The Squeeze Is On

Politics is not the only divisive force in our society today.  Craft beer is becoming more polarized as well.  And the reality for large, independent breweries caught in the middle of that divide is not bright.

While overall craft beer production rose from 2015 to 2016, regional craft brewers as a whole (the largest volume brewers in the craft community) actually decreased production by 1.1 million barrels.  By contrast, microbreweries increased production by about that same 1.1 million barrels, while smaller brewpubs (+169 thousand barrels) and contract brewers (+58 thousand barrels) grew a bit as well. (Source: The Brewer’s Association). The situation is not improving for large independent brewers, as Beer Marketer’s Insights reports shipments fell at six of the seven top craft beer brands in 2017.

The Future Looks Tough for Large Craft Brewers

Large independent craft brewers find themselves in a vice.  On one side of the vice, “corporate craft” breweries will likely win at major retail outlets, both on and off premise, with the support of their deep-pocket backers.  These macro brewers will use their immense resources to continue to force distribution and attention to their acquired brands. Muscling onto shelves and tap towers is their core competency. They will convince many consumers to focus on the beer and not so much the brewer (many, or even most, already do).  They will leverage the equity of these brands with retailers who are driven more by financials than altruism for the independent craft community.  It’s just business to them.

On the other side of the vice, local microbreweries will thrive by continuing to build solid personal connections with their local drinking communities.  No out-of-state brewery, corporate or independent, can match the sense of local pride, identity and involvement microbreweries can develop in their home turf.

The Squeeze Is On

Larger independent craft brewers will lack sufficient resources and brand equity to expand significantly as they compete with the formerly craft corporate breweries.  They may even struggle to main current levels of distribution and attention.  And, on the other hand, they’re not special enough outside the territories immediately surrounding their brewery(ies) and brewpubs/tasting rooms.  They’re caught in the middle, and the squeeze is on.

Given this, it was not surprising to see even a respected brewer like Green Flash recently announce a strategic scale back from its current 50-state footprint to focus on 18 core states (http://bit.ly/2E5yPxD ).  One of the early replies to their announcement on Facebook illustrates the challenge for Green Flash and other similarly stretched breweries:

“Will miss you in Michigan, but we are damn near 300 breweries, many of which are top notch. Local allegiance is strong here. As a craft brewer myself I can honestly say that I enjoyed every beer I ever had from you, best of luck!” – (head brewer at another Michigan craft brewery)

I don’t foresee the downfall of most regional independent brewers.  But there will be setbacks and attrition.  The pressure is only going to increase.

What are the options?

Here are a few strategies that make sense:

  • Invest in front-line personnel.  Your local connections will only be as strong as your local sales and marketing teams.  And the culture they create in the market will be none other than the culture you create with the good folks at the local level. Beer remains largely a business based on relationships. Job #1 is building and supporting strong, effective and connected local teams representing your brand.
  • Spend locally. It’s more complex to operate on a local grassroots basis.  But to grow or maintain local connections, spending must be local as well.  This means the full gamut of sales and marketing, including product innovation.  Specialty brews for exclusive local distribution are a must.  Local marketing spends on events, collaborations with small local brewers, and community support efforts can forge local affinity as well.
  • Look small in public, and act big behind the scenes!  Save stories of how big and powerful the brewery is for private meetings with national retailer accounts.  Look as artisanal as possible in public.  Don’t brag about how big you’ve become. Instead, brag about how artisanal you remain.  For more specific ideas, check out my earlier blog (http://bit.ly/2Czt255 ).
  • Fall back. Like Green Flash, you might want to fall back to a more defensible distribution footprint.  It’s a hard hit to the ego, but in the long run it may be the only way to achieve sustainability.

Recently invest in a lot of new capacity betting on broader distribution and/or continued explosive craft category growth?  Sorry.  You may be headed for more than a strategic retreat.  A beloved brewer back east just announced they were looking for a buyer to give an infusion of cash after investing in substantial new capacity just a few years ago.  “The company’s financial models were based on 20 years of consistent growth,” says their owner, “but the explosion of microbreweries has led to changing dynamics in the marketplace.”

Unfortunately, these stories are likely to repeat for other similarly situated brewers.  No shame here.  It’s very hard to predict the future.  As Yoda taught us, “Difficult to see. Always in motion is the future.”

Small Breweries Need Well-Managed Growth

If you’re hoping to grow to be the next $1 billion brewery in a couple of years, well, good luck.  Better for you to dream small right now and be the absolute best local brewery you can be.  If you’re not #1 in your home market, and by a solid margin, you’re not on the path to that big regional footprint or $1 billion buyout.  Focus on owning the hearts, minds and palates of drinkers in your current footprint.  Then think about expansion in smaller, more sustainable chunks to avoid diluting brand equity.  Take a page from In-N-Out Burger:  even when the market is begging you to grow faster, grow only as fast as you can maintain your brand’s special equity.

Fortunately, I know many local brewers who are in it for the craft and their community, and not dreams of national glory or global domination.  If you deliver with distinction on your home turf, you can withstand competition from even the largest breweries.

For those of you with dreams of explosive growth, you have your work cut out for you.  I’ll cheer you on, and happily provide advice.  But don’t come looking for a check.

Cheers!

John Mann (@beermktguy)

John (13)

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