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BEVERAGE INDUSTRY Beer loses ground as other alcohol gains

Saturday, January 31, 2004

Still, the spirits market is far smaller than that of beer, analysts note.
ST. LOUIS -- Market-share gains by Anheuser-Busch Cos. notwithstanding, the past year has been no party for the beer industry. The final numbers aren't in yet, but most market watchers estimate that brewers' shipments to wholesalers declined about 1 percent from 2002. Merrill Lynch analyst Christine Farkas estimated in a recent report that beer volume this year will rise about 1 percent.
A sluggish economy, the war in Iraq and poor weather, especially during key summer holidays, hurt beer-volume growth in 2003.
The Distilled Spirits Council of the United States estimates that spirits volume rose 3 percent in 2003 and that it will rise another 3 percent this year.
"It's a real issue," said Benj Steinman, president of industry newsletter Beer Marketer's Insights, of the rise in spirits volume. "It affected each and every [brewer]."
The growth in spirits volume isn't a new concern for the beer industry, as spirits volume has been increasing more than beer since about 1997. "But it seemed to accelerate this year," Steinman said.
Comparing size
The sizes of the two markets have to be kept in mind, Legg Mason analyst Mark Swartzberg said. Per capita consumption of spirits is still lower than beer on an annual basis, he said. That means that a small loss in beer volume can represent a "meaningful rise" in spirits growth.
"Nonetheless, this is a multiyear phenomenon of beer losing share to spirits," he said.
Beer volume accounts for 84.7 percent of the total U.S. alcoholic industry, dwarfing the 4.8 percent for spirits, according to a recent report by Smith Barney analyst Bonnie Herzog.
There are a lot of factors driving spirits volume growth, including demographics, increased advertising, the popularity of flavored alcoholic beverages, and more states that allow spirits sales on Sunday. There is also a factor that some are calling a "cocktail culture."
The number of people 55 and older is expected to grow 2.6 percent annually between 2003 and 2010, compared with a 1.2 percent growth in the number of people between the ages of 21 and 27, Farkas pointed out. Young adults have higher per capita consumption of all alcoholic beverages. However, wine and spirits tend to make up a greater portion of alcoholic consumption of those 55 and older than those 21 to 27, she said.
Demographics will help beer, too. The 1.2 percent annual increase in the number of people between 21 and 27 is a reversal from the past decade, when the percentage declined, Farkas said.