Giant multinational beer companies are ceding millions of barrels to smaller and more regionally focused craft players. At the same time, thousands of even smaller craft upstarts are getting in on the action as well, disrupting the way nearly every top-ranked beer producer goes to market.
Or as First Beverage Group managing partner Townsend Ziebold put it to a crowd of nearly 200 beer industry professionals at the June 11 Brewbound Session business conference in Chicago – the empire has sprung a leak.
The familiar narrative of a rapidly evolving beer landscape and Ziebold’s image of the “leaky bucket” served as the backdrop for a jam-packed day of presentations and panel discussions on the state of the current state of the U.S. beer industry.
To quote Bob Dylan: The times they are a-changin’.
By Ziebold’s calculations, 20 million barrels of beer from Anheuser-Busch and MillerCoors have leaked away to competitors. 24 million barrels of “premium volumes” have migrated to the super-premium category and 8 million barrels of beer have left the segment entirely, an amount Ziebold claims was soaked up by wine and spirits companies.
With small breweries benefiting from the declines of big domestic beer and a broader consumer movement toward local, authentic and artisanal products, craft has had some serious tailwinds. Those tailwinds will blow the segment to at least 30 percent market share, Ziebold believes, but not before the entire business gets more complex.
Throughout the day, the central themes of authenticity and complexity emerged, as knowledgeable industry veterans from A-B InBev, MillerCoors, Boston Beer and Oskar Blues, among others, shared their experience building and scaling brands.
Kicking off the day was Scott Whitley, the recently appointed CEO of MillerCoors’ craft and import division, Tenth & Blake.
Whitley, who prior to joining Tenth & Blake served as the president of Coors Distributing in Colorado, believes both wholesalers and brewery owners should consider mass, margin and momentum as their primary criteria for evaluating the performance of an individual brand or a portfolio.
In a complex environment, focusing on the “three M’s,” as he called them, will become even more critical as thousands of craft brewers fight for limited space at the taps and on the shelf.
“Focus is your friend in a fragmented environment,” Whitley told attendees.
“It’s never been more important to be righteous about your face, your place and your story,” he added.
Indeed, having a unique and well-differentiated story is critically important, especially at time when craft breweries are opening at a rate of nearly 1.5 per day. Still, there’s an art to storytelling, according to Michael Kiser, a brand strategist and the founder of Good Beer Hunting, who shared lessons on brand building with attendees.
When Kiser became obsessed with beer seven years ago, he was incredibly drawn to how startup craft breweries were presenting themselves as he first encountered their products.
One commonality emerged.
“I saw the end of a story before I ever saw the beginning of a story because brewers are still, to this day convinced that the only thing that matters is in the bottle,” he said.
“Beer isn’t necessarily the story in and of itself, it’s the embodiment of the story,” he added. “We tell people not to judge a book by its cover and yet that is mostly what we are asking our beer and consumers to do every single day.”
So he urged craft brewers to consider their own narratives, taking into account how their products are characters, exist in settings, that commit actions. Most brewers, he said, recognize these things but don’t understand how to weave each component together into “a narrative that really matters or resonates with anybody.”
Perhaps that’s where an application like Drizly, which enables consumers to order alcohol on their smartphones and have it delivered to their door within 30 minutes, can help.
The company, as COO Cory Rellas told audience members, doesn’t touch money and doesn’t touch alcohol. That’s the job of its retail partners.
“We don’t take a percentage of sales,” he said. “It’s all about not being a part of that transaction.”
Instead, Drizly aims to add value to the space by propagating mobile e-commerce, a digital marketplace that has become entrenched in other industries but has yet to take root in the alcohol category, according to Rellas. It’s a simple enough model, though Rellas sees it adding tremendous value to all three tiers of the industry.
“We’re bringing incremental profit, incremental consumers of a kind they wouldn’t get in the store,” he said.
Indeed, the app does give beer suppliers a new way to introduce their brands to and engage with a new set of customers.
“We know a lot about our consumers,” Rellas said. “For the first time, you can control how your product is merchandised on a digital shelf. For the first time, you have the ability to influence the consumer at the point of sale in a three-tier compliant way.”
The opportunity to interface directly with customers is huge for large and small brewers alike, and it’s one of the many reasons so many companies – even large national suppliers like A-B InBev and Boston Beer – are placing a greater emphasis on connecting with drinkers at the local level.
Alan Newman, the president of Alchemy & Science – a Boston Beer subsidiary consisting of Angel City Brewing in L.A., Concrete Beach Brewing in Miami, Coney Island Brewing in New York and the nationally distributed Traveler Beer brand – said he believes that establishing footholds in local communities brings new beer drinkers into the craft fold.
“Each one develops beers that we believe are aimed at the taste profile of that community,” he said. “They are all focused on their individual market and to me, that’s what makes what we are doing really special and really interesting.”
So what has Newman learned from setting up shop in such a diverse range of locales?
“Neighborhood breweries turn on its neighborhood to good tasting beer,” he said.
Visiting a small brewery taproom and learning about the brewing process enables new craft beer drinkers to connect with the brand and with the craft segment as a whole, Newman said.
“The goal is always the same,” he said. “How do we find ways of talking to those customers, giving them an experience that will make us special for them, not just so they will appreciate our brand but so that they will appreciate craft beers?”
Andy Goeler, A-B InBev’s CEO of Craft, said it has a similar goal and explained that craft acquisitions are helping the company more closely connect with local craft drinkers.
“Our goal is to continue to elevate beer as an industry,” he told attendees, calling the company’s interest in craft a “long term play.”
Nevertheless, Goeler conceded that taking the “local magic” to new markets is “the hardest thing in the world.” It’s something he experienced first hand when the company rolled its Goose Island brand out nationwide in 2012.
“You really have to figure out how to connect and connect long term,” he said. “The life cycle of these brands is quick, so you have to be pretty good at building brands long term, investing in them, putting the right messaging out and have the right rotation of innovation. It is pretty complex.”