Analysts at NBWA convention examine "lousy" industry fundamentals.

In a panel discussion at the recent National Beer Wholesalers Association convention, panel moderator Benj Steinman of Beer Marketers Insights said the beer industry faces "the toughest and most challenging environment in my 25 years covering the industry."

Mr. Steinman noted that "volume is declining, pricing is deteriorating and costs are going up" an equation that he said added up to "lousy business fundamentals." He also observed that the beer business hasn't grown since 2002, and is down 1% for the first seven months of 2005, despite growth by imports and craft.

In addition, Mr. Steinman pointed to accelerated discounting and "coupon madness" as well as fuel prices "through the roof." He also cited the familiar litany of the Costco lawsuit, power retailer pressures and direct shipping issues.

Mr. Steinman said these factors have "created a challenging environment." This the only time in his presentation he could have been accused of understatement.

Joining him for a panel discussion were Christine Farkas of Merrill Lynch Equity Research, Nik Modi of UBS and Bonnie Herzog of Citigroup.

We'll have a full transcript of this talk in a future issue, but herein, we'll provide a brief synopsis of the commentary:

* Bonnie Herzog of Citigroup said that some industry trends had actually been impressive, but said this was largely due to price promotions. She said the aggressive pricing tactics by brewers have created a "prisoner's dilemma." What began as a short-term tactic may last longer that the brewers believed, she said, and noted concerns about the brand equity of beer. Calling the beer business a "mature" market, she said there would be continued growth for imports and craft, but that spirits and wine growth will continue to accelerate, together with growth in "non-carb" areas like water, juice and tea.

* Christine Farkas of Merrill Lynch called the new consumers entering the market "a generation of choice" that would require wide availability of brands and categories. She said she thought that spirits and wine growth trends will continue apace.

She noted that the pricing environment has been causing concern among wholesalers. "If brewers are listening, they will know that discounting is not working," she said. "We look for a more rational environment in the future."

* Nik Modi of UBS called the resurgence of wine and spirits something of an "urban myth" and said that industry observers should look at the broader economic situation. "The rich are getting richer and the poor are getting poorer," he said. "We must pay attention to what is happening with the consumer." Modi said that beer pricing should stabilize after Labor Day. To wide applause, he said that "It is the job of the brewer to provide distributors with proper brand equity." More in upcoming issue.