Anheuser-Busch To Wall Street: Beer Biz Still Has Fizz

by , Nov 30, 2007, 5:00 AM
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Anheuser-Busch management told Wall Street this week that the U.S. beer market has a lot of fizz, driven by consumer demand for beer.

The company, which predicts that it will exceed its own earnings projections for 2007, plans price increases on the majority of its U.S. beer volume beginning this quarter. Speaking to analysts and investors, A-B said it expects to better its 7% to 10% long-term growth targets.

The company touted its portfolio strategy and its selling system upgrade, as well as its marketing. "Anheuser-Busch is clearly better positioned for long-term growth due to these changes than we were two years ago," said W. Randolph Baker, vice president/CFO of Anheuser-Busch Companies, at the meeting.

He said that last year--the industry's best year in the U.S. since 1990--beer shipments grew 2.1%, and so far this year, beer industry growth is up 1.8% through October.

Baker said the company's international beer business is becoming more and more important as an earnings driver, because of the company's 50% investment in Grupo Modelo of Mexico, which owns Corona, the leading U.S. import brand, and its footprint in China, which the company says is the largest and fastest-growing beer market in the world. With a 27% stake in Tsingtao, the company says its Budweiser brand is the leading super-premium brand in China.

Per market research and consultancy firm Mintel, domestic beer volume sales accounted for about 60% of U.S. beer sales by volume last year.

But, although the leading domestic brewers--Anheuser-Busch, Miller Brewing and Molson Coors--account for 88.5% of all beer sales, growth has come from new products and specialty brews, such as microbrews, regional brews, and seasonal brews.

Meanwhile, per Mintel's 2006 report, domestic beer sales--except for light beer--were flat on a volume basis between 2001 and 2006, although the market grew 23% during that period. Domestics lost 3.5% percentage points in market share during that time to imports, wine and spirits.

The consultancy says regular domestic (i.e., excluding light beer) beer posted a 19% decline between 2001 and 2006. High-end beers from the likes of Boston Beer, Sierra Nevada, New Belgium Brewing, and specialty brews from major brewers like Anheuser-Busch saw growth.

Mintel predicts that growth will be 18% at current prices, which represents a decline of 1% at constant 2006 prices between 2006 and 2011.

The firm says the beer industry spends over $1.2 billion each year in traditional advertising, but consumers don't necessarily respond to the often sophomoric tone of beer ads. Mintel says less than a third of respondents to its fall 2006 survey, who bought beer in the preceding month, liked the way the beer they drink is advertised.

The firm said a higher percentage will buy a beer at retail that they have tried on-premise than a beer they see advertised.

The firm predicts that the market will see more beers targeted specifically at women, "health" positioning, more adventurous flavors, and convenient packaging. The over-55 population will grow 14.2% between 2006 and 2011--from 68.7 million to 78.5 million. People in this age group are less likely to consume alcohol or beer. The domestic light beer segment will face stiffer competition from imported lights.

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