Beer Battles Beyond Borders

With all of the talk of tariffs and trade wars, could imported beers end up in the crosshairs?

Your bottle of Corona is probably pretty safe for the foreseeable future.

Earlier this year, there was much speculation in the media about how tariffs on imported aluminum would impact the U.S. beer business, especially considering the fact that most of the macro producers, as well as a sizable chunk of craft brewers, package their products in cans. Predictably, talk of retaliatory tariffs from international trading partners followed, back-and-forth rhetoric escalated and lots of question marks remained over which types of products would and wouldn’t be vulnerable to tariffs.

While the aluminum issue primarily affects domestic brewers, it remains unclear whether any sort of potential trade war escalation extending to other consumer goods could affect imports. But most agree that the probability remains low that there will be any negative effects on the imported segment.

“Typically with trade wars, it’s a matter of ‘how can you shake somebody’s boots, by threatening to put a tariff on x,” says William Earle, president of the National Association of Beverage Importers (NABI).

Spiros Malandrakis, industry manager for alcoholic drinks at market research firm Euromonitor International, echoed Earle’s sentiment.

“The trade seems to understand or at least hopes it’s just part of President Trump’s negotiating tactics and that any fears would be ameliorated if some kind of agreement were to come out of this, Malandrakis says. “This is more or less the hope at the moment.”

It’s a losing strategy, Earle suggests, for anyone in Washington to support a price increase on beer.

“There are enough people in the United States who drink imported beer and love it, that any politician who would seek to put a tariff on imported beer is going to alienate their base,” Earle says. “And why would you want to alienate your base?”

The trade conflict may not be visible to consumers at this point–in terms of price increases–but that doesn’t mean those in the trade across the three-tier system aren’t nervous about it.

“Retailers are having some conversations with us about whether it’s going to happen,” says Gary Thompson, executive vice president and general manager at Powers Distributing in Orion, Michigan. “The retailers are really paying attention to [the issue] and the suppliers are paying attention to it as well. Nobody’s in a big hurry to announce price increases, they’re waiting to find out what happens with tariffs.”

Thompson says that, depending on how the situation plays out, the market could experience some sort of deferred price increase–say, in the spring of 2019 versus any time before the end of 2018.

Import consumers cross many demographics and socioeconomic levels, so price hikes would not only affect more affluent consumers trading up from macro domestics.

There’s often a cultural connection with many imports, with ethnic communities gravitating to brands that connect them with their countries of origin. For example, market research company Mintel found that Hispanic consumers are more likely than non-Hispanics to drink imported beer. Mintel found that those who emigrated to the U.S. as adults were more likely to drink imports than those who belong to subsequent generations.

Within the Mexican-American community in particular, that cultural alignment is likely one–of many– factors that have made Mexican brands the strongest performers among all imports over the past several years.

Brands in Constellation’s import portfolio performed the strongest. Case volume for Corona, the No. 1 imported brand in the U.S., grew 9 percent to 70.1 million cases in most major off-premise retail outlets for the 52-week period that ended August 12, 2018, according to Chicago-based market research company IRI. Modelo trademark brands–Modelo Especial, Negra Modelo, etc.–saw a volume increase of 17.7 percent to a combined 60.2 million cases. Pacifico, the No. 9 brand among all imports, climbed 11.5 percent to 3.9 million cases in those channels.

Victoria volume also grew significantly last year, up, 21.5 percent, but off a significantly smaller base. Its off-premise volume stands at just shy of 1 million cases, according to IRI.

“Constellation is really, really doing well–it doesn’t matter too much which brand you pick out of their portfolio, even with Corona Premier out there cannibalizing, to some degree, Corona and Corona Light,” Thompson observes. Corona Premier, rolled out earlier this year, boasts 90 calories (nine fewer than Corona Light) and 2.6 grams of carbohydrates (versus Corona Light’s 5 grams). It’s the first new launch to bear the Corona trademark in 29 years.

“I just don’t see any stopping those guys or anything that slows them down at this juncture,” Thompson says. “They’re the darling of the beer business right now.”

A number of the major brands that directly compete with Constellation’s Mexican import portfolio haven’t been sharing the good fortune of Corona and company. Heineken International’s top Mexican brands, Dos Equis and Tecate, both experienced single-digit declines in in the most recent 52-week period that IRI measured.

One brand that Heineken had not been putting much marketing support behind in the U.S. was Sol. But the brand’s profile north of the border has grown a bit in recent months, thanks to a 10-year marketing and licensing agreement that Heineken and MillerCoors signed last year, giving the latter company control over Sol’s U.S. market presence. It’ll take at least another year to assess Sol’s long-term prospects here, but preliminary numbers are encouraging. Off-premise volume, according to IRI, grew about 82 percent for the 52-week period that ended August 12–mainly because its new importer is making a much greater U.S. marketing investment in it than its parent company had. Sol’s volume in the major channels rose just above 500,000 cases.

Things are tough all over for Heineken. The namesake brand’s performance in the U.S. has been mediocre at best, with a volume drop of about 2 percent to 24.9 million cases in those same channels. Meanwhile, Amstel volume dropped more than 10 percent.

“Heineken is laboring,” Thompson says. “It’s acting more like one of the big [domestic] brands from the United States, honestly. It’ll be interesting to see where that goes.”

Of course, if any of the will they/won’t they trade war shenanigans start to directly apply to imports from across the pond or from the U.S.’s North American neighbors, all bets may be off.

“I think the mood among importers,” NABI’s Earle says, “is ‘just keep your head down, don’t be too visible in terms of what your volumes are or the general trajectory of these trade negotiations.’”

If any segments should be concerned, Malandrakis notes, it should be U.S. craft and any other domestically produced products with significant export activity in their business plans. That scenario already playng out in the spirits industry. Bourbon whiskey, U.S. spirits producers’ greatest export, has been as much of a success story overseas as it has at home. Its growth could stop in its tracks, thanks to a 25 percent retaliatory tariff that the E.U. slapped on the spirit in late June. Many European importers have overstocked ahead of the tariff, hoping they have enough inventory to ride out the storm.

It’s not likely, at least in the near term, that U.S.-based importers will have to resort to such measures.

“I think imports will probably continue to do well,” Malandrakis says, “regardless of the political environment, and all of the toxicity in the atmosphere.”