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Industry and consumer trends
Jim Watson, Senior Beverage Analyst
James.Watson@Rabobank.com
January, 2018
The Great Fragmentation of Beer
2
How consumers see beer is changing
3
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
4
2017 - A tough year for domestic beer
Source: IRI, 2018
-0.7%
0.8%0.9%
1.0%1.0%
2.1%
2.6% 2.6%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2017 2016 2015 2014
Domestic Beer Volume % Chg Domestic Beer Price %Chg
5
Putting US beer sales in context
Source: IRI, 2018
1.4%
3.3%
2.5%
1.0%
-0.1%
3.3%
5.2%
3.3%
1.1%
-0.7%
4.5%
5.7%
4.9%
7.3%
-0.1%
4.7%
4.0% 3.9%
4.3%
-0.7%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Beer Wine Spirits Coffee Soft Drinks
Dollar
Sale
s
2017 2016 2015 2014
6
Globally: more people are drinking more beer
0
50
100
150
200
250
Bln
lit
res
Global beer consumption
Source: Euromonitor 2017
Per capita Consumption
(PCC)
= 1 litre
World Population
2000
= 200 million people
2012
2016
7
0
20
40
60
80
100
120
140
160
Per
ca
pit
a c
on
sum
pti
on
(in
lit
res)
Affordability and per capita consumption are closely related
Source: Canadean 2017
8
‘Less-but-better’ beer slowly going global
Source: Canadean 2016
0%
2%
4%
6%
8%
10%
12%
14%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Global super-premium beer
Volume (m l) % total volume
% total value
2.22%
1.59%1.38%0.79%
5.98%
Super-premium volume
breakdown globally
Non super-premium
Import
Foreign licensed
Craft
Domestic
9
North America Western Europe
Eastern Europe Latin America
Asia Oceania
Africa
Top-10 countries by # of craft breweries, 2015/2016# of craft breweries by continent, 2015
=100 craft breweries 2015 2016
Craft beer has become a global phenomenon
Source: Alltech 2017
10
Start-ups are taking share from beverage mega-brands
20
25
30
35
40
45
50
55
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Declining volume share of top 3 brands across categories
Beer Bourbon Vodka Juice CSD
Source: Euromonitor
11
Premiumization is a long-term consumer trend
Source: Brewers Association
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Volume share by beer segment
Value "Premium" High-end
12
Premiumization is driven by the younger consumer
Source: NCA, 2017
0
10
20
30
40
50
60
70
13-18 19-24 25-34 35-49 50-64 65+
Past Day Coffee Consumption
Traditional Coffee Gourmet Coffee
13
Change is coming: a vision of premiumisation in coffee
Source: Company presentation
14
Premium looks similar across beverages
15
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…)
Consumers are looking for FUN beverages
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
16
Brewery openings just won’t stop
Source: Brewers Association
55 62 71 81 88 97 119 135 178 186422 450 505 620
843 1,143
1,471
2,071
2,596
3,132
982 1,009 1,020 1,053
1,085
1,180
1,308
1,528
1,730
1,916
-
1,000
2,000
3,000
4,000
5,000
6,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Num
ber
of
bre
weri
es
Regional Craft Breweries Microbreweries Brewpubs
17
New categories are “niche”… until they are not
Kombucha: a $1bn segment that can double in 5 years
Plant based water could reach $1.5bn in value by 2021
Energy: an $11bn segment – could grow 3.5-4bn in next 5
years
RTD Coffee: rapid innovation to add $2bn in value by 2021
18
Coca-Cola: the least transparent beverage
19
A more literal view of transparency…
20
…And more figurative
21
But wait - is it about transparency, or telling stories?
And what does this mean for hops in beer production going forward?
22
Single origin coffee drives third wave coffee growth…
23
…And this market can get very serious
24
Varietals are an easy way to communicate with consumers
25
A story of Apple Juice in four bottles
From less to more transparent and local
26
Beer is already very local
Source: Drizly
27
More breweries = more local consumption
Source: Drizly
28
Going local and targeted
29
National brands are dying… Dilly Dilly!
5.0%
-4.3%
-14.5%
-3.2%
2.6%
-26.8%-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Total beer Bud Light Budweiser Coors Light Miller Lite Boston Lager
4 y
ear
volu
me c
hg
(13-1
7)
Bigger US brands in trouble
Source: IRI, 2018
30
What does innovation look like in US beer?
A long history of going bigger and bolder
31
But also a push to reclaim the center
32
A 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
33
Parting 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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