By Mike Beirne and Eric Newman

Beer came back last year. But distillers and vintners aren't reaching for the white flag by any means. The spirits and wine categories grabbed more market share for the sixth straight year, per the Distilled Spirits Council of the United States. Liquor's share of alcohol sales edged up slightly, 0.3% to 33.1%; wine increased 1.8% to 16.8% while beer slipped 0.7% to 50.1%.

But brewers still have a reason to toast. The beer category posted its second consecutive annual shipment gain: a 1.4% increase during 2007 on top of a 2% rise during 2006, per Beer Marketer's Insights.

Will that continue? Beer shipments then slipped 0.3% this year during the cold-weather months although Coors Brewing did report a 6.6% increase in sales to retailers. With the peak selling season between the Memorial and Labor Day holidays, the market should provide a better read on whether the tough economy is scaring drinkers from trading up to more expensive brews, the key driver for the category of late as consumers sought variety and different brew styles.

For its part, Anheuser-Busch is attempting to accommodate those experimental drinkers with its new Budweiser American Ale and Bud Light Lime.

"Beer is still an affordable luxury," said Dave Peacock, vp-marketing at Anheuser-Busch, St. Louis. "We've got tiered pricing, different brands, different-sized packages with different value propositions for the consumer. So if you want fewer trips to the store, buy a 30-pack. For variety, pick up two six packs of different brands. As an industry, we can almost offer anything you want."

Coors Light was the fastest growing light beer, rising 3.6% thanks in part to its packaging innovation. Coors' temperature-sensitive bottle labels turn blue when the liquid is chilled just right. It also launched a wide-mouth, vented can.

Miller Brewing, meanwhile, beat A-B to the trendsetters with last year's introduction of Miller Chill. The lime-and-salt flavored brew was a breakout hit, though when the weather cooled off, so did its sales.

Consolidation Prize
The big news in the industry is that SABMiller and Molson Coors will combine their U.S. operations into a joint venture called MillerCoors. The combo will give the partners more distribution reach and manufacturing capacity. The partners also will wield a larger marketing war chest to take on Anheuser-Busch, which spent $385 million in measured last year in the U.S. (excluding online).

Miller and Coors spent a combined $404 million last year. The companies are working toward picking key executives, a headquarters and assigning how the Miller and Coors brands will share markets so sales and marketing execution can be ready by summer 2009.

An even bigger game-changer could be InBev. The Belgian-owned, Brazilian-run brewer again is mulling acquisition of A-B. CEO August Busch IV, and his father and company director August Busch III object, but InBev could trump the family's opposition by courting SABMiller.

Corona Finds its Sales Have Been Beached
As Coors marries a South African brand and A-B considers its Belgian suitor, imports may be on the wane. Though it may be a blip, last year was the first time in a decade that domestic brands gained more barrels than imports. Imports cooled off from an 11% growth pace since 2005 to just 0.4% last year.

This has caused storm clouds to move in over the sun-centric Corona Extra. The No. 1 import declined 0.8% after growing steadily since 1991. Corona's woes may have more to do with last year's price hikes, which were preceded during late 2006 by a bottle shortage, making the brew hard to find in some markets. Those factors helped cheaper rivals like Tecate, Sol, Carta Blanca and Bohemia grab some of Corona's market share.

Yet, Wall Street analysts asserted Corona's specialness is fading and suggested Crown Imports, which holds the U.S. marketing rights to the Mexican brew, drop the vacation-in-a-bottle positioning, which has been advertised since the 1980s.

Crown is sticking with "Relax responsibly," having budgeted 10% more for advertising this year. Measured media spending was $60 million in 2007, per Nielsen Monitor-Plus.

"Corona is the only truly positioned beer in America," said Marshall Ross, chief creative officer at Corona's agency, Cramer-Krasselt, Chicago. "There isn't a competitive marketing department that doesn't challenge itself or its agency with 'How do we find a Corona campaign?' The spirit of the getaway campaign remains powerfully relevant."

Meanwhile, Heineken Premium Light, which was off to a strong start, has cooled off. Still, while it didn't meet Heineken's overly optimistic goal to ship 1 million barrels, it did help the Dutch brewer's overall U.S. shipments increase 5.6%.

Can Craft Beers Keep it Up?
Craft brews were the hottest segment in 2007, but this year, rising commodity costs and tight supplies for hops and grains are squeezing profit margins for craft brewers and raising prices.

Compounding the dilemma is more competition from craft-style brands made by big brewers (Coors with Blue Moon, A-B with Michelob and Miller, which owns Leinenkugel Brewing) that are better able to absorb the rising cost of ingredients.

Blue Moon, for instance, caught fire in its first year as a nationally distributed brand, growing 66% to 750,000 barrels.

Overall, case sales of craft brews for the four-week period ending April 19 grew only 8.6% which is roughly half of the 15.8% pace for the preceding 52-week period, per Nielsen.

However, consumers don't seem to be trading down. Sales during the same period for premium and economy-priced brands were either down or flat.

Smirnoff Now Tops on the Top Shelf
Vodka has been the perennial hot category for the alcohol market. This year the clear spirit finally reached the top rung. Smirnoff edged past former industry leader Bacardi to become the top-selling spirit, with 9.3 million cases sold in the U.S. It grew nearly 9% in 2007, per Impact, New York.

Smirnoff has some big-name competition to contend with, as both Absolut and Ketel One now have new owners looking to capitalize on their big dollar brand acquisitions.

In February, Diageo, New York, shocked many industry speculators when it announced that it would pull out of the bidding war for Sweden's Vin & Sprit (which owns Absolut). Instead, it announced that it had purchased a 50% stake in chi-chi brand Ketel One, to the tune of $900 million.

The purchase only further elevated the megabrand house's intimidating vodka portfolio, which includes Smirnoff and the Sean "Diddy" Combs-endorsed premium Ciroc label.

"If you look at the various brand values and the focus of where we wanted to position ourselves in the vodka category, Ketel One foots the bill perfectly and rounds out our strategy very nicely," Diageo rep Gary Galanis said of the merger. "The growth opportunities with Ketel One are absolutely huge."

Not to be outdone, a month later Pernod Ricard, Paris, announced that it had acquired Absolut's parent company for $8.3 billion.

A relative sleeping giant over the past several years, Absolut posted a 4.5% increase in sales for the U.S. market.

The acquisition puts a sizeable jewel in the crown of the French spirits firm, though Arthur Shapiro, of the alcohol industry consultancy AM Shapiro & Associates, New York, said the company wasn't exactly hurting to begin with: "Diageo doesn't have to worry about it. They're a killer in terms of size, marketing and sales force."

Tequila: Not Just for College Kids Anymore
The tequila category continued to heat up last year, and no one was hotter than Patrón. Patrón's sales climbed more than 50% to 1.6 million cases in the U.S. market in 2007. That pushed the brand ahead of Sauza, which posted only 6% growth to 1.5 million cases.

Category leader Jose Cuervo took notice. To combat Patrón, Cuervo launched Platino, its own ultrapremium silver varietal. To support the launch, it created the $10 million "Every Family Has Its Secret" ad campaign via Arnell Group, New York.

In addition to heritage messaging, the marketing has also focused on Platino's superior Beverage Tastings Institute score of 96, beating rival Patrón Silver by a full seven points.

No. 3 Sauza is going for an image overhaul, with a repackaging of its silver and gold tequilas that is geared to give the product a more elevated, mature perception on retail shelves.

"It was a shots-and-margaritas business, with Cuervo as the big guy and one or two other higher-end products that were low profile," said Gerry Reid, svp-tequila at Diageo, New York, which handles the distribution for Jose Cuervo International. "But what's changed is that those higher end marks are providing image and experience differentiation, and they've really gained significant traction."

Part of that traction come from the fact that the post-college consumer set has traded up to such premium offerings. The higher-priced, smoother tasting tequilas are allowing them to continue drinking the tequila well into adulthood.

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