You love the blog, so subscribe to the Beervana Podcast on iTunes or Soundcloud today!

Tuesday, August 02, 2011

The Future is Craft

MillerCoors, seeing the writing on the wall:

Big beer brands have been losing the affinity of core drinkers over the last two years, according to YouGov's BrandIndex, a research firm that tracks brand buzz, loyalty and quality perceptions based on consumer surveys. MillerCoors' Miller Lite and Coors Light and Anheuser-Busch's Bud Light have had negative ratings for most of that period.

Craft beer has posted double-digit sales gains for three of the last five years and is likely to do so again in 2011. Craft brews account for about 5% of consumption, a figure that could rise to 10% in five or six years if industry sales were to remain flat, according to Beer Marketer's Insights.

MillerCoors isn't betting on the Silver Bullet. The article describes a strategy that foresees "craft" beer as an increasingly large part of the portfolio:

"[There] will not always be thousands and thousands of tiny brands," Long said, referring to the 1,700 brewers in the U.S. today. "Big brands will emerge, and they already have: Sam Adams and Fat Tire and others. Certainly Blue Moon fits into that category."

MillerCoors' goal "is to make sure that some of those emerging winners are ours," Long said. To do that, he said, the company will have to be successful in gateway beers that introduce consumers to the craft segment, as well as to other brews for "eclectic palates."

My post yesterday about Goose Island provoked a huge amount of skepticism--not surprisingly. Big breweries have a terrible record of playing it straight with good beer. Some commenters were absolutely certain that A-B will force Goose Island to "cut corners" and water down their product. In fact, the opposite is true. Over the past three decades, the big breweries have watched their share of the beer market slowly erode. It's gotten particularly bad in the last five years.

That trend will continue for the decades to come. It's impossible to say whether bad beer will find a stable floor of support, but even if it does, it will be substantially lower than it is now. To fill in the gaps, they need good beer. The reason A-B bought Goose Island was not for the brand--it was for the beer. Goose Island has what Bud lacks: the reputation as one of America's boldest, most sophisticated breweries. The good beer are (sorry!) the golden eggs. Why would you spend $40 million on a brewery only to turn it into a tiny plant making the same kind of beers you already make?

The future's craft, and the macros know it.


  1. "[There] will not always be thousands and thousands of tiny brands," Long said, referring to the 1,700 brewers in the U.S. today. "Big brands will emerge, and they already have: Sam Adams and Fat Tire and others. Certainly Blue Moon fits into that category."

    Whatever, this dude sounds completely out of touch with what craft beer is all about. I guess by "Fat Tire" He means New Belgium. "There will not always be thousands of microbreweries". Sure, and there will not always be millions of local restaurants. Unless we have major law changes (like another prohibition) or economical/agricultural collapse, there will in fact be a plethora of local microbreweries doing great things. Even if the big-little guys get bigger.

  2. I spot a trend: I consider Sam Adams, Blue Moon, and New Belgium to all be middling beers.

  3. I think there is an observational perception bias as well.

    If one accepts a unrealized market in Craft beer, and that larger breweries have an efficiency advantage to capture that market, one would expect that though slow to the uptake, we should see large brewers produce more sophisticated superior offerings on a larger scale (Bud Total Domination IPA if you will).

    However, I think the perception of craft breweries as they grow larger is that they lose, irrespective of quality, the cache that the smaller craft brewery drinker puts on the perceptional observation of quality. i.e. We downplay a Sam Adams, as they are now everywhere; we downplay a Widmer Hefe as they too are getting a more ubiquitous penetration.

    The evidence is apparent in that at large tastings, these offerings often do very well up next to their craft peers - and that is reflected by their greater demand. Yet, you talk to most craft aficionados, and they will mention the obscure nano offering as being far superior.

    So, I think these companies are taking the correct approach in factoring that perceptional bias into play. We will continue to see these small purchases, and an artificial inefficiency in production, until perceptions allow for craft beers to be produced in mass without being labelled as 'sellouts'.

    It is important to consider that bias - I would wager if any of the large beers wanted to, it would be fairly easy at current market pricing, to hire a Rogue quality brewer, and produce a large scale craft. I would suggest they don't simply because it wouldn't sell well. The craft brew market is correlated to how individualized the attention to our beer we perceive to exist.

    The future is NOT craft - like any other market, the future is recognizing unrealized markets, and exploiting them. From a business standpoint, I'll bet on the larger breweries any day to most effciently realize the maximum of those gains. And right now, that means making some small brewers very wealthy with acquisitions. But if they figure out who to market a 'luxury' line, I think we will see some rapid consolidation.

  4. Dann, great, thoughtful comment. More so than the original post, I think.

    Nevertheless, I have to quibble with this:

    I would suggest they don't simply because it wouldn't sell well.

    Big breweries haven't yet figured out how to get in on the craft market, but they have been trying like crazy for years. The market for macro has a number of downsides. That it's shrinking is the worst, and the way macros offset that is to cannibalize each other. (I just read today that Budweiser was down 10% last year and 7.3% this year. The beneficiary? Coors Light.) But there are other problems, too: breweries have to compete on price, so margins are very thin, which makes them susceptible to price shocks in barley, hops, and gas.

    Meanwhile, micros have bigger margins (and much bigger for breweries big enough to exploit scale) and are a growth market.

    Once the big breweries figure out how to enter the craft market and sell substantial quantities, they will. In a few decades, the proportion of "good" beer (what we now call craft) will be far closer to that of light lagers. The trend will, in fact, be hastened BY big breweries. One of the most successful "craft" brands is Coors' own Blue Moon, which sells something on the order of 2 million barrels a year. Problem is, they just haven't figured out how to replicate the success.

    When they do, the era of light lager will begin to set.

  5. My own two cents as to what is holding the macros from being successful in the craft market (in addition to the perception bias, which is brilliantly put)is that they are unwilling to spend the amount of money needed to make a great product.
    American Ale is a good example. It is a watered down version of Fat Tire. Could they make a great amber? They have the brewers and the equipment so where is the problem? Somewhere corners (if not entire pages) are being cut.
    If they ever decide to "craft" a beer, I think they would be able to sell it.

  6. I hope you're right!

    That's certainly and interesting and encouraging article.

  7. I certainly think this has been the new approach to growth. The fact that Unibroue was bought out and not changed does look like there is hope for these buy-outs not ruining beers.