Pour One Out for the Fading American Beer Industry

(Bloomberg) -- At a recent frat party in the backroom of a Manhattan bar, beer was scarce. Students were instead sipping a more popular concoction that might make some drinkers' stomachs churn: tequila with soda water.

James Houk, 21, was drinking a gin-and-tonic. The Columbia University senior's friends say they'll still buy a 30-rack of Natural Light for games like beer pong or the rare tailgate at the urban Ivy League school, but his crew generally sticks to liquor when they're out. “It's more bang for the buck,” he said.

The lack of lager at an off-campus rush party is just the latest sign of what the numbers have been hinting at for years: Americans, drunk with options, are turning away from beer at an alarming rate. U.S. alcohol consumption dropped in 2018, the third straight year of declines. The main culprit is the beer slump, with consumption of the classic American adult beverage down 2.8 percent since 2015. That's despite continued growth for craft beer, which saw consumption jump nearly 15 percent in the same period, according to data from IWSR, which studies global alcohol trends.

Beer has a lot going against it for today's consumer, especially carbs and calories. The industry has struggled for years to attract female customers, and while a cold beer is still the drink of choice at a baseball game, there are a lot of alternatives these days for discerning drinkers. It's a similar story to what's been happening elsewhere in the grocery store: classic brands that dominated shelves for decades—think Kraft Heinz—have been losing sales to upstarts as options proliferate.

The new pressure beer's facing was particularly evident during the 2019 Super Bowl. Rather than the iconic talking frogs or Bud Bowl commercials that delighted fans in the 80s and 90s, the most memorable beer ad this year was from Bud Light calling out rivals for using corn syrup in their brewing processes. Farmers got mad, Coors Light and Miller Lite both defended their ingredients in a heated Twitter battle, and eventually, Bud Light backed off.

It was an unusual episode: big beer companies having the type of debate about ingredients you might expect in the aisles of Whole Foods. It all felt a little serious for the beer world, which typically likes to position its products as the life of the party. And it hinted at the air of desperation that is floating over the U.S. industry as consumption slides and the largest brands languish amid pressure from hard seltzer, wine and even legal cannabis.

“It felt like grasping at straws,” John Dick, who runs the research and polling firm CivicScience, said of the Super Bowl skirmish. “It wasn't aspirational—it was marketing about being less bad than the other bad things.”

The numbers are bleak for America's biggest beer brands. Bud Light, which is by the far the most popular beer in the U.S., saw its sales drop 17 percent between 2012 and 2017, falling to $14.5 billion, according to Euromonitor International. Coors Lite, Miller Lite and Budweiser have also been losing market share, a trend that continued in 2018, according to IRI data.

A pullback in beer consumption from the youngest drinkers is particularly to blame. While hangovers have never been popular, there's a growing sense that Millennials and the Gen Z consumers who come after them have less of a tolerance for feeling terrible the next day. It's hard to include getting drunk in an active lifestyle: Work starts earlier, and on the weekends, living life on social media means getting out of bed to go hiking or running or rock climbing in the hopes of grabbing a perfect picture for Instagram.

Chloe Le Comte, a 24-year-old marketing analyst in Seattle, said she only has about one drink a month. She didn't grow up around booze and didn't see the point of getting drunk when she got to college. She likes being active and doesn't want to waste her calories on vodka. “I could have a McFlurry instead,” she said.

One of Le Comte's friends from college, Calvin Jennings, calls himself a craft beer snob. But lately, he says he finds beer makes him feel “full and sleepy.” These days, he prefers to have a couple spiked seltzers—a fast-growing alcohol product that he's noticed being marketed to “athletic men.”

Some big beer companies have noticed the trend toward healthy living and tried to take advantage. Michelob Ultra, a sibling of Bud Light in the Anheuser-Busch InBev SA's portfolio, saw its sales jump more than 80 percent from 2014 to 2017 to about $4.7 billion. A 12-ounce bottle packs 95 calories and 2.6 grams of carbs. Originally targeted at “active boomers,” the beer that hit shelves in 2002 just as the Atkins Diet took off ultimately broadened its marketing to go after athletes, with sponsorship of races and triathlons a key piece of the strategy. Anheuser-Busch last year launched Pure Gold, an organic Mich Ultra that has 10 fewer calories.

Not wanting to miss out on the wellness trend, Bud Light has added labels clearly calling out its four recognizable ingredients. Miller Lite, which popularized the “tastes great, less filling” slogan in the 1980s, has also leaned in, running ads on the back cover of Shape magazine that emphasize its 96 calories. 

In the U.S., AB InBev has been trying to reinvigorate Bud Light and Budweiser, known colloquially as “Bud Heavy,” and Chief Executive Officer Carlos Brito said this week those brands performed better in 2018. And there are signs the company's Bud Light marketing is resonating with NFL fans, who've added the phrase “dilly, dilly” from the commercials' fictional medieval universe to their lexicon. But there's still an uphill battle ahead, and the calorie conversation is a tacit acknowledge that beer has an image problem, according to industry observers.

“They call it a beer belly for a reason,” CivicScience's Dick said. “There's nobody out there who says beer is good for you.”

There's also another low-calorie way to unwind after a hard week of work: getting high on legal weed. As cannabis legalization spreads across the U.S., pot is viewed by many modern consumers as healthier than alcohol, particularly among younger cohorts. So far, the alcohol industry has insisted that weed isn't a threat, but beer may not be as immune as wine or whiskey.

To be sure, pot has been around for a long time, even if it is harder to obtain on the black market. Still, it's no accident that many of the world's largest brewers have partnered with Canadian companies to experiment with cannabis beverages. Beer has taken a hit in states with legal weed, and while wine and booze sales have held steady, there could be a bigger problem brewing for the alcohol industry, according to John Kagia, an analyst at New Frontier Data, a cannabis research firm.

For years, alcohol consumption followed a steady path as adults developed drinking habits: cheap beer in high school and college, better beer after getting a job, maybe $10-a-bottle wine for early adulthood dinner parties and then onto more upscale spirits and better wine as age and salary rise. That cycle is in danger of being broken if the new generation of drinkers never breaks through with cheap beer, Kagia said.

“It's a canary in the coal mine,” he said, referring to the beer slump. “It takes a while to develop a palette—the effects might not be felt for a long time, but you're seeing an erosion among consumers who are now able to choose between cannabis and beer.”

To contact the editor responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder

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