The history and development of beer and liquor industries

Beer & Liquor Sales

Alcoholic drink is generally divided in three different categories: beer, wine and liquor (or hard liquor). While beer and wine are produced by a "fermentation" process, liquor is produced by distillation. Beer and wine contain less alcohol (3 to 6% in most beers, and 7 to 14% in most wines) while the alcohol content in liquor such as whiskey, vodka, brandy and rum is usually in the rage of 40 to 50%, i.e., 80~100 proof. In this paper we will focus on beer and liquor sales, with particular reference to the United States. Other topics that will be explored in this research paper include a brief history of beer and liquor, the prohibition era and the effect it had on these industries, marketing tools used by the beer and liquor industries, as well as the brief histories of some famous brands. In conclusion, a personal opinion about the topic and summary of the research is presented.

The Beginnings

The exact origins of alcoholic drink are rather obscure, but most historians and anthropologists suggest that, even though our ancestors may not have understood the process of fermentation at the time, alcoholic drinks were made and drunk as early as 10,000 years (or perhaps even 25,000 years) ago. Some experts have even suggested that the beginning of agriculture could be attributed to the desire of early humans to produce beer rather than food.

The discovery or making of liquor through the distillation process, of course, came much later. Nevertheless, the Chinese are known to have distilled a beverage from rice as early as 800 BC. Europeans and Arabs are also said to have produced distilled alcoholic drinks in the early days but production of distilled liquor remained limited until about the 8th century AD. Improvement in distilling techniques gradually led to greater production of distilled spirits and various governments realizing the potential of earning revenues from the sale of liquor placed controls on the production and sale of liquor. In some countries, revenue from liquor sales has been the bedrock of their economies. For example in Russia, revenue from vodka sales was more than 40% of all state revenue in the last century. More recently, towards the end of the Soviet era, vodka sales constituted 15-20% of the value of all retail trade turnover.

The brewing and fermenting techniques for large-scale manufacture of beer also developed concurrently. Beer drinking was a German, Anglo-Saxon, and Nordic tradition since more than 2000 years and most developments in fermentation techniques took place in Germany during the Middle Ages. It was not until the Industrial Revolution in Europe that large-scale production of beer became possible and it became an important industry.

Beer Industry in the United States

The native Americans were already familiar with alcoholic drinks similar to beer when Christopher Columbus landed in America in the 15th century. However, the German immigrants were mainly responsible for establishing the beer industry in the U.S.A. Germany, for long considered the center of beer production, was eventually overtaken by the U.S.A. As the leading manufacturer and the top three beer companies are now American, i.e., Anheuser-Busch (the makers of Budweiser), Miller Brewing, and Adolph Coors. No German beer company figures in the top ten these days.

Beer and Liquor Consumption

In beer drinking (per capita) the Germans still lead the world with a per capita consumption of about 143 liters. The United States lags far behind with a consumption of 87 liters per person. The estimated liters per capita consumption in some countries (for years 1989-1991) is given the table below:

Country

Germany

Czechoslovakia

Denmark

Austria

Ireland

New Zealand

Hungary

United Kingdom

Australia

Netherlands

United States

Finland

Canada

Source: World Drink Trends, Reproduced in Encyclopedia Britannica, 2002 (CD-ROM)

Poland leads per capita consumption of distilled spirits (hard liquor) with 4.5 liters while it is 2.1 liters per capita in the United States. Compared to 1980, per capita beer consumption has declined 9.4%, wine has declined 8.8% while liquor consumption has declined 36.5% in the United States. However, due to the increase in population, an increase in beer production that reached 197 million barrels in 2001 compared to 177 million barrels in 1980.

Effect on Economy

According to one estimate the total economic impact of the beer industry alone on the U.S. economy is of the order of $187 billion dollars. A summary of the impact on the U.S. economy is depicted in the table that follows:

Direct Impact

Full Impact

Jobs

Wages

Taxes (State, Federal & Local)

Value Added

Source: The Beer Institute Research

Marketing Tools and Advertising

The brewing companies have used various marketing techniques to boost their sales ever since the mass production of beer and liquor started. Most brewing companies have traditionally used point-of-sale advertising such as posters, clocks, signs, mirrors, displays, and various sale-promotions to increase the sale of their products. More recently, the large beer companies in particular have used sophisticated market techniques by using the print and electronic media -- especially through advertising on television and sponsoring popular sporting events. Another marketing technique followed, in particular, by the beer companies in the past decade includes the creation of new products to tap untapped segments of the population for increasing their sales. "Image" marketing techniques -- aimed at targeted portions of the public -- have been successfully used by beer companies to boost the sales of their new products. This is dramatically reflected in the advertising campaign by Miller Brewing Company (the Number 2 beer company in the U.S.), for promoting their new product, "Miller Lite." Miller began their image campaign in the 1970s by using has-been sports personalities for promoting their light beer -- a product that had failed to take-off when introduced in the 1960s. The clever advertising campaign was so successful that light beer now constitutes almost one-third of the total beer sales in the country.

As would be expected, there have been several success stories in the liquor and beer industry over the years as well as some failures. We will briefly examine the history of some of these companies to analyze the reasons for their success and failure.

Anheuser-Busch

Anheuser-Busch is the number one beer company not only in the U.S.A. But in the world. The company was founded more than 150 years ago by a German immigrant, Adolphus Busch. Its flagship product -- Budweiser beer was introduced 120 years ago. The company has survived such traumas in its history as the prohibition years, increase in taxes by the government, changing trends in customer tastes as well as continuing competition from domestic as well as international beer companies. After the second quarter results of 2001, the company declared record earnings and sales. This was their eleventh consecutive quarter of double-digit growth. In terms of beer volume, the company shipped 62.6 million barrels of beer in 2001, up 2.1 million barrels or 3.5% over the previous year. A summary of the company's sales and income in the last two years is given below:

Year ended June 30

Gross Sales

Net Sales

Operating Income

Net Income

Diluted Earnings per Share

Source: Anheuser-Busch Web site: Financial Results for Second Quarter, 2001

The company's domestic beer market share in 2001 was 48.1%, up 0.4% from the previous year. Apart from its core business of domestic beer sales, the company is involved in the international beer market where its beer is exported, as well as produced. Its operations also include overseas equity investments, a packaging segment and an entertainment section. All its businesses are running successfully with the international beer segment showing the strongest growth in recent years.

The company cites solid values -- family tradition, vision, courage and integrity as well as hard work, commitment and a passionate belief in quality as the reasons for the company's success. This may well be true, but the company has also combined professional management, product diversity and clever marketing techniques to maintain its No. 1 position in the beer industry.

Jack Daniel's Whiskey

The Jack Daniel's whiskey was started more than 150 years ago by Jack Daniel in the small town of Lynchburg (population: 361). The straight 90 proof (45% alcohol) Jack dniel's whiskey has been categorized as "Tennessee Whiskey" that cannot be duplicated outside of Tennessee. It uses a unique filtering process (perfected by Jack Daniel) through 12 feet high vats using finely ground sugar-maple charcoal. The slow filtering process takes 10-12 days and mellows the whiskey's taste that differentiates it from bourbon. Jack Daniel's whiskey is then aged in charred oak-barrels for a minimum of four years. The water used in making Jack Daniel's whiskey is also unique -- iron-free water that comes from a cave-fed spring. Small wonder that Jack Daniel' is still considered by many to be one of the finest whiskies available and it is one of the best selling brands in the U.S.A.

Failures

As can be expected apart from many notable successful liquor and beer companies, countless others have fallen by the wayside. For example, if we compare the list of the top ten U.S. beer makers in 1980 to the ones today, we will find that only five of these companies are still operative. The ones that have either closed down or been absorbed by others since 1980, include Jos Schlitz Brewing Co, G. Heileman Brewing Co, Olympia Brewing Co., Falstaff Brewing Co and C. Schmidt & Sons.

Conclusion

Alcoholic drink (or booze in the vernacular) has been in existence in most societies of the world since times immemorial. Attempts have been made at different times in history to place restrictions on the sale and consumption of alcohol. In most instances, such restrictions have been unsuccessful -- except in some Muslim countries. The beer and liquor industry has also progressed to become an important part of the economy in several countries the last few centuries. As long as serious social problems do not crop up due to excessive drinking, the future of the beer and liquor industry seems assured. In the U.S.A., however, an aging population, increased health consciousness, and the presence of several watch-dog organizations such as MADD indicate that growth in the domestic liquor and beer market is not going to be dramatic. The overseas markets, particularly China and Russia seem to offer the best growth prospects for the U.S. beer and liquor companies.