Craft Beer

Tales of Ales and Tails

Tales of Ale and TailsOn a recent trip Stateside, I got a real flavour of one of the retailer’s major dilemmas. The store was a large Publix on the Gulf Coast of Florida – certainly as big as a large UK supermarket. As always, I was spending more time looking for stimulus for work than actually doing the food shopping … and then I turned down the beer aisle.   Now, my figures will be slightly out but close enough to be both defensible and illustrative. In the US, the market has two major brewing players – Anheuser Busch Inbev and Miller Coors who control about 80 – 85% of the market’s supply. And then there are the craft brewers, alliances of craft brewers and speciality importers.

Yes, craft beer is likely to be more profitable on a unit basis than big beer, but to command well over 50% of the space? Commercial craziness, no?

That’s the dilemma for the retailer, particularly if you are mainstream / mid-market. How do you optimise your range and space and how the hell do you decide which brands to back, to underspace, to overspace?

Going back to craft beer (or increasingly snacks, spirits, bread, cheese…) it would be easy to argue both sides. For the big boys, it would go something like this: ‘Hey, you’re crazy. I know there’s all this craft beer hype, but just look at the rate of sale and the market share… and times that by the price we command… you should be overspacing us not underspacing us!’. If you’re a craft brewer, equally, you could say, ‘Consumers are tired and dissatisfied with the same old beer choice. They’re individuals not ‘consumers’ and a craft beer range caters to them, shows that you are a specialist and ….well, look at the profitability’.

There’s no right or wrong here, but there seem to be some common denominators.

How appealing is the category: craft beer is over faced because consumers care; it is increasing in both household penetration, frequency and basket size. Authentic beers, with interesting stories are cutting through with shoppers when all big beers can offer in return are new can sizes or bottle shapes. Essentially, research is showing that when a category can drag shoppers off their habitual shopping trajectory, then it’s worth backing.

Brands count: craft beer in the US isn’t stocked out with hopeless chancers. There are strong emerging brands. Brands that are working either because they are genuinely different (say, Dogfish Head), local (say Cigar City Brewing from Tampa) or frankly growing in fame and appeal (say Sierra Nevada, Stone Brewing, Sam Adams, The Bruery). Over in the UK, with Tesco for one aiming the gun at these long tails, it’s the categories where no brands exist, where own label can do as good as, if not better job than the branded alternative where attention is needed.

Principles matter: many of the craft brands in the US have managed to grow in value off the back of their founding principles, principles which they have stayed true to. Jim Koch of Boston Beer is a divisive character because he unapologetically popularised craft beer by owning the agenda, by being in the face of big beer owners and drinkers. ‘Here is a better choice’ he would say, when not dunking himself in vats of Boston Beer. But equally, Fritz Maytag saved Anchor; Keith Grossman built up Sierra Nevada on the back of kit he beat into shape with old ball hammers and welding kit. All of them wanted to drink better beer, so they did something about it. Brands of conviction, attract.

The competitive space is changing: in Chris Anderson’s book, ‘The Long Tail’*, he talks about how retailing will change because of the impact of the internet. Look at Amazon: online bookshop becomes frankly, anything they can sell that they can store and transport; no stores, no range reviews, no square footage to overly worry about. Want a rare Dutch flower arranging book (yes, Mum, I’m referring to you), they’ll get it. As consumers we understand that that might not be the case for a Sainsbury’s or an Asda or a Tesco – but for how long. Internet retailing allows us not to worry about big brands, the Number 1s and 2s, but any brand that takes our fancy. Until food retailers abandon their mega sheds, any strategy will be a compromise – we’ve got a big range, but…..

Interestingly it seems to open up opportunities at both ends. At the ‘endless choice’ end of retail will be the likes of Amazon; at the other, quite insightfully, will be the focused retailers who recognise that as shoppers our brains can only handle so much choice. Reduce the range, reduce the choice, watch sales grow: take Lidl or Screwfix.

And so it turns out, that was my dilemma. Standing in front of this amazing beer fixture; looking at all the choices, reading labels, thinking ‘Oooh, I’ve never had that..’ but totally unable to make up my mind.

*Chris Anderson, ‘The Long Tail’, Hyperion, 2006

Slide1David Preston is founder of The Crow Flies, a research, strategy and innovation company that discovers the direct route to success for categories, companies and brands. david@thecrowflies.co.uk; +44 (0) 1283 246260

What big brands can learn from small beers

IMG_1488Craft beer is big news at the moment.  It would be difficult to miss the number of small breweries popping up all over these isles of ours. From furthest Fife to deepest Devon, micro breweries, craft breweries, artisan breweries are opening up their doors.   And not just here, over in the U.S. there are now more breweries than before Prohibition (the illegalisation of alcohol in 1919). And right across Europe, from traditional beer nations like the Netherlands and Denmark to wine tippling nations like Italy and France, it’s happening too.

Despite this, the U.K and U.S. beer markets remain in overall decline, and the others are in such low single digit growth as to be just as well described as ‘stagnant’ as much as anything.  But that of course, isn’t the point.  The growth in craft beers is the manifestation of powerful behavioural changes going on amongst consumers.  And look deeper into those numbers and a different picture appears.  Take the U.S..  Industry commentators have been fairly dismissive of the overall impact of craft beer for almost two decades: but now craft beer is almost 8% of the total market. Whilst the total market is declining by almost 2%, craft beer is growing at 18%, with craft beer exports from the U.S. up close to 90% (witness Fuller, Smith & Turner, brewers of London Pride,  taking on the brand rights for Sierra Nevada in the UK in the last 4 weeks). These are no longer market twitches at the edges which can be ignored.

So what can big brands learn from craft beer?

The balance of form and function.  Whenever I see ‘New Recipe!” (or rather, “Great Taste, New Recipe!”) on a brand, I shiver.  What this typically means is ‘we’ve found a way to reduce our cost of goods sold and need to ‘sell’ it to you, just in case you notice’.   The successful craft beers retain their balance – to use the parlance of David Taylor, author of ‘Where’s the Sausage?’* – they balance their sausage and their sizzle. Take Brew Dog, the self-styled agent provocateur of craft brewing: they do engage in some frankly, questionable PR stunts but at the end of the day, their products are robust and exciting.  In big companies it’s easy to become disconnected from the product and before long that savvy ‘cost optimisation’ programme is actually undermining your brand equity.

 Trend and counter trend.  What I love about the craft beers is that so often their contrariness leads to success.  Beer getting lighter?  Increase bitterness.  Alcohol levels falling? Extreme brews. Everyone using cost effective hop oils? Use the whole cone.  It’s just a lovely demonstration of trend hunting from the wrong end.  If everyone is zigging, we will zag.  Big companies often use the excuse that ‘there isn’t a commercial opportunity big enough there’.  Well say that to Molson Coors, who persevered with their craft beer Blue Moon for almost a decade before *Boom!*, you’ve suddenly got the leading brand in the segment.  Ask yourself: is this decline a result of consumer behaviour or is it more about our lack of attention to what the opportunity could be?

No more Vanilla Values. There’s a great book just out which I’d recommend to anyone in business. It’s a beer book, but the lesson is not about beer. The lesson is about where really, truly, running a company from your values can take you.  It’s called ‘Beyond the Pale’ and is the story of the Sierra Nevada Brewing Company by their co-founder, Ken Grossman.  Ken started his company out of dissatisfaction with U.S. beer at the time: but his response was to build a company where there were clear red lines.  We won’t brew with adjuncts (forms of sugar other than malted barley or wheat which are cheaper to brew with). We won’t pasteurise our beer.  We won’t leverage ourselves for growth if it compromises our brand.  Surely these are just product guidelines? Actually, they summarise an attitude, they define behaviours and a business philosophy that is inspiringly powerful.

Know Your Friendemies. Of course, in big business there are very issues with perceived collusion and cartel behaviour yet what is singularly marked about craft beer is how collaboration is creating value.  Real, edgy, collaboration. Collaboration on new products between breweries. Collaboration on new products with beer writers .  Note: there’s no ‘Consumer Co Creation’.   To say craft brewers are research-light is an over statement, rather they trust in their values and put out a vision of what the future could be that drinkers are attracted towards – or not.  And this isn’t to say they don’t do research – it’s rather that everything is research.

Rhythm and pace: in all my dealings with the craft brewers, I haven’t heard the terms ‘Innovation Pipeline’, ‘Stage and Gate’ or ‘Volumetric Test’ once.  Yet, these companies are prolific innovators.  New ingredients, new processes, fusing traditional and modern, repurposing the past – it’s all there.  A whole industry has sprung up around innovation which fundamentally is un-innovative. It’s about eliminating risk, increasing strike rates, extending rather than creating.  And yes, there are a lot of failures, but in the main, they learn and move on – quickly.

IMG_1490Follow the Leader vs. Lead Your Followers. The bravery of many craft brewers is remarkable – the bravery to stand for something and project it out to the world to take or leave. One example:  Mikkeller: founded by two Danish homebrewers, Mikkel Borg Bjergsø and Kristian Klarup Keller, they don’t even own a brewery. Rather they adopt a magpie or ‘gypsy’ approach and brew where invited or through the network of friendly brewers worldwide. Yet, their brand stands for breaking the rules, in their words, for “challenging beer friends with intense new tastes”.  Oh, but they’re a one off, I hear you say.  You can’t replicate that in a big business.  Why not? Mikkeler turnover over $4m a year and a regularly rated as having some of their best beers on the planet**

At the end of the day you still have to sell – of course, of course.  And with scale so it gets easier to deliver a consistent quality product, sure.  There are a handful of craft brewers who have made it truly big:  take the now publically listed, Boston Beer Company.  The largest US craft brewers (at a total portfolio level) yet, still brewing tasty, challenging, interesting beers from good quality ingredients. Will it last? Who knows?  But it’s possible.  And take Brew Dog: moving crowdfunding to a new level in order to fuel their growth through their Equity For Punks scheme.

It is possible to be a big business and have real values: and craft beer is teaching us how.

IMG_1067David Preston is founder of The Crow Flies, a research, strategy and innovation company that discovers and maps the direct route to success for categories and brands.  David is also a beer writer at http://www.beertintedspectacles.com and advises small and start up drinks companies on business strategy. Contact david@thecrowflies.co.uk to find out more or call the Crow Phone on +44 (0) 7885 408367

*David Taylor, ‘Never mind the sizzle…Where’s the Sausage’, Capstone Press, 2007
**Beer Geek Brunch Weasel anyone?  See http://mikkeller.dk

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© The Crow Flies, 2014