GETTING AHEAD

LUCIA MOSES

Southern Louisiana has long been a destination for area hunters, anglers and campers, and three-store Hebert's used to provide them with a steady stream of six-packs when they passed through.

Lately, however, it's been selling the imports and fancy tequilas and other liquors. "They're buying the $40 Petrons," said Ken Mouton, who co-owns two of the stores, located about seven miles from Lafayette.

"I've seen the beer category kind of flatten out and with some distributors, even fall below last year's sales," he said. Today, he added, "I make more money on wine than I do on beer."

Beer is still the leading alcoholic beverage, accounting for nearly 60% of the market. But despite the growth of light and import/craft brews, beer's overall per-capita consumption has declined to 21.6 gallons in 2004 from 22 in 1996, according to Beverage Marketing Corp., New York.

At Thriftway and Red Apple stores in Washington state, domestic beer sales also have declined for the past couple of years. The major brewers have lost young drinkers' attention to craft beers and spirits, said Robert Broderick, merchandising manager for beer and wine at the chain of 60-plus stores. "The 24- to 35-year-olds are just not as interested in those products as the previous generation," he said.

At a time when young imbibers can choose from multiple flavors in the form of flavored malt beverages and sweet cocktails, beer may seem boring. It's more of an acquired taste, and its alcohol content by volume (5%) is lower than that of wine and spirits.

With a new round of upper-end products and marketing campaigns on tap, brewers hope to win back market share.

No. 1 U.S. brewer Anheuser-Busch hopes to leverage the prior success of low-carb Michelob Ultra with Michelob Ultra Amber, a light beer with a dark hue. In the flavored malt beverage category, it's testing an alcoholic fruit drink, Peels, aimed at an upscale female audience.

SABMiller is going after sophistication-seeking older drinkers with a relaunch of Miller Genuine Draft. It's overhauling the packaging and marketing of its big domestic brands, including Lite, Genuine Draft and High Life, while heavily promoting imports.

Like A-B, Heineken also is trying to stand out in the light category. Heineken, one of few imports that pose serious competition to domestic brands, is positioning its new Heineken Premium Light as a higher-quality light beer.

Reaction from retailers, who are just starting to see the new products, has been mixed.

Jungle Jim's International Market in Fairfield, Ohio, recently had a tasting for Heineken Premium Light. "It doesn't taste like Heineken. It has that domestic beer flavor," said David Schmerr, wine/beer director. Customers apparently agreed, and bought, despite the higher price. "We sold about 30 cases on Saturday afternoon," he said. "There was a lot of interest in that new package and style from Heineken. It's a premium price, too. It's $28.99 a case. That's twice the price of Bud and Miller."

Jim Stein, who manages a unit of four-store Stein's IGA in Idaho, said he believes the brewers' new marketing pitches could be helping to revive interest in the category overall. "I think beer's starting to move up a little bit," he said. "The Mike's [Hard Lemonade] and Smirnoff's, those are declining a little bit, and beer's taking a little share back. Some of that's seasonal, though. I just don't know what it's going to be like when it's 80 degrees."

Broderick of Thriftway said it's too early for him to know how Miller's new MGD or Michelob Ultra Amber will do. But he was skeptical about the ability to appeal to young drinkers with an upscale product. "I'm not so sure that's going to resonate with the 25- to 30-year-old," he said. "I don't think you're going to take the Corona drinker and get them to MGD or the craft drinker to drink Ultra Amber." As for Ultra Amber, he said, "I don't think it's got a prayer. I don't think that customer is looking to that brand for that product."

Nevertheless, the brewers are hoping to change perceptions with advertising designed to replace what observers have described as the bland, homogenous messages of the past. "Suppliers are really working overtime to generate some different types of ad messages," said Craig A. Purser, president of the National Beer Wholesalers Association. "Up until a couple of years ago, there wasn't a lot of highlighting the different attributes of the particular brands. It was all about humor, it was all about getting attention. The suppliers are recognizing that doing the same thing doesn't do it anymore. There's got to be a more interesting connect."

Thus, brewers are promoting their attributes, whether it's fresh (A-B), cold (Coors) or taste (Miller). Brewers also are recognizing that while the majority of beer is consumed by males, the purchase decision often is made by women, Purser said.

Brewers also are trying to get people to rethink beer in new way by connecting it with food, through cross-merchandising, recipes and sampling.

Anheuser-Busch's Brewmaster's Bistro, a retail cooking demonstration program, has added Latin, Asian and other foods to cater to the nation's fast-growing ethnic populations.

Specialty brewer Killian's Irish Red is trying to capitalize on interest in specialty beers with a new recipe program. Taking a page from wine, Killian's, owned by No. 3 brewer Coors, developed recipes with a Colorado culinary school. The recipes, along with suggested food pairings, will be made available to retailers for distribution in the aisle. Killian's expected to introduce the program regionally in the summer and nationally in the fall.

Killian's has other in-store efforts under way that apply learnings of its recent effort to gain shopper insights. A surprising outcome was the revelation that about 65% of people who buy beer in the supermarket aren't buying anything else. "They were treating the grocery store like a convenience store," said Coors spokeswoman Kabira Cher Hatland. "They weren't being interrupted by something." Killian's is responding by dedicating staffers to serve major retailers and encourage them to cross-merchandise the beer with dipping sauces and grilling recipes. It's looking to do more programs of the sort that it did with one retailer, where shoppers got a dollar off a steak when they bought a six-pack. Killian's also is now an ingredient in jars of mustard it developed with Plochman's, a premium mustard company.

The Beer Wholesalers Association, meanwhile, is supplementing such company efforts with a campaign to link beer with food. In February, it partnered with TV chef Warren Brown to produce recipes for brownies and cakes containing beer. Also last month, it invited people to enter their recipes using beer to its first Cooking with Beer Challenge. The winner will compete in a cook-off in New York City and win a seven-day trip to Canc·n, Mexico.

Purser, the association president, sees retailers recognizing that beer makes an important contribution to the store because of its purchase frequency. High-end beer, with its association with other fancy foods, provides even more value. For that reason, many retailers are cross-merchandising with food more, at the meat counter and with outdoor cooking displays to suggest beer as an accompaniment with meals, not just chips and dip. "Sometimes, point-of-sale is not best," he said. "I think you're seeing distributors recognizing you're not just competing with the guys in the cold box next door, you're competing with the wine two aisles over."

Food and beverage consultant Tom Pirko compared beer's problems to those facing carbonated soft drinks, whose makers have struggled to deal with soft sales via line extensions and faster-growing waters and energy drinks. He thought such food tie-ins, along with differentiated marketing and more upscale product, are a step in the right direction to turning around beer's image, though.

"There's no reason why people can't come out and say, 'You're going to have a cheeseburger? Miller Genuine Draft would go great with that,'" Pirko said. "If they could find a way to reunite it with food, that would help a lot." Still, he's not overly optimistic. "Consumer demand is a really, really hard thing to change."

Beverage Marketing data show that beer didn't close the gap with wine and spirits in 2005, when beer volume declined 0.2% while wine volume advanced 3.5% and spirits, 3%. The news wasn't all discouraging, though: Beer's performance improved in the second half of the year, led by the acceleration of high-end beer, suggesting the possibility that the category has turned a corner.

The Street has taken notice, too. Bear Stearns recently upgraded its ranking of Anheuser-Busch, saying it was encouraged by recent overseas acquisitions and volume gains, as well as an overall positive sentiment on the category.

Purser pointed out that given alcohol's vulnerability to trends, beer's time is sure to come again. "Americans have always had a fickle view about alcoholic beverages."

Alcoholic Beverage Share

Wine and spirits' growth have outpaced that of beer in recent years, despite heavy discounting by brewers.

Beverage typeCategory ShareCategory Share

2001 2005 (preliminary)

Beer 59.9% 56.9%

Spirits 27.3% 29.0%

Wine 12.7% 14.1%

Source: Beverage Marketing Corp.

Chasing Beer Imports

Beer doesn't get more American than Anheuser-Busch's Bud, the top-selling brew in the United States. But the real action is with A-B's imported beers. The brewer will begin importing Grolsch, a Dutch beer, next month. A-B announced recently it would start distributing Singapore's Tiger beer in the U.S., and it's also increased its stake in Chinese beer.

Other top U.S. brewers also are looking to beers from abroad, whose share of the U.S. beer market have grown to about 12%, from 4% in 1992.

Miller became an international player in 2002 when Philip Morris sold it to South African Breweries. Colorado-based Coors did the same last year when it merged with Molson of Canada to create the world's fifth-largest brewer.

Observers say the globalization of beer is overdue, given imports' strength vs. a stagnant domestic market.

Craig A. Purser, president of the National Beer Wholesalers Association, said domestic brewers' overseas experience will help them compete in a market that's increasingly driven by imports. "You've really got a more international flair coming to this business," he said. "It's going to make these animals better."

Beverage Watch

Wine and bottled water sales continue to rise as consumers demand products they associate with health and good living and shun sugary soft drinks. Sales of convenience-sized bottles led growth in the water segment, while wine's gains were due chiefly to a 5.6% increase in table wine sales.

Category$ sales, % change vs.Unit sales,% change vs.

millions*year-ago millions* year-ago

CSDs$971.4-0.47% 518.5 -4.27%

Milk $844.1-1.68% 338.2 -2.59%

Beer$585.0 1.38% 34.1 -0.26%

Wine$367.4 8.92% 44.9 4.37%

Bottled water $292.2 16.07% 151.6 5.29%

Source: Information Resources Inc.

*Sales in food, drug and mass (for wine, food and drug only) outlets for the four weeks that ended Feb. 19