"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Saturday, November 13, 2010

Beer and Hogs going flat

By Nick Massey
The Edmond Sun
EDMOND — For several years now I have written about demographics and the effect it can have on businesses. I have talked about Harleys, Twinkies, Lingerie, Barbie and now German beer.

I’ve used the example of Harley-Davison several times because they represent the perfect demographic story. Before I start getting hate mail, let me say that I am a motorcycle rider myself and like Harleys. But from a demographic standpoint, they and their peers in the “big bike” business have a big problem. U.S. motorcycle sales shrank by 14.1 percent in the third quarter of 2010, extending the grueling decline to 15 consecutive quarters. And that was a 14.1 percent decline from the already deeply depressed sales figures in 2009.

According to the Financial Times, “Sales are now less than half the level at the peak of the market in 2006. Highway bike sales totaled 383,000 last year, down from 660,000 in 2008 and 724,000 in 2007.” Some of Harley’s Japanese competitors did not even produce 2010 models.

You cannot say that Harley’s problems are due to bad management. Actually, Harley’s management team generally gets high marks and their products certainly have a loyal following. No, Harley-Davidson’s problem is bad demographics. The primary purchasers of Harley’s big bikes are white males between 45 and 55 years old. Not all, of course; but the majority. All of this was fine 15 years ago when baby boomer males first began to enter this demographic sweet spot. Harley never had it better. The largest generation in history had just become their best customer.

Unfortunately, those days are gone. The boomer male has passed this stage and many have shaved off the beard and put away the leather jacket. Good luck selling the used bike though. Used bike prices have plummeted in recent years. Not that there aren’t a lot of Harley-type motorcycle riders out there. There are just less of them and even less in numbers coming up behind them.

To bolster sales, big bike manufacturers are increasingly looking to overseas emerging markets and are having some success in certain places. The problem is there are a limited number of consumers in emerging markets who want and can afford a $20,000-plus motorcycle. As hard as Harley has tried to reach out to other demographic consumer groups — younger and non-Caucasian men and women, for example — Harley’s future already has been written in demographic stone. Except for the occasional surprise, sales of the company’s iconic bikes should continue to disappoint investors for the foreseeable future.

In another “Say It Ain’t So” story, across the Atlantic, changing demographics are wreaking havoc on another iconic industry — German beer. While it may not be entirely accurate, Germans themselves have cultivated an image of a nation that knows how to drink its beer. Visiting a proper Bavarian biergarten and ordering an obscenely large stein of beer from a barmaid with biceps big enough to beat most bikers at arm wrestling is practically a right of passage for visitors to the country. I can personally attest to this being true from my experiences in Germany when I was far younger.

So, it might come as a surprise that German beer consumption is in a long-term decline. It seems that Germany’s version of our baby boomers somehow got older also. According to The Economist, German beer drinking has declined from 142 liters per person per year in 1991 to “only” 110 liters in 2009. That’s still a lot of beer though. Enough to put most Americans accustomed to watery Bud Light in the hospital. Still, that is a decline in consumption of more than a fifth.

As you might guess, demographics are the driving force behind this change. As The Economist explains, “An aging, shrinking population is drinking less. Even among the traditionally hard drinking middle aged, health concerns and a lot less appetite for partying have curbed drinking.”

So there you have it. Harleys and German beer are both becoming victims of changing global demographics. Of course, as a proud boomer myself, I think I may have to go fire up the bike and have a beer — just out of protest. And then I’ll go home early before it gets past by bedtime. Thanks for reading.

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