Home Business As Americans Shun Beer in Favor of Liquor and Wine, Who Wins?

As Americans Shun Beer in Favor of Liquor and Wine, Who Wins?

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According to data released by Gallup, Americans have slowly been shifting away from drinking beer, to drinking wine and spirits. This shift is not the result of a sudden change of preferences but is instead aligned with a slow and gradual shift that has occurred over at least 20 years. So what could be causing beer to lose favor, and how will the shift impact beer companies?

As Americans Shun Beer in Favor of Liquor and Wine, Who Wins?

Rise in beer sales

Beer sales did rise by .9% in 2012, according to the Brewers Association. So far in 2013, however, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) saw its sales volumes in the United States drop by 1.2%. This marks a 6% drop in sales volumes for SABMiller plc (ADR) (OTCMKTS:SBMRY) (LON:SAB) since 2009. SAB Miller, through its joint collaboration with Molson Coors Brewing Company (NYSE:TAP), dropped an additional 2.6%. These losses were offset for both companies by growth in international markets, and globally the companies posted modest gains. Even so, the U.S. tends to be a trend setter, and shifts in the American market may foreshadow future shifts in global markets.

Interestingly, beer companies tend to focus almost exclusively on brewing beer. SABMiller plc (ADR) (OTCMKTS:SBMRY) (LON:SAB) and Heineken N.V. (ADR) (OTCMKTS:HINKY) (AMS:HEIA) own no operations in either wine or spirits, while Anheuser Busch Inbev SA (ADR) (NYSE:BUD) owns Bacardi distribution rights in the United States. Beyond that, the major brewing companies have stuck largely to beer and shunned wine and liquor. That specialization may hurt them as tastes shift away from beer.

Another challenge for beer companies may stem from the fact that people have typically been very loyal to their local beer brands. Just like sports teams, and to a lesser extent cars, beers have long been a source of local pride. Most brewing has come under the control of SABMiller plc (ADR) (OTCMKTS:SBMRY) (LON:SAB), Anheuser Busch Inbev SA (ADR) (NYSE:BUD), Heineken N.V. (ADR) (OTCMKTS:HINKY) (AMS:HEIA), Carlsberg A/S (ADR) (OTCMKTS:CABGY) (CPH:CARL-A) (CPH:CARL-B), and a few other megabrewers.  These companies coalesced into mega-brewers by purchasing local brands, such as Grupo Modelo SAB de CV (USA) (OTCMKTS:GPMCF) (Mexico), Nile Special Lager (Uganda), and Bochkarev (Russia). When these companies bought up local beer brands, however, they may have destroyed some of the local luster.

Psychological shift in taste

While such a psychological shift in tastes can be difficult to prove, there is evidence that this may be occurring in the United States. Both SABMiller plc (ADR) (OTCMKTS:SBMRY) (LON:SAB), and Anheuser Busch Inbev SA (ADR) (NYSE:BUD) have seen declining sales in their main American beer brands, including Budweiser and Miller Lite, since their respective takeovers by international beer brewing companies.

At the same time, brewers which are still locally owned, such as Pabst Blue Ribbon or Los Angeles and Philadelphia’s Yuengling, have seen their sales rise. From 2010 to 2011, for example, Yuengling saw its beer sales rise 15%. PBR saw its sales rise by nearly 14 percent in the same time frame.

Why the sales of these companies’ beers are rising at a time when SABMiller plc (ADR) (OTCMKTS:SBMRY) (LON:SAB) and Anheuser Busch Inbev SA (ADR) (NYSE:BUD) are declining are difficult to pinpoint. It could be differences in taste or price. Still, brands such as PBR and Yuengling have been around for decades and have only recently been surging, so tastes may not be the defining factor. Yuengling is priced about the same as premium beer brands, and while PBR is cheaper, a study actually found its price growing at about 7% YOY as demand rises.

Microbrew sales surge

Microbrews have also seen surging sales. Craft brew sales rose by a solid 6.5%, even as overall beer consumption dropped. This suggests that increasingly even those who choose to drink beer are choosing to drink higher quality, and often local brewed, beers. Consumers may be preferring to drink high-quality microbrews, which rival the prestige of wine and premium liquor, to Budweiser and Miller Lite.

Major beer companies will have to confront changing tastes not only in overall drinking preferences, but also competition from microbrews and local brewing companies. All of this may spell declining profits and sales for major brewing companies. There is a certain irony in this development, given that major brewers merged to increase profits and market share, but may have ultimately shot themselves in the foot.

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