all comes down to it, that really sums up the whole market, regardless of who grew 1 percent and who grew 10 percent. “Only” 1.4 percent growth? That still makes imports bigger than they were the year before, and still makes that growth a very nice increase in margin, given imports’ premium price-point.
Hurricane in the Gulf?
Things have been sunny and serene in the Mexican beer scene for over ten years. Corona laid back in the sun, relaxed on the beach, and the dollars just rolled in like the waves. Sales of the Mexican Miracle soared so high that the beer seemed to have transcended the “Mexican beer” category. Much of the notable growth in imported beer over the past decade was, on closer inspection, notable growth in Corona.
Grupo Modelo, the Mexican brewer of Corona, has relied on two importers to cover their American marketing: Barton in the west, Gambrinus in the east. The model has worked, and Modelo has made money hand over fist as the two importers successfully sold Corona with an energetic blend of “vacation in a bottle” imagery and intense local promotion. Corona did so well that its coattails have brought along success with other Modelo brands: Corona Light, Modelo Especial, and Negra Modelo.
But the waves are coming in more roughly now, and there are dark clouds on the horizon. The relationship between Grupo Modelo and Gambrinus has hit some bumps. Modelo tried to purchase Gambrinus, a private company owned by former Modelo executive Carlos Alvarez, “as a means to improve Modelo’s profitability,” according to a Gambrinus press release.
At that time, Modelo said the action was unrelated to Gambrinus’s performance, which was called “outstanding.” Alvarez declined the offer.
Modelo has since informed Gambrinus that their importer agreement would not be renewed after its December 31, 2006 expiration date. Gambrinus, in turn, filed a suit for arbitration. The company expects a decision by the fall of 2005, and refuses to make any further comment on the issue.
Meanwhile, further down the beach the weather may be clearing. The other major Mexican brewery, FEMSA, is just finishing up importer issues of its own. FEMSA was imported through Wisdom Imports in the early 1990s, but that importer was absorbed by Labatt USA, who then took over distribution of FEMSA’s Tecate and Dos Equis brands. Labatt was taken over by Interbrew (now InBev), and Labatt USA was split between InBev and FEMSA, 70/30. Former InBev head Hugo Powell noted that “FEMSA had never been happy with this relationship.”
Things got worse when InBev acquired German brewer Beck’s in 2001 and decided to merge Beck’s U.S. importer with Labatt USA to cut costs. FEMSA wasn’t happy, and got a court order to halt the merger in May of 2002. InBev fought back, but lost in the courts.
The solution to this bad blood was for FEMSA to buy back the FEMSA shares owned by InBev, at which point InBev agreed to “unwind” FEMSA’s relationship in Labatt USA, which as of September 2004, is now InBev USA. FEMSA regained its U.S. importing rights, and will now be represented by Heineken USA.
Heineken USA’s almost ready, according to spokesman Dan Tearno. “We now have Tecate, Dos Equis Lager, Dos Equis Amber, Sol, Carta Blanca, and Bohemia,” he said. “We doubled the size of our portfolio in one chunk. The key brands nationally are going to be Tecate and Dos Equis. The others will get local focus where they are already moving. We’ve brought in a new marketing group and new agencies for the Mexican brands; we expect it will be a comprehensive set of marketing and promotional activities. Not everything’s done yet.”