OREGON STATE UNIVERSITY

OSU profs: Beer industry changing with the times

03/02/2005

CORVALLIS, Ore. - It has no doubt been a while since you poured yourself a frosty glass of Carling Black Label beer, Ballantine or the Schlitz Malt Liquor Bull. And whatever happened to Falstaff?

The beer industry in America is changing, dominated by huge corporations, massive advertising expenditures and product proliferation. And though microbrews and imports have tried to muscle into the pocketbooks of U.S. consumers - most Americans still say "this Bud's for them."

The economics of the beer industry is the focus of a new book written by two Oregon State University economists, Victor J. Tremblay and Carol Horton Tremblay. Titled "The U.S. Brewing Industry: Data and Economic Analysis," it was published in 2005 by the MIT Press.

The book is the culmination of 25 years of research by Victor Tremblay, who has studied demand analysis, the effects of advertising and corporate strategies of the brewing industry. He and his wife, Carol Horton Tremblay, who is an applied econometrician, also have published several papers related to the beer industry.

Since the mid-20th century, the number of mass beer producers has shrunk from 425 companies to just 20 and as consolidation and attrition have taken a toll, many of the once-dominant beers have exited from the refrigerated shelves of American grocery stores.

"The brewing industry has gone through what many other industries have experienced," said Victor Tremblay. "In an emerging new industry, a lot of people enter the market with new products and brands. But as competition grows fiercer, the smaller, less efficient companies begin to drop out or get taken over by a competitor.

"Some of them fell victim to poor business strategies," he added, "while others had products that consumers ultimately found unsatisfying."

For much of the 1940s and 1950s, Schlitz sat atop the U.S. brewing industry, ranked highest in sales and market share. And though Anheuser-Busch took over the top spot in 1957 and has yet to relinquish it, Schlitz held its own and was second among American brewers until 1977, when Miller came along. As Schlitz sales began to fall, Tremblay said, the company eventually sold out to Stroh.

For the past quarter century, Miller has held the second spot among American brewers to Anheuser-Busch. In 1990, Coors assumed third place from Stroh and has held it since.

Tremblay said the industry is undergoing another revolution. Having withstood imports and microbrews, the American "Big 3" are internationalizing their efforts more than ever.

"Since the book came out earlier this year, there already have been some changes," said Tremblay. "China has become the No. 1 beer consuming country in the world and Anheuser-Busch is moving swiftly to grab that market, purchasing two Chinese breweries. They want to have a global image for Bud the way Coke does for soft drinks."

Companies as large as Anheuser-Busch, Miller and Coors make it difficult for smaller brewers to get a foothold in the U.S. market, the OSU researchers say. Nationally, less than 12 percent of all sales are imports, and just 3 percent of sales are microbrews.

"This is still Bud, Miller and Coors country," Tremblay said.

For decades, the top companies brewed and sold only one brand. Then Schlitz came along with its malt liquor "Bull." When Miller was purchased by Philip Morris, it adopted the corporation's brand proliferation and marketing strategies, Tremblay said, adding light beer, Genuine Draft and numerous other beers to its product line.

Since the early 1960s, a variety of smaller companies have tried to find niche markets with different beer products, including light beer, dry beer, ice beer, ales, malt liquor, and now flavored beers. Those companies' success generally doesn't last long, Tremblay pointed out.

"As soon as one of them finds a market, the big guys step in and create their own product," he said. "It isn't just that they can outspend them in advertising and other marketing efforts. Companies like Anheuser-Busch have huge distribution networks, so their products get all the shelf space."

The Tremblays say the most influential factor in the brewing industry - socially as well as economically - has been advertising. Cartoon characters like the Hamm's bear led to protests against advertising that targets underage consumers. The "tastes great/less filling" slogan by Miller Lite became a national catchphrase. At one time, regional brewers like Rainier and Blitz in the Pacific Northwest gained market share through clever, quirky advertising campaigns.

And, of course, billions of dollars were spent.

"Television ads basically killed the small brewer," said Victor Tremblay. "They simply could not afford to compete. Now the brewing industry is in a battle with the hard liquor industry for the consumer dollar. And they're struggling a bit. The only company that has done really well in the last 10 years has been Anheuser-Busch. There is continued speculation that Miller and Coors may merge."

As companies grow desperate, their advertising strategies reflect it, Tremblay said. Ads get edgier and more risqué.

"In the 1980s, Eastern Brewing introduced 'Nude Beer' with a scratch-off label, which was the height of tasteless marketing strategies," Tremblay said. "When companies start running sexy ads, they usually are under financial stress. It's the beer industry's equivalent to the 'Hail Mary' pass in football - it means they're desperate and have nothing else to lose."