Stella Artois' Production Successfully Goes Local in the US
AB InBev moved production of Stella Artois to the US in 2021. So far, both consumer perception and sales volumes have held up well – and the company has just announced plans for increased investments and a new marketing campaign to support “huge ambitions” for the brand. The Stella Artois experience suggests that a greater number of imports could be brewed locally in the future, though this will be far from a universal shift.
Another Day, Another Argument for Nearshoring
Historically, premium beer in the US has been synonymous with imports, but more recently, domestically produced craft beer has taken over the highest end of the market. It can no longer be taken for granted that consumers will always view imports as premium. At the same time, the supply chain equation has clearly changed. There are higher freight costs and greater risks to importing.
Foreign Brands Are Core to Premiumization, but Costs Are Getting Tough To Manage
Globally, the premiumization trend has been led by the growth of foreign beers. Around 60% of worldwide superpremium beer volumes today are nondomestic brands. These beers are either imported or brewed locally (licensed to a fully owned subsidiary or a third party).
But the costs of foreign beers are usually high. Imported beer faces import duties and travels long distances, while licensed beers frequently encounter diseconomies of scale or profit-sharing arrangements with external licensors. However, revenues per hectoliter are also high, as consumers see the product as aspirational. As a result, many foreign beers have attractive margins.
As costs are increasing, margins are coming under pressure, and the attractiveness of imported beer in the US is changing. Beer coming from Europe, which makes up 20% of US beer imports, has been particularly hard hit, as European imports are facing high container rates on the Europe-North America route, high fuel costs for road transport, and high packaging costs. Around 60% of US beer imports arrive in glass bottles, and furnaces in Europe pay high natural gas prices due to Russia’s invasion of Ukraine. In this context, moving production from Europe to the US – as AB InBev did with Stella – has obvious advantages.
Though Changing Business Models Could Reduce Costs, It Jeopardizes the Premium Positioning of Foreign Beer
One reason brewers have been reluctant to brew imported beer locally in the US is concern over the impact on brand perception. There was considerable backlash against the Beck’s brand when consumers learned the German brand was being brewed in the US. Likewise, large brewers’ earliest acquisitions of craft beer brands were met with consumer uproar on social media, though more recent deals seem to be met with a yawn.
Nevertheless, AB InBev decided in May 2021 to change its business model for Stella Artois in the US and moved to local production. In contrast to the earlier change with Beck’s, this initiative was well communicated, highlighting the Belgian recipe, sustainability, and US employment aspects.
We cannot find any evidence that the US consumer views Stella any differently today (see Figure 2). Over the past 12 months, its sales performance has been the same as that of competing brand Heineken. Neither the price trend nor the volume trend of either brand has differed much, and the premium positioning of Stella seems not to have changed.
Similarly, a quick look at Google Trends implies no notable shifts in consumer curiosity. In the case of Stella Artois, the consumer appears fairly indifferent to (or uninformed of) the shift to production in the US.
Local Production Can Increase Profitability, but This Is Not Always the Case
We believe the profitability of locally brewed Stella Artois is higher than imports from Belgium, though we do not have the hard data behind this. By brewing at several US locations, AB InBev can save on both ocean and road transport. Brewers without a strong US network can’t do this in-house but could partner with a local brewer, albeit not for free. It is worth noting that brands like Heineken and Guinness also have significant production efficiencies in their home breweries that would be undermined if some volumes were shifted to breweries in other countries.
The biggest change when transitioning to local production is the reduction in risk. There are no import duties, trade conflicts, or logistical issues when brewing near the consumer. The currency match between revenues and costs helps de-risk finances. And by reducing greenhouse gas emissions, a backlash from consumers or environmental agencies is also less likely.
Does the Future Hold More Local Production?
Increasingly, breweries are moving toward local production of their imported brands. In the US, Sapporo Breweries acquired Stone Brewing and plans to move Japanese imports onshore. Damm made a similar move in the UK, as did Carlsberg in Canada. AB InBev now brews the Mexican brand Corona in China, the UK, and Canada.
It is therefore tempting to think that Mexican imports (by far the largest import segment) could soon be brewed locally in the US, but there are some things to consider. Neither Heineken nor Constellation Brands has the footprint of AB InBev in the country, and a Mexican brand's connection to Mexican production might be more powerful for US consumers than Stella’s Belgium connection.
As brewers become more international and establish strong positions in markets with domestic brands, it becomes easier to introduce foreign brands they have in their portfolio. However, ‘fresh’ and ‘local’ remain powerful signifiers of quality – just as ‘imported’ is losing some of its premium status when compared to craft beer. If foreign beers are going to be brewed locally, there will be synergies in distribution and potentially in the brewing process.