Beer industry leaders gathered in Manhattan earlier this week for Beer Marketer’s Insights’ first in-person seminar since 2019.
The day — which included an agenda packed with interviews of the CEOs of the U.S. operations of some of the world’s largest beer manufacturers and leaders of two of the largest craft beer companies in the country — left some financial analysts feeling “more optimistic on the industry,” Goldman Sachs equity research analyst Bonnie Herzog wrote in a report following the event.
“The pace of innovation remains heightened, category lines continue to blur, the industry continues to transform towards the high-end/premiumization and all players seem to be pivoting toward beyond beer,” she wrote. “As such, it’s those brewers that adapt quickly and move fast in our view that will ultimately be successful and take share.”
Beer Marketer’s Insights president Benj Steinman opened the conference with state-of-the-industry presentation that highlighted the contrast between the beer industry’s mostly stagnant volume with increasing revenue due to consumers turning to above premium products.
“The domestic brewers’ business is a hard business and we need to understand that,” Steinman said. “Meanwhile, imports grew 32 billion barrels in 40 years.
“All of these stories — imports, craft, FMBs [flavored malt beverages] — are stories of trading up and premiumization,” he continued. “And that’s part of why this is still such a great business. Because despite the slow growth, this is still a great and dynamic and very profitable business.”
Below are recaps of interviews Benj Steinman and Craft Brew News senior editor David Steinman conducted with executives.
New Belgium and Bell’s Will Sell 1 Million Barrels of IPA Next Year
Days after the announcement that Kalamazoo, Michigan-based Bell’s Brewery will join New Belgium on Lion Little World Beverages’ U.S.-based craft beer platform, New Belgium CEO Steve Fechheimer joined David Steinman to discuss the merger and the company’s business.
Combined, New Belgium’s formidable Voodoo Ranger brand family and Bell’s Two Hearted Ale will add up to more than 1 million barrels of IPA alone, he said. With all offerings combined, the two will produce nearly 1.5 million barrels.
“It’s an amazing portfolio,” Fechheimer said. “There’s a lot we all have to do to get our supply chains right, and we’ll get distributor alignment, and we’ve got to get pricing right — sure, we have to do all those things. But at the end of the day, if we have brands consumers want, we can solve all those other parts along the way.”
Bringing in international ownership in 2019 has brought about “no material change,” he said. “We run the business as New Belgium.”
Lion is committed to furthering both brands’ growth through “budgeting and capital expenditures,” Fechheimer added.
“No one spends what they spent for New Belgium or, in our case now, for Bell’s without the intention to invest and grow,” he said. “We’ve seen that in marketing spend. We’re adding tanks right now to our Asheville brewery, we’re adding another can line into our Fort Collins brewery.
“There’s just this appetite for investment in growth that’s different when you have a larger parent company than we ever had on our own,” he continued.
Molson Coors Leaning on Premiumization and Beyond Beer
As Molson Coors’ partnership with non-alc incubator LA Libations continues to crank out new offerings, president of emerging growth Pete Marino deployed a baseball metaphor to describe the company’s next few years.
“We are in the first inning of a long game,” Marino said. “We’ve got some great runners on base. Our job is to provide a portfolio of strong above premium, better for you options in a variety of different categories. And we work very closely with [LA Libations co-founder and CEO] Danny [Stepper] and his team on that.”
Marino and Stepper discussed the success of energy drink ZOA, enhanced water ZenWTR and ready-to-drink coffee La Colombe, among others.
As laid out in Molson Coors’ 2019 revitalization plan, the company is focusing its innovation efforts in the above premium space, and has found success with Vizzy Hard Seltzer, Topo Chico Hard Seltzer and its partnership with D.G. Yuengling & Son in Texas in the beverage alcohol category. Yuengling’s Texas launch has been bigger than the previous eight markets Yuengling launched combined.
“Texas is a huge opportunity, and it’s a big priority,” Marino said. “So, we’re really just getting started in Texas, and so I think it’s gonna be a little while before we think about expanding out.”
In the non-alc world, Zoa has gained traction as the No. 1 energy drink launched in 2021 in partnership with Dwayne “The Rock” Johnson.
“DJ is just literally a unicorn,” Stepper said. “Every time he posts, it’s like six Super Bowl spots. And he posts about ZOA almost every day and that works. I mean, we can actually track sales to his posts.”
Due to exclusionary contracts with Red Bull, about 30% of ZOA’s volume is sold through wholesalers outside the Molson Coors network.
“The calls to those non Molson Coors distributors that we called to talk about ZOA, it was like they won the lottery,” Stepper said. “They’re so excited. Usually you’re begging distributors to bring on your products. It was like ‘Back the trucks up.’ It’s been really fun.”
Anheuser-Busch InBev Focusing On Above Core
Brendan Whitworth, who was named CEO of the world’s largest beer manufacturer’s U.S. operations this summer after Michel Doukeris supplanted Carlos Brito as global CEO, discussed the company’s pivot to viewing its business by pricing tiers rather than style segments.
“We, for ourselves, redefined the segmentation of the industry by price tiers,” he said. “Looking at our portfolio, looking at our brands and being able to group them across the various specific partitions that we communicate with our wholesalers and how we organize what we do where we put our resources — and then we continue to refresh that year after year.”
Above-core products now account for 35% of A-B’s revenue, and 10% of the company’s revenue is derived from products that were introduced in the last three years. Recently, A-B has taken a more relaxed approach to innovation because “ultimately, it’s the consumer that decides whether innovation is worthwhile or not,” Whitworth said.
“Not everything is trying to go for a home run,” he added. “We do a lot of pilots, put a lot of things out in the market. We tweak, we adjust some things. We shut down some things.”
For 2022, A-B will focus on Bud Light Next, a new light lager under its biggest brand’s flag with 0 grams of carbohydrates, 80 calories and 4% ABV. Whitworth shared that the concept of a carb-free beer had been in the works for a while, but the company was undecided to group it with the Bud Light or Michelob Ultra families. However, during testing, drinkers strongly preferred it as a Bud Light product.
“All the consumer testing was red on Ultra and extremely green on Bud Light, so it’s an exciting opportunity for us to bring a new solution underneath the Bud Light family in sort of a crisp, light lager with very compelling statistics,” Whitworth said. “We are excited for what the brand and brand extension is going to be for a specific set of consumers.”
Constellation Experimenting with Modelo Brand, Resetting Expectations for Corona Hard Seltzer
Constellation Brands has its sights set on being the beer industry’s “high-end leader” beyond just its imported offerings, which include Corona, Modelo and Pacifico, beer division president Paul Hetterich said.
“We’ll never be the high-end leader long term if we’re the king of imports,” he said. “It will work for now, but the pie is going to work against us in that regard.”
The company has several line extensions in test markets for its Modelo brand family, which has increased dollar sales +13.7%, to $2.829 billion at off-premise multi-outlet food, mass merchant, club and convenience stores through October 31, according to market research firm IRI. Hetterich explained the company is aware that new products could dilute Modelo’s strong brand, but wants to experiment to stay competitive.
“You’re growing ‘til one day, you’re not growing, and you get caught flat-footed,” he said. “Most of these are in a test and learn situation. Particularly as we expand Modelo, we’ve got to learn about the cannibalization of new products under the brand, what it does to the shelf space that Modelo currently has and we want to learn about all that.
“Just because we do a bunch of things in a half-dozen markets on a small scale doesn’t mean we’re putting the equity at risk,” he continued.
Modelo’s package mix is about 45% cans and 55% bottles, Hetterich said. Corona is more than 90% glass. Dollar sales of Corona have begun to tick upward (+1.9% year-to-date at off-premise retailers tracked by IRI year-to-date through October 31), which Hetterich attributed to “established brands coming out of COVID with a tailwind,” which he said the company “feel[s] good about.”
Missed projections for Corona Hard Seltzer have caused the company to incur about $80 million in obsolescence charges as unsold product went out of code. Constellation has adjusted its goals for the hard seltzer brand and now aims to be a distant fourth place behind No. 1 Mark Anthony Brands’ White Claw, No. 2 Boston Beer Company’s Truly Hard Seltzer and No. 3 A-B’s Bud Light Seltzer. Hetterich noted that hard seltzer product launches in the earlier days of the segment were achieving 70-80% ACV [all commodity volume], but more recent introductions have only reached 40% ACV.
“You weren’t able to get the distribution points, which further hampered what you thought you’d do,” he said.
Trends are Improving Across Most of Boston Beer’s Portfolio
After a “hard” and “turbulent” summer according to Credit Suisse equity analyst Kaumil Gajrawala and Goldman’s Herzog, respectively, Boston Beer’s strategy is “to ignore the noise, and just focus on what we’re here for, which is to build the business for the long term,” CEO Dave Burwick said.
The company has become the fifth largest beer category vendor in off-premise scan data year-to-date through October 31, according to IRI, with four of its five core brands are driving growth. Similar to Constellation, Boston Beer had to write down more than $130 million in costs related to overestimating Truly’s growth in the second and third quarters.
“To come up short on inventory was much worse than to come up long on inventory — that was our belief,” Burwick told Benj Steinman. “We wanted to make sure that to gain share you have to be out there in the marketplace. You have to service your wholesalers, and that was the bet we made.”
Boston Beer’s overly rosy projections for Truly’s 2021 performance have drawn class action lawsuits from investors, and for 2022 the company is estimating the hard seltzer segment will grow between 0-10%, which Burwick called “very reasonable.”
Year-to-date through October 31, dollar sales of the Truly brand family have increased 39.1%, to $1.1 billion, according to IRI. The company aims to grow its Twisted Tea family into a $1 billion brand as well. Year-to-date, dollar sales of the 20-year-old Twisted Tea brand family have increased 31.5%, to $574 million.
“It’s a beautiful brand in that it was built the right way to begin with,” Burwick said. “You can keep on layering on top of it in a very healthy way, vs. trying to do something stupid.”
Boston Beer’s innovation plays for next year include Truly Margarita and Bevy, a malt-based, gin-less version of the Finnish Long Drink cocktail. Bevy will be in about 30% of the country by the end of December and will make a push for national distribution by the end of January, Burwick said.
In addition, the first products from Boston Beer’s partnerships with PepsiCo and Beam Suntory will launch next year — HARD MTN DEW and a Sauza-branded, malt-based margarita style FMB. Pepsi will distribute HARD MTN DEW through its new distribution network, Blue Cloud, which has drawn “ire” from some of Boston Beer’s wholesaler partners.
“Pepsi was coming with or without us,” Burwick said. “We believe we can be a more benevolent partner aligned with Pepsi for our wholesale system.”
Heineken, Dos Equis Both Growing; Sampling Key for Heineken 0.0
Heineken USA CEO Maggie Timoney discussed how the company’s three-pronged approach of focusing on consumers and core products and gaining growth through innovation has helped the company gain traction.
“Our strategy is working,” she said. “It’s easy to say to focus on the consumer, but I think at certain times at Heineken USA we may have lost that focus.”
Year-to-date through October 31, dollar sales of the Heineken brand family have increased 0.7%, to $780.9 million, while Dos Equis’ dollar sales have increased 6.2% to $391.2 million at off-premise retailers tracked by IRI. Innovation products driving those brands’ growth include non-alc offering Heineken 0.0 and Dos Equis Lime and Salt and Dos Equis Ranch Water. Expanding distribution on those will boost the company to more growth next year, Timoney said.
“We have a lot of room to grow Heineken 0.0,” she said. “In on-premise alone, we’re only in 40% of the accounts that have Heineken original. We have a very regional strategy in the U.S. Heineken is in the East, Dos Equis is in the Sunbelt. Why can’t those two brands coexist together?”
In test markets, Dos Equis’ brand extensions were able to grow the brand family 10%, she said.
Heineken 0.0 is the leading non-alc beer in the country in both volume and dollars, and has a 30% repeat purchase rate. It has been growing at “high, high, high double-digits for the third year in a row,” Timoney said.
The company had to pause its Heineken 0.0 sampling efforts during the pandemic, but those are back on, including a trial program with meal kit deliverer Hello Fresh.
“The pandemic interrupted us because sampling is key to this brand,” Timoney said. “But we had to zag where others were zigging and just try and do things a little bit differently because it’s easy to cry in your milk. Pandemic was not easy, but we had to just really adapt.”