12/08/2021

Growth opportunities for the global beer industry

The global beer industry needs to sharpen its focus on no/low products, at-home consumption and product diversification to drive post-pandemic recovery

Beer was one of the beverage alcohol categories worst affected by Covid-19 during 2020, due to a combination of factors including exposure to the on-trade, rising competition from rival products such as RTDs, and a relatively small presence in ecommerce.

Beer had been largely stagnant in volume growth terms before Covid-19, due to long-term consumption declines in key markets such as China, the US and Russia. Although global beer volumes fell close to -7% during 2020, trends were far from consistent. For example, the beer category saw unexpected resilience in Brazil – thanks to a successful pivot to digital and DTC (direct-to-consumer) – and in Russia, with strong demand for lower-ABV products.

The most significant declines occurred in markets with a pronounced exposure to the on-trade, such as Africa and the Middle East – where more than 55% of volumes are consumed in bars and restaurants, and volumes plunged by over -10% in 2020.

A patchy recovery

As the global beer category moves into recovery mode, trends will again vary around the world. Generally, beer is expected to lose market share to the RTD category, but this swing will be most pronounced in North America.

In Europe, beer is expected to regain share against all other beverage alcohol categories, and in Asia it will benefit from a correction in spirits volumes – which were artificially boosted by beer’s on-premise-driven declines in 2020.

Similarly, beer in Latin America is expected to regain share at the expense of wine, which saw a rise in consumption during lockdown – but Russia and other CIS countries are forecast to make a significant move into the consumption of wine and RTDs.

Significant beer markets that witnessed large-scale declines in 2020 are expected to recover strongly in the years to come, with India, Mexico and the Philippines all likely to register 2021-25 volume CAGR increases, according to IWSR data.

Recovery opportunities: moderation

Beer is in a good position to benefit from the growth of no/low alcohol products – a dynamic which has accelerated as a result of health and wellness trends accentuated by the Covid-19 pandemic. Beer dominates no/low, with the IWSR calculating that it accounts for over 90% of all no/low consumption in 10 core markets, and the segment benefits from looser restrictions on ecommerce sales and greater flex in terms of its distribution.

As it evolves, consumers are increasingly gravitating to no-alcohol (rather than low-alcohol) beer, drawn by the clarity of its zero alcohol message: no-alcohol was the only beer segment to register volume growth in 2020, and combined no/low volumes are expected to rise at a CAGR of approximately +7% in 2021-25, versus regular beer’s anticipated CAGR of just over +1% over the same period.

Consumers are also attracted by improving product quality, reduced stigma around drinking no/low, and the increasingly rich choice of products – in the past, the segment was dominated by lagers, but there is now a more diverse offering including IPAs and stouts from both big and independent brewers.

Recovery opportunities: ecommerce

The increasing sophistication of the at-home consumption occasion – boosted during the Covid-19 by the rise of entertainment streaming services and online food delivery services – means that brewers are engaging as never before with ecommerce. Many beer companies saw notable rises in ecommerce sales in 2020 and 2021. For example, Heineken’s direct-to-consumer platform in Europe, Beerwulf, more than doubled its revenue in Q1 2021, while AB InBev’s owned ecommerce quadrupled in size.

Some markets saw a dramatic increase in beer ecommerce sales during 2020, with growth likely to continue over the coming years. For other countries, however, such as the UK, Brazil, Australia and Spain – the pandemic gave the beer ecommerce channel an artificial boost, with the channel’s growth expected to moderate going forward.

Looking ahead, companies are increasingly treating ecommerce as a self-contained channel with a dedicated team and strategy, rather than as an extension of the off-trade. They are also more cognisant of the potential of specialist beer ecommerce platforms, not just to drive sales, but to also gather valuable consumer intelligence and insights that will aid NPD.

China and the US show some of the greatest potential for continued beer ecommerce expansion: the former is the world’s leading alcohol ecommerce market, but beer currently underperforms; in the latter, growth is expected to be driven by the easing of restrictions, greater consumer engagement and omnichannel growth favouring beer and other volume categories.

Recovery opportunities: diversification

The RTD segment was the only category of beverage alcohol to register significant growth during 2020, as consumers embraced its attributes of convenience and portability, and appealing product cues such as being low in sugar, calories or carbohydrates.

In a diverse category, hard seltzers were the greatest growth contributors during 2020, mainly driven by rising consumption in the US, where most hard seltzers are malt-based, but also by their expansion in international markets off a small base. According to the IWSR, more than 48% of global RTDs are currently FABs, but hard seltzers are expected lead the category in volume terms by 2025.

RTDs are a clear rival to beer, with the two categories’ consumption occasions becoming increasingly interchangeable: when the IWSR asked consumers to name another drink that applied to the RTD consumption occasion, beer was the most popular answer.

Nor is RTD expansion confined to North America, with markets as diverse as China, South Africa and Russia recording significant growth thanks to RTDs’ product innovation, affordability and low ABV levels.

As a result, brewers are moving with the market and becoming increasingly diverse in their product offering, supplementing beer activity with the targeting of high-potential RTD segments such as hard seltzers, canned cocktails and hard kombuchas to drive future growth. Heineken, for example, introduced AriZona SunRise Hard Seltzer in early 2021. Both Ab InBev and Heineken launched hard seltzers in Mexico in Q1 2021 as well, with the introduction of Michelob ULTRA Hard Seltzer and Amstel Ultra Seltzer respectively. Molson Coors also announced an investment of £5m in its hard seltzer brand Three Fold, a naturally vegan and gluten-free offering.

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