Subtitle: How Wine and Cannibalism Mean that the Beer Industry is Just Fine
Most cultures have some form of creation myth. These typically detail out the origins of the world, of plants and animals, of humans, and of the things and traditions that made up the society and culture of the time. They also often have some form of apocalyptic myth, predicting the end of this world at some indeterminate point in the future. In craft beer, the origin stories are numerous and important, but never seem to capture the attention of the media quite as well as the ones about the industry’s supposed imminent demise. The most omnipresent of these eschatological myths is the constant threat of oversaturation. Last week, we talked about demographics and the role that they play in shooting that theory down cold. This week… well… this week I take a moment or to w(h)ine.
2. Whining About Wine
The Red (Wine) Coats are coming! That is the newest rallying cry from Anheuser-Busch InBev’s (ABI) High End division of faux-craft brands. According to their narrative, wine and spirits are an unstoppable juggernaut of beverage sales and influence, gobbling up market share like a starved tiger dropped in a swimming pool of steaks. How’s that for an odd metaphor?
This cry for unity in the beer segment comes in spite of the fact that thus far, all of the gains in market share by wine or spirits have come at the expense of the macrobreweries such as ABI and MillerCoors. I will likely write another post at some point about that side of things, but the important thing to note is that wine, as a segment of the greater beverage industry, only accounted for roughly 17% of total revenue. For comparison’s sake, beer accounted for nearly 49%. Again, a future blog post can be dedicated to why even these numbers are less important than other, external factors, but bear with me.
What is important is that despite an industry that is only a third the size, there are more than 9,200 wineries in the US as of the most recent counts, and that is without even considering the extremely rich import side of the industry. Yet there are no talks of saturation within wine, and the number of wineries and brands represented in the market remain at a pace of healthy and steady growth, despite the total revenues and market share remaining virtually unchanged in recent years. Suddenly 5,500 breweries doesn’t seem like too many, does it?
So, how has the wine industry managed to stretch finite dollars into an ever-growing number of suppliers? Well, the Long Tail gets hungry sometimes, and first it eats the head, then they both eat the middle. Confused? Let’s elaborate. Bear with me again, this one needs some lead up…
3. Middle Child Syndrome
A complicating factor in the cries of saturation are that “growth” in any particular industry segment is not as cut and dry as you may suspect. You have to define exactly what you mean by the term “growth,” and only then make your extrapolations about whether or not it can continue from there. In craft beer, it may seem fairly straightforward to say that growth can be defined as an increase in market share of the beer industry as a whole, or in total sales and/or volume, or in the number of breweries in existence. All of these are perfectly valid, and it is important to look at what you and your customers hold as core industry values in order to determine what definition is the most important to look at in more detail. For beer as a whole, simply increasing revenue and share of market versus wine and spirits is the definition most useful. For craft beer, however, it is a little more complicated than that.
Small breweries are the lifeblood of craft beer. There is a reason that the term “microbrewery” is virtually synonymous with “craft beer.” Small, independent breweries, hand-crafting their product and being integrated into the community in which they work and thrive, is the core of what the craft niche embodies. Whether you are referring to Olde Mecklenburg Brewery, Great Notion Brewing, Three Floyds, Russian River Brewing, Treehouse Brewing, or literally any of the thousands of other small and independent brewers throughout America, they all share those core values in common. So for craft beer, when I define growth, it is not only about how much volume is being sold, it is also about the steady conversion of beer industry from large-scale commercial breweries to a significantly larger number of small and local operations. I have nothing at all against breweries like Stone and Sierra Nevada and Deschutes, but the simple fact is that they are an entirely different type of creature than the sorts of small-scale craft breweries that we tend to associate with the industry. They aren’t microbreweries. They are mesobreweries, and there is a definitive difference between the two.
Why is this important? History, is one part of it, and the future is the next. To bring it back to wine, that industry can support 9,200 wineries because it has traditionally focused on locality and craftsmanship over industrial-scale production. While terroir, the qualities of a wine provided by its geographical location of growth and production, creates a bit of inherent and implied rarity to certain wines that certainly helped limit it, the fact is that there are no “Budweisers” or “Millers” in wine. You have a handful of large national or regional producers, but none with the sheer dominance in market share that ABI has, by any stretch. This has allowed small-scale, local vineyards to flourish and provide high-quality products right in their own backyards.
As this pertains to beer, it means that the craft beer industry has had to grow at the expense of its larger cousins. At first, this came at ABI and MillerCoors’ expense, as they continued to lose both share of the beverage segment, and of the beer segment in a startlingly rapid fashion. Craft breweries cannibalized Big Beer for their own benefit, until those segments that were open to making the switch to the higher price point and more complex (read: less accessible) flavors of craft began to dry up. Now we are in stage 2, where large regional craft breweries, traditionally the beer industry’s middle and most fecund segment, are seeing declining sales as they are slowly gobbled up from behind by younger and smaller operations that appeal more to the community-focused millenials that drive the modern economy. To put things in brewing terms: secondary fermentation has begun.
This isn’t really a bad thing, so long as you aren’t an employee or diehard drinker of those larger, regional breweries. For one, several of these mesobreweries are now no longer technically “craft” according to the definition set by the Brewer’s Association, the organization representing the interests of the craft industry. They are now owned either fully or partly by other companies such as Constellation (Ballast Point), Heineken (Lagunitas), and Mahou San Miquel (Founders). This grants them some measure of immunity from these market forces, but also means that any losses they may take are not coming at the cost of truly independent breweries.
The decline of regional breweries also leads to better job creation and more options for consumers. After all, Sierra Nevada has two breweries and two taprooms, and even though they may need more employees at each than any single microbrewery might, they can only create so many jobs due to economies of scale and less reliance on taproom sales as a portion of their total revenue. Replace them with an equal number (by volume) of microbreweries, and suddenly you need literally hundreds of additional staff for the taprooms, breweries, and brand representation you now have to account for. Smaller, more local breweries also offer a wider range of options than even larger craft breweries, as well as unmatched access to the beer at the peak of freshness, not to mention that money spent supporting that microbrewery also supports to local community in a much more tangible way.
In short, even if the total market share of craft beer were to stay static, growth is still happening in terms of total brands, total jobs, and total innovation as the long tail eats more and more of the traditional powerhouses’ control over the market. I will eventually come back to what mesobreweries can do to stay relevant and continue to see success in a future entry, but for now my point is this: the slowdown at the top isn’t a sign of craft hitting its plateau, it’s only a sign that it is realizing it’s original vision of small, local, handcrafted, and high-quality beer. It’s putting the Craft back into Craft Beer. I, for one, don’t mind that at all. Now excuse me while I throw back about a dozen Juicy Jays at Legion Brewing and pass out on a sack of grain in the back while Alexa calls the cops. In other words, a pretty typical Saturday night.
NEXT TIME: The third part, where I cover all of the reasons that I wasn’t clever or prolific enough to turn into full entries of their own!