Regular beers sector (premium and light premium beer chiefly) facing difficult situation (declining demand) in US market due to shifting of consumers’ taste caused by changes in demographic factors and their lifestyles. Demand in international market seems to still be better than US market as indicated by sales volume and price/mix.   

Sector’s current, trend, causes behind trend, and future

Current and Trend

• Better beer sector (over premium) had experienced growth for years.
• Companies have experienced continuing decrease in demand for premium and light premium beers in the past several years in US domestic market and caused intensive competition inside the sector.
• Demand may be shifting away from global brand and to more local and regional brands.
• Still strong demand from international market seems to be drive companies to go forward.
• Competition has also been intensive from outside of sector including local alternative beer products and other alcohol products.
• Consolidations among mass-produced brewers, who focus on premium beers, have been taken universally as a way to deal with declining demand and the resulted pressure on margins and maintain price.

 

Causes behind the trend

• We believe there are several fundamental factors behind the current trend:
• 1. Demographic changes among consumers ( aging population)
• Consumption of beers by aging population who were probably the major consumers for premium beers decline as people are getting old. And at the same time, young people prefer high quality and better taste craft and other over premium beers than their fathers and grandfathers. (Data indicates that teenagers may be the major driver behind the growth in craft or better beer sector).
• Older people, compared with younger people, usually have more stable income and stronger economic support and thus are more likely to shift away from premium beers to high alcohol and high quality products such as craft or wine and spirit products.
• Decreased demand for premium beers worsen the competition among mass-produced brewers whose revenues come mostly from sales of premium beers. For example, the brewers have to spend significantly on marking. While Synergy saving resulted from those consolidations could be significant, controlling price, which otherwise may have to shrink under the pressure of competition, presents the major reason behind intensive activity of consolidation among mass-produced brewers.
• 2. Challenging economic conditions
• People with income in middle or lower range are the majority of premium beers consumers but also more vulnerable to the impact of challenging economy. Therefore, they are more likely to reduce their consumption for beers or downgrade their consumption to cheaper beers facing downturning economy.
• It seems that the challenging economy had little or no impact on craft consumers who are usually young or people with high income.
• 3. Local or regional brewers compete with global brands.

 

Industry Future

• We believe the trend in premium beer sector of US market will continue since demographic factors behind it will still exist in the future. Recovery of economy may help premium beers brewers to slow the process of losing their customers. However, it will not be able to change this trend.
• The pace of consolidation in this sector will continue since companies’ margin in US market may not be able to be improved with the pressure of declining demand.

General Financial Performance of Companies In the Sector

This is a downturning sector in which all major beer makers have suffered from considerable declining demand in the past several years while have trying to raise price to offset the decreased volume. Since 2017, the trend in US beer market has continued worse as indicated by more than 3% annual decrease in sales volume. However, the decrease in US market seems to have been largely offset by increase in demand from international market. The major reason behind the trend can be explained with economy and changes in beer drinkers’ lifestyle (shifting to premium product and service).

While continuingly declining sales volume in US market hurt companies’ profitability, rising price, especially largely rising price in international market, and improved operation efficiency as a result of active consolidation helped some of major players in this sector successfully improve their margins. The average gross margin of typical companies is about 46% with 24% SG&A/sale. The average operating margin is about 22% (2018). The increasingly intensive competition also caused additional spending on selling and marketing. 

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