Craft beer market draws attention of big breweries

The economic downturn hurt the restaurant industry and canceled a lot of travel plans, but it hasn't dampened enthusiasm for the ales, lagers, stouts and other specialty brews known as craft beers.

The economic downturn hurt the restaurant industry and canceled a lot of travel plans, but it hasn't dampened enthusiasm for the ales, lagers, stouts and other specialty brews known as craft beers.

While overall beer sales fell by 2 percent last year, the first decline in six years, the craft segment keeps growing. Craft beers still account for just 4.5 percent of U.S. consumption, but sales have increased by about 50 percent over the last five years, according to Beer Marketer's Insights.

And that's got big brewers looking for a bigger piece of the action.

It's particularly evident in Chicago, where Guinness, an import owned by London-based Diageo is testing a craft beer-like specialty brew, Guinness Black Lager in local bars, groceries and liquor stores. Chicago-based MillerCoors, meanwhile, has established an independent division, christened Tenth and Blake Beer Co., to nurture its craft and import beers, including Blue Moon, Leinenkugel, Peroni and Pilsner Urquell.

"Craft beers and imports have done surprisingly well," said Tom Ryan, spokesman for Tenth & Blake, noting that the recession has been hard on beer and other discretionary purchases. "There are a lot more choices out there and people are perhaps choosing to buy fewer beers, and maybe with a little more flavor."


Ryan said craft sales have been on the uptick with young, urban professionals for a number of years, while total beer category sales were relatively stable until last year, when sales began to decline. The slide has continued this year, as 21- to 35-year-old men, a key beer-drinking segment, have been disproportionately affected by rising unemployment.

Harry Schuhmacher, editor of Beer Business Daily, said the beer industry hasn't suffered declines this steep since the federal excise tax was doubled in 1992, and there haven't been consecutive year declines of this magnitude since Prohibition.

As for the rise in craft beer sales, experts point to a broader shift in taste preferences, price sensitivity and drinking occasions.

"There is a generational shift that is further advanced than is generally recognized," said Benj Steinman of Beer Marketer's Insights. "There are consumers that are increasingly choosing sort of the flavor, diversity and innovation of the craft brewers if they can access it economically." Craft beers are generally much more expensive than their mass market counterparts.

Flavor has been a big part of the craft beer boom, but the product also speaks to a different occasion: a nice meal at home or meeting friends at a bar rather than downing a few during Sunday Night Football.

"Younger people like things that have bolder taste in coffee, chocolate, anything," Schuhmacher said, noting that as a 40-something, he was raised on milk and water. "Younger people were raised with bolder flavors. A Bud Light just tastes awfully light to someone who's been drinking Starbucks since the seventh grade."

Steinman added that craft beers also tie into a number of popular trends, including the focus on local food production. Craft beer's stronger, sometimes sweeter flavor also tends to hold more appeal for women than a traditional light beer, he said.

Wine and liquor have also been growing their business at beer's expense. According to Beer Marketer's Insights, wine and spirits have outperformed beer by volume each year since 2002. In general, wine sales have increased 4 percent, liquor has increased 3 percent, and beer has increased 0.5 percent.


Patrick Hughes, Guinness brand director, said the company developed black lager for Guinness drinkers who were looking for different flavors and different beers for different occasions.

"There's this increasing sophistication in beer drinkers out there and an appreciation of different styles of beer and unique beers," he said. Guinness Black Lager was designed for Guinness drinkers looking for different flavors, Hughes said, but he expected it to have a broader appeal. As a lager, it's lighter than Guinness' traditional stout.

The beer is being tested in Chicago as well as San Diego. Those markets are some of Guinness' best in the States, he said. They were also chosen for their diversity.

MillerCoors' Tenth and Blake was named for the primary locations where Leinenkugel and Blue Moon are brewed. An internal memo announcing its creation also referred to new brews coming from the venture.

Ryan said Tenth and Blake's founding springs from a desire to make its fast-growing beers grow faster, and an acknowledgement that smaller brands can get lost in the shuffle when big brands like Coors Light are on the drawing board. Smaller brands, he said, also call for different go-to-market strategies.

"We think with some additional attention ... they can do even better," Ryan said.


Defining 'craft'


What makes a craft beer is a matter of some debate. The Brewers Association designates craft brewers as those that sell less than 2 million barrels per year, and are essentially independent. By that standard, Sam Adams is a craft beer, and Blue Moon, owned by MillerCoors, is not. Julia Herz, a spokeswoman for the Brewers Association, underscored that the group classifies brewers only. "What constitutes a craft beer is up to the consumer," she said.

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