Elevating Premium Lager

Yeah, whenever these "Craft Lager is the next big thing" threads come up, I always (sometimes?) mention that 3 of the top 5 "Craft Brewers" (as determined by the Brewers Assoc., not me ) have lager flagships - Yuengling Traditional Amber Lager, Samuel Adams Boston Lager and Shiner Bock (plus Gambrinus' other brewery, Trumer, has Trumer Pils as its flagship).

And as far as the concept that US beer drinkers won't buy lagers that cost more than the AB and MC flagship brands and/or such lagers would have to be made with "premium/non-adjuct" ingredients, how does one explain that Mexican beers - which had a market share of less than 1% in the US in 1980 at the start of the "Craft Era" - now account for probably 15% of the beer market, with Constellation (Corona and Modelo) alone being the 3rd largest beer marketer in the US and its Modelo Especial destined, according to some industry experts, for the #1 spot in a few years.

 

They definitely will buy more expensive lagers, but I'm not sure I'd look at that as untapped potential. As you noted, there's plenty of competition at the 'import/mega craft' price level (yes, I just made up that term ).

I'm sure there's industry tracking of how the Mexican brands were able to grow so well, but I'd figure a bunch of it was sideways moves, from other imports like Beck's, Heineken, etc.

 

When I looked at Binny's website a few weeks ago, a 12-pack of Banquet & High Life was $8.99. A 12-pack of Modelo was $17.99. Craft breweries can get in between the two and again, they don't need to convince everyone, they just need to convince a tiny % that they're worth it. There are premium versions of every product in existence, driven by the brand.

 

Maybe today - but at the time in the 1980s, the industry experts were baffled by the rise in Corona. And no US brewer has been able to duplicate it or really take advantage of it (tho' AB tried by buying into Grupo Modelo in the 1990s, but never went much further, like moving the Corona brand to their "Red" distribution network). Heineken, OTOH, bought the FEMSA breweries and brands, so it worked out OK for them.

Well, not really when one looks at the overall US market (and I doubt on an individual level many Beck's and Heineken drinkers moved to Corona Extra). In 1980, only two of the Top Ten Imports were Mexican beers, #4 Dos Equis and #9 Carta Blanca. Together (5.1 + 1.5) they had 6.6% of the Import market, which at the time was under 3% of all beer sales. Heineken alone made up nearly 40% of that. Before buying FEMSA, Heineken USA was selling over 8 million barrels of beer in the US, most of it Heineken, obviously.

 

The description of the craft brewer costs is a good starting point. But basic fixed costs aren't really captured. Labor is there, but rent, insurance, debt service, property taxes, etc., are all hidden in brewer's margin. These can easily overwhelm a craft brewery if sales are slow (and are reduced as volume increases). Older local conventional breweries faced this same problem, as the national brands invaded their territory ever since the end of prohibition. Some of the responses were similar. Launch new brands, expand distribution footprint, add new packaging options, and sometimes acquire or merge with another brewery.

 

That beer isn't really comparable to AALs. It competes in quality and style with German lagers, and probably would be immediately rejected by an AAL drinker. It would be my favorite lager (German or US) if it was distributed in my region.

 

This is the key point- it’s hard to compete against the economies of scale that the large conglomerates can leverage. Bell’s has the ability now that they got bought out and it look like they’re trying to hit that niche with Lager FOR the lakes.

Some lager centric breweries (Goldfinger, Jack’s Abby, etc.) are making great lagers, but can’t compete. It takes time and they have to balance growth vs consumer fickleness. I’d love to see it happen, but it takes a lot of luck along with the effort.

Maybe going contract brewing/marketing company route is the way to go (Montucky).

it’s a crowded market, maybe local breweries need to band form cooperatives to negotiate better pricing.

 

I just looked at Total Wine's website (a chain similar to Binnys). For The Twin Cities, Banquet/High Life is $11.99, while Modelo is $13.99--a much closer spread than in Chicago-land and much less room for craft brewers to try and fit into that middle. I wonder what drives Modelo's pricing so high for Chicago?

 

Doug, have you had the opportunity to consider my first post in this thread (post #21)?

An extract from that post:

“A CAP would be brewed with adjuncts but perhaps at a more modest level (I choose to use 20% of the grain bill as corn). They would also be much more hoppy in all three phases (i.e., bittering, flavor and aroma). A CAP would be much more flavorful than contemporary AAL beers (e.g., Bud).”

Do you think there is a market for an Adjunct Lager that is much more flavorful (i.e., hoppy flavor/aroma) as compared to contemporary AAL beers such as Budweiser, Miller High Life,…?

It would seem to me that producing a ‘better’ AAL would warrant higher pricing.

Cheers!

P.S. And thank you for choosing to participate in this thread.

 

But what if the brewey(s) didn't just compete on price but offered an improved product which would warrant a higher price point? See my post above.

Cheers!

 

And why is High Life so high in the Twin Cities? Must be some regional marketing metric.

 

I think anything is possible if you nail the flavor, surround the liquid with a brand and message that connects with enough people, make it a priority of yours, give it the focus it needs, and price it fairly. Many will fail because they'll make it the 5th most important thing they're doing. It doesn't necessarily need to be #1, but probably needs to be 2 or 3 to stand a chance. These brands take decades to build so you can't expect to hit a homrun in year 1. Needs a lot of patience and investing.

 

Even though the Modelo price seems high, that's kind of where I'd imagine you'd have to be- maybe 10 to 20 percent higher than other premiums like Narragansett, $11-12 a 12 pack. Still, that would require serious commitment to volume sales and marketing.

There's a company in NYC called Braven that got into the business with a Bushwick Pilsner, very much conceptually similar to what you're describing, a 'better' AAL. I was originally excited about trying it, but while a good beer they are selling it at $14 a 4 pack, so it was a one and done. No wonder they can't get any traction.

 

Good question--Banquet, High Life, and Budweiser are all the same price--11.99. I see that Budweiser is priced at 11.99 on the Binnys website. Interesting that there is a difference in Chicagoland for Bud too.

 

Even before the Miller-Coors merger, Miller had a habit of pricing High Life in different price segments - premium or popular - in different markets. For a time, Miller Genuine Draft was premium-priced in some areas while MHL was lower priced (but the kegs of each were priced the same).

I think after the MC merger and since, Molson Coors has done the same thing with "Banquet" - in some regions, priced the same as Budweiser, in others, under it. I guess both AB and MC usually price their "light" premium flagships close together (although even within the same brand, the cost variation between packages - bottles/cans - 6-12-18-24-30 packs - will make one's head spin.
(At least here in NJ, where the liquor stores don't have shelf price tags that note "___ ¢ per ounce" like grocery stores do. I lost a bet and had to buy a guy some Coors Light once and couldn't decide what the best deal was.)

 

It's a given restriction that the AAL flavor would have to be within a fairly narrow range. It looks like the best way forward would have an AAL competitor brewed at a larger brewery -- whether in house or contract brewed. I believe they would need to compete in price with (at least) Corona. Sam Adams is brewed at large breweries now in house. Narragansett and Brooklyn beers are contract brewed. AB brews many of its acquired craft brews at its Budweiser breweries. Some of the regional craft brewers (Lagunitas, Stone, . . .) could conceivably come close to the needed price point. Effective advertising, promotion as well as consistent distribution are all big problems that I don't see an easy answer to.

 

The major breweries have regularly used price promotion in competitive markets to undercut local brands and expand their footprint. I think they were sometimes cautious because of anti-trust fears, but stilll persisted.

 

Michael as you might recall I discussed Braven in a past NBS thread. That beer tastes like a Vienna Lager vs. a CAP for my palate. I thought it was a good beer as well but I agree that this beer is not 'worthy' of $14 for a four-pack.

Cheers!

 

Doug, I appreciate your reply.

Since you are a marketing person, I am interested in your thoughts about how best to market a brand of beer in two different craft beer markets: larger/distributing breweries vs. smaller/on-premise breweries. It seems to me that these two different types of businesses might have to conduct marketing in differing ways.

For example, a larger, distributing brewery has to have a sales force to both sell product to Wholesale Distributors and to support retail beer sales. In contrast a small, on-premise brewery sells their products on-site as draft beers plus maybe also packaged (e.g., canned) beers for to-go sales.

I could envision that creating a new brand of beer categorized as Classic American Pilsners (or Pre-Prohibition Pilsner) could be a challenging endeavor for a larger, distributing brewery. There is the education aspect, i.e., educating both the direst customers (Wholesale Distributors, Retailers) and the end customer (beer consumers) about this ‘new’ beer style. But on the upside for the craft beer market there is this constant, urgent need by consumers for a ‘shiny new thing’ to drink. Maybe it will not be known until some time later but perhaps this desire for a ‘shiny new thing’ may warrant the effort for this new product introduction.

As regards the smaller, on-premise brewery I would suggest that the marketing is different in that the business is a direct-to-consumer business. The brewery owners actually get to see their customers and can explain in a face-to-face communication what a Classic American Pilsner is and try to explain why this product is worthy of a purchase (both draft and for to-go).

Do you have an opinion on how effective counterintuitive advertising is? Could a brewery advertise their CAP beer with a tag line of something like “This is your grandfather’s beer” and generate excitement for sales?

Or maybe something like "This is how Budweiser* would have tasted in 1876"?

Cheers!

*But obviously select a different noun since "Budweiser" could not be used.

 

I definitely take your point about market size. You don't have to convince many Miller customers to switch to your brand to grow your customer base considerably. I guess I'm just skeptical that this is a segment that is really "quality" sensitive. I suppose the success of some Mexican brands does show that there's space for differentiating a brand and getting the price point up that way.

I'll be interested to see if it shows itself to be a workable strategy for smaller breweries.