musing

Where’s the up in trading up?

Trading up is in the eye of the beholder.

(What’s trading up? More on that at the bottom.)

SABMiller’s CEO this week told the press that emerging markets are the key to continued growth as consumers there trade up to higher value brands and increase overall beer consumption as an “aspirational” alternative. The report:

In a presentation to the Consumer Analyst Group of New York conference, SABMiller Chief Executive Graham Mackay said his company’s “broad exposure to the global beer industry will underpin future growth.”

He said there is “far greater” opportunity in the developing world as consumers trade up from lower quality, cheap beer, into modernized mainstream products and then on into what it refers to as “worthmore” brands.

Consumers are also moving into beer as an “aspirational mainstream alternative to cheap spirits, or other types of local indigenous alcohol,” Mackay said.

The problem that Miller and other industrial brewers have in the United States is that consumers are trading up from their products rather than to their beers.

That’s one of the reasons behind various efforts to improve beer’s image that Anheuser-Busch entusiastically supports (and Miller doesn’t put money behind).

The notion of trading up received considerable attention two years ago, from Fast Company to Business Week after publication of “Trading Up: The New American Luxury” by Michael Silverstein and Neil Fiske.

One of the premises of “Trading Up” is that consumer spending is polarizing. In order to trade up in a category she really cares about, an avid cyclists might save money by trading down in some that don’t matter to her — like her brand of toothpaste or beer. That’s why Costco is the No. 1 wine vendor in the country – we’re not talking the stuff that comes in jugs – while also selling generic paper towels in bulk.

Trading up isn’t about simply moving from beer that costs $2.99 a six-pack to $7.99 craft beer.

“The competition includes all mood elevators,” Silverstein said. “Quality vodka substitutes for better beer more than it does for Bud. The beer companies need to deliver innovation on taste, nutrition, health, energy, and celebration.”

So if you can’t compete with [fill in the name of your favorite small-batch brewer] then I guess to find a Third World brewer you can compete with . . . for now.

Local beer for local people

Britain’s Society of Independent Brewers Association (SIBA) says beer sales by of member companies are projected to show a 15% rise over the last year.

Why have the independents been able to buck the trend?

“It’s all about local beer for local people. There is a definite demand for cask beer if the right opportunities are presented to licensees,” said SIBA chairman Keith Bott.

The story from the Morning Advertiser doesn’t discuss if a CAMRA campaign launched two years ago – Local Beer for Local Pubs – has had an impact, but doesn’t it make sense that people like to drink a local beer?

Another example of why it sometimes makes a difference where a beer is from, and it also matters where it is enjoyed.

Does price equal quality?

A story by Paul de Grauwe in the Financial Times last week included this interesting study on the effects of pricing:

A few weeks ago an interesting experiment was undertaken at the Brussels food fair, a yearly affair where food lovers wander around among the many stalls stuffed with all imaginable delicacies. A stall was put up selling boxes of Belgian chocolates. The first day the price was set at Euros 9 for each box. Sales went well. The next day the price was raised to Euros 15 per box. Steeped in economic theory, you might think that demand now declined. Wrong. Demand doubled. On the third day the price was lowered to Euros 2 for each box. Demand for chocolates collapsed. What went wrong with the law of demand?

The explanation is given by psychologists. It is very difficult, if not impossible, for the consumer to find out the quality of chocolates by just looking at their appearance in the shop. When confronted with such uncertainty about the intrinsic value of things, consumers use simple rules of thumb that they understand. Psychologists call these “heuristics.” In this case, the price of the chocolates provides the rule of thumb.

Most consumers have some experience that allows them to associate high price with high quality. It is not always like that, but on average it probably is. Thus when looking at the Euros 15 box the consumers infer that the high price reflects high quality and they buy the chocolates. Consumers who see the boxes priced at Euros 2 infer that the quality of these chocolates is not to be trusted, and they do not buy them. The law of demand is turned upside down.

Stephen Beaumont made this same point in a story I wrote for All About Beer Magazine last summer – How much should you pay for beer?, saying:

“To the American consumer in particular, price tends to equal quality. Charging higher prices for beer is a) a means of garnering respect from the average consumer; b) a path out of the cheap six-pack ghetto of mainstream beers and a point of differentiation; and c) a way to reflect the quality of ingredients, rarity and amount of knowledge, effort and risk that goes into the creation of some beers.”

I agree that many better quality beers are underpriced, but I can’t agree that price is a reliable indicator of the quality of a beer.

So what’s a beer drinker to do? Sometimes you can turn to critics before buying a more expensive beer, if you trust them and they’ve had the particular beer you are considering. (Note, I occasionally fill the role of critic, but we’re only talking about tasting four beers every other month of All About Beer Magazine.)

Or you can look at online beer rating sites, the largest being Beer Advocate and Rate Beer.

But what happens when . . . you open a 750ml bottle that cost $10, as we did last week, and totally inappropriate diacytel (butterscotch) is apparent? Part one is easy: We know what’s in our glass isn’t a good beer. What we want to know is if this is true of other bottles, if we should consider trying it again.

So I look online and don’t find a “trusted critic” who has notes on the beer. Meanwhile, it gets generally high marks on the beer rating sites – and those who don’t like it don’t mention diacytel. However, in an e-mail discussion with a local friend he mentions he bought a bottle and found the diacytel overwhelming. Thinking it might be a local problem I checked in with a friend on the East Coast. Whoops – he had the same experience.

Where’s this going? Nowhere, I’m afraid. Except to note that if this beer reappears on local shelves costing $2 more I won’t be assuming the brewer has cleaned up the diacytel issue.

Fighting for a better image

U.S. brewing companies aren’t the only one concerned about beer’s image.

An article in the Los Angeles Times (free registration required) reveals that when Heineken opened a restaurant specializing in beer year on Paris’ Champs Elysees, it banned the kind of food typically found in German beer halls.

From the story:

Culture Biere offers cumin-flavored tortillas and pan-seared prawns in ginger. The restaurant opened in July with the ambitious aim of changing the image of beer in France.

Heineken, like other brewers, is trying to figure out how to arrest a decline in consumption of beer in many countries in Western Europe, as imbibers increasingly favor other kinds of alcoholic beverages.

Heineken does not expect Culture Biere to be profitable. Instead, the Dutch brewer sees its investment (it will not disclose how much money it has spent) in the Culture Biere brand as a marketing tool.

“If we defend the category, we defend our business,” said Richard Weissend, director general of Brasseries Heineken.

Many brewers are finding that they are several years behind their counterparts in the spirits business in terms of understanding drinkers and communicating with them. “Beer as an industry has been too inward-looking for too long,” said Richard Evans, vice president of marketing for InBev.

International brewers are trying different tactics. For instance:

– Danish brewer Carlsberg opened a brewery in Copenhagen, the Jacobsen brew house, to develop new types of beer, including seasonal and “experimental” brews. Only 1% of the brewer’s total sales are derived from these beers.

– InBev is targeting the Leffe brand at older drinker, a group it says has been neglected by the beer industry. “Sometimes the industry behaves as if people die or stop drinking when they hit 40,” Evans says.

– In contrast, Heineken believes that the best way of keeping customers loyal is to catch them before they turn 35. Consequently, it is focusing on marketing activities that resonate with young people.

You may not be interested in drinking Heineken or Leffe or other beers from this large brewing companies, but how well they fare in upgrading beer’s image will make a significant difference in what sort of beers are available to all of us.

Beer on a Champagne budget

The mainstream press loves stories about expensive beers – maybe so they can write headlines like the one above.

The Sunday Times in Britain examined beer menus in upscale restaurants yesterday, noting early on:

Rupert Ponsonby, a spokesman for the Beer Naturally campaign, set up by brewers to encourage restaurants to widen their beer selection, said: “Drinks like DeuS (from the Bosteels brewery in Belgium) show what’s possible and will help change perceptions of beer. It’s crazy that a restaurant can have 250 wines and just three beers.”

The story pays particular attention to DeuS, first because it is expensive, but also because of the way it is produced. After being brewed, DeuS travels to a cellar near Epernay in Champagne and is re-fermented like a sparkling wine to give it its bubbles. It is remains for nine months, then is riddled (like Champagne). Yeast that gathers at the neck of the bottle is frozen and removed (like sparkling wine) before the bottles are corked for sale.

Is Joanna Simon, the Sunday Times wine critic, impressed?

“It’s a very good beer. But no matter how it’s dressed up – and, boy, it is dressed up – it’s still only beer.

“The palate is creamy-smooth, fruity and malty-sweet, and the finish is clean with characteristic beer bitterness. But it’s short and that’s the problem. Why pay good money for a taste that disappears in a couple of seconds? I’d rather have half a bottle of good champagne.”

That’s OK, but it misses the point. Truthfully, I’m not a much of a fan of DeuS – the combination of many spices doesn’t work for me and the Champagne aspect seems like a gimmick.

But distinctive beers – and that means good tasting as well as unusual – push our idea of what beer should be forward, creating demand for a wider range of beers that eventually spread the category horizontally. That’s worth paying more for.