Arguably no business has thrived on such a scale, in such a short period and against such odds as the American craft beer industry. Since the start of the 2000s, demand for local ales, pilsners and weissbiers has gone from practically zero to a hefty 12% of the total beer market, eating into the margins of giants like AB InBev and Molson Coors.
This storm of popularity has calmed recently, as competition has become fierce on even the local level, and the big players have begun to buy up popular craft brands. But a lull in growth makes this the ideal time to reflect on how the trend became so successful, and where it goes from here. How did a nation mocked elsewhere for its beer become one of the greatest producers so quickly, and what can it teach other sectors?
The best businesses predict culture changes
While craft beer is a distinct subculture now, the kinds of beers denoted as ‘craft beer’ have been popular for hundreds of years in other countries. The reason for the sudden, wide scale introduction of new beers to the U.S. is simple: deregulation. Jimmy Carter’s presidency was not notable for too much, but deregulating the home brewing industry was one of his quiet triumphs.
In light of the global market and America’s general love for beer, the eventual success of unfamiliar varieties of beer was assured. The rest was simply down to time: allowing brewers to set up, learn the craft and expand, with the culture changing in tow. Between deregulation in 1979 and 2003, the number of breweries in the U.S. went from around 50 to around 1500.
If you have the passion for a subject and a little bit of nous, you can build a great business in any area. But the breakout successes are those businesses which latch onto a trend after it becomes viable, but before it piques. Others created MP3 players before the iPod, but Apple timed their entry perfectly. Likewise, the craft brewers who set up around the millennium are the Wicked Weeds and Samuel Adams of today.
You can thrive through co-operation
All small businesses know the perils of facing off against their corporate rivals. However, the small margins for error at this level can often mean facing off against local rivals, too. Yet the craft beer industry has operated on a ‘rising tide’ principle closer to a startup. The idea was that if microbreweries banded together, they’d have a better chance of standing up for themselves, and pushing craft beers into the mainstream.
This is easier in a market where the product has so little penetration, and the output of these small breweries was small enough to allow comfortable co-existence. But the level of cooperation that has often seen breweries sharing techniques and co-producing limited edition beers is rare in business, where the mindset of business owners is too often zero sum.
Not all businesses will be willing or able to communicate so openly with their rivals, and share what they would consider industry secrets, the ‘special sauce’ that makes them unique. But businesses that face difficulties by themselves – be it the day-today elements of running a business, scaling up or staying competitive – could benefit enormously by finding others in the same position, and allying their interests.
Exclusivity and quality are key
While large businesses benefit from economies of scale, successful small businesses use their higher costs to their advantage. Not only has the craft beer industry benefitted from being artisanal – the same appeal as handmade and organic products – it also benefits from being limited, experimental and being presented in a way that makes it appeal to different markets.
One of the most notable features of craft beers is their presentation. Many come in small, colourful cans that are more equivalent to soda than alcohol. The use of artwork and distinctive branding often ties into a strong, unusual brand name, borrowing from real life people or locations, nonsense phrases or crude double entendres. This makes each brand instantly recognisable and more appealing to a younger or more discerning audience, who may buy the beer based on what the can looks like rather than having heard anything about it.
Despite this, craft brewers don’t rest on their laurels either in terms of quality or range. Microbreweries have been driven to experiment as much as possible, often creating limited flavours for set periods or holidays, such as for Halloween. The combination of superior aesthetics, different tastes and smaller cans allows them to charge a higher price, while also encouraging experimentation, with consumers bidding to try new beers and share their findings with friends. The cumulative effect of thousands of microbreweries has been to instil an effect similar to Pokemon in millennials: to collect and try them all.
Acquisition isn’t always the end goal
Mergers and acquisitions always carry an element of risk, but they are frequently positive. A takeover bid demonstrates that your company is seen as valuable (or dangerous), and the extra capital and power of a bigger company can push your brand to new heights. This is not to mention the immediate benefits of an acquisition for the owner and stockholders, which can provide financial security for years to come.
Until recently the craft beer industry had resisted takeovers, largely as an ethical concern. Small breweries often begin out of disdain towards the bulk brewing of corporate rivals, and a desire to create beer with more personality. They share a spirit of camaraderie, invention and unique brand identity – the ‘craft’ in craft beer – that sets their products apart from the big players.
Recently, those big companies have taken an ‘if you can’t beat them, join them’ approach and made significant acquisitions, with successful takeovers such as Lagunitas (Heineken) and Wicked Weed, Camden Town and Devils Backbone (AB InBev). The line from these breweries is that the acquisitions will allow them to distribute their products more widely while retaining the same distinctive taste.
Yet the impact from these takeovers has been significant. The founder of Sam Adams, one of the nation’s biggest independent breweries, has called on the Department of Justice to crack down on these acquisitions. Craft beer fairs and awards have chosen to exclude corporate owned brewers, and the internet has reacted angrily.
It remains to be seen whether this will impact sales of these brands, or whether the list of brands to avoid will grow so lengthy that people forget what to oppose. But the reactions serves as a warning to anyone with a distinctive, hand crafted product: its origins can be as important to consumers as the product itself.