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News: Analysis & Commentary: MARKETING
THOSE NEW BREWS HAVE THE BLUES
A shakeout is coming in the saturated designer-beer market
By some estimates, there are 300 microbrews named after animals or fish. Dozens more are flavored with everything from strawberries to pumpkins. "I can't choose," laments Chicago carpenter, disk jockey, and beer lover Rick Lidinsky, who switched from micros to imports. "The market is saturated."
That confusion spells trouble for all those companies created to quench one of the hottest trends of the '90s: consumer thirst for fuller-bodied, not-just-another-Bud brews. After meteoric growth of about 50% a year in 1994 and 1995, the microbrew industry has gone about as flat as day-old beer. Sales edged up just 5% last year, according to newsletter Beer Marketer's Insights. The stocks of the dozen or so specialty brewers who poured into the market in recent years have lost their heads.
In recent weeks, such industry leaders as Pete's, Pyramid, and Redhook--all on the West Coast--have reported declining beer sales and restructuring-related losses for 1997. Even the healthiest of the microbrewers, Boston Beer Co., brewer of Samuel Adams, saw its sales and earnings fall and is focusing its marketing dollars on a narrower line.
Now, a full-fledged shakeout is on tap among brewers and brewpubs--whose numbers have jumped fourfold, to 1,306, since 1993, according to the Institute for Brewing Studies. In late January, a small Maryland brewer, Frederick Brewing Co., bought out two even smaller rivals to form a mid-Atlantic regional. More significantly, on Feb. 19, No.2 Pete's, brewer of Pete's Wicked Ales, hired Morgan Stanley, Dean Witter, Discover & Co. to explore its options, including mergers. "We need to get larger to gain more focus from distributors and retailers," says Pete's President Scott Barnum. He figures the top 12 micros will be whittled down to six in short order. Adds John Hickenlooper, CEO of Denver's Wynkoop Brewing Co., a microbrewer and brewpub operator: "It's a jungle. Only the strong will survive."
A GLUT? What went wrong? Tantalized by consumer fancy for every imaginable new concoction, and with easy access to capital, micros churned out as many as 4,000 different brands. Entrepreneurs were hard pressed to handle growth and quality problems began to creep in. Many drinkers returned to imports. "We were a mile wide and an inch deep," says Barnum of Pete's. The brewer has recently dropped 4 of its 12 brands.
The micros also got squeezed hard by distributors and retailers, who are pruning product lines to focus on the most lucrative brews. Zimmerman's, a big Chicago beer and liquor distributor, has dumped all but six of the 75 micros it carried three years ago. "Unless it's a heckuva brand, I don't want another [micro]brew in my house," says Kevin Burke, owner of Miller Brewing Co. distributorships in Chicago, San Francisco, and Louisville.
Attempting to catch the fad's coattails, Anheuser-Busch, Miller, and Coors have launched or taken stakes in their own microbrews. Their forays have not been very successful, but they continue to roil the market because of their clout with distributors. In Anheuser's case, that netted a lawsuit. Four California micros are suing Anheuser-Busch Cos. for restraint of trade because the beer giant was offering financial incentives to distributors who signed on as "exclusive" sellers of Anheuser brands and authorized micros. The Justice Dept. is also investigating. Anheuser-Busch denies the charges (BW--Feb. 23).
Who will survive the pub brawl? Many industry execs speculate that among the survivors will be Boston, the only micro with a truly national franchise, and longtime California micros Sierra Nevada and Anchor Steam. Some expect that Pete's and Pyramid may merge. Miller is also shopping for a stake in a West Coast micro. Paul S. Shipman, Redhook Ale Brewery Inc. founder and chairman, may have crafted a key survival strategy several years ago by selling 25% of his company to Anheuser-Busch and gaining a distribution network. But even Redhook is saddled with more than 50% excess capacity. At least we all now know the answer to the pressing philosophical debate: Can there be too much beer?By Richard A. Melcher in ChicagoReturn to top