We’ve seen the economy take a massive hit from a virtual freeze in so many industries and small businesses. There are areas seeing sales boosts, while lack of guidance creates a murky image of what’s to come. The same is true for the beer industry. It’s hard to predict anything in terms of earnings for the big names. What we can look at are the sales trends.
Overall Sales Trends in Beer
The U.S. actually saw a boom in overall sales once the pandemic began to reach our homeland. CNN Business reported there was a 55% year-over-year bounce in alcoholic beverage sales in the third week of March. Perhaps the biggest beneficiary was beer, which enjoyed around a 90% increase in 24 and 30 packs in that same week, as consumers stocked up for a stay-at-home order.
According to the National Beer Wholesalers Association, the lack of on-premise sales (breweries, bars and restaurants) as a means of distribution could result in $8 billion in losses through June. This is another example of the double-edged sword of economic strength versus public health. Lester Jones, the association’s chief economist, said that the fallout will not be compensated by off-premise purchases such as grocery stores.
Off-premise sales are a different story. According to information put together by Brewbound.com from various sources, the week ending May 2 was actually the biggest week of the year so far for off-premise sales. It included a 28.1% increase on a dollar basis to $966.8 million. That’s more than 2019’s fourth of July week. Cinco de Mayo did play a factor, but demonstrates that the appetite for beer is still there. Still, it’s not enough to make up for the on-premise fallout.
A Return to the “Lite”
Based on information from data analysis firm InMarket, some notable brands that have done well are Bud Light, Miller Lite, Michelob Ultra and Natural Light. That certainly bodes well for Anheuser-Busch Inbev (BUD) - Get Report after it had already experienced a loss of $285 million in revenues attributed to a drop in demand in China. The king of beer pulled its 2020 guidance altogether back in March.
The strength of light beers can be attributed to time and quantity. These are more budget-friendly beers than most craft counterparts. For those stocking up, they were more obvious choices. While it helps the big names, it doesn’t necessarily translate to financial success.
Molson-Coors (TAP) - Get Report also pulled its guidance; citing unclear impact. The brewer advised that 23% of its 2019 business was from bars and restaurants. That opens the door for a tough fiscal 2020.
Constellation Brands (STZ) - Get Report, one of the big names in the alcohol industry, put forth for its fiscal 2021 year during its fiscal fourth quarter results, but declined to provide revised guidance for the year; making very clear that any attempt to estimate earnings per share would be futile at this point. Ironically, the company has had strong sales for its brand of Corona beers. Two weeks ago, Constellation CEO Bill Newlands noted that data showed their Corona brand up 20%.
Craft beer is an area that seems to have been disrupted the most. When you consider the sheer number of microbrews that rely on having customers in their establishments, the outlook is grim. The higher prices of craft also come into play. Boston Beer Co. (SAM) - Get Report, one of the kings in craft, pulled guidance and reported falling volumes in both its Sam Adams and Angry Orchard brands, because they rely more upon on-premise sales.
Strength of Scale
There’s a certain advantage that large public companies inherently have in this unique economic situation. Even in the case of craft, Boston Beer Co. has an edge. It can raise capital through the markets if need be, and spread its distribution more strategically. Small craft brewers don’t have that option. The ones that are reliant on direct sales through their own establishments certainly face far more dire odds than the large public companies that can lean on the off-premise category a bit more. Craft breweries that utilized taprooms across the country were not cut out for losing their ability to sell directly to customers. Microbrews that relied on on-premise sales will struggle with this in a way that bigger rivals won’t.
An exception on the small-scale side has been East Island Brewing Co. A relative newcomer to the beer scene, the company focuses on the premium light beer category through its “island brands.” It’s a unique situation, as most startups are usually operating within the craft scene.
Founders Scott Hansen and Brandon Perry, and top management Sydney Janes said East Island's on-premise sales are down 100% but that is being compensated by the retail increases, and making for a net zero on total sales. The company has made some adjustments to their full-year guidance in the hopes that it can be made up when on-premise and retail returns.
In an effort to ensure things continued smoothly on their vital retail front, some of their staff, including the founders, took to stocking store shelves themselves.
It speaks to just how much work it is taking for a smaller player to just stay in the game.
So, What’s Going to Happen?
This is a time that could induce meaningful consolidation within the industry. With a sudden heavy shift to increased sales of lighter beers, this is likely a win for bigger companies that can withstand the financial blow, and gain market share in the process. It’s a bad time for beer businesses that are heavily focused on smaller markets, or rely heavily on on-premise sales.
It doesn’t seem that the country will reopen in an even pace. That’s going to pressure the smaller players. Even with government stimulus, those that aren’t well capitalized could have a very hard time competing.
A lot of consolidation in the craft beer scene is very possible. We’ve seen the number of brewers in the U.S. skyrocket in recent years, totaling well over 5,000. That stretches market share over a progressively larger base. For public companies like Boston Beer Company, closures could actually help them over the long-term if it “thins the herd” so to speak. Let’s not forget that the big boys like Anheuser-Busch do in fact own a great many craft products. With their economic advantage, they can push them in a way that smaller businesses can’t.
Along with the apparent boosts in more traditional product names like Bud Light and Miller Lite, this whole situation might be a score for the big guys, and could structurally alter the beer industry at a time when it was struggling against things like the rising popularity of seltzers and liquor.