Beer

INDUSTRIAL CODES

NAICS: 31-2120 Breweries

SIC: 2082 Malt Beverages Manufacturing

NAICS-Based Product Codes: 31-21201 through 31-21201231, 31-21204 through 31-21204291, 31-21207 through 31-21207121, and 31-2120A through 31-2120A151

PRODUCT OVERVIEW

Without question, the greatest invention in the history of mankind is beer. Oh, I grant you that the wheel was also a fine invention, but the wheel does not go nearly as well with pizza.—Dave Barry

Beer is believed to be the world's first alcoholic beverage. Its origins date far back into human prehistory. All beers are fermented undistilled beverages derived from grains. They are usually carbonated and have been hopped for flavor. Beer comes in a truly staggering variety of costs and styles. Within the beer section of an average market the consumer can now find an ever-increasing variety of brews ranging from inexpensive mass-produced brews to high-end craft brews, from light lagers to dark ales, and from light beers to very high-alcohol content malt liquors. The growing variety found among commercially distributed beers is the most important trend in the modern brewing industry.

The Brewing Process

Beer is created when yeast ferments a grain mash. For most beers, which are barley based, the process usually begins when raw barley is malted. In the malting process the starches in the barley are converted to sugars when the grain germinates after being soaked in water. The malted barley is then roasted in an oven, a process that carmelizes the sugars and adds flavor to the barley malt.

After roasting the malted barley is boiled in water to create a sugar-laden mash known as a wort. Hops, a flowering herb, are also added to the boiling wort. The hops impart additional flavor and aroma, and also act as a preservative in the finished beer. Once the wort has cooled, yeast is added. Yeast converts sugar into alcohol and carbon dioxide. The wort is then left to sit while the yeast converts the sugars into alcohol that remains in the beer and carbon dioxide that is vented from the wort container. Once all of the sugar in the wort has been converted to alcohol by the yeast, the wort is then decanted, filtered, and bottled or kegged.

Home brewers and some traditional craft brewers add carbonation to the final beer via a secondary fermentation stage in which a bit more sugar is added to the beer at the time of bottling. The remaining live yeast then creates a small additional amount of alcohol and carbon dioxide, which is now contained and allowed to build pressure within the bottle. However, the vast majority of modern commercially brewed beers add carbonation to the final beer by simply adding carbon dioxide gas at the time of bottling.

Beer is a fresh consumable. Once it has been bottled or kegged, the quality of a beer begins to deteriorate. This deterioration is speeded by exposure to light, so most brewers minimize the exposure of bottled beers to light by using green or brown glass instead of clear glass. High temperatures or sudden changes in temperature can also diminish beer quality, so much of the manufacture and distribution chain uses refrigerated trucks and storage.

History

Though nobody knows exactly when mankind began brewing beer, the history of brewing dates back more than ten thousand years. The long history and importance of beer is reflected in the English word beer itself, which derives from the Latin word meaning to drink, bibere, the same root that led to the French word biere and the German word bier. The Spanish word for beer, cerveza, not to be outdone for historic origins, traces its roots to the Roman goddess of agriculture Ceres.

The first beers were almost certainly accidental brews, produced when stored cereals spontaneously fermented by naturally occurring yeasts when the stored grain was accidentally moistened. The prehistoric origins of brewing coincide with the prehistoric origins of agriculture. While some believe that the cultivation of grains necessarily preceded the origins of brewing, other experts believe that mankind pursued farming to provide a steady source of grain for brewing. The written histories of Ancient Egypt and Mesopotamia record brewing and the distribution of beer, and the Epic of Gilgamesh describes beer's role in the transformation of primitive man to civilized man.

Beer was an important part of ancient societies, just as it is in the twenty-first century. Five-thousand years ago the Mesopotamians and Egyptians brewed at least nineteen types of beer that are still known about today. Beer drinkers used straws to consume these cloudy and unfiltered brews, so as to avoid consuming the bitter yeast residues that settled in the bottom of those early beers. Compensation for the laborers that built the ancient pyramids in Egypt and ziggurats in Mesopotamia often included beer. At times high officials received a beer ration as great as five liters per day, while laborers received a lesser quantity of perhaps two liters. The Greek philosopher Plato is believed to have said, "He was a wise man who invented beer."

Brewing continued through the Middle Ages and the Renaissance in northern and eastern Europe and all social classes drank beer. Wine consumption outpaced beer consumption in southern Europe due to the ready availability of grapes, but beer dominated the northern and eastern parts of Europe. People often preferred alcoholic beverages because the alcohol served as a disinfectant and made beer safer than the oft impure sources of drinking water available during the Middle Ages.

Brewing was primarily a household activity during the Middle Ages and it was not until the fourteenth and fifteenth centuries that artisans began brewing beer for a larger consuming body. Monasteries played an important role in the development of beer production on a larger scale. To this day beer varieties such as Trappist are still brewed by monasteries.

The production and consumption of beer was such an important issue during this period that in 1516 William IV of Bavaria adopted the Reinheitsgbot, a law to safeguard the purity and consistency of beer by regulating its production. German brewing in the twenty-first century is still regulated by this German Beer Law of 1516. The Reinheitsgbot restricts beer to four ingredients: barley, hops, yeast, and water. Any beer produced in or imported into Germany must meet the Reinheitsgbot. Some craft breweries and micro breweries in the United States use the German Beer Law and adherence to it as a marketing tool, a way to differentiate their own beers from their competitors'. Many large breweries today produce beers that can not be exported to Germany because they do not meet the standards set by the Reinheitsgbot.

Prohibition

During the early twentieth century the prohibition movement swept across the globe and took deepest root in North America and northern Europe. The movement stemmed from nineteenth-century temperance movements and the Protestant wariness of alcohol and its ill affects. The duration of these periods of prohibition varied; in the United States prohibition lasted from 1920 to 1933 while in Canada prohibition varied by province but lasted from 1900 to 1948 on Prince Edwards Island.

The United States passed the Eighteenth Amendment on January 16, 1920. This constitutional amendment prohibited the sale, manufacture, and transport of alcohol, but did not prohibit the possession and consumption of alcoholic beverages. In 1933 the Twenty-first Amendment to the U.S. Constitution repealed the nationwide prohibition. The amendment gave individual states the right to restrict or ban the sale of alcohol, leading to a patchwork of state and local laws designed to regulate the sale and consumption of alcohol. Many states continued to enforce prohibition after the Twenty-first Amendment was passed. In 1966 Mississippi became the last state to repeal prohibition

Post Prohibition Rebuilding

A growing number of problems created by prohibition itself drove the repeal of prohibition at the national level: a black market for high potency distilled alcohol, the high cost of enforcing the law, and a sharp increase in crime rates. The desire to create jobs during the Great Depression of the 1930s also encouraged the repeal of prohibition. Many people continued to brew and distribute beer and other alcoholic beverages during prohibition, but all this economic activ-ity happened on a black market basis. The government wished to legitimize the production of alcoholic beverages so that it could be regulated and taxed.

The passing of the amendment repealing prohibition went a long way toward solving the crime problem. The economic losses produced during prohibition took much longer to fix. Half of the breweries that operated in the United States prior to prohibition (1,345) went out of business and did not re-open after the repeal. By 1939 only 672 breweries operated in the United States according to the United States Brewers Almanac.

During the post-prohibition era great consolidation took place within the U.S. brewing business. The largest brewers had maintained operations during prohibition by producing "near beer," root beer, ginger ale, and other malt beverages with under one percent alcohol contents. They grew rapidly because they were more easily able to pick up production than those brewers who had discontinued production during prohibition. They also lobbied heavily after repeal for legislation that favored the large brewers by making production of beer legal only in large quantities for commercial distribution. In the decades following repeal the largest breweries grew and consolidated their market position while the variety of beer they provided to consumers decreased in variety. Before Prohibition a rich variety of local styles with roots in the many origins of American people themselves characterized American brewing. After the repeal of Prohibition light pilsener-style lagers with mass-market appeal dominated the American market.

In 1978 President Jimmy Carter signed legislation that legalized small-scale home brewing. This change led to a rebirth in the U.S. brewing industry. Home brewing expanded rapidly in the late 1970s and 1980s, and many of these small home breweries grew beyond the home base into small commercial breweries, microbreweries and pub breweries. Microbreweries grew between 5 and 7 percent of the total U.S. beer market by the turn of the century. These microbreweries have had a disproportionate impact on the U.S. industry despite their small size by bringing diversity back to American beers in the form of specialty and craft beers that featured new flavors and tastes. The big-three brewers, Anheuser Busch, Miller, and Coors all began introducing boutique brands and specialty beers of their own in the late 1990s and 2000s to compete with domestic microbrews and the growing numbers of imported beers.

Globalization

Beer markets had always tended to be local or regional until the end of the twentieth century. Although beer had always been imported and exported in the United States it was during the 1990s that foreign producers began to make deeper inroads into this vast market. By the early 2000s imports accounted for close to 12 percent of the U.S. market, and the United States had become the largest beer importing country in the world. In return U.S. producers established exporting networks through licensing agreements abroad and had made great inroads of their own by the early 2000s.

In 2002 the large African beer maker South African Breweries (SAB) bought Miller Brewing Company, the second largest U.S. beer maker and a long-time industry leader. The early 2000s marked another change in the global beer landscape as China surpassed the United States as the country with the highest total beer consumption. Neither country ranks in the top ten on a per capita basis, but the United States had long been the leader in total consumption.

Beer Types

Beers are generally categorized as ales or lagers by the behavior of the yeast used in the fermentation process used to brew the beer. Ales use top-fermenting yeasts that ferment the sugars of the wort more quickly and at a higher temperature than lagers. Ales are often brewed at a temperature above 55 degrees Fahrenheit. This warmer temperature tends to create a faster brewing process that brings more of the secondary flavors out of the barley malt, creating beers with fuller, more complex flavors. The faster brewing times and more complex flavors make ales a favorite of brewpubs and microbreweries.

Lagers use bottom-fermenting yeasts that ferment the sugars of the wort at a lower temperature than lagers. Ales are often brewed at a temperature well below 55 degrees, sometimes as low as 40 degrees. Lager yeasts take longer to consume the sugars in the wort at these lower temperature, and this slower brewing process creates a crisper, cleaner tasting beer. The crisp and light flavor of lagers make them a favorite of mass-market breweries.

Spontaneous fermentation with wild yeasts produces lambic beers. In tightly controlled brewing, wild yeasts can create a variety of off flavors, but those flavors are valued in the unique taste of lambic beers, which often have a sour flavor. The wild nature of these yeasts lead to very brewery-specific tastes for lambic brews.

In addition to the differences in taste imparted by different yeasts and brewing processes, brewers create a wide spectrum flavors for specific beers through their choice of the roast of the malted barley, the use of adjunct grains, the sugar content of the wort, and the variety and quantity of hops. Darker beers such as porters and stout use a very deeply roasted barley malt that has been roasted to the point of charring and imparts a dark color and a burnt flavor similar to coffee, cocoa, or caramel. Some brewers use caramel to darken and flavor their dark beers. Lighter roasts create more lightly flavored beers such as pilsner lagers and summer ales.

Brewers also use adjunct grains such as wheat, corn, and rice to create a lighter flavor in a beer, or simply to reduce the cost of the final brew by increasing the quantity of sugar in the wort without using more expensive malted barley. The mix of malt and water determines the sugar content of the wort, which then determines the alcohol content of the beer. Contrary to popular belief, darker beers do not have an inherently higher alcohol content. The renownedly dark Guinness Stout Draught clocks in with a relatively light 4.0 percent alcohol content while the much lighter-tasting Miller High Life has an alcohol content nearly a third greater at 5.5 percent.

The type and quantity of the hops impart a great deal of the final flavor of a beer. Hops act as a preservative in beer, but the oils and flavors from the hops also give a beer much of its odor and its distinctive bitter zing. Most domestic lagers are lightly hopped for a smoother taste, while many ales and darker lagers tend to have a stronger hop taste. India Pale Ale (IPA) is an especially hoppy variety of beer. Its basic recipe was created when British brewers added extra hops to kegs of ale being shipped to India to ensure that they were well-preserved. Some modern microbrewers take hopping to the extreme with brews such as the Hopslam from Bell's Brewing, a double-hopped IPA that touts is extreme hoppiness in its name.

The basic recipe used by most mass market brewers is a pilsner lager based on the style of lager brewed in Pilsen, Bohemia. The Pilsner Urquell lager from Pilsen that is often cited as the first true pilsner lager was first brewed by brewer Josef Groll in 1842. This imported full-barley beer can now be found in stores across the United States. The modern American pilsner shares its light golden color and high carbonation, though most mass-market brewers use adjunct grains such as wheat, corn, and rice in addition to barley to brew their version. Domestic pilsners such as Budweiser, Coors, and Miller Genuine Draft usually average around 5 percent alcohol content.

MARKET

The world beer market in 2003 measured 1.484 million hectoliters, equal to 39.2 million gallons. This represented an increase of 2.3 percent over the 2002 world sales figure. The dollar value of beer sales worldwide in 2003 rose at a greater rate than did volume sales, increasing by 10.2 percent over value shipments in 2002. Beer got a bit more expensive.

Beer shipments by U.S. brewers grew steadily in the early 2000s, increasing from $16.5 billion in 2000 to $20.8 billion in 2005 according to data published by the U.S. Census Bureau in its Annual Survey of Manufactures. These shipments were for sales by breweries to wholesalers and distributors and did not include imports.

The popularity of imported beers also grew in the early 2000s as did the value of imports to the United States. In 2000 the U.S. imported $9.4 billion worth of beer, equal to 11.8 percent of industry shipments that year. In 2005 the U.S. imported $10.5 billion worth of beer, 13.1 percent of industry shipments. Per capita consumption rates of beer, however, have decline slightly during the early 2000s.

In the late 1960s per capita consumption of beer stood at 16.5 gallons annually. Consumption rose through the 1970s and peaked at 24.6 gallons in 1981. The 1980s and early 1990s saw per capita consumption rates of beer in the range of 22 to 24 gallons. In the mid-1990s beer consumption began to fall slightly and in 2005 stood at 21.3 gallons per person per year. Figure 19 presents these data graphically.

Figure 19 also shows the median age of the U.S. population which rose steadily over the period shown, 1966 through 2005. This period coincides with the coming of age of the Baby Boom generation, those born after World War II through the early 1960s. Since consumption of beer is highest for those in their 20s the peak of per capita beer consumption logically occurred when the large Baby Boom generation was reaching and pass through its 20s and early 30s. Starting in the early 1980s, per capita beer consumption rates began to fall, if slowly.

At the same time the number of microbreweries and specialty breweries in the United States began to rise. According to data complied and published by the Beer Institute there were a total of eight specialty breweries operat-ing in 1980. By the turn of the century just shy of 1,500 such breweries were registered in the United States. As the per capita consumption of beer fell slowly, the types of beer being consumed began to shift towards a more varied beers and more expensive beers.

A total of 1,367 brewers operated in the United States in 2005. The Beer Institute characterized twenty-one of these brewers as traditional brewers and the remaining 1,346 as specialty brewers. The traditional brewers are the large, industry leaders by volume, while the specialty brewers include microbreweries and brewpubs, most of which produce specialty beers and craft beers. This large number of specialty brewers highlights the dramatic changes that have taken place in the U.S. beer brewing market during the last half of the twentieth century. In 1960 there were only 175 brewers in the United States.

KEY PRODUCERS/MANUFACTURERS

Three companies—Anheuser-Busch, Coors Brewing, and Miller Brewing—dominate the beer industry in the United States. Together they accounted for nearly 80 percent of the market in 2005. Of the many small breweries in the marketplace, a small number stand out as a second tier of key players. Microbreweries are by definition small and thus no single one of them appears as a particularly large player in the market, although their influence on the industry as a group is significant. Craft beers have been traditionally thought of as beers produced by micro-breweries. As many of the microbrewers grew beyond the bounds of this category they did not change their beers and thus craft beers are now produced by beer makers of every size.

Anheuser-Busch

Started in 1852 as a Bavarian Brewery in St. Louis, Missouri, this company had a U.S. market share in 2006 of just under 50 percent, making it the largest U.S. beer maker, a position it has held since 1957. Eberhart Anheuser acquired the Bavarian Brewery in 1860 and took his son-in-law, Adolphus Busch, as a partner later that decade. In 1879 the name of the company was changed to Anheuser-Busch Brewing Association and by 1901 the company reached the threshold production figure of one million barrels of beer in a single year.

Today, Anheuser-Busch operates 12 breweries in the United States and has operations around the world. It produces more than 60 beers and flavored drinks. Among these are leading brands Budweiser, Bud Light, Budweiser Select, Busch, Michelob, Natural Light, and Ultra Amber to name but a few. Its net income in 2006 was $1.97 billion on gross sales of $17.96 billion. It is worth noting, however, that these financial results include all divisions of Anheuser-Busch, including those involved in the transportation and entertainment sectors.

Coors Brewing Company

This company dates back to the early ninteenth century and is a leading beer maker that employed over 11,000 people worldwide in 2006. It operated 10 breweries in three countries. Its operations are divided into three divisions which correspond to the countries in which it operates; Canada, the United Kingdom, and the United States. It marketed more than 40 brands of beer in 2006, including Carling, Coors, Coors Light, Blue Moon, Keystone Light, Killians Irish Red, and Molson Canadian. Coors Brewing Company had net income in 2006 of $361 million on net sales of $5.85 billion.

Miller Brewing Company, a division of SABMiller

The Miller Brewing Company was the United States' second largest brewing company in 2002. The company was formed by Fredrick John Miller in 1855 in Milwaukee, Wisconsin. It grew and expanded, managing to stay in business through prohibition and expanding again after the repeal of prohibition.

Miller Brewing Company was purchased in 1969 by the Philip Morris Corporation but continued to operate under its well-known name. It launched the first nationally available brand of low calorie beer, Miller Lite, in the mid 1970s. Philip Morris Corporation, renamed Altria in the 1990s, sold the Miller Brewing Company in 2002 to the large, international beer maker South African Breweries (SAB). The resulting company was named SAB-Miller plc.

The Miller Brewing division of SABMiller employed 6,300 people in 2006. Its activity accounted for 24 percent ($3.67 billion) of the SABMiller group's total gross revenues of $15.3 billion. Miller brands include Miller Lite, Miller Genuine Draft, Ice House, Miller High Life, Milwaukee's Best, Peroni Nastro Azzurro, Pilsner Urquell, Leinenkugel's, Henry Weinhard's, Olde English 800, and Mickey's.

Second Tier Market Leaders

Most of the brewers that make up the second tier of the industry started off as microbreweries and grew to be brewers too large to be categorized as micro. Some of the prominent players in this second tier of the industry are names familiar to beer drinkers by their company names and others are known only by their brand names. The Boston Beer Company is an example of the latter. It makes the Sam Adams line of beers. Sierra Nevada Brewing Company is an example of the former category, marketing a line of beers whose brand name includes the Sierra Nevada prefix. New Belgium Brewing Company, headquartered in Colorado is a second tier brewer that markets such craft beers as Fat Tire, Sunshine, and Blue Paddle. The Texas based Spoetzl Brewing Company produces a line of beers called Shiner: Shiner Light, Shiner Bock, Shiner Blonde, and Shiner Kolsch. The F.X. Matt Brewing Company is another second tier brewer whose company name may be unfamiliar but whose products are well known in the northeast. It produces a line of beers which share the Saranac name: Saranac Lager, Saranac Black Forest, and Saranac Pale Ale to name a few.

The second tier brewers tend to focus on regional markets, although a few of these brewers have achieved national distribution during the later years of the twentieth century. Of those listed above, only Boston Brewing Company and Sierra Nevada Brewing Company have national distribution. The others market regionally, as does the Dixie Brewing Company out of New Orleans, Louisiana, maker of such provocatively named craft beers as Dixie Jazz and Blackened Voodoo. To rank this diverse group of brewers is a task the undertaking of which, although enjoyable, would take years.

Leading World Producers

In 2006 the three largest brewers in the world were InBev of Leuven, Belgium, SABMiller headquartered in London, England, and the U.S. market leader Anheuser-Busch which makes its home in St. Louis, Missouri. InBev global brands include Stella Artois, Beck's, Leffe, and Brahma. Other large brewers on the world stage are Heineken and Carlsberg, both of Germany, Grupo Modelo of Mexico, Tsingtao of China, Guinness of Ireland, and Kirin of Japan.

This list is incomplete and includes primarily brewers whose beers are exported beyond their national boundaries. Within most countries there are brewers of all sizes whose products are consumed in large quantity but are not seen on the global landscape because of their focus on domestic markets. Globalization is influencing the beer industry as it is most others but local, regional, and national beers are still important players within this age-old trade.

MATERIALS & SUPPLY CHAIN LOGISTICS

The basic ingredients of beer—and in the minds of some, the only legitimate ingredients—are water, barley, hops, and yeast. Flavorings and preservatives are sometimes added to beer as well but the four basic ingredients make up the bulk of the materials consumed in making beer.

Water

The quality of the water used to brew beer is perhaps the most important of these ingredients. By volume in the end product it is certainly dominant, but its quality too, is an essential part of the brewing process. The mineral components in water, which vary from one source to another, have an effect on the taste and appearance of beers made with that water. The water available in an area dictates the type of beer that can be produced locally and has contributed to the evolution of different beer styles. Stouts are famously produced in Ireland, specifically in and around Dublin. The reason for this has to do with the hard water supplying the Dublin area. By contract, the pilsner beers made in Pilsen, Czech Republic are renowned for their X flavor which is a direct result of the soft water available in the City of Pilsen. Water from either city could not be used to produce the other city's beer.

Barley

While many beers are true to the Reinheitsgbot (the German Beer Law) requirement that beer contain only the four basic ingredients, many beers are brewed with what are referred to as fillers. These are used in order to replace the relatively more costly ingredient of barley with other starches that will ferment and produce alcoholic. These alternate ingredients—corn, rice, and other grains—also produce different flavors. Sugar is often added in other forms as well in order to speed the production process.

Hops

The use of hops in brewing contributes primarily bitterness, aroma, and flavor to the beer. However, hops also provide other attributes to the resulting beer such as better head retention, fewer unwanted proteins, and some anti-bacterial properties. By removing unwanted proteins, the use of hops can contribute greatly to achieving a clearer beer, favored by many Americans. Their potential to give beer a bitter taste makes the use of hops a matter of getting the right balance in order to gain the benefits without tipping the scale on bitter taste.

Yeast

Yeast is the catalyst in the beer brewing process as it is yeast that is responsible for converting fermentable sugars into alcohol, carbon dioxide, and other byproducts. There are hundreds of varieties and strains of yeast; the ones most commonly used in the brewing of beer are those in the Saccharomyces cerevisiae class of yeasts. Yeast often known as ale yeast is a top-fermenting type, while lager yeast is a bottom-fermenting type of yeast. Top-fermenting yeasts are typically used to brew ales, porters, stouts, and wheat beers. Bottom-fermenting yeasts are used to brew Pilsners, Dortmunders, Märzen, Bocks, and American malt liquors.

Packaging Materials

Other than the cost to compensate employees and workers, the largest single category of material inputs to the brewing business is the cost of packaging materials used to prepare the beer for distribution. Cans are by far the dominant method for packaging and distributing beer in the United States where 90 percent of beer is sold in cans. Consequently, the cost of metal cans, boxes, and other containers (not including glass), represented 9.8 percent of all inputs into the U.S. beer brewing industry at the turn of the century according to the Census Bureau.

DISTRIBUTION CHANNEL

The distribution of beer in the United States is a three-tier system. The system was established through legislation after the repeal of Prohibition in 1933. U.S. regulations require that brewers sell to wholesalers or distributors who control the distribution of beer to restaurants, bars, and stores. Thus, the three tiers of the system are producers, distributors or wholesalers, and retailers. Some beer wholesalers have locations throughout the United States but most are regional. Wholesalers are either brand exclusive or independent multi-brand wholesalers. The brand exclusive wholesalers are often partially owned by the breweries whose beers they distribute. In 2002 there were 2,561 beer and ale merchant wholesalers operating in the United States who together generated sales of $44.35 billion according to the Census Bureau's 2002 Economic Census. Firms were active in every state of the Union and employed slightly more than 100,000 people.

The Beer Institute provides data on the number of beer distributors that are operating in the United States and their figures differ slightly from those of the Census Bureau, due to differences in how each defines a distributor. Nonetheless, the trends toward consolidation in the ranks of beer distributors is noted by both data series. According to the Beer Institute's Brewery Almanac 2007, there were just over 5,000 beer distributors operating in the United States in 1980. By 1990 that number had fallen to just shy of 3,000, and in 2004 the Beer Institute reported a total number of 1,907 beer distributors. Their numbers are shrinking but the volumes of product moving through these distributors has been growing, as has been seen in per capita consumption rates. The complexity of federal, state and local level regulation of the alcoholic beverage market is part of what has encouraged distributors to consolidate.

Individual states within the United States have their own regulations related to the consumption, distribution, and sale of alcoholic beverages within their borders. States control the licensing of establishments that sell alcoholic beverages, establish the hours in which it is permissible to sell these beverages, and regulate the distribution of these beverages as well. Some states even exert control over the sale price of alcoholic beverages and others operate state-owned distributorships. Distributors must manage this web of different regulations.

Distributors play an important role in the channel. They have the ability to monitor the sale of beer from the time the beer leaves the brewery until it arrives at a licensed retail outlet. This makes them an ideal point in the distribution system at which to collect state taxes and many states find it easier to collect taxes from a limited number of federally licensed beer distributors than from the far more numerous retail establishments that sell to the public. Other states collect taxes from the final retail outlet.

Managing the distribution channel in order to complement marketing efforts and assure that a steady supply of product is always available to the public is a challenge, as in the case of any perishable product.

Beer distributors sell their beer to a wide variety of final outlets, including bars, restaurants, stadiums, mass marketers, supermarkets, liquor and package stores, drug stores, convenience stores, and other retailers. The ability of an individual retail channel to sell beer and other alcoholic beverages is controlled by state law. Beer is generally more widely available than wine or liquor in many states, but the availability of beer, wine, and liquor in retail markets varies by state.

KEY USERS

Beer consumers tend to be young and male. According to the 2005 Beer Handbook from Bev-AL Communications, beer consumers are 61.7 percent male and 38.3 percent female. Men tend to prefer heavier, imported, and craft beers. The percentage of male consumption rises to 69.2 percent for regular beers, 68.0 percent for high-alcohol ice beers, 65.3 percent for imported beers, and 69.5 percent for craft beers. Women tend to prefer lighter, low-alcohol beers. The percentage of women consumers rises to 40.3 percent for light beers and 41.5 percent for non-alcohol beers. Surprisingly, since women otherwise prefer lower-alcohol beers, women also account for more than their usual share of beer consumption in the malt liquor segment. Women consumed 41.1 percent of malt liquors, which tend to be higher in alcohol content than the average beer. This may be an artifact of advertising and marketing that presents these beers as an alternative to beer, which is itself an historic artifact of some state labeling laws that banned presenting these high-alcohol brews as beer.

While women trail behind men in beer consumption there are several closely related markets in which they close the gap and even surpass men. Women consume 45.9 percent of hard ciders and lead men 60.5 percent to 39.5 percent in the consumption of malted beverages and prepared cocktails. The gap widens to 69.1 percent to 30.1 percent for wine coolers. These beverages have often been designed and marketed specifically for female consumers as an alternative to beer. Figure 20 presents selected rates of consumption by gender from Bev-AL's Beer Handbook.

Young consumers lead all beer consumers. Those in the 21 to 24, 25 to 34, and 35 to 44 age groups all account for significantly above-average beer consumption. Consumers aged 45 to 54 tend to consume beer in proportion to their overall population numbers, while beer consumption drops for those over the age of 55.

Beer consumers are also distinguished by race and many beers are marketed to target ethnic groups. According to 2003 statistics from the Simmons Market Research Bureau, caucasians purchase more light beer and micro/specialty beers than do consumers in general. African Americans purchase three times as much malt liquor and nearly twice as much ice beer as do consumers in general, while Asians and Hispanics purchase more imported beers than the general consumer. Light beers find less favor among African Americans and Asians, who purchase 1/3 to 1/2 less light beer than the overall market. African Americans also purchase just one-third as much micro/specialty beer as consumers in general. These trends are reflected in marketing campaigns. Malt liquor and ice beer advertising often aims at an urban target, while Asian beers and Mexican beers are aggressively marketed at those ethnic communities.

Retail beer purchases follow the age and gender consumption trends. According to statistics gathered by the Convenience Store News Shopper Panel in 2003, the average beer buyer between the ages of 21 and 29 accounted for 54 percent more retail beer purchases than the average adult, buyers aged 55 and above accounted for 41 percent fewer retail beer purchases than the average adult, and men accounted for approximately 10 percent more retail beer purchases than women. Beer is often a convenience purchase both for these young male consumers and beer consumers as a whole. The same study showed that nearly 2/3 (66%) of beer purchases were made through convenience stores, liquor/package stores, or drug stores, while just slightly more than 1/3 (34%) of beer purchases took place through destination shopping locales such as supermarkets or mass merchandisers.

Brewers target this young, male demographic and design their advertising and marketing campaigns accordingly, which is why most beer advertisements feature sports, attractive women, and humor. However, the rapid proliferation of beer varieties has also been accompanied by a proliferation of target marketing, with brands and marketing campaigns designed for all sorts of beer drinkers. All major brewers also offer beverages such as ciders, malt beverages, prepared cocktails, and wine coolers to be sure to appeal to all segments of the alcohol-consuming public.

ADJACENT MARKETS

The most obvious markets adjacent to the beer market are those for other alcoholic beverages. In the United States beer has always held a strong market position relative to other alcoholic beverages based on per capita consumption. Beer has consistently accounted more than 80 percent of all alcoholic beverage consumption in the United States based on per capita consumption figures. For the period 1966 through 2005 it averaged 86.5 percent according to the U.S. Department of Agriculture's Economic Research Service. However, over this period, wine gained market share, increasing its per capita consumption from 1 gallon in 1966 to 2.4 gallons in 2005.

Wine is an alcoholic beverage produced from the fermentation of unmodified grape juice. Grapes have a natural chemical balance which allows them to ferment without the addition of sugars, enzymes, or other nutrients. The top wine producing countries include, in order of 2005 production, Italy, France, Spain, Argentina, and the United States. Wine sales in the United States surged beginning in 1970 and were then flat or falling during the 1980s. The declines were attributed to the nationwide increase of the drinking age to 21, health and fitness concerns that discouraged alcohol consumption, label warnings for sulfites and for pregnancy, and lowered state blood-alcohol levels in driving-under-the-influence laws.

Beginning in 1994, sales began to climb steadily again and were continuing to grow in early 2007, when the report was written. The council attributed the renewed growth to a number of factors, including new reports that moderate wine drinking is good for health, increased and improved marketing campaigns, and the fact that the large millennial generation (those aged 21-30 in 2006), children of the Baby Boomer generation, was adopting wine drinking at a younger age than earlier generations.

Wine is still a distant second by volume within the three-product alcoholic beverage category. By value of shipments, however, it is much closer to beer, generating nearly half the domestic, wholesale shipment value that was generated by beer shipments in the United States in 2005. The value of domestic wine shipments in 2005 was $10.5 billion, according to the Census Bureau, while beer shipments were $20.8 billion, exclusive of imports for both products. Brewers are watching the growth in popularity of wine closely.

Distilled Spirits

The third product category within the larger alcoholic beverage sector has been declining. The consumption of distilled spirits or hard liquor in the United States has been on the decline for several decades. In 1966 the per capita rate of consumption of hard liquor was 1.6 gallons, exceeding wine's one gallon per person annual consumption rate in the United States that year. Hard liquor per capita consumption rose during the 1970s to a high of 2 gallons, and then began to decline. As of 2005 the annual consumption of distilled spirits in the United States stood at 1.4 gallons per person, well below the 2.4 gallon level of wine.

New flavors are being used to try and attract a new and younger consumer base for hard liquor. A new and younger consumer is seen as a way to counter act the decline in consumption seen in recent decades and often attributed to the aging of the population and concerns about health generally. Home distilling is also a trend that promises to increase demand for hard liquors as more people experiment with making craft liquors and acquire a taste for the drink.

Containers

The glass bottle and aluminum can markets are also important adjacent markets to the beer market. For producers of both of these types of containers, brewers continue to be important buyers. In fact, glass beer bottles have so far been a notable holdout in the transition of beverage bottles from plastic to glass.

Other Adjacent Markets

Beer advertisements are an important revenue stream for broadcasters, print, and Internet media organizations that in turn support a wide variety of entertainment activities, most notably professional sports. Anheuser-Busch alone spent $466 million on television advertisements in 2006, according to ACNielsen Monitor-Plus.

RESEARCH & DEVELOPMENT

Though it may seem there is little room for innovation with a traditional product such as beer, both manufacturing pressures and competitive markets have led to continuous innovation by brewers. As a manufacturing industry, large-scale brewers have taken advantage of many of the same sorts of technological innovations that have benefited other manufacturers. Where once a brewmaster relied on just his senses and experience to brew a batch of beer, now increasingly sophisticated control systems monitor everything from the germination rate of malting barley to the specific gravity of worts, allowing the brewmaster to precisely adjust the brew throughout the brewing process to ensure a more consistent product. Meanwhile, craft breweries and microbreweries consistently show an unending desire to try new and different beer recipes, experimentation which constantly introduces new tastes into the market.

The St. James Gate Brewery, maker of Guinness Stout, is a good example of the combination of tradition and innovation to be found among large-scale brewers. The St. James Gate brewery was founded in 1759 and in 1901 they established a research laboratory of their own to improve the manufacture and delivery of its beers, and the success of that laboratory has created a global market for Guinness Stout. Whereas once a true pour of their stout could only be found in Ireland, improvements in the taps used to pour Guinness Stout mean that the modern consumer can now find a good pint nearly anywhere in the world. A similar smooth and creamy pint of stout can also now come from an individual can or bottle, thanks to a small nitrogen pressurization widget that Guinness introduced into cans in 1988 and later to bottles in 1999. Other manufacturers such as S&N, Bass, Courage and Carlsberg-Tetley soon followed the 1988 introduction of Guinness's nitrogen widget with widgets of their own, and the technology can now be found in a wide variety of stouts, porters, bitters, and other draught-style beers.

As with widgets, much of the innovation in the beer industry that is most apparent to the consumer comes in the form of retail packaging designed to improve the delivery of an individual beer to a consumer. In 2005 Heineken introduced a portable draught keg that contains 4.75 liters of beer under pressure from carbon dioxide. Once opened, the keg stays pressurized for up to 21 days, which means that individual glasses of beer can be poured at a consumer's leisure. Many brewers have also introduced dates to their labeling. Because the quality of beer deteriorates over time, labeling that indicates the age of an individual bottle can be of great help to the consumer seeking the freshest possible beer.

Glass-lined cans have been another important development for the beer industry. Designed by the Ball Corporation, glass lined cans produce a similar taste to bottled beers, thus unaffected by its aluminum container. The glass-lined cans allow producers to package their beer in a package like aluminum to allow for a lower breakage rate than bottles, while protecting its taste. Consumers are also able to bring beers camping, hiking, and boating that they would not normally be able to due to the packaging. Oskar Blues Cajun Grill and Brewery in Lyons, Colorado, became the first brewpub to brew and can its own beer in 2002. The brewpub utilizes glass-lined cans produced by the Ball Corporation in Golden, Colorado.

CURRENT TRENDS

The U.S. craft brewing renaissance has had a significant affect on the market. Craft brewing is the fastest growing segment of the alcoholic beverage industry. While 2004 proved to be a difficult year for the industry as a whole, the craft beer segment grew at a rate of 7 percent. Moreover, craft brewers have been able to grow at the expense of importers during 2000–2004.

In 2006 microbreweries made up 10 percent of the U.S. beer market, with over 1,300 microbreweries. Sales increased by 16 percent from 2005 to 2006. Brewpubs, restaurants and pubs with an on premises brewery that serve the majority of their beer to customers on site, are gaining popularity and growing along with the beer industry in the twenty-first century renaissance. The craft beer industry, such as microbreweries and brewpubs, grew by almost 12 percent in 2006. In recognition of this growing segment, beginning in 2000, Sam Adams brewery started sponsoring a contest for the best home brewed beer. Each year since then there have been three winners whose beer has been put into production as a special brew and distributed by Sam Adams.

Large-scale brewers have countered an ever-growing number of small competitors by introducing new and different beverages as well as by taking popular brands and extending the brand across multiple products. Where Budweiser once stood alone as "The King of Beers," the king now has an increasingly crowded court that includes Bud Light, Bud Ice, Bud Dry, and Budweiser Select. In this increasingly crowded market, brewers must also fight for market share amid a declining overall share of the alcoholic beverage market. Beer sales fell from 56 percent of the alcoholic beverage market in 1999 to just 53.2 percent of the market in 2004, according to the Distilled Spirits Council of the United States. Total sales of beers and flavored malt beverages increased by just 1 percent from 2003 to 2004 according to the National Beer Wholesalers Association, and beer sales by themselves were actually down in that year.

For the foreseeable future brewers will continue to extend brands and introduce new beverages to compete in this increasingly diverse marketplace.

TARGET MARKETS & SEGMENTATION

As with many products and services, the next big, national market on the horizon for the beer industry is China. In fact for the first time ever, China consumed more beer than any other country in the world starting in 2003. Its enormous population accounts for the top ranking, but the rise of beer consumption in China also speaks to a developing taste for the drink. In 2003 China consumed 25 million kiloliters compared with 23.8 million kiloliters consumed in the United States. China's consumption rose to 28 million kiloliters in 2004 while the U.S. consumption figure remained reasonably steady at 24 million kiloliters.

On a per capita basis, neither the United States nor China even rank in the top ten by country. The Czech Republic, Ireland, and Germany ranked first, second and third in terms of per capita beer consumption in 2004. Their respective rates of per capita consumption were 157 liters, 131 liters, and 116 liters. The United States had a per capita consumption of 81.6 liters in 2004 and China's rate was 22.1 liters.

RELATED ASSOCIATIONS & ORGANIZATIONS

The Beer Institute, http://www.beerinstitute.org

Brewers Association, http://www.beertown.org

British Beer and Pub Association, http://www.beerandpub.com

EBCU—European Beer Consumer's Union, http://www.ebcu.org

Mothers Against Drunk Driving, http://www.madd.com

National Association of Beverage Importers, http://www.nabi-inc.org

National Beer Wholesalers Association, http://www.nbwa.com

BIBLIOGRAPHY

"Average Number of Monthly Beer Purchases at Different Retail Channels." Beverage Aisle. 15 May 2004, 1.

"Beer Consumption by Country." Kirin Company. Available from ?http://www.kirin.co.jp/english/ir/news_release051215_2.html?.

Beirne, Mike. "Special Report: Beer." ADWEEK Online. 30 April 2007.

"Breweries: 2002." 2002 Economic Census. U.S. Department of Commerce, Bureau of the Census. January 2005.

"Brewers to Get New Technology to Rate Malting Barley." The Kiplinger Agriculture Letter. 24 June 2005.

"Consumer Characteristics." Beer Handbook. Bev-AL Communications, Inc. 2005, 9.

"The Demographics of Beer." Beverage Dynamics. July-August 2005, 2.

Dennis, Mike. "What's Brewing in Widgets?" Super Marketing. 30 June 1995, 30.

"France: Heineken Launches Portable Draught Keg." just-drinks.com. 26 April 2005.

Gander, Paul. "Chapter 3 Glass Packaging." just-food.com. April 2003, 6.

"A History of Beer." Birmingham Beverage Company. Available from ?http://www.alabev.com/history.htm?.

"Residential Population by Age and Sex: 1980 to 2005." Statistical Abstract of the United States: 2007. U.S. Department of Commerce, Bureau of the Census. December 2006, 12.

see also Distilled Spirits, Wine