Cash Flow
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Demographic Influence on the U.S. Demand for Beer
Research indicates that the U.S. beer market is experiencing shifting demand away from typical American macro-beers towards costlier craft beers. According to certain reports, aggregate consumption of domestic beer decreased approximately 1.5 percent from 1990-1997. Also, per capita beer consumption reached the lowest level since 1977. As a result, macro-brewers are frantically searching for reasons why Americans are consuming less beer. Meanwhile, production in the craft beer segment has grown between 27 percent and 37 percent since 1985. While micro-brewers are inevitably changing the landscape of the market, there is some debate over what the future holds in store for the current craft beer craze. There has been a growing consumer attraction to the unique tastes and homespun images of the brands, as well as the relatively high survival rate for specialty brewers. Yet if you look at stock reports from domestic specialty brewers around 1990, it indicates that things do not appear promising for the endurance of this segment. Concern also exists pertaining to the future of the macro-beer segment of the beer industry. The question remains as to whether aggregate consumption will continue to decline, or if macro-brewers can expect increasing demand in the future.
Coors Strategy
The most important determinants of demand are the price of beer, the price of substitutes and demographic factors. Obviously the effect of price on quantity demanded is expected to be negative. Also the price of substitute goods is positively related to demand. For instance, beers produced by Adolph Coors Co. (the third largest producer of domestic beer) are a substitute for beers produced by Anheuser-Busch. It is assumed that if the price of Anheuser-Busch beer increases, a consumer would then be more likely to purchase a Coors product. Finally,