- Enjoy Responsibly
- Brewing The Maximum Learning Environment
- Science On Tap
- Anheuser-Busch Foundation Gift
- Preserving Brewing History
- Alumni Brew Local Business
- College of Business Names New Dean
- Graduate Programs Rank Among Nation’s Best
- Campus Sustainability Efforts Go Platinum
- New Belgium Gift Shapes The Future Of Fermentation
- Concocting Unique Business Ventures
- Bigger than Beer
- Boston Beer Company
- Noosa Finest Yoghurt
- Molson Coors
- Varaison Vineyards
- Leprino Cheese
- Science of Brewing
- Morgan’s Legacy
- Fueling The Culture
- From Field To Foam
- The Challenges of Growth in a Flat Industry Market
A New Craft Segment
Any kind of growth is always accompanied by challenges. This is true for human beings and literally every form of organization, including entire industries. While there are several different means for businesses to measure growth it is interesting that some of these metrics can actually be at odds. For example, the amount of attention that has been focused upon the rapidly growing craft segment of the beer industry causes everyone to assume that beer sales and revenues have been growing at an unprecedented pace. Ironically, sales in the beer industry have been rather flat overall and have actually dropped in the last two years. The growth that has gained public attention has occurred in terms of the number of new breweries within the burgeoning “craft beer segment.” Just within the state of Colorado the number of breweries will soon reach an all-time high of 300 and nationwide the number will surpass 3,000.
While craft breweries are indeed part of the overall beer industry they are sometimes viewed as though they are a separate and distinct subset that prefers to differentiate themselves from the larger “big box” breweries. However, the creative new products and innovations offering customers a wide variety of beers infused with unique flavors have not necessarily guaranteed the continued success for craft breweries. The challenges they face to gain a larger footprint and a greater market share have impacted the entire industry.
Even the most informed beer consumers believe craft beers have obtained a greater share of the market than they actually possess. The craft beer segment has undoubtedly been on the uptick, but it remains slightly above 10 percent share of the market. While there are projections that predict the share of market moving to possibly 12 percent in the next two years, there are challenges that go beyond the beer industry. While one hypothesis holds that because of the nature of craft beer sometimes being “heavier” and higher in alcohol content people tend to drink less than they might consume when drinking lighter domestic or imported beers, it appears that most of the sales that are lost are due to a shift by some consumers to wine and spirits.
Most of the entrepreneurs in craft brewing are drawn to the business because of their passion for brewing and their belief that their innovative brews will be appreciated by a large number of what have become known as “beer geeks.” Some will be satisfied with self-distributing but most will want to reach a broader market and will want to make arrangements with distributors to take their beer to the retail market. With a growing number of store keeping units (SKUs), distributors are now in a buyers’ market so they can pick and choose what products they will carry. Unfortunately the “build it and they will come” attitude of many of the craft brewers is meeting the hard reality of the difficulty of getting their products distributed.
Associated with the distribution problem is the challenge to get shelf space in retail outlets. For those breweries that bottle and/or can their beer the competition for shelf space is becoming more and more onerous. The increasing numbers of brands being produced is making for a very crowded space. Smaller breweries are finding it increasingly difficult to gain space and attention from retailers and distributors. Shelf space is a valued commodity in the industry and becoming more costly to assume and maintain. The larger breweries are able to have some measure of control over existing shelf and cooler space and will not easily give up what they have come to control over the years.
There have been several craft breweries that have been acquired by larger U.S. and international breweries. This appears to be a trend that will continue, and in the opinion of some, will change the competitive landscape and give the major breweries more power and control over the industry. With many of the craft breweries being undercapitalized this is a trend that appears to be gaining momentum.
Legislation And The Three–Tier System
Each state has its own laws relative to the production, distribution, and sales
of alcohol. Many states have legislation that limits craft breweries from operating in a manner that would be considered normal in other states. A few states do not allow breweries to provide customers with take-out growlers and some have laws against any form of “packaging” for craft breweries if they operate as a brew pub. One piece of failed legislation even proposed that craft breweries would be required to purchase their own beer from a distributor in order to serve it in their brew pub. In other words there are still existing laws that are a throwback to pre-Prohibition.
New legislation has been introduced in some states that address packaging (size of growlers) and attempts to change the ability of craft brewers to sell their product directly to consumers in their own brew pubs. The possibility for new legislation that will in some way impact the competitive status of craft breweries remains a threat and an ongoing challenge that invites more lobbying by smaller breweries. Recently there have been some positive changes in a few of the states that will make regulations on production, packaging, and marketing somewhat less challenging.
An important piece of the legislative threats that craft brewers face is the taxing of their product. When federal, state, and local taxes are added into the pricing of craft beers they add more to the price than any other factor in the price determination. In fact the reference to taxes being the most expensive ingredient in beer has become a common phrase in the industry.
As new breweries keep coming on line and with the number in Colorado now projected at approximately 300, the question as to when the market will become saturated is becoming more relevant. There has been much discussion about when the bubble might burst and how long before the market is no longer capable of supporting the continued growth. To date there is no indication that the market has become saturated but amongst economists involved with the beer industry it is now a question of when the bubble will burst. The question as to whether or not there will be too many breweries and too many products in the market for everyone to survive seems not to be debatable.
Attempts to penetrate a target market usually bring additional costs. Packaging, either bottling or canning, adds to costs and shrinks margins. Likewise for those breweries operating their own tap bar that expand into a brew pub with food
in order to reach a broader market, the increased costs of having food items that have a smaller margin than beer remains a challenge. Neither of these examples consider the concept of price elasticity that recognizes that there are always pressures within the market that will not allow product to go beyond a certain price point without impacting sales.
Names, Logos, Trademarks, And Lawsuits
One of the more recent issues for craft breweries is almost a believe-it-or-not. There appears to be a challenge in coming up with unique names. Putting a distinctive moniker on a new beer is now akin to naming thoroughbreds. Likewise logos that have been viewed by competitors as too similar to their own have been the subject of lawsuits. The once friendly, competitive environment of craft beers has become fraught with a number of legal and regulatory challenges that are both internally and externally oriented.
While definitions of what constitutes a craft beer have changed and will most likely continue to be adjusted, in the final analysis it is a decision that should be left in the hands and the palates of the ultimate consumers.