The New Branding Dynamics of Craft

Moving Beyond Local – Can craft beer brands learn to travel?

To take a look at the conundrum of craft beer branding, one need look no further than the Men’s Room. Beg Pardon? Stay with me. Here we go.

Men’s Room Red is a beer made by Seattle’s Elysian Brewing. Elysian is a 19,000 barrel-per-year brewing company that began in 1996 as a single brewpub; after 12 years, in 2008, the company started getting serious about moving from on-premise to wholesale brewing, borrowing capacity from New Belgium in exchange for helping brew a small batch collaboration product for the Fort Collins, Colo.-based company in its own tanks in Seattle.

Elysian’s launch as a brewpub coincided with Seattle’s place as an early adopter in the craft beer movement, and its beers and pubs became something of a local fixture, growing with the city’s beer scene behind products like Dragon’s Tooth Stout and The Wise ESB.

But its best-selling beer didn’t emerge until several years later, when the company began to develop a relationship with a local afternoon drive-time radio show called The Men’s Room. As Seattleites, the hosts of The Men’s Room had begun to drink Elysian, occasionally mentioning it on the air. One day they were pre-gaming at the brewpub and were befriended by Elysian CEO Joe Bisacca, who decided to brew a batch of product and name it after the show, calling it Men’s Room Red.

This arrangement worked well for the show hosts and for the brewery as well; on air, the hosts began touting not just Elysian beer but Men’s Room Red. After selling 12 kegs the first night, the brewery reached out to the radio station and the two groups arranged for a portion of Men’s Room Red sales to be donated to a local branch of the Fisher House Foundation, which provides low cost lodging to veterans and military families receiving treatment at military medical centers.

The interest in the beer reverberated in the community. That was 18 months ago. Since then, the variety has taken off – the company sells about 4000 cases of 22 oz. bombers a month, as well as 600 kegs, and it has added about 400 draft accounts, according to sales and marketing director Matt Thompson.

For Elysian, the success of Men’s Room Red is that it has allowed the company to deepen its brand in the Seattle area. And it’s significant because this kind of success is being replicated in breweries across the country, all of which have shown tremendous skill at getting local and regional crowds interested in their products, and further, creating a resonant relationship between the products and consumers.

But here’s the problem, which is one that’s emblematic of the way craft beer brands have grown:

“This story is great for the local market,” Thompson says, “But who is going to know about it in Pennsylvania?”

The answer is obvious – no one – but it begs another question, which is whether the way that craft is growing is one that is ultimately good when it comes to fulfilling the potential the category holds for the distributors, the retailers, or the suppliers themselves.

“The authenticity of regional brands and local brands has made for some that are very strong,” says Joth Ricci, the Managing Director at First Beverage Group. “But in a lot of cases,  it’s made it very hard for those brands to do what they call ‘travel.’”

Put more starkly, he adds, “One of the reasons you don’t have national craft beer brands is they don’t have the knowledge of how to break into a new, local geographic market.”

GROWING INWARD

Of all the growing categories of the beverage business, craft beer is absolutely the hottest. The growth numbers – more than 12 percent in volume, 15 percent in dollars, for the second year in a row — are splayed all over this magazine and innumerable beer web sites. They present a strong contrast when matched up against conventional beer, just as the growth rate of the energy drink category has big soda company executives weeping in their sodas.

But the growth of craft beer has occurred in a way that the growth of energy drinks has not: craft is growing up, but it’s also growing in. The number of new breweries in the U.S. increased by 250 last year, and there were 915 in planning at the end of 2011. Brewery capacity is also expected to increase by at least another 10 percent in the next two years, and many breweries are doubling or tripling their own capacity to meet demand. Still, experts say that most of that new beer will go to the same regions, the same consumer set, as the breweries deepen their local connection.

“Ten years ago, we saw more breweries that were looking at the national picture,” says Paul Gatza, Executive Director of the Brewers’ Association. “At the same time there were a lot more companies that started taking a deeper approach, to be in fewer markets, but stronger in those markets.”

That means the even though craft beer is now huge, craft beer’s brands are not.  Look at the top 20 brands, and there’s an average share of 3.6; take out top brand Boston Beer – which has a share of 18.5, and the rest of the pie drops to 2.8. Take out Sierra, the next highest – at 11.2 and no brand has a double-digit share.

That means that craft beer has evolved into a national phenomenon with local legs.

For wholesalers aligned with the big beer companies, the numbers offer few clues as to which craft companies they should offer their limited, valuable space to when they know they could just throw a few more kegs of Bud onto the truck. For those who specialize in craft and specialty offerings, there’s still a weighty balancing act to account for the companies that are worth long-term commitments, and which ones will have trouble drawing consumer interest.

That diversity of brands presents a problem not just for distributors and retailers, but for brewers as well. For the brewers, the sheer velocity of new companies entering the space means that even as the category has grown, one brewer is still easily substituted for another. Few have made themselves essential when it comes to building a portfolio. And if they stop being the flavor of the month locally, they have nowhere to go.

“Craft is kind of stuck in its own paradigm,” says Greg Owsley, the chief branding officer of New Belgium Brewing from 1996 to 2011. “Brewers feel the only way they can succeed is to be small, inventive, pastoral, but someone is going to have to break out of that.”

With the rapidly growing number of brewers and the high level of quality advances, the consumer is starting to have near-limitless access to good, high-end beer. But, Owsley says, if they don’t start improving their ability to transmit branding cues, they run the risk of being lost on the shelf.“If you don’t have fabulous beer, you don’t last long in craft anymore – it’s now something you have to have to get in the door,” Owsley says. “But in order to expand, you have to have a story that’s relevant and reverberates in a certain way.”

That doesn’t mean that branding does not exist in craft beer. In fact, when measuring the intended effects of branding, that increase in consumer loyalty and identification with products, craft beer brands excel. The problem is that they excel only as far as the limits of that much larger brand they’re competing within: and that brand is craft beer itself.

“There’s something about being associated with craft beer as a community that lends something else,” says Paul Gatza, Director of the industry trade group the Brewers Association. “It says you’re small, you’re part of craft. With other products, branding tries to differentiate. But with craft, the category is already leaning toward differentiation, while you’re also part of a community, a community that represents small, traditional, unique, and somewhat cool.”

(Unless, of course, you trespass, by succeeding.  For example, no less a brewer than Sam Calagione, the founder of legendary craft brewery Dogfish Head recently decried the tendency of the category to eat its young as they become better known, wading into a set of online forums to complain that posters “still spend their time knocking down breweries that dare to grow.”

“Beer geeks are having a bit of social validation right now,” Owsley says, “But I see the culture getting a bit oppressive. Consumers don’t want to have to read the Beer Advocate every time they order a freaking beer. They want to go into places and feel like they can win every time they go in.”)

Here’s the not-so-hidden secret of craft brewers, derived from extensive interviews and discussions with brewers, distributors, and other members of the industry: for many of them, just being part of that community is enough.

But that community is likely to be subject to the laws of the marketplace, no matter how philosophically driven it might be. Nanobreweries become microbreweries. Brewpubs start to name beer for radio shows, and soon enough it’s in 6-packs. Investors want to see growth and returns. The dynamics of the category might mean that some companies ignore the instinct to “grow or die,” but all of them will, and that can cause companies to have to make hard choices in the long term.

“I love the psychology for most of these guys,” Ricci says. ”I love why they’re in the business, why they love what they do, why they do what they do, and what’s important to them. They’re not interested in becoming the next Sierra Nevada. That’s just a massive pain.”

RECESSION TIMING

For a long time, the craft breweries were able to ignore the competition paradigm because of a lucky kind of timing. According to Gatza, the slow growth period that followed the first bust of craft brewing in the 1990s meant that brewers were more careful with the way they grew their brands this time around.

“A lot of craft brewers happened to be fortunate that in the mid-2000s, they had invested in capacity, and they had it online,” he says. When the recession hit, “craft was continuing to grow, and they weren’t crunched for capacity when
lending dried up.”

Now, with the money loosening up, expansion is the word. But how well-prepared are these companies to change their local-is-best model to start moving into new territories? With so many new breweries growing in those same local markets, increasing competition locally, isn’t there pressure to start to penetrate new areas?

Certainly, some brands are feeling that urge. While the top two craft brands, Boston Beer and Sierra Nevada, can both make the argument that they are national brands (Sierra’s argument will be stronger when it completes construction of its East Coast brewery) two others, New Belgium and Lagunitas, are also pushing to increase their geographic distribution and amp up their capacity. With the barrelage increasing, eventually, some of these brands are going to have to learn to travel.

Getting smaller isn’t an option, according to Owsley. “Now we’ve got guys in their garages, Gypsy brewers, and they just keep re-manifesting. At some point, you’re going to go down the rabbit hole with that. The exoticism of the recipes, the next one has to go further and further. Having every beer sound like it’s an appetizer at a tony restaurant, eventually, is going to go back on them.”

Ricci points out that the local strength of so many craft breweries has led to a broad fear that “the craft beer industry is going to become the wine industry,” with too much diversity of style to create any kind of mass impact.

That’s not to say that the business is hurting now – in fact, look beyond the lack of national brands, Ricci says, and you can actually see industry leaders beginning to innovate inside their own locales – much like wine regions become known for a particular varietal.

“A lot of the problem that I have with the way people look at the category is that they only view it traditionally: where are these brands going to develop,” he says. “But in developed marketplaces, you’re seeing entirely new channels for them to do so. What happens is that… you see spinouts of that business, like smaller, independent retailers, beer-centric markets, where they’re showcasing different parts of the category.”

One perfect example? A craft beer growler program in upstate New York based in convenience stores.

“When businesses are strong enough,” Ricci says, “You see people coming in to take advantage.”

But developing new markets is a harder bit of branding – which takes us back to the Men’s Room, and Elysian itself.

See, Elysian isn’t planning on staying a 19,000 barrel per year Northwest regional brewery forever. The company has built capacity for another 46,000 barrels, and, Thompson says, it doesn’t have plans to contract out that capacity for anybody. The beer, eventually, is intended to travel.

To do that, though, the company has to help develop markets in new areas, much as it has locally.

Elysian has what Thompson calls a “multi-tiered” branding strategy to get this done, and it relies on extreme beers brewed to celebrate the potential that the year 2012 may signal the Apocalypse, as some believe was dictated by the Mayan calendar. As such, Elysian has had monthly “12 Beers of the Apocalypse” releases in cities it is attempting to penetrate, like Pittsburgh. The company works hard with distributors in new areas to identify the perfect location to release these high-quality apocalyptic beers, and then builds outward in those areas, introducing them to products like Men’s Room or Dragon’s Tooth Stout after an Apocalypse party.

He concedes that there are a lot of breweries aiming for those trendsetting bars – often the hip beer bar of the moment – but shows that he understands brands aren’t built in just one account. “There’s plenty of taps for everyone at the moment,” he says, “But you have to focus on that next tier of accounts with the distributor. “

“When we go in, we try to recognize bars as trendsetters, and count on the halo effect,” Thompson says. “For us, it’s a slow build, not a sprint.”

NEW CHANNELS

There are some craft beer models that are trying to take a running start, as well, attempting to short cut the “build local” model by adopting national branding ideas. The movement toward lower-alcohol “session” beers is, for example, identifieable with a national movement to replace traditional premium beer with a similarly light and accessible, but better-crafted style. The development of channels like Whole Foods has also created the potential for new beer to debut and go national quickly, so long as the capacity is there.

“The retailers are getting much more knowledgeable about the craft segment,” says Gatza. “When you have a big launch from a retailer, people are going to pay attention.”

That’s why an understanding of the new rules of craft branding is so important: as so many new beers enter the marketplace and there is so much consumer choice, branding elements need to be in place to help consumers make sense of the marketplace. They’re different, as Ricci says, but they’re there, and they’re becoming increasingly necessary.

So what’s the key to identifying brands that can travel? Owsley spent a lot of time considering this question as he looked to break New Belgium into new markets – a process that owner Kim Jordan still approaches gingerly: she recently told Craft Beer News that moving into six new states one year “nearly killed us.” Owsley has come to believe that it is about creating a brand that stands for something greater than the region. For New Belgium, the brand has been able to travel because of the company’s principles, which he calls “being humble and being smart.”

“Every little communication point at New Belgium was a chance to express our story. The coasters were like postcards. It’s the little details – call New Belgium, you get a live person.”

While those specific branding ideas aren’t easily replicated, the principles behind them are. And, he says, the industry should be able to notice the brands that are expressing it.

“It needs to be beyond, ‘look at us, we’re small!’” he says. “There’s all that camaraderie around craft beer, but eventually, you need to think of it as a competition. Find some way to develop a story so that if people enjoy the beer they’re ready to come back for another. Or two more, even.”