Business of Beer: Maturation of an Industry

By Michael Agnew, A Perfect Pint
Illustration by DWITT

Business of Beer - DWITT

The U.S. brewery count is spiking as small-scale operations open across the country. A few once-tiny breweries are growing to become regional concerns. Some have even achieved limited national and international distribution. The expansion of these larger breweries into new markets is putting pressure on local brewers who don’t benefit from the same economies of scale. That pressure is being moderated though, as breweries work together to fend off threats from massive, international brewing syndicates. A few are banding together in loose associations. Others are merging to form larger, more competitive entities. Some breweries, however, are being swallowed up. The model of competition with collaboration is giving brewers some political clout, with heads of breweries becoming prominent and respected members of their communities.
It’s an exciting time to be in the business of beer.

Sound familiar? That’s a description of the U.S. beer industry in the mid to late 19th-century. That’s right, the period that saw the rise of the great beer barons—Schlitz, Pabst, Miller, Coors, Busch, Blatz, and others—looked strikingly similar to what is happening right here, right now: a small business sector was maturing into a full-fledged industry.

This is the same moment at which craft beer now stands. We are witnessing the maturation of craft beer from a collection of small businesses into an industry. According to the Brewers Association, the industry’s 2011 retail dollar value was almost $9 billion, and it contributed over 100,000 jobs to the economy.1 It has grown significantly since then; the 2012 retail dollar amount grew 15 percent to an estimated $10.2 billion. The upstart adolescent, raging against the excesses of its parents—the megabrewers who were the winners 100 years earlier—has become an adult.

Business. Industry. Sometimes it’s hard for us fans to think of craft beer in these terms. We like the idea of small. We cherish the camaraderie of the beer community and treasure the much-touted “brotherhood of beer,” of which we feel a part. These are our breweries. We feel ownership. The normal dealings of business don’t apply. Beer is different. For us, the fans, it’s all about the beer.

“Do you want to start a business? Because that’s what you’re doing.” – Patrick Sundberg, Jack Pine Brewing

But for brewers, business is just as important as beer. Patrick Sundberg, owner of Jack Pine Brewing in Baxter, Minnesota, told me in an interview that whenever someone says they want to open a brewery his first question is always, “Do you want to start a business? Because that’s what you’re doing.” There is nothing about the business of beer that makes it fundamentally different from any other industry. To keep making beer, brewers must attend to the bottom line: they have to sell beer. Pursuit of profit is important; everyone wants to make money and wants their businesses to grow. That means jockeying for position in an increasingly competitive marketplace. And as the industry grows, so does the competition. Brewers have to become ever more attentive to the business side of brewing.

There is a saying among small brewers that “a rising tide floats all boats,” and there is a lot of truth to that. The success of one brings more drinkers into the fold, which boosts the success of others. At some point though, space at the dock becomes tight. As more breweries and beers enter the market, they all have to find ways to gain or maintain a competitive edge. Shelf space and tap handles are limited. As Kyle Marti, Director of Sales and Marketing at Schell’s said in a recent interview, “For us, the big challenge is just getting our beer in people’s hands. We have pretty good coverage, but everyone wants share-of-mind from a distributor. It can be tough staying at the top of their list, especially with all of the new players coming into the category.”2 This business reality sometimes rocks the boats.

To be clear, the famous camaraderie of the American brewing industry is alive and well. Brewers are friends as well as competitors. They hang out and share beers. They visit each other’s breweries and talk about tanks, pumps, valves, and efficiencies. Collaborative beers are increasingly common. If one brewer is short of hops or grain, it’s a reasonably safe bet that another will bail them out. But there is still that pesky bottom line. As an industry insider once said to me, “There is collaboration within the industry in the US that doesn’t exist in Europe. But that collaboration stops when it comes to money.”

Businesses have to protect their interests and, though brewers may be friends, the competitor factor can’t be ignored.

Rifts form as competing interests pursue their own aims. For example, production breweries want to sell more beer from the brewery, while brewpubs want to package for off-site distribution. Both sides see the other’s goal as a competitive threat. Internal squabbling over such issues can render brewers guilds incapable of action. Small groups split off and form their own associations to promote their own causes. Mind you, there is nothing inherently wrong with any of this. Businesses have to protect their interests and, though brewers may be friends, the competitor factor can’t be ignored. This is the reality of doing business.

Another sign of the maturation of the industry is the way craft beer is marketed. Even five years ago most small brewers would have told you that they didn’t have marketing budgets. Today many of them hire PR firms—even the smallest and newest of them. In some cases it’s difficult to even talk to someone from the brewery. Nearly all communication goes through the marketing agency.

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  1. […]   Here is the market described in detailed by people who know what there talking about: Growler Magazine. […]

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