Independent Beverage Group

Changing Tastes Push Brewers to Joint Venture

By Joyzelle Davis
Quoted From: Rocky Mountain News
Back to News October 13, 2007

Even when watching the Rockies play at Coors Field, Tina Anderson would rather hunt down a Corona than buy the ballpark's namesake beer.
"I don't like the flavor" of Coors, said Anderson, a Denver theater set designer. Outside the ballpark, she's more apt to reach for a glass of red wine or a Jack Daniels and Coke.
The changing tastes of American drinkers are part of the reason Miller Brewing's parent company and Molson Coors Brewing this week agreed to create a venture that would claim 30 percent of the U.S. beer market

While beer still far outsells other alcoholic beverages, its share of the market is slipping. Beer captured 52.4 percent of retail sales last year, down from 54.6 percent in 2001, according to research firm Adams Beverage Group. Meanwhile, a thriving cocktail culture pushed up distilled spirits share by 2.3 points to 32.9 percent in the same five-year period, while wine remained steady at around 14.8 percent.

Even within the beer segment, the Big Three of Coors, Miller and Anheuser-Busch are losing ground to craft beers and imports like Corona.
"It's a trend throughout beverage alcohol, including wine and spirits. People are trading up to more luxury items," said Eric Schmidt, research director for Connecticut's Adams Beverage.

The proposed MillerCoors venture would have $6.6 billion in annual sales and would generate cost savings of $500 million, to come in part through the elimination of duplicate jobs and back-office operations and the lowering of shipping costs.
"More money gives you a better ability to compete, period," said beer industry consultant Joe Thompson, president of Independent Beverage Group.

The deal comes as both Coors and Miller are putting more effort into creating brews for drinker's changing tastes. While craft brews are only about 5 percent of the U.S. market, they were the fastest-growing segment last year with a nearly 18 percent sales increase, according to Information Resources.

That surge is echoed in the success of this weekend's Great American Beer Festival, which features 474 breweries in competition, 24 more than last year. The hoppy, slightly bitter American-style India Pale Ale has the most entries of any category with 120 contestants.
The American Pilsner beer style that Coors, Miller and Anheuser Busch all make is a lightly-flavored, delicately balanced beer that doesn't require the drinker to acquire a taste.
"That's one of the reasons it appeals to the masses," said Kevin DeLange, owner of Dry Dock Brewing in Aurora, which won a gold medal at the World Beer Cup. While a drinker might not initially like the distinctive bite of a craft beer, once they're hooked "it's hard to go back to industrial, watered-down beers."

Coors, Miller and Anheuser Busch are all adding to their beer portfolio. Anheuser in recent years purchased stakes in specialty brewers Red Hook ESB and Widmer Hefewizen and rolled out its own organic Wild Hop Lager and Stone Mill Pale, while Coors' coriander spiced Blue Moon Belgian White has posted double-digit sales growth. Coors created a new subsidiary, AC Golden Brewing, to develop other specialty brews that grow on word of mouth rather than expensive TV ad campaigns.

"Blue Moon is one of the hottest beers we've had in the past few years," said Joe Peters, beer manager at Applejack Wine & Spirits in Wheat Ridge.

Countering the growing popularity of cocktails might be a tougher challenge for Coors and Miller. Analysts point to the launch of Grey Goose vodka 10 years ago with kicking off the prestige spirits trend. Last year, so-called "super premium vodka" grew the fastest of any distilled spirit, posting a 43 percent increase to $782 million in annual sales. Sales of premium vodkas, high-end rum and bourbon also soared.

Drinkers in their early 20s are more experimental than previous generations, Adams' Schmidt said, and are swilling single-barrel bourbons or splashing Patron tequila into their Margaritas while older Baby Boomers are sipping wines and cognac instead of beer.
While beer accounts for 85 percent of the U.S. alcoholic beverages market, beer makers are "definitely paying attention" to their eroding market share, Schmidt said.
At Applejack, the liquor store underwent a major renovation eight years ago to accommodate the explosive growth in wine labels, craft beers and liquor while keeping shelf space the same for Coors, Bud and Miller.

The traditional American beer makers "still do wonderful volume every year," Peters said. "But there are a lot of affluent people who are now buying the $15 to $20 wine or craft beer instead.