For the last five years, I've been asked the same question over and over again. "So, what’s going to be the next IPA?" Most assumed that the style catapulting our industry would soon run out of steam. Wishful thinking optimists would propose craft lagers as the answer, but the combination of style and price point have held that notion in check when it comes to volume-driven channels. Instead, IPA continued to grow and evolve, doing so through 2019’s choppy waters thanks to a wide canvas for differentiation: White, Black, Red, Fruited, Double, Triple, Hazy, Milkshake, Session, Sour, Brut, etc. But craft beer is near the tipping point of saturation and exhaustion. We need that next thing now more than ever to connect with new drinkers and continue building share. Luckily I think we’ve found the answer, or stumbled upon it, we just don’t all completely realize it yet. It’s Hard Seltzer, but only sort of.
According to retail sales tracked through IRI*, all beer, including flavored malt beverages (FMBs), have grown about 4.2% over the last 52 weeks. That sounds like a healthy growth rate by 2019 standards except that, as you're probably suspecting, the largest contributor is Hard Seltzer at about 50% of the growth with other FMBs (Twisted Tea, etc.) chipping in another 12% of it. As the Beer/Malt category grew overall, independent craft brewers chugged along, growing 4.5% and carried the weight of the overall craft category which includes those owned by macro breweries. Indy craft grew just enough to keep pace and maintain its 8.7% share of the overall category, consistent with the prior 52 weeks.
*IRI is not a complete picture, but a strong representation of off-premise retail sales. In most cases, it does not include small/independent stores, nor Taproom sales.
While it doesn't appear that craft beer is losing share to Hard Seltzer at this point, which seems hard to believe, there's a widespread feeling that the 4.5% growth obtained in 2019 will not be repeatable in 2020 and that flat (or worse) could become the new normal. If this turns out to be the case, it won't be because of White Claw and Truly continuing to surge, in my opinion. Instead it will be a failure to react to the golden opportunity that these slim cans have created for craft breweries. It reminds me of a quote from my favorite movie, Rounders:
A New Audience
Ask a neighborhood brewery who their customers are and they can give you a straight, simple answer. The residents of their community who enjoy beer and are looking for a gathering place. Alternatively, ask a deep, regional craft brewery sold at major chain stores who their customers are and they’ll have a lot more trouble answering that question. At that scale, the vocal minority on social media can’t be relied upon as representing 100,000 BBLs of sales. Market research surveys are expensive, especially to reach a representative sample, and struggle to produce clear actionable results. One thing we can all agree on is that the craft beer industry needs new weapons if it expects to utilize the aggressive amount of capacity that’s been put online this decade.
The hard seltzer phenomenon of this past Summer dominated the headlines and rightfully so. Many hazy IPA detractors even gave up the fight and turned their pitchforks to the clear fizz. Hard Seltzer isn’t like craft beer, with 7,500 players and a significant chunk being sold direct to customers. Instead, White Claw and Truly combined represent 86% of the Hard Seltzer volume over the last 52 weeks, up from 79% the prior 52 weeks. So from a strategy, marketing, and messaging standpoint, there’s not too much to investigate with two key players driving most of the volume. Here's a brief summary of what I see:
White Claw - If you read the last 100 or so Instagram posts for White Claw like I did, it’s actually quite maddening. They just find a slightly different way to write the same sentence, mentioning that it’s made pure, crisp, and/or refreshing over and over again in a single sentence. Sprinkled in occasionally are other elements including that its 100 calories, 2g Carbs, 5% ABV, has a clean taste, and contains natural flavors. The copy is kept to an absolute minimum and is supported with a lifestyle photo/video that’s only slightly different from the last. It almost feels like you’re being hypnotized. The simplicity and lack of story-telling depth seems to be working just fine for them.
Truly - About three weeks ago, the Boston Beer (SAM) subsidiary announced that they are reformulating their Hard Seltzer recipes to taste more "crisp" and "refreshing". Sound familiar? Truly's communication style is otherwise much more my style in terms of creativity and speaking more like a human being, less like a robot. Truly explains that they had been in search of something refreshingly different that had all the flavor without all the calories, carbs and sugars. They go on to enforce that their products are made with simple, natural ingredients and hints of fruit. No artificial flavors or sweeteners. They get creative in saying, because there’s enough fake stuff on your social media feed. Unlike White Claw, Truly further attempts to create their audience by singling out their competitors, see below:
As market share is taken from each of these existing categories, a new drinker profile is being developed. A new set of tastes, preferences, and priorities that craft beer can target, not just in the process, ingredients, taste, and mouthfeel of future innovations, but also in communication strategies and marketing investments. As I point out above, there’s not much science to the methods being used currently by these powerhouses from a messaging standpoint. It’s more about consistency and they’re ripe for local to tug at the heartstrings and take a piece.
Tolerance for Price
It’s been well-documented, or assumed, that Hard Seltzer is acquiring its most significant chunk of customers from light beer. According to last month's piece by Bart Watson, Chief Economist of the Brewers Association, IRI data from the 52 week period ending July 14, 2019 indicated that "27% of seltzer volume growth is coming from beer. The rest is either coming from getting new drinkers into beverage alcohol, or from increased purchases that are incremental to existing off-premise sales."
Industry veterans will typically agree that the most complex dynamic in the beer industry sadly isn’t taste, nor is it ownership structure, it is indeed price. Price is one of the barriers that craft beer has always faced when targeting light lager’s massive market share. Small, local, and independent have managed to chip away though and carve out a nice-sized following of those willing to trade up from suitcases to six-packs, but we seemed to be nearing the limit of how far that could go, until Hard Seltzer came along.
The most fascinating and less talked about aspect of the Hard Seltzer trend for me is this degree to which consumers are trading up in price. This premiumization aligns well with the health & wellness trends where drinkers are showing more restraint and drinking less. I don’t see society reverting back from this movement. With a 24-pack of light lager resembling a 12-pack of hard seltzer in price, a massive segment of drinkers are getting comfortable paying nearly twice as much per serving. Here are some average prices scanned over the past 52 weeks for comparison:
A rising tolerance for price passes the sniff test as all beer and malt beverages combined are up 4.3% in dollars, but only 1.4% in volume in IRI. This trend sets up well for craft beer and its search for a wider audience.
The Reason for Optimism
This advice isn't for everyone. A lot of breweries are moving forward with a hard seltzer of their own and that's fine by me. My primary concern is that they don't bring on the marketing muscle to successfully manage a second brand identity, without the original suffering. Early gains from the shiny new toy could be short-lived and become offset if they neglect their core business which may need more attention than ever. This is the number one reason why I am not pushing for a hard seltzer at Rev.
A second group of breweries are going to stick to their guns, doing what they've always being doing. More power to them because I'm rooting for them to continuing doing just that. Then there's the third group who need to grow or at least maintain their share in order to stay healthy as a business, service debt, and continue providing growth opportunities for their employees. The primary way to accomplish that so is through innovation, so for those running out of tricks within the IPA category, the time for an alternative is right now.
Hard Seltzer built a brand new, massive consumer base over a very short period of time and it's there for the taking. Many styles brewed by craft breweries have the attributes to bridge seltzer drinkers over to beer, but these styles have rarely gotten the prioritization, nor the proper messaging that speaks to this new category. White Claw & Truly have pushed their consumer's tolerance for price well-beyond macro beer levels, closer the range of craft beer. The table is set, it's time for the steak. Like I said in the title, my hard seltzer is half full. But what I didn't say is that I'm going to leave the floater behind, and replace it with a new, innovative beer. And you bet your ass it's going to be crisp and refreshing.
A friend and I made the trek to an iconic, beloved brewery a little while back. Like a lot of Top 50 breweries, they have a well-known, hop-forward flagship brand that's held in the highest regard. While I'm a fan of it, it is my friend's absolute favorite. I’ve stressed to him over the years to look at code dates before buying, to avoid occasionally paying for beer that’s past its prime. On that drive, he told me that he was excited to buy a case from the source and get the opportunity drink it fresher than he ever has. Unfortunately, that wasn't in the cards...
In Accounting 101, you learn about the different ways to value the cost of inventory that you sell. This is relevant in beer because every batch of the same beer is going to vary in cost, due to a long list of variables. The valuation options include First-In-First-Out (FIFO), which means that the value of product sold is at the cost of the first (oldest) batch, the first one in if you will. Then there's Last-In-First-Out (LIFO), which means that the value of the last (most recent) produced batch is how you value the inventory being sold first. While these are the official definitions of FIFO and LIFO, they're also commonly used more informally by accountants in other aspects of the business.
We had an awesome visit to the brewery, trying our favorites and some new innovations, then hit the gift shop on the way out. While being rung up, I realized there was a problem. The beer in question, which is definitely packaged regularly, was nearly 3 months old. Assuming it must have been a simple rotation issue, the following conversation followed:
Me: Hi, is there any way that we could get a case that was packaged more recently? This one is over three months old and we were hoping to take a whole case home that would last us awhile.
Brewery Cashier: This beer is built to last for up to 6 months, so you should be fine.
Me: I don't disagree, but we drove a long way to come to the source and are hoping to take home a fresher version than what’s available to us normally.
Brewery Cashier: I’m sorry, there’s nothing I can do
I don’t enjoy lifting up six-packs and checking code dates at the store or bottle shop. It actually makes me uncomfortable for whatever reason, but is a very necessary practice these days. Part of the reason that I lean toward new beers is because the unfamiliar label serves as a freshness indicator. This is part of the reason why brands often see a healthy lift immediately after a brand refresh. After being burned by my favorite breweries, local and out-of-town, from this same scenario at the gift shop, it's become a regular ritual for me.
I recall a time where I walked into a Chicago taproom and paid for two 4-packs of their Pale Ale. As I was walking to my car, I saw they were 10 weeks old. I walked back in and very politely explained that they were for a friend overseas and might take a while to reach him and could I get a fresher batch? Without hesitation, the gentleman kindly went looking in the back and exchanged me a couple-day-old version. I left happy, but why were those 10 week old versions the batch being presented to me in the cooler?
You might first think that it’s greed, or perhaps even laziness. Instead, I think it’s more of a simple lack of procedure and accountability that’s never been assigned to a given person or department. Sure, the cost of being able to make high quality beer and operate a brewery is very high, from a fixed/sunk cost perspective. The incremental cost of beer itself however, is not nearly as concerning, and not worth the reputation hit from consumers buying old, subpar versions of your core beers that you package every 1-2 weeks. They might taste “OK”, but this practice has the potential to leave a malty taste in their mouth. Eh?
Here's a bare bones head start for the easiest SOP you'll ever implement:
Title: Freshness To-Go, Last-In-First-Out (LIFO)
Purpose: Ensure that Taproom visitors buying beer to-go receive the freshest version available.
Procedure: Upon packaging and warehousing of a freshly canned beer, the cans currently for sale in the Taproom of that brand are immediately replaced by the new, fresher version.
You may ask, what about the slightly older beer getting replaced? Use it for employee beers, use it for donations, it doesn’t matter to me. If there’s that much leftover then perhaps you’re overproducing or not forecasting well enough. Your direct-to-consumer margins allow you to take your occasional lumps, as needed, for the sake of hospitality, if you choose to make that a priority. Just don’t let a customer who trusted you to give them a great experience, arrive at home only to find out that you sold them old beer. The last ones in MUST be the first ones out. LIFO, or GTFO.
It’s been an impressive three-century plus run for arguably the most important style in craft beer’s history. What eventually evolved into the American Pale Ale (APA), thanks to Anchor Brewing and Sierra Nevada, ignited the industry’s initial push forward around 1980. Unfortunately, the writing is on the wall for this style to begin moving out of the spotlight and the reasons have little to do with the taste of the beer...
The Pale Ale is dead, long live IPA.
Pale Ales are my favorite style of beer, always have been. That extra malt presence over a Session IPA gives them enough body to avoid a watery profile, which in turn doesn't require as much hops to be memorable. All this, while staying low enough in ABV for a dad with two kids who hate to sleep. So what’s happening to Pale Ale? I honestly believe that nothing happened other than the explosion of the term “IPA” into mainstream, but the fallout is fascinating
Let’s take a look at some numbers and compare Session IPAs, to Pale Ales, to IPAs over the last 52-week span, for the last 3 years. In aggregate, the three combined are up a very healthy 10%.
The Pale Ale category has a tight, one-point window of 5% - 6% ABV to receive the style designation. IPA on the other hand is twice that, able to range from 6 - 8%. Session IPAs have mostly been in the 4's, but that's changing after big announcements like Bells' Light Hearted (3.5%) and Goose Island's So-Lo (3%). Less room to work with and differentiate, as far as gravity goes, is not the reason for Pale Ale's decline however, but I do feel it's worth pointing out. I believe that more simply, the two growth styles have "IPA" in their name and on the packaging. The style that is declining does not.
The conversation naturally begins with Sierra Nevada's Pale Ale, which impressively represents over 35% of all Pale Ale sales. The brand has declined 5% over the last year though, which represents more than half of the losses sustained by the entire style. But don't let Sierra Pale's stronghold over the category cause you to dismiss the industry-wide impact.
Take a look below at the Top 10 Pale Ales in the country over the last 52 weeks, per IRI:
Two Interesting Takeaways:
Iconic brands aren't at risk of going away, not yet at least as they're currently too big to be eliminated, but the skidding performance will reduce the opportunities that they're given in the market. These shrinking placements will ensure that the style continues to fall off year after year. If a brewery's new brand(s) continue to move up the charts at their Pale Ale's expense, the hotter brand will garner more exposure/features and accelerate the decline of the classic. This isn't necessarily a bad thing for a brewery if they have a new horse in the stable, whose gallop more than makes up for the losses being sustained by their O.G. Eventually though, something will have to give.
There are thousands of small breweries who still make Pale Ales whenever they please, put them on draft, and send cans and bottles to distribution. That doesn't have to change, and I'm hoping it doesn't. The Top 50-100 breweries however, who achieve scale and penetrate chain stores where most shoppers buy their beer, have to be extra calculated nowadays with what they introduce. When only receiving 1, 2, 3, or 4 shelf spots outside of their home market and innovation driving most growth, marketing teams are wise to insist that a new brand launch include the more recognizable letters and moniker, IPA. As a result, we're seeing very few new entrants to PALE ALE on the big stage and without new innovations, the style will continue to contract and receive less interest from big retailers who move a lot of the volume. Since most breweries already have an IPA, the logical strategy in 2019 has been to create a Session IPA, not a Pale Ale.
Whether the recent push-back over alcohol content, calorie count, and "drinkability" has been driven more by the consumer, or pushed from within the industry itself is debatable, but there's no doubt that Session IPAs have begun putting a decent-sized dent in the hop-forward beer market. Still a baby compared to Pale Ale, the style only has one senior citizen (relative terms) in Founders' All Day IPA. Sliding in at 4.7%, the All Day unicorn dominates the style, making up nearly 70% of its sales. Here's a look at the Top 10 for fun:
Four Interesting Takeaways:
While avoiding the IPA designation and going with Session Ale has a chance to gain trials from those who say things like "I don't like IPAs" or "I don't like hoppy beers", the shift in thinking seems to be using IPA at all costs and I agree with the strategy. Here's a comparison of Ballast Point's old design of Mango Even Keel, compared to their newly implemented redesign:
When judging the success of Session IPAs overall, you almost have to look at it two ways: 1) How is Founders' All Day doing?, 2) How is everything else doing? With so many newcomers to the style, it's too early to conclude on the latter, however it's clear that most new unveilings from larger breweries are going to be designed as a Session IPA, not Pale Ale, so I expect the style's growth to continue as long as All Day doesn't submarine the numbers.
IPA sells. They've been selling for awhile and they're going to continue to sell. The fact that we're in 2019 now and they're still outpacing industry growth, up 14%, shows why so many breweries are and need to continue to be all-in on their IPA. That doesn't mean that some brands won't struggle to grow as they run out of tricks (12-packs, 19.2s, etc.) and hit a wall, but the overall health of IPA is still very strong.
To complete the theme, here are the Top 10 IPAs in the country:
As you'll see, Sierra Nevada has themselves another beast in Hazy Little Thing, which didn't exist a couple years ago. Its growth is about as impressive as you'll find in this industry, especially from an independent brewery, albeit the largest (hop-focused). At this rate of growth, and Pale Ale's smaller but significant rate of decline, it will be interesting to see how these two line up in another two years.
This will make beer purists very unhappy, but here's why Session IPAs will continue to be the way to go, strictly from a top-line sales/business/strategy/marketing point-of-view:
What motivates you? Career-wise, that question has always been a moving target for me. I’m a big believer in capitalizing on the opportunities that come my way and allowing fate to have a grip on the steering wheel. While I've never tried to stay any preconceived path, I do believe that you make your own luck.
Since back when there were only 4 or 5 breweries in Chicago, I wanted to work in the beer industry. In early 2013, I thought I finally caught my break after a long job interview process. The opportunity was so close that I was even whispered to that an offer was on the way. I later found out I didn’t get the job after all. The disappointment and feeling of being back at square one was hard to come back from, but ultimately made me want it even more. One month later, I started a new Instagram account called @beeraficionado.
Creators Vs. Influencers
There’s a distinction that I’d like to begin by drawing. The term influencer is widely disliked at this point, and I get it. But there’s this unfair association with talented people who I prefer to call creators. Similar to how you may like to read books, watch Netflix, or ride your bike, creators like to, well...create. They could be a professional, aspiring, or hobbyist photographer, artist, illustrator, storyteller, musician, or some other type of creative. These individuals often curate a well thought-out Instagram page that other dreamers subscribe to for daily, bite-size enjoyment. In most cases, creators on Instagram are motivated by sharing their images and videos, much more so than the underlying message. That can evolve over time as their account amasses a following. Eventually, creators may use their audience as an opportunity to complement their posts with insight, or a secondary mission that forms along the way. Creators have their own ambitions and the ability to inspire or kick your own motivations into action, much more so than they are driving sales for breweries.
Influencers, in my experience, are less motivated by curation, and are more into sharing their decisions, experiences, and opinions (reviews), while shaping the behavior of their followers. They’re more driven by being considered an expert, a reputation which is only achieved successfully by establishing credibility in an authentic manner, usually over a long period of time. The best influencers didn’t set out to become one. Instead, they made the decision to be genuine, forthcoming, and honest which lead to the slow organic build of an audience.
We’re starting to see a lot of conflicts and negativity arising in craft beer by taking both creators and influencers, the best ones and the worst ones, and speaking about them as if they’re all the same. I’ve seen people who call themselves an influencer, who aren’t influencing anything. Then I’ve seen people positively impacting thousands of people on a daily basis, who would cringe if they heard themselves called one. There’s a lot of talented people out there whose vision, art, advice, and hustle are a journey worth following, to help shape and inspire your own.
Here are two of my favorites:
The Craft-Insta Boom
Instagram’s rise in 2012-2014 coincided very closely with craft beer’s. New users were jumping on by the tens of millions, each seeking interesting accounts to follow and fill up their feed each day. Breweries who understood the value and potential of Instagram had an opportunity to build a very important, free(ish) advertising platform for the next decade+. Investing in a decent camera/lens combination and an employee with a creative eye got breweries like New Belgium, Dogfish Head, and Allagash off to hot starts. Timely updates about what’s new and special releases would put gasoline in the fire. The land grab for followers was on, but it wouldn’t last forever, and would be impossible to replicate today with user engagement having long been on the decline and platform growth slowing down considerably.
Instagram provided the current generation of beer consumers with a home for all their beer-related experiences and the ability to share them with any friends who wanted to follow along. Untappd had its own unique value proposition, but Instagram provided an open canvas that allowed the user to capture the entire lifestyle, with very few parameters, while reaching and impacting those who would never use Untappd. It wasn’t just breweries that were attracting a following. A natural demand formed for more independent reviews, recommendations, and personalities. Phone camera quality was weak at the time, resulting in poorly lit, low quality images being shared across the platform. It didn’t take much effort to stand out from the pack. Consistently posting attractive photos of new or sought-after beers was enough to net you a couple thousand followers in short order, especially if accompanied by thoughtful or helpful commentary. The platform was growing like wildfire with users joining faster than meaningful or influential content was being produced.
After striking out on that job opportunity in 2013, I sulked for a week or two, then refocused. I had been following a couple beer personalities on Instagram and wanted a page of my own to interact with them and demonstrate my like-mindedness. I wanted to be in their club. My mindset was the same as it is today, which was a belief that if I dedicate myself to something for long enough and put my positive attitude behind it, good things would come. So my agenda on Instagram was very simple. Show how damn much I love the beer industry, learn as much as possible, and meet people along the way who share that same passion.
The early posts were really bad, but quickly inspired a photography and photoshop hobby. After a year of my wife teaching me how to use her Canon Mark iii 5D and searching youtube for countless “How do you do XYZ in Photoshop” videos, I suddenly had more followers than any independent Chicago brewery. My confidence was back and I was ready to make another push to get into the industry. But an accounting/auditor background, a newfound photography hobby, and a bunch of Instagram followers didn’t include a roadmap to success in this wild wild west of a craft beer industry.
I had two ideas. One involved starting a Mobile App that to this day, I still think is a great idea, with an amazing free service that any beer fan for would want, along with a B2B revenue model that 5 years later makes as much sense as it did back then. But I was too risk averse and too loyal to the second tier, so I went with my other home run swing. I told my boss directly that I was ready for something different and pitched a job and concept that didn’t exist, and still doesn't. He was on-board, but that was only the beginning. I pitched his boss, who liked what I had to say as well, but there was still a ton of work left to do and people to convince. The process of pitching this self-created opportunity lasted over six months. I considered that a good thing, because it was staying alive. I made my presentation 7 times. Leadership changes would send me back to the beginning of a level, but the momentum continued. Everyone said the same thing, "you're onto something." Then one day, I was told it was dead.
This one stung exponentially more than the first because I had put one year of my life into the research and presentation. But looking back, they made the right call. Not because I was wrong necessarily, but knowing what I know now, I could have made a much better pitch simply by narrowing my focus. I tried to solve too many problems simultaneously that I over-complicated the plan. Two or three points of emphasis with a constant callback to ROI may have gotten the job done. We’ll never know. So in June of 2015, I started building the databases that I would need to power the Mobile App idea. Without sufficient help, it was going to take forever, so in the meantime I launched BeerCrunchers.com in October 2015 to complement my journey through the App's development.
The Contemporary Resume
A social media feed or a blog has the ability to cost you a job (I’ve seen it happen), or springboard you over other candidates (seen this as well). The type of content that a potential employer would love to see, especially in the beer industry, can be the same type that generates a strong industry following as well. I’m talking about feeds that demonstrate expertise, have an educational component, a great attitude, inspire, can be funny, and most importantly, are genuine. All industries needs champions, and what better type of person to bring into your organization.
In the last 11 years, I’ve had to look at a lot of resumes. I’ve hired many positions of all kinds, lots were successful, others were not. There’s nothing that gives the hiring manager more confidence than when a source outside the traditional resume can provide more convincing insights into what this individual is truly all about. Do they have good values? A positive outlook? A good sense of humor? Are they creative? Receiving a candidate who breaks up the monotony of reviewing traditional resumes can push them immediately to the top of the list. This doesn’t have to be limited artists and designers, it can be anyone who is passionate about what they do. While I didn't realize it as it was happening, when I started BeerCrunchers.com working as an auditor, I had created a new resume tailored to where I where I wanted to go, not where I had been in the past.
There's still a recipe for success, but now that the landgrab is over, winning on Instagram requires an entirely different mindset. It's certainly not through buying followers/likes, using bots, nor participating in Pods. The solution is not through asking a question just to get comments, nor is it saying something controversial just to get a reaction. For a few years now, the struggling influencer has been blaming Instagram's algorithmic changes for their content losing relevancy and an inability to adapt to 2019. New York Times best selling author, speaker, internet personality, and wine critic Gary Vaynerchuk said it best, "fuck the algorithm".
Stay tuned for Part 2...
Data is our friend, typically. It helps us make better, more informed decisions and can signal an upcoming shift in behavior. Data can also be our enemy, or at least the enemy of the beer consumer. With the growth of craft leveling off, large retailers are beginning to shrink the amount of space devoted to beer. With more breweries competing for less space, retailers want the strongest performing brands occupying the remaining real estate. The data in most cases will point them to a short list of styles that sell. These days, that's why you'll see shelf sets dominated by Session IPAs, Pale Ales, and IPAs, then to a lesser extent Lagers, Golden Ales, Wheat Beers, Kettle Sours, and Porters. It's not that breweries aren't making other styles and don't have them on draft at their Taproom. Breweries of size, who rely on chain stores to drive their business, have little choice but to focus in on those hottest sellers in order to maintain their position. Over time, this results in less style choice among the sea of SKUs, with portfolios beginning to feel all too similar. Breweries are showing a newfound nimbleness, now better prepared to pounce on the next big thing.
Small breweries are able to fill that style gap because they rely more on independent shops or direct-to-consumer sales, which affords more flexibility. But they're feeling the pinch too as they begin sharing their customer base with the shiny new taproom down the street. Small, local-focused breweries are pressured to reengage their customers with new, innovative experiences as well. Some of those will bubble up to the big leagues and eventually be adopted by large breweries. But just as often, small breweries are keeping their eyes peeled on what the largest producers are doing. Personally, I enjoy keeping tabs on both.
In January, I gathered some voices who I respect and we made predictions for what would happen in the upcoming year, knowing full well that there would be surprises. A number of emerging trends had already made their presence felt in 2018 and were expected to continue flourishing this year. For me, that would include the threats from "Big Hard Seltzer" and CBD/Cannabis infused drinks, which were well-documented last year. Another would be the need for national and regional breweries to have a Hazy IPA, whose viability was proven by Sierra Nevada & Boston Beer, then further validated by the announcement of Mind Haze by Firestone Walker in late 2018. Whether it's what was thought to be a fad reaching unexpected heights in popularity, a trend that came completely out of nowhere, or a big surprise headline, I gathered some industry friends to help fill out my list, along with some insights, of what has taken us by surprise thus far in 2019, from the big to the small, and everything in between.
1) Dry January Turns up the Heat
As someone who monitors a decent size brewery's social media and also keeps tabs on a lot of beer forums, this past January had a different feel to it. Comments from enthusiasts alluding to not drinking until February 1st were everywhere. January has always been a brutal month for beer sales, thanks to leftovers from the holidays, bad weather, and New Years resolutions. Now the entire month is being sacrificed, thanks to a movement started by a UK-based non-profit in 2013, that grew from just over 4,000 pledges in its inaugural year, to tens of millions of health and wellness minded individuals in 2019, really beginning to gain steam in the United States over the past couple years.
According to YouGov.com, a data-driven research firm, 21% of Americans planned to participate in Dry January in 2019 and another 21% think its a good idea, but didn't plan to participate. For me personally, it's gone from a concept like Whole 30 where I've known 1 or 2 friends to participate, to what's feeling like the majority of my friends outside the beer industry. And I applaud them for it honestly. Personally though, I prefer to continue showing restraint and discipline on a year-round basis, but it's hard, and Dry January now has support mechanisms to mentally get you through the obtainable 31 day period.
2) The Return of the Beer Wars
Bud has never been shy about flexing its muscles and throwing cheap shots at anyone threatening its sales growth. Feuding with Miller is nothing new either, but it seemed that the bad boys with big checkbooks had long since moved on to emerging beverage trends. In 2015, at the peak of craft’s growth, Bud fired the pumpkin peach ale shot heard round the world at the expense of their own recently acquired subsidiary Elysian, which had a beer with that description. It reminded me of this scene from Braveheart:
English Commander: I beg pardon, sire. Won’t we hit our own troops?
Longshanks: Yes…but we’ll hit theirs as well. We have reserves. Attack.
With craft’s growth projected as being close to flat for the foreseeable future, Bud turned their attention back to their longtime adversary for this years stunt during February's big game. Bud successfully dilly dillied their way back into the headlines, at Miller & Coors’ expense. What evolved into Corngate called the use of corn syrup by MillerCoors into question, taking full advantage of confusing terminology that the average consumer doesn’t understand and would assume meant the highly controversial sweetner known as high fructose corn syrup.
It was a fascinating strategy because of the disruption it must have caused their biggest competitor. Normally Bud leaks out their commercials in advance of the Superbowl to get their distributors and retail partners excited, but this attack was kept uncharacteristically quiet. Miller was forced to scramble and respond without warning, diverting an unplanned amount of resources toward retaliation and education efforts. It wasn't just Miller and Coors who stood to take a reputation hit, but their hundreds of distributors around the country, who are highly invested in their success and would seek an appropriate response. Miller hustled to get their own commercial out within about 6 weeks of the Superbowl, while filing a lawsuit shortly after which claimed that "AB singled out MillerCoors use of a common brewing fermentation aid, corn syrup for a deliberate and nefarious purpose: it was aware that many consumers prefer not to ingest ‘high-fructose corn syrup’ or ‘HFCS,’ and had reportedly conducted extensive focus group testing in which it found that consumers do not understand the difference between ordinary corn syrup and HFCS, the controversial sweetener commonly used in soft drinks,”
3) Small breweries launch 8oz "stubby" cans
When we moved our barrel-aged 22oz bottles to cans at Revolution Brewing in 2017, we discussed the idea of 8oz stubby cans in the early stages, and many got pretty excited about the thought. For me, and most others at the brewery, that was the ideal pour size for a >13% beer. Though not the sexiest looking vessel and restrictive for label art, I was confident that they could be done and look both exciting and premium. But before this had any legs, I went searching for confirmation and polled Facebook groups filled with beer traders and enthusiasts ISO their ideal serving size for a barrel-aged beer. Twelve ounces, to my surprise, absolutely dominated every poll.
Early in 2019, three Chicago breweries made 8oz stubby cans a reality, coincidentally within days of each other, but each going at it from completely different strategic angles.
In my home of Chicagoland alone:
4) Market-Only Releases
Breweries are catching a lot of flack from their local bar owners who are facing slumping sales and pointing to taprooms as a major culprit. In search of a partner, not a competitor, retailers are becoming more sensitive to the concept of supporting a brewery (through keg purchases) when that same brewery's taproom is stealing their regulars. With those drinkers looking for fresh, new, and local options, moving to an out-of-market draft list isn't likely going to turn things around for the bar and in fact, could make matters worse. Legislative changes in many states have further empowered the brewery's ability to sell direct-to-consumer, which is increasing the friction between the two tiers. With very few breweries experiencing growth in their draft business, some have begun using this friction as an opportunity re-establish a positive relationship with bar owners.
I've seen this done well, and I've seen it fall short. In all cases, the brewery wants to improve their relationship with the retailer. There's no doubt about that. But for me it comes down to what the brewery is giving up. The Law of Conservation of Beer says that sales cannot be created, nor destroyed (I made that up), so the gesture by the brewery will only be meaningful if they're truly make a sacrifice. Let's say the brewery splits a hazy IPA mash into two fermenters, dry-hopping each slightly differently, then sends one to the market with a fancy name marketed as not being poured in the Taproom. Then the other half of the brew stays in the Taproom under a different name. I have no problem with this happening necessarily, I think it's smart. But let's not go throwing yourself a parade for breaking down barriers and putting retailers first. This is a maneuver to make or keep an account excited. But now let's say you have a rare and special beer that's a big draw and could easily sell it all out of your taproom, but instead share it with your retailers. That's how you play the long game and make a real impact. Give something up.
5) Market Expansions Galore
6) Beer Enthusiasts Lose Their Shit Over Hard Seltzer
7) 19.2 Cans Executed by Taprooms & Small Breweries
I’m fully aware everybody’s discussing the golden child, White Claw, and the onslaught of new entrant
hard seltzers on the market, but I’m genuinely surprised with the overall resurgence of FMBs –
specifically, hard iced teas. I’m not a beer dinosaur yet, but I’ve been in the industry for about 15 years
now, which is basically long enough to watch a cycle come and go and come back again. To be honest, I didn’t think FMBs would come back again. At least not with this much force and not with this many open arms, considering we’re in a “health & wellness” cycle. Case-in-point: Twisted Tea. This thing has been around for almost 20 years, it’s got only two flavors, basically zero on-premise presence, pretty dated brand design…and it’s absolutely huge! Twisted Tea is over four times the size of the entire portfolio of Firestone Walker* and almost three times the size of the entire portfolio of Founders* and it continues to grow month after month. How about Arnold Palmer Spiked? This half-tea-half-lemonade spiked thing is basically the size of Sierra Nevada’s Hazy Little Thing. ABI is now line-extending Bud Light with Bud Light Lemon Tea and we’re now starting to see more premium takes on the space with another Boston Beer entrant of Wild Leaf Hard Tea. There’s something going on here and I honestly wasn’t even considering its importance just six months ago, but now am.
*Latest Nielsen 52wk Dollar Sales ending 6/15/19*
I knew that "winter was coming", but I didn't expect for it to be as brutally cold so quickly. So many craft brands have seen a double digit drops in sales in the Chicago market versus a year ago. Even worse, I was shocked that these declines were across the board. I had always thought that some of the low hanging fruit would drop off first, while those making solid beer would be unscathed - at least initially. Instead, I've seen that with very few exceptions, breweries operating within the 3-tier system, (that is non taprooms, brewpubs, and those doing self distribution) have seen a drop in sales - often very significantly. I genuinely hope that this is in fact winter, and not just an unusually cool fall.
There is not a single headline or move within craft beer that would shock me, nothing seems sacred, we've all gotten a peak behind the curtain so to speak. From our intel, most of the top 25 craft breweries have entertained meetings with the big boys, famous pioneer breweries that have their best days behind them have formed little "super groups" or have simply sold to private equity, and in some cases, overseas beverage giants. With all of that said, I was expecting to see some of the most notable breweries that appear to be flat in 2018 to show up in 2019 for a good fight, double down on their ideals and see if someone can pull a head in the market that has been chipped away by direct to consumer hyper-localism and hop fatigue. What I did not expect, and stopped me dead in my tracks was Boston Beer Company acquiring/merging with Dogfish Head, a company that has taken on some sizable debt and was looking to make another run at the national beer market. Dogfish Head's founder Sam Calagione has beaten the drum of Independent Craft Beer for so long that they were the last on my list of pioneers to throw in the towel, regardless of their cash position.
The past year has seen a profusion in different beer packages, from 8-ounce cans to 250-mL bottles. I'm all for it. But I might draw the line at wax-dipped cans, which Omnipollo has, however ironically, made A Thing. Maybe it's just because I don't trust myself around knives and alcohol, but waxed bottles almost always strike me as more pain than they're worth. Tell me that rich can artwork still looks good after the bits of purple plastic have been scraped off with a butter knife?
Thanks for reading. Let us know what you think and what we might have missed on Twitter, Instagram, or using the comments below. Thanks to Andrew, Chris, Danny, Kate, Kenny, and WBB for their contributions. They all do great work in their own unique way.
If you're connected in any way to the to industry and are interested in participating in a future collaborative post like this one, hit me up at email@example.com.
Have you ever polished off a pint of your favorite year-round beer and thought, I couldn’t possibly drink three more ounces…? Unlikely, yet when it comes to the increasingly popular 19.2oz can in craft beer, that extra volume changes the entire competitive landscape. Also known as “tallboys”, 19.2oz cans present significant barriers to entry compared to traditional formats, including volume requirements, equipment compatibility, distribution muscle, and the retailer relationships. There’s a common assumption that the format is just a flash-in-the-pan gimmick having a cup of coffee in the craft beer space, but that couldn’t be further from the truth. Tallboys are a new weapon in the category’s evolution, infiltrating one of the last frontiers at retail: Convenience. The format however isn’t a good fit for everyone, in fact, it doesn’t make sense for most breweries at the moment. Here’s the skinny on tallboys:
A few months ago, I stopped by Capone’s Liquor, a popular bottle shop that also serves as a convenience store to Chicago’s Avondale neighborhood. As I was chatting with their buyer Marc, a man walked up to the counter with a bag of chips and an Anti-Hero 19.2oz can. The newest format for our best selling beer had been performing great, but I never get to see who is actually buying them. I told the man that I worked at the brewery and appreciated the support, then followed by asking what he likes about that format. The man was confused by why I would even need to ask the question and replied, “Where I’m heading, I only need one.”
Convenience stores are where you’ll find tallboys in abundance. Located at busy intersections, near train stations, and at highway exits, their customers are looking for short term needs, not to stock their refrigerator. They’re willing to pay a higher price per ounce for only one can, a premium for convenience. Stores include the likes of not only 7-Eleven as an example, but also drug stores like Walgreens & CVS, and gas stations. While these outlets face competition from small, independent stores like Capone’s, the majority of the volume travels through chains.
As convenience becomes of growing importance to the purchasing mindset, grocery stores are becoming bigger players in the single-serve format as well. Nielsen reported last year that 46% of consumers view shopping as a chore and that “consumers are replacing stock-up grocery shopping trips with smaller, more frequent needs-based trips.” In Chicago, I’ve been noticing the shift with my own eyes as my local neighborhood grocery stores, as well as the larger chains, are shifting their cooler space around to offer more single-serve cans, both craft and macro brands.
Each time I visit my in-laws in Sacramento, CA, I visit their local Whole Foods only to find a wider display of 19.2s. Three visits ago I grabbed an Anchor Steam, then a Deschutes Fresh Squeezed IPA on my next trip, and this past April I took home Sierra Nevada’s Hazy Little Thing, all 19.2oz cans for about 3 bucks. I’d had each beer before, just not in awhile, and was happy to revisit them without committing to an entire six-pack. The single can, albeit an oversized one, was perfect. This less talked about advantage of the tallboy is the sampling opportunity, which can lead to increased brand loyalty and stronger performance by the brand’s primary package.
If you ask most craft brewery founders around the country though, their ambitions do not include 19.2oz cans nor diving deep for this wide of a consumer base by taking on such a competitive channel. And that’s a good thing, because they probably couldn’t get there if they wanted to.
While low volume, shrink-wrapped can manufacturers are springing up all over the country, there’s only two major players to order printed cans. Of the two, only one even offers 19.2 cans and the order volume is still so tiny compared to 12oz & 16oz that they only produce them 3-4 times per year. To place an order and avoid penalties, you have to purchase a minimum of 25 pallets (126,452 cans). Not only is that a lot of empty cans that will chew up valuable real estate in the brewery, that’s a lot of beer. 612 BBLs to be exact, which is more than a lot of breweries produce in a year. See where I’m going with this?
You can’t have multiple brands counting toward the order minimum either, it needs to be a single brand. Given the tallboy customer, which isn’t typically a beer hobbyist, only strong brand names will have a chance of making a dent in those 126,452 cans. A lot of small, newer breweries don’t even have a lead, flagship brand and instead rely on a vast range of rotating beers to keep customers engaged. Constant rotation will not work in convenience store coolers, not yet at least, leaving these opportunities to the well-established players for now.
With the opportunities at convenience stores being so limited, it takes an impressive selling story to get your beer on the shelf. At these sophisticated companies, that will require a lot of convincing data, which is most commonly available via IRI and Nielsen scan data. If that’s not a space that the brewery is currently winning in, then the convenience door will likely to be closed.
Let’s say that the brewery is able to get past the volume, flagship, data, and equipment hurdles mentioned. They still need to be partnered up with a powerful distribution network who can get you deep in these chains, which typically requires being aligned with the largest distributors. Why?
The Data (19 - 24oz single serve cans)
I haven’t been including a lot of data in my posts this year because it doubles the amount of time it takes to get a post up. That being said, I wanted to dig into tall cans and make sure my suspicions were accurate. Given that Winter is Here in the beer industry right now, the following trends are very refreshing, especially for craft, and should show you why I love this topic:
Here’s a summary of craft’s overall share in the category over the last couple years:
Note: YTD Numbers are approximately through May 19th, 2019
So in the last 18 months, craft has gone from .85% of the total pie to 4.97%. Golf clap.
Here’s a snapshot of who the biggest players are nationally and in my home state of Illinois. Am I just sneaking in some Anti-Hero and Fist City love? Perhaps, but honestly I get bored reading about IRI data when only talking about the US as a whole, because it’s hard for anyone to crack the leaderboards dominated by Boston Beer/Sierra/New Belgium due to their size & reach. Any IPA they release is going to be one of the best selling IPAs nationally. Digging in locally is more fun and relevant personally, but it limits the audience for the material, so I get it. Regardless, here are the top five 19.2oz cans in the US and Illinois respectively, thus far in 2019:
Beer writers, content creators, and beer enthusiasts are not the target demographic for single serve cans, so their presence can barely be felt on social media. The fact that tallboys aren’t popping up in your newsfeeds though does not mean they’re not seeing success. They’re on absolute fire, aligning perfectly with trends in consumer shopping habits. Commuters love them for long daily journeys from the city back to the suburbs, especially on a Friday, or on the way into town for a game or concert. And like Vin Diesel said in The Fast and the Furious, some live their life 19.2 ounces at a time. Or something like that.
So should you expect to find tallboys at your local taproom any time soon, where convenience is not a common selling story? I suspect we actually will start seeing stickered 19.2 cans or the pricey shrink-wrapped can option being attempted by breweries here and there. I'm sure there's already been a handful. Will that be a new frontier for local craft, whether direct-to-consumer or through small independent stores? I wouldn’t bet on it, but I wouldn't bet against it either. I would however bet on tall cans continuing to gain space in both convenience and other less traditional outlets, with craft continuing to eat into the pie and overindex on the growth for a couple more years. The margins may not be thick, but the volume enables a brand to reach new heights.
Thanks again to everyone who came out to Pours for Lurie at The Green Lady! We raised a jaw-dropping $15,308 at the event. The first phase of the project should be complete by the end of August, so I'm hoping to have some photos to share by then. Cheers!
Winter isn’t just coming for the Top 50 craft breweries and beyond, it’s already here. Keeping pace with the fast-changing demands of today’s customers is a complex game and the zombie breweries are making their way North to claim what they believe to be theirs. Alliances can be formed and chess moves remain in play, but each one comes at a toll that the brewery must understand and be willing to pay. How to innovate without cannibalizing? How to go deeper and expand distribution, without killing freshness? How to successfully build brands, while keeping up with the constant desire for new? What to do with a popular SKU that has little runway left to grow? To answer these questions and stay atop their throne, breweries must play the game of levers. And play it well.
A favorite term that I’ve hearing a lot lately is the concept of pulling a lever. A lever is a strategic move kept in one's back pocket until circumstances dictate that it’s necessary. Pulling a lever isn’t necessarily a bad thing, but once that safety valve is used, it’s gone for good. Kind of like a “Get Out of Jail Free” card, you feel a lot better when you still have it, versus once it’s used up. In the beer world, a lever could be anything really, but I associate the term most commonly as the introduction of a new retail channel, packaging format, territory expansion, or price change.
Beyond the startup phase, finding growth today often requires entering a new category of retail. Examples include sports & concert venues, grocery stores, gas stations, drug stores, convenience stores, club stores, delivery services, etc. Reaching a segment of customers who otherwise may not cross paths with the brand helps expand their audience and increase sales. Whether or not the brewery is adequately prepared for the challenges however, is no guarantee. Each channel has a specific customer base with their own fickle tendencies.
Prior to Three Floyds’ big expansion in Muenster, IN just outside of Chicago, the brand was most often found at smaller, independent stores and in the case of fan favorite Zombie Dust, famously limited to 1 case/week. In both 2017 and 2018 however, they vaulted up the Brewers Association Top 50 craft brewery list, in part by pulling the grocery channel lever. By making brands like Alpha King, Gumballhead, and even Zombie Dust more widely available, where most consumers do their shopping, they were able to expose their brands to a significantly wider audience and grow 41% in Illinois IRI last year. The move makes freshness a more crucial variable because at 1 case/week and sky high demand, freshness controls itself. Alternatively, when beer is getting stacked up and 1-2 months worth are brought in by a retailer at a time, freshness becomes harder for any brewery to maintain.
Another example of a channel that mature brands consider beyond grocery is club stores. Consumers who pay for annual memberships to Costco or Sam’s Club are in search of a price break. With margins on beer being thin already, club stores accommodate a deal by working on a lower margin, but selling in volume (typically by the case) and negotiating deals for buying entire pallets. It’s not a no-brainer for breweries, as fear of price degradation sets in, making it harder to sell the brand elsewhere at the undiscounted price. To compensate, some breweries will design variety packages specifically for club stores in an effort to protect the perceived value of their SKUs sold outside of the club. On one hand it’s a new consumer and a way to push more volume, but on the other hand, they’re training those consumers to undervalue their beer, which can have long term consequences. There’s no right or wrong answer to pulling the club store lever, it just comes down to weighing pros and cons, which vary depending on the stage the brewery is at in its life cycle.
Playing ball in these new channels may require pulling a lever on a new format, introducing an additional size and/or vessel that the customer demands. Sales may be hitting a wall and need a boost, or the brewery may just be putting their foot on the gas pedal. Regardless, new formats have some inevitable, but difficult to predict cannibalization. They’re not going to double sales for the brand just by introducing its second format, not even close, but it's assuredly going to increase sales upon launch. The most successful launches of secondary formats are going to be well thought out, with clear division of which are sold where. The additional format will complicate operations, freshness initiatives, distribution, and sales, so pull wisely.
The 19.2 can is another fascinating lever that I can speak personally to, as it has fascinated me since Revolution launched Anti-Hero in a 19.2oz format back in late 2017. I noticed most craft beer writers and enthusiasts were confused by the extra tall can and thought they were just a gimmick, but that’s really not the case at all. The single-serve beer consumer is a huge segment, they just don’t leave a paper trail on the internet or social media, so we don’t know much about them. Each time I happen to see someone buy a Rev 19.2 at a store, I try to make conversation in the least creepy way possible, and find out why they like that size. It’s always clear that they are very brand loyal and don’t buy the tallboy exclusively, but pick it up on quick stops for a specific, on-the-go occasion. In Chicago and New York, they’re very popular with commuters on the trains heading home to the suburbs or into the city for a concert or sporting event.
The single serve can is a necessary format to enter channels like convenience stores and gas stations, where that’s mostly all that’s carried. Consumers keep their check low, but come at high frequency and only buy one beer at a time. That buying pattern is becoming more common in the grocery channel these days as shoppers are more conscious of freshness in food. Stores are responding with more shelf-space dedicated to grab n’ go and thus, more opportunity for the format. As I was editing, I saw Peter Frost of MillerCoors drop a nice piece on their blog with some research on this topic. One of many challenges for craft with 19.2s is the amount of cans that have to be ordered (and paid for) all up front, which can be over a years worth, or more, depending on the size and distribution a brewery gets out of the format. That’s part of the reason that you don’t see many small breweries dabbling in this size yet. They don’t have the outlets at their disposal to sell that many individual cans, nor the adequate quantities available to them, but soon enough I’m sure this will become a thing will smaller breweries.
New territories make for an obvious lever. Many don’t realize however, just how drastic of a difference the volume is between the brewery’s home market and an away market. Even when located in a smaller city like Richmond, VA and expanding into New York City, a lot more beer will still be sold in the smaller hometown, by a hefty multiple in most cases too. This is even more so the case in today’s crowded market, but the principle dates back to the high growth days of craft, as well.
It’s not as much about the population of the market, but the brewery’s status within it, relationships, and ability to get placements. A strong hometown brewery could earn themselves 5, 10, 15, hell even 20 SKUs at their major Wine/Liquor superstores (Binny’s, Bevmo, Total Wine, etc.), but a few states away, the ceiling is a small fraction. There is truly no place like home in this industry. Even when a global conglomerate gets their hands on a craft brewery and uses their powerful distribution and relationships to set set flight for new lands and breathe fire down upon us all, it's original local market is unlikely to be beat.
When dealing with the 3-Tier system and chain stores, pricing is probably the most complicated decision for a brewery and not something I’m going to dive far into this time around. Changes are a necessary lever to pull and are very common. From the consumers eyes, the pricing lever is most often thought to take take a brewery down in price which triggers more volume, earning you smaller margin percentages but higher total margin overall. This can be a temporary maneuver to speed up the tastings and trials of the beer and hopefully building loyalty along the way, or it could be a permanent approach to repositioning the brand. Many curmudgeons call this the Race to the Bottom. At the capacity and efficiency that the Top 50 have reached and the clout they have locally, they can afford to throw punches with the big guys on their own turf, if they so choose, but it’s usually a battle best avoided.
It’s common for a strong brewery to not just hold the line, aka maintain price, but to go up. This effort to further premiumize the brand against its competition will compensate each tier for the rising costs of doing business. It will also bring economics into play by putting the beer’s elasticity to the test. Under the right set of circumstances, raising price can be an effective strategy to distance a brand from what’s perceived to be lower quality alternatives. Back when Ballast Point first expanded out of San Diego, a big reason for the high price point of Sculpin six-packs ($14.99 - $15.99) was not the cost of ingredients, but instead to distance itself from Lagunitas IPA, its primary local competitor at the time.
Levers aren’t good or bad, they’re simply a sign of the obvious need for breweries to continue evolving as they navigate the market. Pulling too many can result in SKU proliferation, illogical or inconsistent pricing, and over extending a brand beyond what it's back end can support. Pulling just the right amount, at the perfect time, will allow a brewery to meticulously capture more share. You’ll notice I don’t mention innovation as a lever, though many probably would. I prefer to look at innovation as the Yin, and levers as the Yang. A harmonious balance of the two ensures that a brewery is competing to win in the big leagues, while building a successful farm system of new ideas, and levers to pull, to remain on their throne for generations to come.
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One of the many reasons we climbed so fast to 7,300+ breweries is because “the big guys” took too long to respond to IPA. By leaving the door wide open from 2011-2015, new breweries saw instant success on the back of that particular style and were afforded the cash flow to expand into some of the strong local/regional players we have today. While AB-Inbev bought Goose in 2011, IPA wasn’t made the priority until 2015, the same year that Lagunitas and Ballast Point were acquired by Heineken and Constellation. Once those and other transactions closed and updated strategies were put in motion, the industry would never quite be the same.
Scale can be a beautiful thing. The term often accompanies terminology that makes number crunchers like me happy such as efficiency, optimization, cost-effectiveness, and great margins. In the first half of the decade, scale wasn’t a threat to small and independent breweries. Sure, regional players like Bell’s could make beer for less than a small operation like Toppling Goliath, but the large formats (22oz bottles) helped even the playing field and allowed plenty of margin for everyone to be wildly successful. Simpler times.
Look at the hottest IPA in the country as an example, Founders’ All Day IPA, who has held that title for an impressive run. Put aside your opinion of the beer itself or whether it fits IPA style guidelines. The beer flies off the shelf, especially as the price pulses down on sale to $13.99 for a 15-pack. Founders can afford to sell at this price because of the capital investments made in their size, scale and process, each of which contribute to amazing yields.
Yield is a concept that I never thought about once prior to working on the supplier side, but have learned that it's a fascinating topic that technical brewers obsess over. A batch's yield calculates the amount of ingredients that survive the various stages of brewing, often measured as a % of the inputs used. Yield is determined not only by the amount of usable extract that finds its way to the fermenter, post brew, but it accounts for the losses that occur at each stage during fermentation and packaging as well. The larger and more sophisticated the operation, alongside investments in process, the less loss incurred. A high yield means that a lot less beer is going down the drain, instead of the package. Overall cost per barrel goes down and margins go up. Free beer, sort of.
Margin - 3 Tier
Breweries achieving scale require a lot of help to move all that liquid. If you see tanks that are taller than the brewery itself, it’s a safe assumption that significant portions of that beer is being sold in chain stores. Long-term success in that channel will usually require a strong distributor, thus sharing the margin with two other tiers. Exceptions tend to only occur in local markets, like Stone in Southern California and Rhinegeist in Cincinnati. By following this model of scale and efficiency, you have to learn how to make your business work under the following parameters:
Don’t get too hung up on the above graphic as margins vary wildly by brewery/distributor/retailer and each specific beer/style/format, but I believe this is a fair, yet over simplified, way to break down the price paid by the consumer for craft beer passing through the 3 Tier System.
The majority of the price-to-consumer (PTC) is taken up by the input costs, distributor margin, and retailer margin. The brewery relies on volume (and efficiency) to earn the margins required to build and maintain that size of an operation, support it with sales & marketing, run the backend, and service the debt/investors that can come along with running a brewery. None of those are included in the red slice and instead come out of the black.
Margins - Self Distro
The self distribution model provides smaller breweries with the ability to hang onto an additional slice of that pie. By cutting out the distributor, they’re able to compensate for discrepancies in beer costs between them and larger peers, while still running a solid, albeit smaller business. Self-distribution also provides significantly more control to the brewery as to what they brew, package, and sell to retailers. They control the conversation, can move at lightning speed, make beers on somewhat of a whim, and react fast without having to get their distributor on board with the prospect.
Margins - Direct to Consumer
Now it’s time for dessert. Those sweet “own premise” margins that leave you with a pacman-looking portion of the pie, all to yourself. The cheapest and most flexible form of packaging, a stickered can, happens to be the most desired right now. Consumers come directly to you, you maintain complete control of the pipeline, and you keep all the gravy. Sounds amazing, as long as they show up...and continue showing up...
There were days when beer enthusiasts would enter raffles or wait in long lines just for an opportunity to buy a clear, citra-hopped Double IPA. Then the farms grew more citra, everyone got ahold of it, and you could find grocery stores lined with citra IPAs. Though still well-liked, citra is everywhere, and doesn’t necessitate a trip to the brewery to get your hands on it. Citra went mainstream.
Staying more consistent over the years, in terms of consumer interest, is barrel-aged beer. Build a reputation for quality, innovation, and customer experience, and I can tell you first hand that they will come in droves. But the significantly delayed cash flows and other constraints of barrel-aging is going keep it more seasonal or sporadic for small breweries and isn’t something that can keep the lights on and drive the business. Small operations need beers that can be produced and turned quickly until they can afford to be that patient. Finding styles that will keep enthusiasts showing up is the moving target that thousands are trying to keep up with now.
Similar to how macro breweries ignored IPA until 2015, the Top-50 craft breweries mostly ignored New England IPAs from 2015-2017, leaving those big margins to “the little guys” while expecting the buzz to die down. The style represented a threat to their competitive advantages, including scale and process. It threatened traditional techniques, shelf stability, and margin through the 3-Tier system. Heavy losses incurred by multiple aggressive dry hop additions make the costs of New England IPAs very high, given the terrible yields that result from a lot of expensive ingredients going down the drain. When a brewery’s size yields batches too big to sell out of your own building, it’s hard to make inefficient, poorly yielding beers work at the 3-tier margin. For small neighborhood breweries whose consumers flock directly to them, it was the perfect recipe.
Hazy interest remains sky-high, but saturation is already peaking its ugly head and the sell-through isn’t quite as automatic as it once felt. Now that you can buy Hazy IPAs at the grocery store, the style will begin to feel more like IPA in general, competitive as hell. Sure there will always be high-end versions, but with delicious hazy beers widely available from national(ish) breweries like Firestone Walker, Bell’s, New Belgium, Oskar Blues and Sierra Nevada for the likes of $9.99, how do the small guys and gals compete with that? They don’t. They swim away from the sharks into shallow waters. A significant subsection have wisely been going after for the younger demographic, heavy on rotation, with eye-catching artwork, visual cues, themes, and a sweet flavor profile.
Enter Milkshake IPA
The latest “spin” on the extended IPA family is typically brewed with lactose, pectin, or oats for a full-bodied, almost chewy drinking experience. Vanilla is commonly added, in addition to fruit and other non-fermentable sugars to build that sweet flavor profile. Like’em? Hate’em? You won’t hurt my feelings either way, but this is how you drive the 20-something, new-school beer enthusiasts to your brewery today. Throw in the heavily fruited, Jamba Juice-like kettle sours, along with pastry stouts, and you’ve got a trio of very different beer styles that have a lot in common. Not only do they all lean sweet, but they’re each a challenge for larger breweries to bring to market.
I’m not in love with Milkshake IPAs myself, but I have had a few recently that I found fun and interesting. I understand why there’s a market for them and think they’re a creative means to build a younger fanbase. They’re keeping a sector of small breweries competitive in a time when large breweries are reacting quicker to trends and acting smaller than they ever have. Unlike a double or triple dry hopped Double IPA, Milkshake IPAs don't require as many hops and yield significantly better. As we saw with Brut IPAs, the largest craft breweries in the country are prepared to pounce quicker than ever to remain in the conversation. Thanks to even better margins and the need to stay on the cutting edge, the same thing will happen with Milkshake IPAs, once we’re past this current stage of denial.
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Prior to working in beer and actively using social media, I was a forensic accountant at a consulting firm and held a designation called a Certified Fraud Examiner (CFE). To pass that exam, you have to memorize every known financial fraud scheme, how to detect it, and how to prevent it. The training teaches you how to identify red flags on a company’s financials, reports, & analysis, instilling a natural suspicion. This background is how I ended up working in Internal Audit and eventually running that department for Reyes Holdings. I mention this only to provide context to why this topic jumps out at me:
Breweries of all sizes are feeling the pressure of 7,000+ competitors, a fatigued consumer base, and increased restraint when it comes to drinking and purchasing habits. As Facebook & Instagram have continued limiting how many followers see a post (~10%), breweries are always seeking out alternative means of getting consumer eyes on their newest products. Enter that dirty word that we love to hate, influencer.
An influencer typically generates content that has the potential to steer their audience’s opinions and purchases. They have a sizable, engaged following who trust their tastes and recommendations. Successful influencers are often some combination of smart, honest, creative, forthcoming, funny, interesting, responsive, and most importantly, genuine. An influencer could be Tomme Arthur, founder of The Lost Abbey, who is willing to make time for the biggest and smallest creators, providing sage advice and honest takes through podcasts, articles, etc. Alternatively, an influencer could be a journalist, photographer, world traveler, comedian, reviewer, or industry personality sharing the beer world through their own vantage point.
Proactive breweries have someone reach out to these individuals and offer to send samples in hopes that the beer might make an appearance in their work. It’s pretty harmless from my perspective, which is, “hey, you’re doing something cool that is helping generate interest and/or creativity in beer, can I send you some beers?.” When I’ve provided samples, it’s usually to photographers who do cool shots of the beer, or writers/podcasters whose work I enjoy. If they like it enough to include it in their work, awesome, if not, maybe next time.
Sure enough, over the next few weeks, I saw both of these beers all over my Instagram feed and Explore tab, in some cases from talented individuals whose work I enjoy. That made me a little sad, not because I think they “sold out” or anything like that, but because they don’t value their time, talent, authenticity more than a free beer or a $25 gift card. Writing, photography, editing, and building an audience takes a hell of a lot more time than these offers give credit for.
Despite this NOT being a lucrative field, the prospect of being insta-famous and the money, free beer, glassware, tickets, and access that accompanies it has resulted in a vast sea of wannabe influencers. Like authentic versions, the imitators come in all shapes and sizes, each in search of a piece of the action. The time it takes build a strong following by generating meaningful content is too daunting. They look for shortcuts to appear more influential than reality, in hopes of getting noticed by breweries, or agencies working on their behalf. Here’s how they do it:
As a consumer, these tactics are pretty easy to ignore or just roll your eyes at. Where I take exception though is when the fraudulent influencers are initiating the conversation with the brewery and looking to form a partnership or sponsorship. These requests tend to include some stats about their account, which are often manipulated. If this happened once, I wouldn’t be writing about it, but it happens all the time.
Let's Do Better
Here are my takes on how this idea of influencer marketing can be more successful:
It's not influencers we dislike, it's the individuals trying to be called one without putting in the real work. Beer badly needs more voices to rise out of the shadows and continue pushing conversations, education, and interest. There's just so few of them out there. Create something cool, work hard at it, be patient, good things will happen.
Let me know if I can help.✌
I get a lot of questions about my path into the beer industry from folks interested in the same. Many of them work in Logistics, IT, or Data Analytics, so I often share information to get their wheels turning on how the two professions coincide and where their expertise may be able to add value to a brewery someday. I've been meaning to get this all written down and out of my head for a few years, so I thought I'd make a blog entry about it:
The easiest way to achieve fresh beer in the market is to run out. Go dry. Take Hop Butcher for the World for example, a small Chicagoland operation kicking out 2,000 BBL of beer per year. They drop 3-6 unique beers each month, never the same as the last. High demand vs supply leaves their retailers out-of-stock before the next brands drop. A rare exception to my stance on date-coding, Hop Butcher’s model, size, and social media efforts leave the measure almost unnecessary. That luxury is more feasible for self-distributing breweries whose retail partners are small and independent.
The strengths of small breweries like Hop Butcher often represent the challenges of larger breweries, and vice versa. When you’re paired up with a large distribution partner who adds value through scale, depth, and optimization, selling a significant portion of volume through chain stores, running out of beer is not an option and that’s where things get challenging, and fun.
While craft beer was experiencing rapid growth 5 years ago, most breweries were selling everything they could produce, struggling to keep up with demand, often putting their distributions/retailers on allocation. The concept of over-producing a product was less of a concern and fresh beer was easier to find. With growth trends today looking modest at best, larger breweries find themselves with adequate (or excessive) capacity, leaving themselves with a tricky, constantly evolving equation: How do you make enough beer so that you’re never or rarely out-of-stock, while keeping code dates fresh?
Production Lead Time
Beer takes approximately three weeks or more to produce, so you have to be minimally that far ahead with your schedule based on when you expect a particular beer to run out. In reality, you have to be planned out significantly farther given the priorities being juggled, where a last minute change isn’t always feasible. When schedule updates are mission critical and thus accommodated, there’s typically inefficiencies which raise the overall cost of the beer.
Flexibility will vary significantly depending on the time of year. In the Winter, you may be able to let beer sit in the fermenter additional days where its kept cold and has yet to be exposed to oxygen, until precisely when you need it. During the Summer months, that luxury often doesn’t exist as other beers/brands need to move into that precious tank real estate, starting the clock sooner on the life span of the beer sooner. Excess capacity, if used wisely, has the ability to circumvent some challenges around freshness. Without that flexibility, if a brewery undershoots their schedule they’ll be out-of-stock, resulting in lost sales for them, their distributors, and retailers. Those conversations are never fun. Overshoot it, and you’ll have beer with nowhere to go, that isn’t getting any younger.
Despite the brewery’s ability to acquire this crucial inventory/sales data, it’s unfortunately only the starting point for achieving freshness. There’s more limitations to this formula that I can count, each of which must be considered regularly and worked into the formula. Failure to consider or accurately predict these variables, which bounce the ROS around unpredictably, can take freshness off course. To deal with these limitations, breweries and their distributors establish Periodic Automatic Replenishments (PARs) which, put simply, is their safety stock to handle the fluctuations in ROS. The variables that the data can’t always see include.
I read comments from frustrated beer drinkers all the time who live on the other side of the country as their favorite craft brewery and struggle to find fresh dates. In most cases, no matter how great the brewery is, they will only sell a tiny fraction of the beer in that far away city compared to their home market, for a host of reasons. As a result, filling up a truck of beer to send cross-country doesn’t make sense every day or every week because the sales are unlikely to support it.
Changes to DOT laws and an overall shortage of truck drivers have caused freight rates to skyrocket over the last couple years, meaning cross country shipments have to be efficient (full truckloads) in order to make any sense financially. Since breweries can’t package every beer each week, usually just their top seller(s), there’s likely some beer going on the truck that’s already 1, 2, 3, or 4 weeks old before it even arrives in the far away market. This is mostly unavoidable. When there’s a big brand launch, like a year-round hazy IPA, breweries wisely try to time those shipments around the canning of that key new brand so it arrives fresh the first time. Keeping up with this year-round for all brands is a big challenge and a big contributor to why fresh is so difficult the farther you are from home. Breweries who built second facilities in North Carolina, Virginia, etc. did so for reasons well beyond production capacity. In addition to fresher beer, the retail opportunities you get from a second home market and the drastic reductions in freight costs are huge factors to consider as well.
To keep beer as fresh as possible, you’ve got to make sure that you’re always selling the oldest product first. This has to be emphasized as part of standard operating procedures at the brewery, the distributor, and the retailer. If there’s a few 6-packs left of a SKU on the shelf when it’s restocked with fresh product, those older ones are ideally pulled off, and the fresher product loaded behind them. Basically the same idea as milk. Mistakes can still happen at any of the three tiers, which can throw off your actual freshness, or customer’s perception of it, depending on which dates they see.
This overview barely scratches the surface of why freshness isn’t easy, especially the larger you get and the farther the beer travels. I get to watch the effort put into this every day and salute the men and women fighting for freshness everyday. Imagine trying to not only manage this process with all these variables, but with 50 different distributors across your region, or 300+ distributors across the country, each with different answers to the equation. It requires a lot of smart people, an abundance of data, and most importantly, great communication across departments.
Slightly Off Topic Q & A:
When I asked for questions via twitter on this subject, everything that came back was outside the scope of what I planned to talk about, but here's some thoughts:
Doug is a CPA with a knack for photography, design, and social media. Professionally, he is the CFO & Head of Communications for Revolution Brewing. Opinions are his own.