SIC 2082
MALT BEVERAGES



This category includes establishments primarily engaged in the manufacturing of malt beverages, including ale, beer, malt liquor, nonalcoholic beer, porter, and stout.

NAICS Code(s)

312120 (Breweries)

Industry Snapshot

Beer has been a part of the American lifestyle since the birth of the country. Beer was brewed in colonial America and was made by American Indians. Through the years, beer has served cultural, spiritual, and even medicinal purposes. With nearly 80 million American beer drinkers, beer has become one of the most popular beverages, second only to water and tea.

Each year, the U.S. malt beverage industry produces and sells more than 2.6 billion cases of beer, or about 193.3 million barrels. A barrel of beer is equal to two kegs or 31 gallons, which is roughly 13.8 24-unit cases of 12-ounce cans or bottles. The value of malt beverage shipments totaled $16.5 billion in 2000. According to the Beer Institute, the trade association for the malt beverage industry, the United States is the world's largest producer of beer, brewing more than 20 percent of the world's volume. More than 1,800 brewers and beer importers operate in the United States. The U.S. malt beverages manufacturing industry employs over 30,000 workers and pays roughly $1.5 billion in wages.

Three major companies hold nearly 80 percent of the market share in the United States. These breweries are Anheuser-Busch, located in St. Louis, Missouri; Miller Brewing Company in Milwaukee, Wisconsin; and Coors Brewing Company in Golden, Colorado. The two topselling brands, Budweiser and Bud Light, both belonged to Anheuser-Busch. Ranking second was Miller with the third-best selling product, Miller Light. Ranked third was Coors Brewing Company with the fourth most-popular beer, Coors Light.

Although light beer continued to dominate the market with a 37 percent share, the consumption rate of micro brews or specialty beer also continued to grow in popularity. Since the industry-leader Boston Beer Company was founded in 1984, the microbrew business had grown into a $1 billion industry by the late 1990s. And while the market for craft beer was flat from 1997 to 1998, the segment did grow 1.2 percent in 2001 to achieve sales of $3.3 billion, securing a 3.09 percent share of the total domestic beer market.

Another good sign for the U.S. beer industry was its strong showing overseas. Various markets grew more accessible, especially the most eagerly sought Asian market. Japan continued to be the largest market for U.S. beer, but export rates also climbed in Hong Kong, Brazil, Taiwan, Canada, and Russia.

Organization and Structure

This industry includes only those companies that manufacture beer. The industry has consistently been dominated by three major U.S. breweries, yet, regardless of size, all breweries have to sell their products through wholesalers and retailers. This distribution channel is the result of accommodating the variety of federal, state, and local regulations regarding the sale of alcoholic beverages.

Federal and State Regulation. The Federal Alcohol Administration Act (FAA) was put into place at the end of Prohibition in 1933. Since that time, the Bureau of Alcohol, Tobacco and Firearms (ATF) has been responsible for administering and enforcing the FAA, including qualifying brewers, collecting brewer and wholesaler occupational taxes, and regulating trade practices, advertising, and labeling.

Beyond the uniformity of the FAA, regulations varied greatly among the 50 states, as the Beer Institute reported in their testimony to the U.S. Senate regarding the Malt Beverage Interbrand Competition Act. Probably the most dramatic example of regulatory diversity is the way that states sell beer. "Open" states license retailers and wholesalers to handle the distribution and sale of alcoholic beverages. Thirty-two states and the District of Columbia are considered "open" states. The other 18 states operate under the control method, in which each state government buys and sells alcoholic beverages at the wholesale and retail levels.

In addition to federal regulations, some states have set up independent agencies responsible for the administration, licensing, and enforcement of state laws and the collection of state revenues. Additionally, some state legislatures created their own Alcoholic Beverage Control (ABC) agencies with rule-making power, and 32 states have allowed citizens to vote for or against the sale of liquor in various cities or counties.

Background and Development

The foundation of the U.S. beer industry can be traced to the ancient times of kings and pharaohs. Babylonian clay tablets more than 8,000 years old depicted beer being brewed and gave detailed recipes. Other writings indicated that beer was brewed by the Egyptians as early as 3000 B.C. and by the Chinese in the 23rd century B.C. One of the world's oldest breweries still in existence is Brauerei Beck in Germany, where Beck's beer was first brewed in 1533.

Beer was first brewed in America in 1587 at Sir Walter Raleigh's colony in Roanoke, Virginia, and Puritan settlers brewed beer in Boston as early as 1620. In 1791, Congress levied the first tax on alcohol. By 1870, Adolphus Busch had pioneered the use of refrigerated railroad cars to ship beer over long distances. Following the steady development of temperance groups, the Pure Food and Drug Act, more commonly known as the Volstead Act, went into effect on January 16, 1920. This act ushered in the era of Prohibition, which banned the sale of alcoholic beverages. During this 13 year period, production and distribution of millions of gallons of alcohol fell into the hands of "bootleggers."

After Prohibition was repealed in 1933, federal and state governments tightened regulations under the Federal Alcohol Act (FAA) and various state regulations. Brewers also adopted policies of self-regulation, such as the Distilled Spirits Council of the United States's (DISCUS) voluntary "code of good practice." Following Prohibition, beer was produced in 750 locations throughout the country. It was distributed to wholesalers and retailers in limited geographic regions that seem extremely small when compared to current distribution areas. By the 1930s, the primary way to sell beer was in draft form and in refillable bottles.

In order for breweries to continue expanding, however, less costly containers were needed. The beer can, introduced in 1935, filled those needs perfectly. By the end of World War II, the beer can had become such a popular container that glass companies soon created the one-way bottle to keep up with the competition. Both of these less-expensive containers allowed brewers to ship more beer and expand markets. By 1946, breweries served markets that were at one time only accessible to local and regional companies, and this expansion soon created the nationwide market of the major breweries.

Total sales volume for the domestic beer market rose 1 percent in 1996, a small but symbolic gesture breaking a decade-long stagnation in consumption rates. Although incremental, this industry growth can be attributed to the rise in microbrews, which has posted double-digit growth since 1995, and to imported beers. Both segments are significant but small; microbrews made up only two percent of the market and imports just five percent in 1998.

Companies began to consolidate with others to save operating expenses. In 1995 fourth-ranked Stroh Brewery Company acquired G. Heileman, makers of Colt 45, Old Style, and Henry Weinhard, among other labels.

Causes for the stagnant market were attributed to the effects of the federal excise tax hike in 1991, unfavorable demographics (not enough 21-year-olds), and continuing health concerns regarding alcohol consumption. A bit of good news for the beer industry was that the mini baby-boom generation was about to come of age, so the flat market of 21-year-olds would soon grow.

Attempting to boost incremental sales and expand the beer market, companies continued to introduce new products—often creating entirely new segments such as light beer, nonalcoholic beer, ice beer, bottled draft beer, and clear malt liquor drinks such as Zima .

In 1996 light beer became the largest segment of the beer market with 37.25 percent—more than 70 million barrels. Nonalcoholic beer also has helped the beer business. Although small compared to total beer consumption, volume of nonalcoholic beer has more than doubled since its 1989 level and remained steady since 1991.

In an industry of mature brands, companies were looking at the future of microbrews. Sales in this segment grew an average of 40 percent from 1987 to 1997. Specialty brewing in the United States grew from a $600 million industry in 1992 to a $1 billion industry in 1994. Even the big names were offering craft brews. In 1994, Anheuser-Busch (A-B), bought a stake in Seattle's Redhook Ale Brewery, while Coors Brewing Company landed Killian's Irish Red.

The undisputed leader of the microbrew segment has been the Boston Beer Company (BBC) and its product Samuel Adams. The tenth largest beer producer in the country, BBC manufactured 700 barrels in 1994, only about three one-thousandths of the beer sold in the U.S. that year. However small, this volume was still greater than the total of the next six microbrewers combined. When the BBC was founded in 1984, fewer than 40 micro-breweries existed. Since then, an estimated 500 small breweries and brew pubs have opened, with an additional 50 added each year from 1985 on.

According to the U.S. Department of Commerce, Japan was the largest market for U.S. beer in the mid-1990s, although sales were actually down 16.6 percent in the country in 1995. Sales came in 62 percent higher in 1995 than in 1994 in Hong Kong, 214.5 percent higher in Brazil, 108.6 percent higher in Taiwan, 33.6 percent higher in Canada, and 78.9 percent higher in Russia. The total U.S. imported beer market hit an all-time high in 1995, with volume topping out at an estimated 343.5 million gallons. This growth represented a 5.5 percent jump in volume from 1994 and was almost a 40 percent improvement over a ten year period.

The surge in imports to the United States was attributed to the American consumer's desire for high quality, full-bodied brews; lower total alcohol consumption; and becoming accustomed to higher prices for both domestic craft brews and imported brands. Among the world's best-selling beers, only Heineken, the Danish Carlsberg, and Guinness may be regarded as truly international.

North America and the Caribbean countries (Mexico, Canada, Jamaica) led exports in 1995, with 165.8 million gallons of beer shipped to the United States, up from 160 million gallons in 1994. The Europeans exported a record 161.8 million gallons of beer to the United States, up almost 8 percent from 1994. The Asian/Pacific region exported 7.4 million gallons to the United States—virtually the same figure as in 1994.

Current Conditions

In the late 1990s, beer industry sales grew about 1.5 percent to 193.3 million barrels. A strong economy, coupled with the growing number of individuals over the age of 21, fueled growth to a record 197.6 million barrels in 2000. As the economy slowed in the early 2000s, however, beer shipments were expected to follow suit. The average per capita consumption of beer in the United States had declined since the 1980s, reaching 22 gallons in the late 1990s, with Nevada leading the nation with 34 gallons and Utah drinking the least, with 13 gallons per capita. However, because the population of individuals old enough to drink beer continued to grow, the beer industry had been able to achieve growth through the turn of the century.

The three big leaders in the beer industry continued to be Anheuser-Busch, Miller, and Coors. With the two top-selling brands, Budweiser and Bud Light, A-B dominated the domestic beer market in 2001. Anheuser-Busch, with 48.6 percent of the market, shipped more than twice as much beer as second-place Miller, who had 19.6 percent of the market (a share that had been declining for several years) and the third best-selling product, Miller Light. Coors Brewing Company, with its fourth-place Coors Light, held roughly 11 percent in 2001.

Some of the growth in the beer industry is attributable to rising prices and the taste for super-premium products. To cash in on that taste and to secure more and better shelf space, the industry is constantly introducing new products. In 1999 A-B unveiled Tequiza, which is beer with a touch of tequila. At the end of 1999 the company was test marketing Devon's Original Shandy, a combination of beer and lemonade.

No longer an industry in its infancy, the craft brewing segment of the beer market had some growing pains in the late 1990s. Sales were flat for 1998, with craft brews selling about 5.6 million barrels in both 1997 and 1998. Consumers became choosier about their craft beers, no longer assuming—or buying into the notion—that craft beers are automatically better than those of national or international companies. Some specialty beer firms reacted by merging, closing, reformulating their brew, or making a conscious effort to stay small. While many companies jumped on the specialty brew bandwagon, many also went out of business. Industry-wide sales may have been flat in 1998, but 21 of the top 50 specialty beer companies reported a 10 percent or more growth rate in 1998. By 2001, craft beer makers had secured more than 3 percent of the domestic beer market. The top U.S. specialty beer makers that year were Boston Beer Co. and Sierra Nevada Brewing Co.

For the larger companies, especially Miller, consolidation was the way to maintain or grow market share. In 1999 Stroh Brewery formally shut its doors, selling its Weinhard's and Mickey's brands to Miller. The rest of the Stroh brands and a brewery in Pennsylvania were sold to Pabst. The brands included Stroh's, Old Milwaukee, Schlitz, Schaefer, and Schlitz Malt Liquor. In late 1999 Miller completed its acquisition of the only remaining brewery in the Northwest, Olympia Brewing Co. Miller planned to sink $20 million into the aging facility to bring production up to two million barrels by the end of 2000, doubling 1999 production levels. In 2002, Miller agreed to merge with South African Breweries to become the world's second largest brewery.

The import sector of the brewery industry experienced its tenth straight year of growth in 2000, having more than doubled in size during the 1990s. Of the leading 13 malt beverage suppliers in the U.S., six are now import companies or American affiliates of brewers based in other countries.

Industry Leaders

Anheuser-Busch, Inc. Anheuser-Busch, Inc. is the world's largest brewer and the main subsidiary of the Anheuser-Busch Companies, based in St. Louis, Missouri. With 13 breweries, Anheuser-Busch produces 15 naturally brewed beers, two non-alcoholic beers, and imports three beers for distribution in the United States. By 1998, Anheuser-Busch sold an all-time industry record of 93.9 million barrels of beer in one year. In the third quarter of 1999 A-B had profits of $461.5 million, up 13 percent from the same time the previous year. Sales were $3.8 billion in 1999's third quarter, boosted by a three percent increase in sales. During this time, A-B announced they would raise prices again by three percent.

Anheuser-Busch brands are exported to more than 40 countries and brewed under the company's supervision in five countries. Anheuser-Busch employs over 44,000 people and works with approximately 900 independent wholesale distributors. Anheuser-Busch also operates 11 company-owned distributorships. Other beer-related Anheuser-Busch subsidiaries are Anheuser-Busch International, Inc.; Busch Agricultural Resources, Inc.; Metal Container Corporation; Anheuser-Busch Recycling Corporation; Busch Media Group, Inc.; Busch Creative Services Corporation; St. Louis Refrigerator Car Company; Manufacturers Railway Company; and the International Label Company. Anheuser-Busch brands are Budweiser, Bud Light, Bud Dry Draft, Michelob, Michelob Light, Michelob Classic Dark, Michelob Dry, Michelob Golden Draft, Michelob Golden Draft Light, Busch, Busch Light, Natural Light, Natural Pilsner, O'Doul's, King Cobra, Carlsberg, Carlsberg Light, and Elephant Malt Liquor.

Adolphus Busch, founder of the Anheuser-Busch Brewing Company, immigrated to the United States in 1857, arriving in St. Louis via New Orleans. In 1861, Adolphus married Lilly Anheuser, and after serving a short time in the Union Army, he returned home and joined the management of his father-in-law's brewery. In 1869, Adolphus purchased half ownership of another brewery, called the Bavarian Brewery, which was restructured with his father-in-law, Eberhard Anheuser, as president and Busch as secretary. In 1879, the company was renamed Anheuser-Busch Brewing Association. Upon the death of Eberhard Anheuser, Adolphus Busch became president of the brewery. He continued in this position for the next 33 years until his death in 1913. Anheuser-Busch was the first brewer to use pasteurization to help keep beer fresh in transit, and most packaged beer is still pasteurized today.

Miller Brewing Company. The Miller Brewing Company is a wholly owned subsidiary of Phillip Morris Companies Inc., with corporate headquarters in Milwaukee, Wisconsin. While the industry as a whole increased sales three percent in the second quarter of 1999, Miller' core-brand sales fell 2.2 percent.

With approximately 10,000 employees, the company operates seven breweries, five manufacturing plants, a glass-bottling plant, a hops processing plant, a malting factory, and a packaging/printing plant. The Miller Brewing Company produces over 40 million barrels of beer each year. The company's major brands are Miller High Life, Miller Lite, Lowenbrau, Miller Genuine Draft, Meister Brau, Milwaukee's Best, Magnum Malt Liquor, Leinenkugal, and Sharp's nonalcoholic beer. Miller products are distributed to retailers in the United States, Puerto Rico, and the Virgin Islands by a network of approximately 690 distributors. The company's products are also sold in approximately 50 foreign markets in Europe, Asia, and the Caribbean, including U.S. military bases.

The Miller Brewing Company was founded by German immigrant Frederick Miller, who settled in Milwaukee after a brief stay in New York City. He bought the Plank Road Brewery in 1855, and soon after opened a 20-acre park or "sommer-garten." After Frederick's death, the Milwaukee Brewery was passed on to Miller's children. The W.R. Grace Co. purchased most of the children's stock in the Miller Brewing Company in 1966. Phillip Morris Inc. purchased the company in 1969 and the rest of the family's stock in 1970. In 2002, Phillip Morris sold Miller to South African Breweries for $5.6 billion. Upon completion of the deal, South African Breweries changed its name to SABMiller Plc, the second largest brewery in the world.

Coors Brewing Company. The Adolph Coors Company, founded in 1873, is America's third-largest brewer. Headquartered in Golden, Colorado, Coors sells approximately 17 million barrels of beer annually in 49 states and the District of Columbia. The Coors Brewing Company employs 7,100 people, works with 597 independent distributors, and has seven company-owned distributorships. The Adolph Coors Company has three autonomous business units that are operated by fourth-generation Coors family members. These are the Coors Brewing Company, the Coors Ceramics Company, and the Coors Technology Companies. The Coors Brewing Company is the only brewery that does not pasteurize any of its beer. Instead, it uses a sterile filtration process that the company developed in the late 1950s. Coors is the only company with a complete line of draft or non-pasteurized beers.

The Coors Brewing Company operates three breweries, including the world's largest single-site brewery. Coors products are exported to 12 foreign markets and to U.S. military bases in 16 countries worldwide. The company also has licensing agreements to brew and distribute Coors products in Japan, Canada, Scotland, and Korea. Coors brands include original Coors, Coors Light, Coors Extra Gold, George Killian's Irish Red, Keystone and Keystone Light, Coors Winterfest (a seasonal beer), and Coors Cutter (a nonalcoholic beer).

German immigrant Adolph Coors founded the Coors Brewing Company. Upon his arrival in the United States in 1868, Adolph spent many years as a laborer and saved his money to fulfill his dream of owning a brewery. One day Adolph Coors found an abandoned tannery in the town of Golden at the base of Table Mountain. He and other investors remodeled the tannery and soon began brewing Coors beer. By 1880, Adolph was able to buy out his investors. The company was sustained during Prohibition by divesting into other industries, including a cement manufacturing facility and a porcelain plant. The Coors Ceramics Company has been one of the world's largest producers of industrial technical ceramics, and the sole supplier of chemical porcelain used in the United States, Mexico, and Canada.

Workforce

The U.S. beer industry consisted of 54 leading breweries that employ approximately 97,000 people in all areas of the industry (including non-manufacturing areas). According to the Beer Institute, "Brewery workers' wages are among the highest of more than 350 industries annually surveyed by the U.S. Department of Labor. These men and women take home approximately $2.2 billion a year in salaries and wages with additional millions paid in the form of fringe benefits and retirement programs." Bureau of Labor Statistics data indicate, however, that the number of employees directly involved in the industry has dropped over the past several decades, from more than 71,000 workers in 1960 to less than 40,000 in the late 1990s.

The top five states that were home to the largest number of brewery employees are New York, Wisconsin, Pennsylvania, California, and Washington. The largest numbers of employees worked as packaging and filling machine operators, driver-sales workers, salespeople, truck drivers, tractor operators, supervisors, and laborers. Estimates by the Bureau of Labor Statistics showed that virtually all occupations within the beer industry would decline in the percentage of total employed by the year 2000. Those jobs that include "hands-on" involvement, such as freight, stock and material movers, hand packers, and testers, were predicted to decline by at least 25 percent.

America and the World

Faced with domestic consumption rates at a stand still, U.S. companies turned to the international arena to expand their markets. A-B was considering opportunities from Latin America to Europe and the Far East. Competitors feared that the company would eventually work with French company Kronenbourg (part of the Danone group), which would give A-B a strong distribution network in Europe.

In keeping with its strategic plan, A-B reworked its agreement with Kirin, the number one brewer in Japan. Instead of brewing 65 percent of their beer in Japan, Kirin would brew 100 percent of A-B's beer under a licensing agreement. Kirin would also sell A-B's products and A-B would discontinue it's separate sales force in Japan. A-B currently makes and markets Kirin's beer in the United States.

The countries that spend the most per capita on beer in 1998 were Japan, the United Kingdom, the United States, Germany, and France. The countries with the highest growth rate in 1998 were Spain, up 6.3 percent; Italy, up 4.2 percent; and the United Kingdom, up 3.7 percent. International increases in beer consumption have largely been attributable to Western influences and culture.

U.S. companies were looking for markets with financial strength and disposable income, such as Latin America and the Asian marketplace. In fact, it seemed that beer companies throughout the world were rushing into the exploding markets of Thailand, Vietnam, and most importantly China—which many predicted would be the largest beer market in the world by the end of the decade.

Further Reading

"Alcoholic Beverages." U.S. Industry & Trade Outlook '99, New York: McGraw-Hill, 1999.

"Anheuser-Busch Reports Record Year." Supermarket News, 10 March 1997.

"Beer Industry Economic Contribution Study." Beer Institute Online, 20 November 1999. Available from http://www.beerinst.org .

"Beer Sales Flat But Malt News Abounds." Beverage Industry, July 1999.

Buck, Howard. "Tumwater, Wash., Brewery Merges with Miller Brewing Company." Knight-Ridder/Tribune Business News, 20 October 1999.

"Buzz about Beer." Beverage World, 15 February 1997.

Causey, James. "Miller, Pabst Beverages Shipments Fall as Anheuser-Busch'sRise." Knight-Ridder/Tribune Business News, 15 January 1997.

——. "Only Icehouse, Lite Sell More for Miller in 1996." Knight-Ridder/Tribune Business News, 20 January 1997.

Chura, Hillary. "Beer: Positioning Takes on Greater Value." Advertising Age, 11 October 1999.

Chura, Hillary, and Beth Synder. "Crying in Their Beer: Miller Brewing Co. Sales Remain Stagnant, with the Only Significant Growth Attributed to High Life." Advertising Age, 2 August 1999.

"Craft Beer Sales Top $3.3 Billion." Realbeer.com, 29 April 2002. Available from http://www.realbeer.com .

Dawson, Havis. "Something for Everyone." Beverage World, February 1996.

Holleran, Joan. "Craft Brews, a Beer Rabbit?" Beverage Industry, January 1997.

"Indicators." Time, 22 November 1999.

"It's a Small World for US Brewers." Beverage Industry, May 1996.

Khermouch, Gerry. "Miller Seen Easing Other-Brand Policy." Brandweek, 9 August 1999.

"Miller History." Milwaukee, WI: Miller Brewing Company.

Mullins, Robert. "Microbrewers See Slower Growth, Shake-out." The Business Journal-Milwaukee, 4 January 1997.

Olgeirson, Ian. "Is the Microbrewing Industry Tapped Out?" Denver Business Journal, 18 September 1998.

Prince, Greg W. "Shut Up and Drink." Beverage World, February 1996.

——. "This seat is taken." Beverage World, March 1996.

Sfiligoj, Eric. "The Europeans strike back." Beverage World, February 1996.

Smit, Barbara. "Global Beer War Set to Explode." The European, 25 July 1996.

"South Africa Breweries Buys Miller." Realbeer.com, 30 May 2002. Available from http://www.realbeer.com .

Stamborski, Al. "Sales, Price Increase Buoy Anheuser-Busch's Quarterly Profits." Knight-Ridder/Tribune Business News, 27 October 1999.

"State of the Industry." Beer Institute Online, 2000-2001. Available from http://www.beerinst.org .

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .



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