Big brewers chase US cider growth
With ciders returning to US shelves, big brewers need to keep newfound consumers keen on the fizzy, alcoholic apple drink to counter a slowdown in the UK.
Heineken, Anheuser-Busch InBev and Carlsberg are all investing in cider as drinkers seeking an alternative to beer boosted U.S. volumes 20 percent last year, contrasting with a 2 percent decline in beer, according to Euromonitor International. Cider acquisitions are still small compared with the prices paid by brewers for beermakers, including a $20.1 billion bid by AB InBev for control of Corona's maker, while tapping into a market ripe for expansion.
Craft beers have paved the way for more expensive, niche brands in the U.S., the world's second-biggest beer market, even as growth of established names like Bud Light and Coors stalls. Moreover, the sweeter taste of cider, with a similar alcohol level to beer, may appeal to women and drinkers seeking novelty.
"Cider's a growth story because of the demographics — it's sweet, it's natural, it appeals to the Coke generation," Stephen Glancey, chief executive officer of Dublin-based C&C Group, which sells two of the world's biggest brands in Magners and Gaymers, said in an interview. "It's unisex beer."
Craft beer's success is good for the total beer category, Carlsberg's Chief Executive Officer Joergen Buhl Rasmussen said in an Oct. 12 interview with Bloomberg. The company is creating more products for women, he said, suggesting sweeter brews and ciders may help win sales.
C&C paid about 20 million euros ($26 million) for U.S. brand Hornsby's last year and MillerCoors, the U.S. joint venture between SABMiller and Molson Coors Brewing, bought Crispin Cider in February for an undisclosed sum. The Irish company is set to report first-half results tomorrow, and analysts at Davy in Dublin estimate volume growth of as much as 30 percent in the U.S., excluding Hornsby's.
"The potential for growth in cider outside traditional markets is significant," Barry Gallagher, a Davy analyst, wrote in the note dated Oct. 19.
The interest comes as the U.K., the world's biggest cider market, sees appetite for the drink expand even as the beer market declines, weighed down by tough economic conditions as well as a consumer shift to wine and spirits. Volumes are starting to slow though, according to Euromonitor, and analysts at Societe Generale expect stagnant medium-term growth. The U.K. represents about half of the cider category, they estimate.
Cider grew at a 10 percent compound annual growth rate between 2005 and 2009 in the U.K., SocGen said. C&C's introduction of Magners in 2006 revitalized the category by creating the trend of serving cider over ice, said Spiros Malandrakis of Euromonitor. The addition of new flavors — such as pear cider — have also helped keep drinkers interested.
"If there was no innovation, there'd be no cider," Malandrakis said. "If you don't constantly innovate, the category is dead." The seasonal nature of cider, which traditionally sells more in summer than winter, may drive a push into different flavors or food pairing.
The trend toward premium and niche variants has helped reshape cider's reputation in the U.K. away from connotations of being an inexpensive, relatively strong alcoholic drink toward a more sophisticated tipple.
"Cider is leaving behind the cheap tramp juice association," Malandrakis said. "It's been consistently and straightforwardly moving in the premium direction."
Cider sales are estimated to rise at 10.6 percent CAGR by volume in 2011 through 2016, according to Euromonitor, while U.K. rates slow to 5.2 percent. Cider's countryside image of being niche, local and authentic may help the drink grow on both sides of the Atlantic, and at higher prices, C&C said. Still, cider represents only 0.2 percent of the U.S. beer market, Davy analysts estimate.
As C&C and SABMiller buy into the U.S., other heavyweight brewing players are unveiling brands to the market. Anheuser-Busch, the world's biggest brewer, followed the introduction of premium-priced Stella Artois Cidre in the U.K. last year with low-calorie Michelob Ultra Light Cider in the U.S. in May. Boston Beer also rolled out its Angry Orchard apple drink across the U.S. at the end of the first quarter.
Heineken said Aug. 15 that it'll take over distribution of Strongbow, the second-biggest brand in the U.S., from the Vermont Hard Cider Co., owner of market leader Woodchuck.
"Cider's an early trend" in the U.S., where categories aren't built "overnight," Heineken Chief Executive Officer Jean-Francois van Boxmeer said in August.
"We're focusing on Strongbow as a global cider brand and are going to push it in the U.S. further," he said. The Dutch brewer bought Belgium's Stassen in June to gain research and development facilities.
Consumers prefer small, local brands to big names that "try to be all things to all markets," counters C&C's Glancey.
"It's the first time you've had outside players and big guys coming into the category," he said. "There's going to be some very good and some very bad ciders made in the next few years."
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