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Big Brewers Continue to Pursue Craft in the US in Search of Growth

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The two latest acquisitions by multinational brewers in the US – Heineken buying a controlling stake in craft brewer Lagunitas and A-B InBev’s purchase of craft cider producer Virtue Cider – further shows these companies’ focus on premium and above products to drive growth in that market. This is due to the fact that these products not only offer higher unit price and margins; they are the main growth niches in a struggling category.

In volume growth terms the overall beer category is expected to decline slightly in the US between 2014-2019 at a 0.2% CAGR (291 million litres) while ale (where most craft beer is positioned) is expected to grow by an 8% CAGR (613 million litres) and cider/perry by a 30% CAGR (871 million litres).  Additionally, these categories offer much higher value sales and margins. In 2014, cider/perry’s average total unit price was (on and off trade combined) US$6.60 per litre, and US$8.10 for ale. This compares favourably with domestic mid-priced lager, at US$3.30 a litre.

A-B InBev’s acquisition is an opportunity for it to go more premium in a premium category and something the company has been doing with a series of craft beer acquisitions.

For Heineken, the move is its first move into craft in the US, but a natural progression for the company, where its sole presence before this acquisition was in the high-value premium imported lager segment, which had an average total unit price of US$5.50. This acquisition, which gives it control of a company that has grown by a 51% CAGR in volume and a share of the ale category up from 1% to 3% between 2009-2014, gives it a strong presence in an even higher value category than premium imported lager.

A-B InBev’s need for a greater presence in higher end products is much needed, while for Heineken the purchase is a way to build on its premium position in the country. As recently seen in our global briefing Assessing the Value of Alcoholic Drinks: Part One - Beer and Cider/Perry due to A-B InBev’s portfolio focused on lower priced mid priced or premium domestic lagers its value share is smaller than its volume share in the US. In contrast, Heineken has a higher value than volume share.

Following these two acquisitions, more can be expected, and not just with A-B InBev still needing to develop its premium end. Both SABMiller and Molson Coors still need to do more as well, while Heineken could further enhance its cider portfolio with a higher end craft cider. Indeed as if to prove the point, on the day the article is published Molson Coors bought the California craft brewer Saint Archer.

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