“On the other hand,” says a recent report, “fewer than 5 percent of unemployed Americans drink craft beers; not surprising considering the beers’ premium pricing.”
As for income, more than 60 percent of craft beer drinkers live in households with incomes greater than $50,000, and close to 40% live in households with incomes greater than $75,000. The audience is primarily white and Asian, and “the coverage of $75,000 household consumers is a high 21 percent, compared to less than 6 percent from households earning less than $35,000.”
According to Jim Koch, founder and president of Boston Beer, the nation’s No. 1 specialty brewer, you have to go inside the numbers to get a true read on the importance of specialty beers (which he calls “better beers”) in the off-premise retail mix.
“You get into some problems extrapolating the numbers at the high end,” explains Koch. “Unfortunately, the high end of the category skews to on-premise consumption. The low end is generally skewed to off-premise. As for relative rankings, if Bud outsells Miller Lite 2-to-1, it’s probably going to look like that in the overall market.”
And never discount the importance of the profitability of the segment in your shelf sets.
“The direct product profitability is greater for a high-end beer than a regular premium beer,” notes Koch. “For example, let’s say you sell a 6-pack of Bud for $4 and a 6-pack of Sam’s for $6, and you make 25 percent on each. So you’ve made a buck on Bud and a buck-50 on Sam Adams. And let’s say it costs you 75 cents to move that beer in and out. So you take that out and you find, in fact, that you made a quarter on the 6-pack of Bud and 75 cents on the 6-pack of Sam Adams. It doesn’t take up any more shelf space, it doesn’t cost you any more to move it in and out. A lot of your costs are volume-related. A case of beer is a case of beer.
“So you’ve got two things driving the profitability of high-end beer,” continues Koch. “The gross profit number is higher, and a lot of the costs for the grocery store are the same for a $12 case of beer and a $24 case of beer.”
You’re also more likely to get female consumers not just shopping in the segment, but purchasing the product for themselves vis-a-vis domestic premiums, which skew highly toward male consumers. The same trend, of course, holds true with imports.
“Women enjoy the flavor of Sam Adams and other micros and are drinking less and are more interested in taste, flavor and education,” observes Koch.
According to Koch, the key to making money in a flat segment that yields high profit is in its marketing. Why deep discount when you have such a highbrow consumer base? Seasonals are a perfect example.
“When we roll out our seasonals, we only make a limited quantity and it always sells out,” says Koch. “So don’t discount it. Display it. That’s something this high end should educate grocery buyers to. When you’ve got something special, it will sell without being discounted. We encourage our customers to make money. We discourage them from losing money. My job is to make beer that is so good that it’s worth selling without discounting.”
And placement is everything in this business. Often, a retailer will set up a high-margin malt beverage, like Zima, next to a Budweiser display in the front of the store in an effort to get the Bud buyer to sample the high end. It usually doesn’t work.
“It’s a little weird because the guy who wants Bud is not interested in Zima,” says Koch. “I argue that the retailer should make the beer drinker walk past a $6 6pack of Sam Adams to get to a $3 6-pack of Bud.”
According to Beverage Marketing, the West remains the citadel of craft beers, with 16.5 percent of consumers favoring the homemade expensive stuff. The Northeast comes in second, with a 12.1 percent usage rate. The Midwest and the South lag behind, with 8.6 and 7.0 ratings, respectively.
Not all news is bad on the craft front, mind you. Overall, specialty beers have stalled. But within the segment, one can ascertain growth-some even reminiscent of the halcyon days of the mid-’90s. According to figures released by the Institute for Brewing (Boulder, CO), 21 of the top 50 craft brewers in the US grew by 10 or more percent in 1998. That surge offset whatever-shortfall occurred throughout the rest of the segment.
“Many companies are bucking the trend of the overall zero growth rate,” explains David Edgar, director of the Institute for Brewing Studies (IBS), the leading educational association for the craft-brewing industry. According to IBS, the craft brewing industry anticipates new category growth in the new millennium, as revised stability continues to provide successful regional
breweries, microbreweries and brewpubs with a better environment for expanding their companies. This stronger community of craft brewers will be better positioned to introduce more consumers to the category.
“The quality of the average brewpub and the average microbrew on the shelf is continually improving,” continues Edgar. “Call it microbrewery Darwinism, but while many weaker, of lesser-quality, companies are closing or selling out, the brewpubs and craft beer brands that are surviving represent better-organized, better-managed companies, and better beers.”
Craft Brewers: We’ve Only Just Begun
The myth of the phoenix tells of a great Egyptian bird that lives for hundreds of years and then consumes itself in flames, only to reemerge from its ashes renewed, restored and stronger than ever.
The brewers who gathered in Phoenix for the 16th annual Craft-Brewers Conference and Trade Show (“Phoenix Rising: Building a Better Craft-Beer Market”) were the first generation of craft brewing’s second life. Wary of expansion, keen to the threat of imports, struggling with distribution, they have weathered a storm that has brought the once-booming industry firmly to heel in less than three years.
Falling marketshare has blanketed the industry in ash since 1995, when two back-to-back years of 50 percent growth leveled, then plummeted to 25 percent in 1996, followed by percent in 1997. For the first time since the industry’s flush years, the abacus in 1998 recorded zero growth. As many microbreweries and brewpubs closed in 1998 as opened. The shakeout warned of two years ago looms.
But apparently even zero growth has a bright side. Despite the disappointing year, Institute for Brewing Studies director David Edgar told the assembled attendees that he sensed good things brewing down the road.
“In 1996, there was a lot of nervousness because things were changing, but there was no sense of how fast or how far they would change,” Edgar said. “But one consensus about the slowdown is that it was ultimately good for this industry. Yes, the ‘wingnut’ days are over, but that’s good, because the wingnut days attracted a lot of wingnuts to the industry who weren’t serious about the beer they were producing.”
The diehards who remain, Edgar said, will face new challenges from imports, as well as old challenges from the large domestic brewers. Led by Corona and Heineken, the import segment swallowed an 0.8 percent gain in US marketshare from domestic beers (-0.7 percent) and domestic specialty beers (-0.1 percent). On the distribution front, meanwhile, large-scale domestic brewers continue to tighten the noose around traditional wholesaler channels.
During his keynote address, Boston Beer president, founder and brewmaster, Jim Koch, argued that craft beers and imports are lumped together in the consumer’s mind as higher-priced, so-called “better beers.” Embrace the category, he seemed to say, but beware of the competition.
“We are in the growing part of the industry,” said Koch. “We’re just not getting our share. Ultimately, we will prosper or not prosper together.”
The combination of zero growth and shrinking distributorships has resulted in an emerging zeitgeist among craft brewers, one that is really a return to its original mandate: Focus on the local. Craft brewers now realize they can no longer count on going national as an inevitable trajectory of business growth.
“Don’t dilute your efforts,” warned David Blossman of Abita Brewing, during one panel discussion. “Grow on a controlled basis. Take care of your backyard first.” Panel discussions brainstormed out-of-the- box solutions to the distribution squeeze, such as consumer-direct Internet sales and distribution co-ops.
For those who stick it out and nurture their backyard, veteran consultant Robert Weinberg painted a rosy picture of the future: “The general outlook for the brewing industry is going to be sensational… For any brewer making less than 100,000 barrels, the only limitation on your growth over the next 10 years is probably you.”