All Posts in “Strategy”
Craft Beer hasn’t had it easy lately and 2023 isn’t going to be any different. Depending on your interpretation of a recession, we’re either in one, or will be there shortly. Market pressures are pushing the price of beer up as much as 20% from pre-COVID levels in an effort to keep up with costs, but consumer wages aren’t maintaining pace, with layoffs already underway in some industries. Unless you’re getting really specific, it’s hard to make bold predictions that aren’t already playing out. Craft beer evolves quickly, but not that quickly. That being said, here’s 23 thoughts and trends about ‘23:
The West Coast is an aspirational place, a state of mind, and the birthplace of craft beer. And while the IPA (including Pale Ale) didn’t originate in the US, California is where the style became Americanized and the foundation was laid for thousands of brewery openings over the last decade. The West Coast IPA began with a distinct identity, still open to local and regional interpretation, but wasn’t a point of contention among brewers nor confusion among customers. A decade of evolution, hop innovation, and the Hazy IPA interruption has resulted in a splintered understanding of what West Coast IPA means.
Despite some of today’s largest breweries starting out with a focus on English-styles, these low-ABV, malt-driven recipes were abandoned during the last decade’s craft beer boom. Instead, this new era has been fueled by fruit-forward hop exploration, pushing boundaries, and extremes. In other words, the exact opposite of a Dark Mild, Bitter, or Brown Ale. But like lagers, these styles have a little momentum right now fueled by pandemic-related shifts, haze fatigue, and the desire to go against the grain. The opportunity is there for English-styles, they just need a little spark to be activated with today’s experience-seeking consumer.
You’ll struggle to find a craft brewery whose Oktoberfest sales didn’t exceed their expectations in 2020 & 2021. Holiday beers followed suit, over-performing in 2020 and leaving few release calendars without at least one festive brand. The challenge remained unsolved though for the cold, often snowy days beginning December 26th. How do you make consumers feel something during these darker, gloomy months? Craft beer’s #1 style is elbowing its way into the chat because as Don Draper said in Mad Men, "You are the product. You feeling something. That's what sells."
When consumers stare down the intimidating variety of craft beer on store shelves, a series of assumptions, biases, and memories go to work beneath the surface. It’s up to the brewery to position their brand and packaging to not only stand out, but communicate as much with as little as possible. A popular example of this built-in narrative would be New Belgium’s Voodoo Ranger, which is the best selling IPA family in the country. Upon recognizing their popular skeleton character, hoppy beer fans know they’re getting a high quality, approachable IPA. But that’s about to change…
In late January, Russian River Brewing held their annual release of Pliny the Younger. Thanks to California’s liberal intra-state beer shipping laws, orders would be overnighted straight to consumers' front door as part of a mixed 12-pack. Participation in this year’s celebration would never be more convenient for fans lucky enough to purchase an allocation, but there was a problem. COVID trends lead to demand reaching all-time highs, exceeding supply by at least 15X, while patience and empathy from a sub-section of customers fell to all-time lows.
When 22oz bombers began fading as a primary packaging format in 2015, national and regional craft breweries mocked the stickers that began wrapping aluminum cans, calling them amateur. That sentiment didn’t last long as breweries like Treehouse, Trillium, Other Half, Tired Hands, and Monkish changed the game by cranking out same-day sellouts of high-priced Hazy IPAs using this flexible 16oz/4-pack format. By 2018, wrapped four-packs had been validated to the point that Sam Adams released their first ever New England-Style IPA in a printed can, designed to look like it had a sticker on it.
Craft brewers continue to thread the needle, injecting a steady stream innovation and nostalgia into their portfolios, all while wondering if alternatives to beer are a viable antidote to the losses suffered throughout a challenging 2020. Many operations are already set up with the capability to produce a multitude of beverages, but that’s where the easy part ends and the real challenges begin. Craft beer fans leave a trail of breadcrumbs on the internet, helping brewers understand what they want and what they’re all about. The uncharted waters of alternative drinks require a more sophisticated approach to brand, audience, messaging, and go-to-market strategy.
Entering 2021, a great deal of uncertainty still remains, however there’s a few things that we do know. There’s still over 8,000 breweries and, virus or no virus, the need to stay ahead of craft beer’s rapidly evolving and heavily segmented consumer base remains critical. Staying at home and limiting trips has changed the way fans are discovering new beers and experiencing their favorite breweries. Join me, Nostradouglas, and a cast of beer friends via recorded Zoom conversations, as we look into our crystal balls and share what intrigues us most about 2021.
During the pandemic’s initial pantry loading phase beginning in March 2020, no positive trend caught the bigger craft breweries by surprise more than the rapid acceleration in 12-pack sales. The core benefits of “multi-packs” may be obvious, but there’s a number of less talked about, indirect opportunities that can positively impact a brewery’s future prospects. I could have come up with twenty reasons to make a 12-pack, but I love a good theme, so here’s a dozen reasons why every craft brewery should at least be kicking the tires on this package format.
In the early days of the COVID-19 outbreak, breweries were forced to react both for the safety & wellbeing of their employees, in addition to the long-term viability of the business. Unfortunately, these two motivations contradict each other in the short-term. While government intervention was likely, it was impossible to know how soon and the extent to which it would provide relief. Then the Feds came to agreement on the $2 Trillion+ CARES Act which included $349 Billion for the Payroll Protection Program (PPP), leading me to wonder…Who’s Down with P.P.P.?
The Brewers Association just released their annual list of the Top 50 craft brewers by volume for 2019. What used to be an exciting read each Spring has become less and interesting as the years go by. Protecting one’s home turf, focusing on direct-to-consumer, and honing in on long-term profitability have replaced dreams of going national, or even regional. With industry growth teetering toward flat, these strategies have little to do with volume anymore. They’re what remains for smaller craft breweries, as far as opportunity and ambition. The upcoming year will see major shakeouts, but for the Top 50 who sell 90-99% of their volume through major wholesalers, they’ll remain even further cemented on top…
It wasn’t long ago when you would hear about craft breweries “struggling to keep up with demand” with beer being sold as soon as it was packaged. The product just disappeared and the brewery didn’t have to ask many questions. Now, with the exception of a few unicorns and new product launches in their infancy, those days are over. Today’s competitive pressures put forth a Cheesecake Factory-sized menu full of challenges to navigate 🧭. To stay on track, I recommend pinpointing your GPS to the Intersection of Finance & Data.
And here I was, worried that all we would be talking about in 2020 is craft beer’s push into Hard Seltzer. Instead, most of the Brewers Association Top 10 have resisted the temptation in favor of a disguised alternative, the Low Cal IPA. This strategy protects from losing customers who find themselves preferring to “keep it light”. While understanding that a calorie count around 100 means a sacrifice on flavor, I still found myself curious to see what the most sophisticated craft breweries in the country would develop. But after getting rung up for a six-pack last week, I found myself fascinated by another topic that has nothing to do with how it tastes.
Session Hazies, Hard Seltzers, Low Calorie, Health & Wellness, Better for You, Functionality, Hard Kombucha, Hard Coffee, Non-Alcoholics, Alternatives, CBD, THC...This is where demand is going, or at least where the largest and most powerful breweries are predicting it to be. I refer to anyone employing these strategies as Zigging. There’s nothing wrong with a Zig, in fact, a couple zigs is probably crucial. But I’m not here to talk about the Zig...
I currently work at a regional craft brewery that behaves like a big brewery in some ways and a small brewery in others. All while being an active beer geek who visits Taprooms, goes to bottle shares, and posts about beer on Instagram almost daily. I am a fan of the big and the small, and everything in between. So some of my 2020 predictions will look at the industry at a macro level, while others will dig into the small and local moves. Here’s 20 Puns & 20 Predictions for 2020, in no particular order.
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.
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.
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.
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.
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:
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.
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.
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:
"Sour" beer is a difficult category to measure, which is why you don't hear a lot of statistics about it. When it comes to sales data tracked in major retailers, a significant portion of ''sours'' are incorrectly classified, or they cross over into another style and are housed there instead. In IRI, these crossovers include Seasonal, Special Release, Belgium Ale, IPA, etc., instead of the "Wild or Sour Ales" bucket. Lagunitas' Aunt Sally for example, falls under Seasonal. So a significant chunk of data gets lost, leaving you with a painful exercise to truly understand how well sour is actually selling in the US.
What better way to get back into the beer blogging spirit than with some 2019 predictions to kick off the year! I remain positive on the beer industry and its future, but "the pinch" happening right now as a result of 7,000+ breweries and a seemingly flat consumer base cannot be ignored. So while some of these predictions may have negative undertones, I remain excited about what we're going to see moving forward as the cream rises to the top. I invited some industry friends from around the country to contribute a prediction of their own. So thank you to Chris, Kenny, Kate, and Danny for letting me include yours. And here we go...
If you’re a fan of efficiency, prepare to hate everything you’re about to read. If you enjoy selling more beer, then strap in because variety packs continue to be a phenomenon in craft beer. After accelerating during the pandemic, they’ve continued pressing forward as craft’s largest growth category (in $), up 10% in the last 52 weeks. The blueprint for success has evolved significantly, requiring a more sophisticated and costly strategy in order to stay competitive. Here’s a twelve-pack of considerations to make sure your next Variety Pack has the winning combination.