PORTLAND, Ore. (TheStreet) -- Before the World Cup kicked off earlier this month, U.S. team captain Clint Dempsey lent his image to just two beer ads -- produced by Anheuser-Busch InBev (BUD), one was for U.S. Soccer and World Cup sponsor Budweiser and another for Mexican brand Modelo Especial.
Guess which one is seeing sales explode in the U.S.? We'll give you a hint:
Budweiser has lost about 30% of its sales since the earliest days of the economic downturn in 2007. It has slipped to the No. 3 beer brand in the U.S. with less than 8% of the overall beer market and fewer than 17 million barrels of production. That's massive when compared to the roughly 3 million barrels produced by a small brewer like D.G. Yuengling & Sons, but disappointing compared to the 50 million barrels and 25% market share Budweiser boasted in 1988. Modelo Especial, meanwhile, poured only roughly 3.6 million barrels worth of its beer into the U.S. last year, but that's a 64% increase from 2010 and includes double-digit percentage point increases for every year since.
It's far from alone, either. Stablemate Corona Extra has seen its U.S. production rise slowly but steadily from 7.17 million barrels in 2010 to 7.26 million last year. That's more beer than Yuengling and Samuel Adams producer Boston Beer Company (SAM) sell in a year combined and is just shy of Heineken's entire U.S. portfolio, which includes Mexican brands Dos Equis, Bohemia, Sol and Tecate. Throw in 435,500 barrels of Pacifico -- which is equivalent to a craft brewer roughly the size of Bend, Ore.-based Deschutes Brewing and Petaluma, Calif.-based Lagunitas combined -- and that makes parent company/importer Constellation Brands the third-largest player in the U.S. beer market. Only A-B InBev and SABMiller/MolsonCoors (TAP) joint venture MillerCoors produce more, though each of those two has seen U.S. sales -- and sales of their light lagers in particular -- fall steadily since the recession.
That success helped push A-B InBev to purchase Grupo Modelo for $20.1 billion last year, but it also prodded the Justice Department into preventing it from importing those products to the U.S. and distributing them here. That task fell to Constellation Brands, which took over a new Modelo brewery near the U.S. border and rode its newfound riches to a nearly $2.3 billion spike in sales.
So what's the takeaway here? Every brewer in the U.S. has something to learn from their large, lager-brewing Mexican counterparts. As we mentioned about a week ago, lager is still a dominant style here and Mexican brewers have managed to expand its popularity while sales of every U.S. lager short of Coors Light and Pabst Blue Ribbon tank. Even craft beer has embraced lager to an extent, but not with nearly as much fervor as the Mexican brewers.
It's a shame, because there's a lot about Mexican beer and its brewing tradition to love. Mexico's indigenous people brewed beer and the Spanish brewed European-style beer after Hernan Cortez arrived in the early 1500s, but it took the arrival of German immigrants and the dawn of the Second Mexican Empire under Austrian Maximillian I in the 19th century for beer to really make its start here. The Germans, Austrians and Mexicans gave the country its trademark light lager and its take on the darker Vienna Lager that exists to this day as Dos Equis Amber, Negra Modelo, Victoria and Bohemian.
U.S. drinkers got their first taste of Mexican beer during Prohibition, when Mexican bars and brewers had no problem selling their own product to their dry neighbors. Similar to post-Prohibition U.S. brewers, popular styles took off and breweries consolidated. However, by the end of the 20th century, Mexico had become one of the world's leading beer exporters largely on the strength of the U.S. market. By 2003, it was the No. 1 beer exporter in the world.
But U.S. brewers have never really understood what to do about their Mexican counterparts' popularity. Their first answer was to add "lime flavor" to everything, which led to disastrous efforts like MillerCoors' Miller Chill (discontinued last year) and A-B InBev's Tequiza (discontinued in 2009). A-B's Bud Light Lime was somewhat more successful, but saw sales drop 11.4% through October of last year as actual Mexican brands gained ground. A-B has tried a Bud Light Lime Chelada -- with Clamato -- and Lime-a-Rita and Straw-Ber-ita malt beverages, but only the latter have gained any traction.
Short of buying up a brewery like Modelo, however, there are other ways to embrace Mexican styles without dumping flavored corn syrup into lager. Longtime Denver-based craft brewer Ska Brewing makes a 5.2% alcohol by volume lager modeled after Pacifico called Mexican Logger that comes in cans and drinks in the same refreshing, inoffensive fashion. Upslope Brewing in nearby Boulder, Colo., briefly made a version of its craft lager called Top Rope for the Big F restaurant chain and billed it as a traditional Mexican lager. Then again, Denver's Del Norte Brewing focused specifically on Mexican-style lagers before closing in 2012.
But that's the issue. The secret isn't to ape Mexican-style lagers, drape them in Mexican-branding and do some Cinco de Mayo one offs. It's to embrace the same traditional styles that Mexican brewers find such success with and run with them. Samuel Adams, for example, still draws much of its strength from its flagship Boston Lager, which is a take on the Vienna Lager and is just a few hops removed from a beer like Negra Modelo. No matter how broad its portfolio gets, Boston Lager finds its way into each variety pack. Louisiana brewer Abita's Amber is one of that brewery's stronger beers and is a spiritual cousin to Dos Equis Amber. Cleveland-based Great Lakes Brewing's Eliot Ness Amber is not only one of the cornerstones of its lineup, but a great Vienna lager in its own right.
From Bolero Snort brewery in Ridgefield Park, N.J., and its black and amber lagers to Yazoo Brewing in Nashville, Tenn., and its light Dos Perros brown ale, an increasing number of brewers are starting to embrace the beer market's mild middle and give drinkers the mellow beers that brewers across the border have been offering for years. Demographics may change and beer tastes may change, but the pendulum always swings back to the center. Mexican beers are meeting U.S. drinkers at that halfway point between staid light lagers and overwhelming imperial IPAs and stouts. It's about time U.S. brewers reserved some of that space for themselves.
-- Written by Jason Notte in Portland, Ore.
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