Beer and liquor sales in the business sector

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

Prohibition

Throughout the history of human civilization debate has raged between the prohibitionists and conservative elements who have opposed the free and legal availability of alcohol, and those who have opposed such restrictions. One such period in the American history is known as the Prohibition era.

The campaign for prohibition began in the U.S. In the 19th century after the end of the Civil War when rapid growth in population was accompanied by a proliferation of numerous saloons -- by 1870 there were more than 100,000 in the country. Many people considered these saloons a serious threat to society and the family. Women's groups and white Protestants were in the forefront of the campaign. In 1919, the eighteenth amendment to the constitution was ratified, banning the manufacturing and sale of alcohol, signaling the start of the Prohibition era.

The enforcement of the Prohibition was beset with number of problems: Not enough money or resources were allocated for ensuring enforcement of the law, fines for breaking the law were small compared to the large amounts of potential profits in illegal alcohol trade. In addition, there were plenty of loopholes, e.g., making of alcohol was allowed for medicinal purposes, and the 19,700 km long border with Canada was difficult to police. There was a ready and large market for illegal, smuggled and bootlegged alcohol as the boom years of the twenties had created a mood of 'enjoyment' and merry making in the cities that demanded to be 'fueled' by alcohol. Gangsters like Al Capone took advantage of the situation by supplying smuggled and illegally produced alcohol to the 'speakeasies' -- the secret drinking places that had mushroomed in the cities. Capone was an Italian immigrant who grew up in New York, and took over a Chicago gang in the 1920s that dealt in illegal liquor, gambling and prostitution. There were enormous amounts of money to be made in the illegal liquor trade -- Capone's income in 1927 alone was estimated to be $100 million. According to Fred D. Pasley, Al Capone's biographer, out of this amount, sixty million dollars a year came from the booze -- mainly beer -- trade.

Gang wars for the control of turf soon erupted among the various gangs culminating in the St. Valentine day's Massacre in Chicago in 1929. Prohibition had resulted in increased crimes and a general atmosphere of decline in respect for government authority. In this background, the Wall Street Crash of 1929 occurred and the American economy took a nosedive. Creation of jobs by reviving the legal alcohol trade and collection of much needed tax for the government from the beer and alcohol sales became much more important than the misplaced ideal of protecting people's morals. Repeal of the Prohibition Law became a campaign issue in the presidential elections of 1932 -- Franklin Roosevelt promised repeal of the law. The 18th Amendment was finally repealed on December 5, 1933 -- the only constitutional amendment ever to be repealed. Ever since, beer and liquor have constituted an important source of revenue for the government with ever increasing tax rates placed on alcohol.

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.