Beer battles to come: A-B won the domestic beer wars of the 1990s, but now faces new, more agile opponents

Modern Brewery Age,  March 31, 2003  

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Imagine a bunker deep below Anheuser-Busch's St. Louis brewery sometime in the late 1980s. Anheuser generals are plotting strategy for the coming beer wars. Their strategy must include the defeat of the weak Stroh/Heileman axis, and the marginalization of Miller and Coors.

Anheuser-Busch may not have a bunker, or generals, but the beer battles of the 1990s were decisively won by the St. Louis-based brewer. By the end of the 1990s, Stroh and Heileman were gone, and Miller had lost all momentum (Miller entered the 1990s selling 43 million barrels, and left the 1990s selling 43 million barrels).

In the beer skirmishes of the new millennium, A-B has been similarly successful. The numbers in the accompanying charts speak for themselves. Miller is now in decline (a point conceded when Philip Morris decided to sell) and Coors has hit the wall domestically and is looking abroad for growth.

Anheuser-Busch sold a record 101.8 million barrels in 2002, picking up 2.3 million barrels. It was an astonishing performance in an environment where ever fewer barrels are up for grabs. Some of those 2.3 million barrels were seized from Miller, some from Pabst, and some were new business. Bud Light is still cranking, counterbalancing a Budweiser that is in gradual decline.

Number two Miller Brewing Co. dropped to an estimated 39,660,000 barrels (not including Leinenkugel volume) a decrease of 1.6%, Miller's core brands are not setting the world on fire, to be sure. Lite and Genuine Draft dropped a bit last year, and High Life was flat or slightly down. If the conventional wisdom about declining beer brands is correct (that they can't be turned) then Miller is in some trouble.

Coors lost a few barrels domestically but doubled its overall volume with the purchase of Caning in the U.K. The decision to buy Carling surprised many analysts. Anheuser-Busch has been trolling European waters for years, and has yet to make a move quite so decisive. The Coors Light franchise is healthy, which gives Coors some domestic breathing room. Unfortunately, Coors is still stuck in a box, a distant number three.

Last among the top brewers, the Pabst of today is becoming a non-entity in the brewing industry--a contract producer that is harvesting vestigial value from a portfolio of declining brands.

A weak Miller, a static Coors and a declining Pabst. So who's left to compete with A-B? And where will A-B's growth come from in future?

The industry will benefit from improved consumer demographics in the coming years, which will grow the overall market. Historically, however, A-B's growth has been fueled by the decline of weaker competitors. If history is a guide, A-B's future growth will coincide with the continued decline of other big brewers, namely Miller and Pabst.

The beer wars of the 1990s spanned a period from the late 1980s until the turn of the new century. The decline of G. Heileman and Stroh were the defining events of this period. Back in 1988, Stroh sold 20 million barrels of beer and Heileman sold 15 million barrels. Both companies hemorrhaged barrels through the early 1990s. By 1993, Stroh was selling about 12 million barrels, and G. Heileman about 8.5 million. These smaller numbers define the Stroh Brewery Co. and G. Heileman we remember most clearly, the much-reduced companies that gradually faded from the scene.

But in 1988 and 1989, Stroh and Heileman were still big--selling a combined 35 million barrels. And, as Stroh and Heileman lost barrels--a million or two a year, for years and years--these barrels were shifting to A-B, Miller and Coors. Back in 1988, A-B was selling 78,500,000 barrels. Over the course of the next 15 years, 22.5 million lost barrels of Stroh and Old Style ended up in A-B's column.

In truth, Stroh and Heileman were easy targets. Stroh lacked the resources to compete on a national scale, and G. Heileman was a fragile house of cards. A-B now faces a less fragmented and more dynamic set of competitors, made up of the new Miller, Coors, the imports and the U.S. third tier.

The U.S. third tier is in surprisingly good shape. The bellwethers are the larger, established craft brewers: Boston Beer was up 8% in 2002; D.G. Yuengling up 19%; Sierra Nevada up 4%; New Belgium up 11%; Widmer up 10% and Deschutes up 12%. These players have a solid handle on their part of the high-end market, with approximately 3% of national share.

The imports, for their part, have transformed the U.S. beer industry. In a sense, the rise of imports has spurred the internationalization of the U.S. beer industry, a development that places U.S. brewers in competition with some very resourceful and wealthy opponents.

The 1990s saw a shift from relatively small independent importers to much larger entities. A top-ten beer seller ranking for the U.S. industry would actually bump the smaller U.S. brewers from the list. The pentagon of Heineken, Labatt U.S.A./Interbrew, Gambrinus, Barton and Guinness each control about 4 million barrels. These importers have essentially become the second tier of the U.S. brewing industry, and they are growing.