Big Beer’s Sales Slump – And Yet Profits Rise

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The latest beer-consumption data demonstrate that drinkers will pay more for a product they deem as superior—be it locally brewed craft beer or an upscale mass-market beer like Budweiser Black Crown.

A new report from the Brewers Association, which represents small, independent craft beer makers around the country, shows that craft beer is continuing on a terrific run. After a very successful 2012, in which American craft brew sales by volume rose 15% and sales by dollars increased 17%, sales are up again 13% and 15%, respectively, through the first six months of 2013.

What’s especially noteworthy is that the recent rise in craft beer comes at time when overall beer sales are on the decline—reportedly down 2% during the first half of 2013. Such figures would lead one to assume that sales for the world’s biggest beer makers, including Anheuser-Busch InBev, are suffering. And indeed they are. In the first quarter of 2013, AB-InBev sales by volume in the U.S. were down 5%, and as AdAge reported, for one four-week period in the spring, sales of ubiquitous brands like Bud Light, Budweiser, and Miller Lite decreased by 6% to 9% compared to the same period a year prior. The beer companies blamed unseasonably cold weather, among other reasons, for the poor sales spell.

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This week, AB-InBev issued its second quarter results, and overall sales have continued to dip, down another 1.2% by volume. Don’t feel bad for the world’s biggest brewer though. Despite selling less beer, the company’s revenues are up 3.9% for the quarter. The St. Louis Post-Dispatch explained how the company pulled this trick off while watching as its classic brands slump:

A-B InBev squeezed more revenue from each bottle as beer drinkers traded up to pricier brands, such as Bud Light Platinum, Budweiser Black Crown and Bud Light Lime-a-Rita.

Brands like Black Crown, which was introduced as a tastier, more sophisticated version of Bud earlier this year, are not only pricier, they’re far more profitable. The new AB-InBev report stated plainly, “Innovations [new beers] are being priced at a premium, while bringing new drinkers into the category.”

The Wall Street Journal noted that “AB InBev is prioritizing more expensive, higher-margin premium beers,” not only in terms of brews with the Bud or Bud Light name, but also “craft beers such as raspberry-flavored Witbier Shock Top to offset stagnant consumption.” Let’s correct the WSJ by referring to Shock Top as a “crafty” beer, because many argue that any beer made by a giant multinational company cannot legitimately claim the “craft” label.

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In any event, all the trends seem to point out that consumers are willing to pay a little extra when the beer is better than the brands that have been around forever. This simple equation has certainly been boosting craft brew sales in a big way. And the formula appears to be working for Big Beer as well: AB-InBev is expected to raise prices by 2% to 3% in the U.S. this fall, just as it did last autumn.