Why Lager Is the Future of Craft Beer

TheStreet.com

PORTLAND, Ore. (TheStreet) -- Small craft brewers and the craft divisions of huge international breweries can talk about wheat beers, shandies and even IPA all they'd like: This is still lager country.

Despite recent gains by craft beer and recent shifts by Anheuser-Busch InBev, MolsonCoors and SABMiller toward brands including Blue Moon, Shock Top, Goose Island and Leinenkugel's, the overwhelming majority of beer sold in this country is lager or some derivative thereof. It's been so relentless and pervasive that even hard-line craft beer advocates have begun embracing it in its light, familiar form.


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Consider that MolsonCoors/SABMiller's MillerCoors and Anheuser-Busch InBev still sell about 74% of the beer this nation drinks. Consider further that Corona and Heineken make up roughly another 10% of that market. Throw Pabst, Modelo and newly "craft" brewer Yuengling into the equation and 18 of the 20 best-selling beers in the U.S. are some form of either lager or pilsner.

You can argue that most are losing sales -- and many including Budweiser, Bud Light, Miller Lite and Busch are. But import brands including Heinkeken, Corona and Modelo saw sales rise even during the recession. The same holds true for Coors Light, Pabst Blue Ribbon and Yuengling, with each posting double-digit percentage point gains in 2012 alone, according to Beer Marketer's Insights.

Also see: Session IPA Is Taking Over Summer Beer

The problem isn't lager, but the overall beer market. The Treasury Department's Alcohol and Tobacco Tax and Trade Bureau reported a 1.5% decrease in overall beer sales and a 2.6-million barrel loss in beer production. That's basically akin to shutting down Boston Beer's Samuel Adams brand (which produced 2.7 million barrels in 2012) for an entire year. Beer consumption overall has fallen in four of the past five years, with many of the slumping mainstream brands responsible for the damage. That has reduced reduced beer's share of the overall alcohol market from 55% in 2000 to 49% in 2012. Meanwhile, craft beer volume increased by an estimated 15% last year, with imports putting up roughly 5% growth.

The Beer Institute, a beer industry organization based in Washington, points out that craft's gains came at the cost of overall industry losses. The Beer Institute compared unemployment rates with average monthly beer shipments during the same period and found that overall shipments began decreasing steadily in 2009 and continued through June 2012 in direct correspondence with job numbers. MillerCoors' success with its Blue Moon and Leinenkugel's brands and A-B InBev's acquisition of craft brewers Goose Island and Blue Point could be considered a shift in strategy, but A-B just made a point of pumping more cash into its core brands after years of peddling Bud Light Platinum and Black Crown.

So what gives? There's money and power in lager, and even craft brewers know it. This year, the Brewers Association craft beer industry group changed its definition of a craft brewer to include Pottsville, Pa.-based D.G. Yuengling & Son (the oldest brewer in the U.S., founded in 1829); St. Marys, Pa.-based Straub Brewing (1872); New Ulm, Minn.-based August Schell Brewing (1860); Monroe, Wis.-based Minhas Craft Brewery (1845 as Blumer Brewing). All were previously kept out under rules restricting use of corn -- which was a common pre-Prohibition ingredient European-born brewers used to counteract inferior U.S grain. All produce lagers as their flagship beers and most have become known for their light lagers in particular.

It's not that their lagers were all that out of place, mind you. In 2012 the third best-selling craft beer in stores across the country, according to research firm Symphony IRI, was Samuel Adams Boston Lager -- a darker, somewhat hoppier Vienna Lager that's been Boston Beer's flagship since founder Jim Koch made the first batch in 1984. The dark lager Shiner Bock, meanwhile, has been a Texas favorite for more than a century and bolsters the Gambrinus company of brewers today. The Craft Brew Alliance produces the popular Long Board Lager through its Kona Brewing branch. Longmont, Colo.-based Oskar Blues has made cans of it's Mama's Lil' Yella Pils a key part of its eastward expansion into a new brewery in Longmont, Colo. Even Chico, Calif.-based Sierra Nevada has made its Summerfest pilsner a seasonal staple. Full Sail Brewing in Hood River, Ore., meanwhile, first offered its popular Session Lager series in 2005 and has made it a cornerstone of its business.

Also see: Why Craft Beer Won't Pour Itself a Shandy

All of the above rank among the Top 40 breweries in the nation and among its Top 25 craft breweries. They're only getting more company. Fort Collins, Colo.-based New Belgium Brewing, the No. 8 brewery in the U.S., just re-released its Summer Helles. The word "helles" is basically just a German term for pale lager, and Summer Helles has a flavor reminiscent of some of the more familiar, larger examples of that style. Back in 2012, New Belgium released its Shift Pale Lager in cans and watched as its became the third best-selling new craft beer product of that year. SweetWater Brewing in Atlanta, Ga., which sits just outside the Top 25 breweries in the country at No. 26, just added a pilsner -- Take Two Pils -- as a year-round offering and alternative to its hoppier pale ale.

Even as brands add more Pilsner, Helles, Kolsch or other lagers, however, they are making minimal progress in moderating craft beer. On the whole, lager makes up about 9% of all craft beer produced. That's far less than IPA's 18% share, but it's a bit deceptive. Summer Helles and Summerfest fall into the seasonal category, which represents 17% of all craft beer and includes holiday porters, pumpkin ales and their like. It also tends to get thrown into craft variety packs, which constitute about 10% of all craft beer sales.

The other problem is that Yuengling's sales won't be included under the "craft" heading by Symphony IRI, the Brewers Association or anyone else until next year. That takes its more than 2.7 million barrels worth of Yuengling lager sales out of the equation. Combined with August Schell, Straub and the other "new craft brewers," that's lager production akin to what Pabst Blue Ribbon (3 million barrels) puts out in a year -- which should alter craft beer category sales significantly.

Even without Yuengling, craft beer is warming up to the cold-driven lagering process. With it in the fold, it makes new brands of craft lager just a few more barrels on a growing stockpile. While it's difficult to get a lifelong light lager drinker to switch to your hoppy, malty, high alcohol craft beer, it's much easier to convert him or her when nothing changes but the formula and, arguably, the quality of the ingredients. Irene Firmat, founder of Full Sail, said that was what drove her and her brewery to embrace their Session Lager before most other craft brewers could get behind either term.

"The brewmaster at Oregon State once told us that all his guys drink down there are super hoppy IPAs," Firmat said. "We asked him what he tells them about those beers and he said he tells them that as their palates evolve, what they'll really appreciate is a well-done pilsner."

-- Written by Jason Notte in Portland, Ore.

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