Michaelís Consumer Column
Trading Down for the Likes of Two Buck Chuck and Trading Up for a $14 Belvedere Martini
We know that consumers like to treasure hunt for wine and spirits (trading down for the likes of Two Buck Chuck and trading up for a $14 Belvedere martini), but more and more, they are treasure hunting for that other staple of "mood elevation": beer.
Beer is a maturing product category in the United States. The big three competitors (Anheuser-Busch, Miller Brewing, and Molson Coors Brewing) are sophisticated, aggressive marketers with mega-advertising budgets. Their customers are increasingly sophisticated and unresponsive to traditional heavy-weight media such as television, radio, and print advertising. The category has been seeing growth at the low end (budget beer) and growth at the high end (microbrews and imports) for a long time. The premium full-calorie market has been in decline for 30 years, although the premium low-calorie market still has some growth potential. The market in the middle is as flat as a two-day-old can of Bud Light.
For each of the competitors, the challenge is clear: How do I take advantage of this segmentation of the market in which smaller groups of consumers are looking for very specific kinds of engagement with the beer they buy and drink? How do I do that without losing scale, incurring the cost of complexity that always comes from serving many different segments, or confusing my distributors?
Anheuser-Busch faces the toughest challenge. It has the biggest distribution system and is deterministic in its approach: what A-B says, distributors are expected to do. For many years, this very successful strategy has fed the company's market share growth. Now the market has shifted, and A-B will need different skills to achieve growth: dexterity, speed, adaptiveness, and invention. These are not currently the words anyone would commonly use to describe the nation's largest brewer.
Some of the market share that beer used to own has been captured by wine. As consumers grow older and become more sophisticated in their drinking knowledge and habits, they are increasingly turning to Pinot Noir, Cabernet Sauvignon, and Chardonnay. A large "bubble" of drinkers who were wine neophytes in their earlier years have discovered "call drinks" and wine exploration. This is an example of intercategory competition. People still seek mood elevation, but many now look for it in a more complex and interesting package than a 12-ounce can.
I don't believe that this is the end of the road for the big three beer makers. But it is a wake-up call for their leaders. It's time to segment the market: Create the distribution system that can economically land a complex set of SKU's. And invent new products that deliver technical design and functional benefits, elevating consumers to a more satisfying emotional space—where they can feel sophisticated, worldly, and hip.
Beer is just one example of the impact of a consumer-driven economy.