USA: Beer companies suffer from people choosing import beer over domestic brands

There are signs that domestic beers' traditional hold over the heartland is loosening in favor of imported beers, The Gainesville Sun worried July 26.

A similar shift happened years ago on the coasts, but only in the past five years has it started to take root in the Midwest, home to Anheuser-Busch Cos. of St. Louis and Milwaukee's Miller Brewing Co., a unit of SABMiller.

To be sure, imports still make up a small fraction of beer sales in the Midwest - but their sales are growing rapidly. In Iowa, only 1.7 percent of the beer sold in 2000 was imported; by 2004, imports had jumped 65 percent, to a 2.8 percent share. In Wisconsin, Miller's home state, imports rose 51 percent between 2000 and 2004, to a 5.3 percent share. Missouri, home to Anheuser, saw import consumption climb 21 percent over that same period, rising to 3.5 percent of beer sold.

Even in Michigan, where imported cars remain taboo among some consumers, beer imports recently accounted for 16.1 percent of supermarket sales, according to research firm ACNielsen - the biggest such share of any Midwestern state. By contrast, beer imports account for 14.4 percent of supermarket sales nationwide. "The internal U.S. markets are continuing to grow at accelerating rates," says Bill Hackett, president of Chicago-based Barton Beers, one of the nation's largest distributors of imported beers, including top-selling Corona.

One reason for the shift is economic: As beer production consolidated, the breweries that once dotted the Midwest disappeared, taking with them the allegiance of their communities. Cincinnati once had more than 150 breweries, including brands like Hudepohl, Burger and Schoenling that enjoyed loyal followings. As recently as the 1970s, Hudepohl alone had one-third of the Cincinnati market. Today, the Queen City has just one major brewery, owned by Boston Beer Co.

Another reason is demographic: As the Hispanic population has surged in the Midwest, Mexican beers such as Corona, Tecate and others have become increasingly popular. The Hispanic population in the Midwest grew 81 percent from 1990 to 2000, the largest growth rate of any area in the country, according to the Center for Family and Demographic Research at Bowling Green State University. Mexican beers account for more than 46 percent of all beer imported into the U.S.

In Indiana, Hoosiers drink less imported beer, per capita, than any other state, according to Adams Beverage Group. Yet even here, tastes are changing. "Import sales are definitely up," says Sean Clark, owner of Gallagher's Place, a neighborhood bar in a strip mall on the South Side of Indianapolis. Six years ago, says Mr. Clark, "we probably weren't doing two cases of Corona a week and five cases of Heineken a month." Now he's selling 30 cases of Corona a month and 20 cases of Heineken Premium Light.

The domestics have responded by forging their own alliances with foreign brewers. Anheuser owns about 50 percent of Grupo Modelo SA, producer of Corona, and Miller has its own roster of imports through its parent company, including Czech Republic brew Pilsner Urquell and Peroni Nastro Azzurro of Italy. "Clearly, we want to compete and win and grow," says Michael J. Owens, vice president of marketing for Anheuser.

The growth of imports, which are typically priced at premium levels, should help domestics introduce brands for which they can charge more, Mr. Owens says. Anheuser is test marketing two organic beers - Wild Hop Lager and Stone Mill Pale Ale - that retail for $7.99 a six-pack. A six-pack of Budweiser typically retails for about $6.

Imports accounted for just 11.7 percent of beer sales in the U.S. in 2004. But the creeping interest in imports is an especially unwelcome trend as the domestic brewing industry comes off a down year in 2005. According to industry periodical Beer Business Daily, the first five months of this year have been the best five-month volume increase performance in import history - and much of that has come at the expense of Anheuser and Miller. "It is getting tougher and tougher to be a domestic brewer," Bear Stearns analyst Carlos Laboy told investors in a note published last week.

Meanwhile, the import brands are stepping up their Midwestern incursion, lured by the region's heavy per-capita beer consumption and loads of colleges full of young drinkers settling into their favorite brands.

Newcastle Brown Ale, an English beverage that is a leading imported ale in the U.S., saw sales in the Midwest soar 28 percent between 2002 and 2005. The brand's owner, Scottish & Newcastle Importers Co., a subsidiary of Scottish & Newcastle PLC, has deployed teams of "Ale Blazers" to pass out free, four-ounce samples.

Dutch brewer Heineken NV is enjoying brisk sales in the Midwest of Heineken Premium Light, a new brand that's pressuring the one industry segment that has remained reasonably solid for the domestics: light beers. Heineken has a mock flight crew of men and women visiting Midwestern bars to offer patrons drinking domestic light beers a chance to "upgrade to first class" and drink a Heineken Premium Light.

In the past, says Andy Thomas, president of Heineken USA, Heineken would have introduced the new beer on the coasts first, and brought it to the Midwest later. With Premium Light, which it introduced in the U.S. a few months ago, Heineken decided to hit all three parts of the country simultaneously. "The central area (of the U.S.) is coming on like gangbusters for us," Mr. Thomas says.

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