The king is dead.
Budweiser, an American icon and the self-proclaimed King of Beers, has fallen from its throne. The ubiquitous brew that was the most popular beer in the country for much of the 19th and 20th centuries has been in decline for over a generation. AB InBev (NYSE:BUD), its parent company, seems to have finally come to terms with it, based on its new marketing campaign.
The beer brand is taking the spotlight away from its trademark Clydesdale horses in favor of an ad campaign targeting millennials, stepping back from a long-held strategy of going after all age groups. That means the brand will be featured as a sponsor of Jay-Z concerts and food festivals, because 50% of millennials self-identify as "foodies," and its TV ads will look something like this:
The spot, entitled Round Up Your #HolidayBuds, features several young people telling the camera who they'd like to share a Bud with. It's a charming commercial, but it ignores a simple truth. Young people aren't drinking Budweiser. In fact, 44% of 21-27 year-olds have never even tasted it, according to Anheuser-Busch. That's a remarkable fact, considering Budweiser was the No. 1 beer in the country for much of their childhood, and is still No. 3.
Today, Bud Light reigns supreme among beers. It took the top spot form Budweiser in 2001, and now rakes in nearly three times the sales of the former champ, but cannibalization isn't the only reason for Bud's demise. The rise of craft beers has slowly chipped away at the dominance of macrobrews like Bud, and for the first time last year, shipments of craft beer, at 16.1 million, topped Budweiser at 16 million. That's down from Bud's peak in 1988 at 50 million barrels.
There may be a greater obstacle than marketing for Budweiser to regain growth, however: taste. After all, the brand has an advertising budget in the range of $500 million. If young people aren't drinking it, it isn't because they haven't heard of it. According to Beer Advocate, in a crowd-sourced survey Budweiser rated a 57, or "awful," on a scale of 1 to 100. Historically, Budweiser's strength was never its taste though. Its success owes instead to clever marketing. Early on, the beer was never a favorite among local St. Louis drinkers, but became the first national brand as founder Adolphus Busch was the first to pasteurize, use refrigerated rail cars, and bottle on a large scale. He also plied bars into serving it by helping to pay licensing fees and rents.
It's not just beer that's changing
The rise of craft beers, which offer a wide range of varieties and richer flavors than traditional beers, fits right in with millennials' taste in other categories. Coca-Cola, Pepsi, and McDonald's, all staples of the past generation, are seeing consumption declines in the U.S, while fast-casual chains like Chipotle Mexican Grill are on the rise, and energy drinks like Monster Beverage and other still beverages have seen the most growth in that industry.
Despite the rise of craft beer, there is one macrobrew that has found a following among millennials: Pabst Blue Ribbon. Sales of PBR have nearly doubled over the past five years, to 6 million barrels a year, a success very much attributable to its hipster street cred, and that credibility began with one simple decision. In 1985, Paul Kalmanowitz bought the rapidly declining company for $63 million and banned advertising, betting that the low price and decent taste would sell itself. The strategy worked as the brand gained an indie following. Earlier this year, the company was sold for $700 million, a gain of more than 1,000% from Kalmanowitz's purchase price.
For Budweiser, there seems to be a lesson there. The young and floppy-haired of America don't like being marketed to, and they don't like industrially processed stuff that tastes bad. Plenty of other brands millennials are fond of, like Chipotle, have followed this formula, eschewing traditional advertising, especially on TV.
But as the rise of craft beer attests, hipster styles and tastes have gone mainstream, and what was mainstream is no longer cool. In its quest to be accepted, Budweiser may be forgetting the first rule of hipsterdom: You can't try to be hipster; you just have to be hip.
Jeremy Bowman owns shares of Chipotle Mexican Grill. The Motley Fool recommends Chipotle Mexican Grill, Coca-Cola, McDonald's, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Chipotle Mexican Grill, Monster Beverage, and PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.