Heavy going for beer and wine.
And well they might mourn the lost opportunities. At 3.2% of a supermarket's sales, the amber brew ranks as fourth most productive among the traditional grocery categories.
Last year, thanks to the same scorching summer that pushed soft drinks to record volume, beer managed a largely unexpected increase in tonnage. Demand for light, imported and popular priced beers helped production increase a modest 1%. Supermarkets did far better however, ringing up, with wine, a 4.6% gain.
En route to becoming the nation's third most popular beverage, just behind coffee and ahead of milk, beer had enjoyed uninterrupted sales gains spanning a quarter century, culminating last year with per capita consumption reaching 24.6 gallons annually. Inevitably, growth has slowed, however, and gains for the past three years been minimal.
Last year domestic production (considered to be a close approximation of depletions, the best measure of sales) was up 0.7% to 178 million barrels. This year's results are expected to be only mildly better.
If sales have been flat, however, the ferment within the industry has been anything but. Here is a convenient six-pack of facts on how the major segments of the business, ranked in descending order of importance, fared in 1983:
* Premium beers lost a hefty 4.7 share points of total sales, compared to two years ago, but still dominate the six segments with a 47% share of market. Budweiser is king here, with a growing 49% share of the premiums.
* Popular priced beers, supposedly still spurred on by the recession-inspired attitude that "Beer is beer. . . Why not buy the cheapest?" eked out a 0.2 point share increase, which merely returned the populars to the 21.3% share they had two years ago. Stroh's Old Milwaukee has the leading share, 19% of the segment, but its sales have leaped 49% in the past two years.
* Light beers had continued strong growth, increasing their share by 4.7 points to a new high of 18.5% of industry sales. Miller Lite is the heavyweight here, with a 53% share. Aided by a 30% increase in sales over the past two years, Miller Lite has now tied flagship Miller High Life at 18 million barrels of production.
* Super premiums declined in share to 6.3% of total, down from 6.9% two years ago. Michelob has a robust 60% of the segment's sales, down a bit due to a 9% decline in sales from two years ago. Significantly, Michelob Light was able to hold steady in the period.
* Malt liquors managed a 0.1 point gain over the past two years to achieve a 3.6% share of total market. Schlitz Malt leads here with a 39% share. Sales have been rising modestly for the brand.
* Imports have risen about 21% over the past two years to reach a new high of 3.4% of sales. Among the more than 200 brands available to the U.S., Heinekin, with a 38% share, is far and away the most popular, followed distantly by Molson, Beck, Moosehead and Dos Equis.
When the foam had settled at the end of 1983, the positions of the five leading breweries were the same as the year before, but sales results had changed markedly. Says Don Rice, an industry analyst.
"For the first time in two decades, numbers three, four and five are taking business from number one and number two."
Indeed, the three mentioned--in order--Stroh's, Heileman and Coors--are all increasing their shares. But it is mostly at the expense of Miller Brewing rather than Anheuser-Busch. Individual A-B brands have lost ground, but the world's largest brewer continues to dominate the world's largest beer market, increasing its share to 33.5% compared with 30% two years ago. Miller, on the other hand, has seen its share decline 1.3 points since 1981 and now garners 20.9% of industry sales. Seeing the light
Cully Marshall, director of national accounts for Coors says light beer sales will help his company and Miller as well. "With the improving economy we have seen less of a flight from the premiums and super premiums into the low end beers. Should unemployment begin to climb again, however, I'd expect growth again in the price brands. Either way, light beers should continue to grow because they are in tune with Americans' desire for less filling, lower-calorie drinks."
Rod Blucher, director of national sales for Miller, agrees, adding, "although generic beers are still a factor with some chains, overall they're a minor one. Private label, too, is static at best. The brewers are providing all the quality, advertising and promotion and allowances that it takes to move beer. The question is how much can be moved on promotion. There is a real concern that our business is getting like the soft drink business."
Price promotion hasn't hurt imports, however. A distributor of Dos Equis, the Mexican brew that is spreading north from Texas and east from California, believes that price cutting is one reason imports are growing. "We're getting more support at supermarkets because we fit in perfectly with today's big store need for variety and one-stop shopping. You won't find imported beer drinkers popping into convenience stores for beer.
"We have a decided profit advantage, too. The domestics are in the worst fight in 15 years, selling six-packs for a dollar less that flagship brands. And the spread between a domestic premium and a popular brand is only $2 now where it used to be $3 to $3.50. On the other hand, you don't have to discount imports. It's a matter of as a desire for a more flavorful beer. Price doesn't drive them as much. Remember, too, that the strong dollar has helped. Heinekin, for example, has been able to go three years without a price increase." Anti-drinking attack
Other downward pressures on beer sales and profits are at work: an excess of production capacity; a slow decline in the heavy user group, aged 24 to 36; persistent drives for forced deposit laws, which tend to drive costs upward; and an unusual amount of influence from anti-drinking forces. John Maxwell, Beverage Industry magazine's director of research/statistics, whose production data is the source of the figures here, says, "We believe that people are moving away from alcoholic beverages--not just beer, but wine and liquor, as well."
He cites a growing range of evidence. Several states have tightened drunk-driving laws or raised the drinking age. Activist groups increasingly call for a halt in brewer promotions on college campuses, while others push hard for a national law that would raise the drinking age to 21.
Alcohol tax increase are also a threat. Recent had a detrimental effect on sales. Even membership in Alcoholics Anonymous is at record levels.
Response to these external pressures usually takes the form of lobbying efforts usually takes the form of lobbying efforts at state and federal levels and informational campaigns designed to tell the industry's side of the story. Internally, however, the major brewers are getting increased results from helping retail customers to maximize shelf productivity.
Says Charles A. Whipple, vice president of national sales for Miller, "We've gone from hand-drawn planograms to stick-ons to magnetic schematic boards in an effort to show retailers how to better lay out a department. We have a proven, flexible computerized Vertibrand program that does the job better and faster."
Miller supplies beer department shares of market for every product in more than 750 markets. The retailer provides unit movement and gross profits from his existing individual departments, plus overall lenght and the dimensions of the shelves--as is, or as desired. The computer, aided by a full color plotter, turns out a suggested layout in minutes, including competitive brands, all based on the realities of the consumer demand within the individual department. Retailer input can be made electronically from the retailer's headquarters, if so desired.
Anheuser-Busch's program, first called Alpha III, then Accuspace and now Shelf S.E.T., has constantly been refined. "It's better than ever," says Jack Higgins, A-B's vice presidet of national accounts, "because retailer input today makes the program more effective. More detailed data collection, especially from scanners, is the key element in a successful management program." Shelf S.E.T.'s three dimensional planogram is accompanied by graphic pie charts showing each brewer's contribution to unit sales for each major segment, as well as detailed analysis of dollar sales and profitability.
Higgins says, "Experience has shown that whether Shelf S.E.T. is followed exactly, modified or entirely disregarded, opportunities are often uncovered as a result of simply going through the process of collecting the data, ranking the sales and making comparison of brands and packages." (PepsiCo is the latest beverage company to offer a computerized allocation program. Available through a time sharing hookup, it employs direct product profitability measurements for a "more accurate assessment of true profitability.")
The newest beer items to hit supermarket shelves are the low- and no-alcohol beers. Although they look and taste like regular beers, they contain 2% or less alcohol by weihgt, compared to 3.1% in light beers and 4% in regulars. Hudepohl of Cincinnati started the low-alcohol parade in response to a tough new drunk driving law in Ohio, with a product called Pace. Stroh's then introduced Schaefer L.A. The trend, if indeed it is one, was legitimized when A-B launched its entry, simply called LA. A-B has reportedly ear-marked $30 million to get LA off and running.
Viewed as a natural extension of the light approach to food and drink, the low-alcohol beers also represent a response to the over-30 consumers who worry about their health. A side benefit is that they provide a partial answer to demands for restrictions on drink and drinkers.
Marketers of low alcohols face a strange impasse, however. Most states do not allow brewers to label alcohol content, to prevent high levels from being used as a selling point. Ironically, the same laws also prevent low content from being promoted. Two brewers of low-alcohol beers see states modifying such laws because theirs already have, based on the newly perceived advantages.
In beer packaging, cans still are favored 65% to 35% over glass, but non-returnable bottles are making inroads. Returnables remain on their long slide downward. In the wings is a new plastic bottle consisting of a thin inner layer of PET (the same material used in soft drink containers) covered by an outer skin of acrylonitrile, which can contain the high levels of carbon dioxide in beer. Coors is testing an AC bottle in Europe where it has been approved for beverage packaging.
The popularity of the 12-pack continues to grow, to the delight of both brewers and retailers who enjoy the higher ticket that goes along with the size. Testing of a 32-ounce resealable snap-top can is underway and mini-kegs are a small but growing business for many supermarkets.
Few operators today can resist the need for cold beer. Virtually every new supermarket has allocated refrigerated space for beer and many of the larger ones even have special coolers for self-service case sales. Hot coolers
U.S. wine shipments last year rose 2.9% to almost 530 million gallons. This was better than the previous year's 1.8% gain, but not nearly as strong as import sales which, helped by a strong dollar, posted a 5.5% increase.
When sales of the hot new wine coolers are subtracted, however, 1983's performance for domestic wines about matches that of the previous year. Heublein Wines' marketing director, John Martini, says, "We haven't returned to the go-go days of the '70s yet, but if we do get it going again, it will be the wine coolers that make it happen." In preparation, Heublein has introduced its version, called Citronet.
According to Impact, the wine journal, the major events in 1983 included the modest 1.5% increase in table wine shipments; the remarkable 16% jump in sparkling wines, which propelled them into second place, ahead of dessert wines, for the first time; and the declines of about 5% each for dessert wines and vermounts. So it was up to the "special natural" segment to generate the power. It did, to the tune of an 18.5% increase. But it was almost exclusively due to wine coolers.
The rush to the new beverage began with California Wine Cooler. The Stockton, Calif., company shipped a miniscule 700 cases in 1981 compared with 2.3 million cases in 1983. So hot are the prospects that more than two dozen companies are expected to launch coolers this year.
California Wine Cooler's director of marketing, Thomas Gibbs, says, "With consumers moving away from the hard stuff, these carbonated white wine drinks, with their 6% alcohol by volume, are a refreshing answer to today's concerns for fitness and health."
Consisdered to be a competitor for beer, California Cooler does indeed take on some of the characteristics of that role. It comes in four-packs of 12-ounce green bottles--"similar to a Heiniken bottle"--but with twist-off caps, and is handled mainly by beer distributors. The preferred location in the store is in the cold case adjacent to premium beer where it sells for $3 to $4.50, depending on local taxes. Whether coolers are a fad based on the wishful thinking of the wineries remains to be seen, but undoubtedly they are the hottest new wine item in years.
At this point, E. J. Gallo has not announced its intentions, but the world's largest marketer of wines will be watched closely. In 1983, Gallo increased its shipments by 7.2%, garnering a 27.4% share of the gallons, but only 16.2% of the retail dollars. Part of the reason, says Impact, is that the average 750 milliliter bottle of wine retails for $2.95, compared to $1.75 for Gallo for that size, lowest among the top 10 wineries.
The number two winery is creating waves with its pricing and promotional practices in California, the chief producing and consuming state. Seagram Wine has acquired a huge stable of domestic and imported wines spanning all price ranges and tastes, and is firmly entrenched behind Gallo with 10.8% of the gallons and 13.1% of dollar volume.
Seagram recently launched a blizzard of $1.50-off coupons for four of its labels, a move that threatens to trigger a price war.
"The California wine industry is certain to meet this threat with a barrage of new items, new sizes and heavier expenditures for advertising and promotion," says Bob Mutschler, director of marketing for Almaden. "We'll be pushing our new Golden Chablis vigorously, with a $6 million campaign for this lablel alone. We've got a lot of other things in the works too. And we're not alone. These will certainly be interesting times in the wine business."