As consumers face higher costs for nearly everything they buy, there have been reports of shoppers trading down to cheaper brands in different food and beverage categories, including beer. But not all beer makers are seeing a wholesale switch to economy brands.
The $100 billion beer industry has faced significant disruptions in recent years, including rising demand for spirits, wine, craft beers, Mexican imports, low- or no-alcohol brews, and ready-to-drink products such as hard seltzer, and more recently, canned cocktails. The economic turmoil has further upended the industry and prompted the beer giants to more closely assess the product mix for their higher-end, mid-tier and lower-priced offerings. Inflation could even be a boon for the industry.
Here’s what four beer CEOs say about the state of the two sides of the beer category — economy and premium — as well as the industry overall, as a recession looms.
Molson Coors’ strength in premium and economy beers
Few companies have experienced this dichotomy as much as Molson Coors.
The beer giant said its U.S. economy beer portfolio, which includes Miller High Life and Keystone Light, had its best quarterly performance versus the industry in three years. At the same time, Molson Coors’ above premium brands, such as its hard seltzers, Simply Spiked Lemonade, Blue Moon and Peroni’s, hit a record high portion of its global portfolio net sales revenue on a trailing 12-month basis.
“We do continue to see trade-up in our portfolio and in the industry across our major markets,” Gavin Hattersley told Wall Street this week. “But it’s also true and notable that the economy segment is strengthening in the U.S. and three of our four key economy brands grew segment share in the second quarter.”
Since taking over the top job at Molson Coors in September 2019, Hattersley has moved to premiumize the company’s products. This includes the rollout of Coors Pure, its first USDA-certified organic beer, and Light Sky, a lower-calorie version of Blue Moon.
The move has given its portfolio more higher-end options to complement Miller Lite, Coors Light and Coors Banquet in the middle and brands like Keystone and Miller High Life in the lower-priced segment — a portfolio mix that gives greater choice to consumers and allows Molson Coors to adapt its brands “regardless of the economic climate,” Hattersley said during the call with analysts.
“If [consumers] do trade down, we’ve got brands that are ready and waiting for them,” Hattersley told Food Dive in May.
Heineken: Inflation not impacting beer consumption
Dolf van den Brink, who oversees Netherlands-based Heineken, told analysts on Monday that so far the company is “not seeing” any impact on beer consumption from inflation.
He said beer volumes remain “very healthy … across the board,” with premium up more than 10% and its namesake brew jumping 14%. Van den Brink said compared to 2019, beer volume at Heineken is up anywhere from low- to high-single digits in each of its four regions.
It’s “interesting to see the continued trends on premium beer, which is accelerating rather than slowing down,” the beer executive noted. “We’re seeing resiliency in the beer category at large. … At the same time, we’re not naive, and we are deliberately cautious and vigilant for the short and midterm.”
For now, he said, there is growing evidence that the consumer “wants to get out and drink beer” and that for the short term at least, the outlook is “bright.”
AB InBev says premium growth ‘not slowing down’
AB InBev’s CEO Michel Doukeris said in late July the company behind Bud Light, Michelob Ultra and Shock Top is carefully watching each of its markets to assess consumer demand and the value proposition of its brands. So far, he said beer continues to grow globally and gain share in most of the relevant markets.
Doukeris told analysts that in the U.S. and globally, premiumization is “not slowing down.” Still, the former head of AB InBev’s U.S. operations said sales of brands like Busch Light — which is one of the top growth brands in America and has been strong for several quarters — continue to accelerate. The momentum in Busch Light is unlikely to come from short-term pressure on consumers to trade down and more from an interest in the brand.
“I would say that on a consolidated view, and even specifically in the U.S., we don’t see now signals of trading down or slow down,” Doukeris noted. “Historically, though, we know that beer is very resilient. That consumers trade out of some categories, but not really beer because of its affordability.”
The beer category, including premium brews, could be a bigger beneficiary from higher inflation as people gravitate away from more expensive beverages, he said.
Constellation Brands: Shoppers buying more beer
While many beer companies have struggled during much of the last decade, Constellation Brands, the company behind premium offerings such as Modelo Especial and Corona Extra, has thrived. The recent climb in inflation hasn’t derailed the alcohol firm’s ongoing success.
Constellation’s buy rate — defined as how much consumers are spending on its products, multiplied by the number of trips they make to the store — is up compared to pre-pandemic levels, CEO Bill Newlands told analysts in late June. The company maintained its position as the top supplier of high-end beer in the U.S. and achieved depletion growth of almost 9% in the quarter. Depletions are a measure of sales to retailers by a distributor.
“While consumers are reporting increasing concerns about the economy, these concerns have not yet translated into significant behavior change for beverage alcohol shoppers, particularly for our major brands,” Newlands said.
Overall, total beverage alcohol servings per capita in the U.S. are expected to remain stable, with growth of 1% to 2%, he said.