The Great Fragmentation of Beer - Jim Watson, Senior Beverage Analyst January, 2018 - Hop Growers of America
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The Great Fragmentation of Beer
Industry and consumer trends
Jim Watson, Senior Beverage Analyst
James.Watson@Rabobank.com
January, 2018
How consumers see beer is changing
2
What are we talking about today?
- A quick look at beer data – domestic and global
- What are the big beverage trends
- What are consumers looking for?
- Transparency becoming more important across all beverages
- Single-origin, unique varietals and the farm-to-table connection
- Beer growth is local and targeted
3
2017 - A tough year for domestic beer
3.0%
2.6% 2.6%
2.5%
2.1%
2.0%
1.5%
1.0% 1.0%
1.0% 0.9%
0.8%
0.5%
0.0%
-0.5%
-0.7%
-1.0%
2017 2016 2015 2014
Domestic Beer Volume % Chg Domestic Beer Price %Chg
Source: IRI, 2018 4
Putting US beer sales in context
8%
7.3%
7%
6% 5.7%
5.2%
4.9%
5% 4.7%
4.5%
4.3%
4.0% 3.9%
Dollar Sales
4%
3.3% 3.3% 3.3%
3%
2.5%
2%
1.4% 1.1%
1.0%
1%
0%
-0.1% -0.1%
-1% -0.7% -0.7%
-2%
Beer Wine Spirits Coffee Soft Drinks
2017 2016 2015 2014
Source: IRI, 2018 5
Globally: more people are drinking more beer
Per capita Consumption
Global beer consumption World Population
(PCC)
250
2000
200
Bln litres
150 2012
100
2016
50
0
= 200 million people = 1 litre
Source: Euromonitor 2017
6
Affordability and per capita consumption are closely related
160
140
120
Per capita consumption (in litres)
100
80
60
40
20
0
Source: Canadean 2017
7
‘Less-but-better’ beer slowly going global
Global super-premium beer Super-premium volume
14,000 14% breakdown globally
12,000 12% 5.98%
10,000 10% 2.22%
8,000 8% 1.59%
6,000 6% 1.38%
0.79%
4,000 4%
2,000 2%
0 0% Non super-premium
Import
Foreign licensed
Volume (m l) % total volume Craft
% total value Domestic
Source: Canadean 2016 8
Craft beer has become a global phenomenon
# of craft breweries by continent, 2015 Top-10 countries by # of craft breweries, 2015/2016
North America Western Europe
Eastern Europe Latin America
Asia Oceania
Africa =100 craft breweries 2015 2016
Source: Alltech 2017
9
Start-ups are taking share from beverage mega-brands
Declining volume share of top 3 brands across categories
55
50
45
40
35
30
25
20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Beer Bourbon Vodka Juice CSD
Source: Euromonitor
10Premiumization is a long-term consumer trend
Volume share by beer segment
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Value "Premium" High-end
Source: Brewers Association 11Premiumization is driven by the younger consumer
Past Day Coffee Consumption
70
60
50
40
30
20
10
0
13-18 19-24 25-34 35-49 50-64 65+
Traditional Coffee Gourmet Coffee
Source: NCA, 2017 12Change is coming: a vision of premiumisation in coffee Source: Company presentation 13
Premium looks similar across beverages
14Consumers are looking for FUN beverages
Functional is added benefits to the consumer. Think about beverages
that make claims around energy, rehydration, low/no calorie and add
various “healthy” ingredients (antioxidants, vitamins, probiotics, etc…)
Unique is consumers moving away from megabrands and searching
out discovery brands. Products with interesting backstories and
charismatic founders win over brands attached to a large multinational
Natural is both about the literal makeup of the product, the
aesthetic/branding and transparency. Ingredients matter, and branding
as artisanal and sustainable is key to creating a positive image
15Brewery openings just won’t stop
6,000
5,000
1,916
4,000
Number of breweries
1,730
3,000 1,528
1,308
2,000
1,180 3,132
1,085 2,596
1,053 2,071
1,000 1,009 1,020
982
1,471
1,143
843
505 620
422 450
55 62 71 81 88 97 119 135 178 186
-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Regional Craft Breweries Microbreweries Brewpubs
Source: Brewers Association 16New categories are “niche”… until they are not
Energy: an $11bn segment – could grow 3.5-4bn in next 5 Kombucha: a $1bn segment that can double in 5 years
years
RTD Coffee: rapid innovation to add $2bn in value by 2021 Plant based water could reach $1.5bn in value by 2021
17Coca-Cola: the least transparent beverage
18A more literal view of transparency…
19…And more figurative
20But wait - is it about transparency, or telling stories?
And what does this mean for hops in beer production going forward?
21Single origin coffee drives third wave coffee growth…
22…And this market can get very serious
23Varietals are an easy way to communicate with consumers
24A story of Apple Juice in four bottles
From less to more transparent and local
25Beer is already very local Source: Drizly 26
More breweries = more local consumption Source: Drizly 27
Going local and targeted
28National brands are dying… Dilly Dilly!
Bigger US brands in trouble
10%
4 year volume chg (13-17)
5.0%
5% 2.6%
0%
-5%
-4.3% -3.2%
-10%
-15%
-14.5%
-20%
-25%
-30% -26.8%
Total beer Bud Light Budweiser Coors Light Miller Lite Boston Lager
Source: IRI, 2018
29What does innovation look like in US beer?
A long history of going bigger and bolder
30But also a push to reclaim the center
31A thought on IPA and the future of craft beer
There’s a running joke among brewers that whatever a beer ends up being,
just call it an IPA and it’ll sell better. Put IPA on the label and it’s good to
go.”
— Steve Luke, Cloudburst Brewing
Do consumers really understand what an IPA is – or has the name just become
synonymous with craft?
Craft beer has successfully captured the market looking for bigger and bolder.
The next major development will be learning how to speak to the consumer looking for
more than light lager – something flavorful/innovative/authentic but still easily
accessible
32Parting thoughts
The beer industry (and all beverage segments) change slowly on a year to year basis – but
massively on a 10-15 year time horizon.
The shakeout really is happening in craft beer – it is a difficult time to be caught in the
middle.
Expect more partnerships – industry consolidation will continue
Price competition will only intensify in the craft beer space
For the biggest brewers, cost cutting will continue to be core to earnings growth
Within the next several years I will be intensely debating a completely new style of beer –
and have a six-pack (four-pack?) in my fridge. Innovation won’t stop.
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