Microbrewers gather in Phoenix, AZ for national conference.
Microbrewers gathered in Phoenix, Arizona, April 28-30th for the annual Craft Brewers Conference and Trade Show. This year, the great majority of attendees were working brewers, fairly evenly divided between pub and micro brewers. Aspiring brewers were few in number, an indication that awareness of the craft slowdown has trickled into the popular consciousness.Institute for Brewing Studies director David Edgar noted the well-documented slowdown, but said this might actually be good for the small brewery sector. "The boom days attracted a lot of wing-nuts to the industry," Edgar said. "many of them less than serious about their beer or their restaurants. Now the wing-nut days are over."
Edgar said that many companies are facing challenges now that they aren't chalking up double-digit growth. "The hard lesson is that it's difficult to go national without a sales force of 200 people," he said. "I see the industry returning to its roots, emphasizing locally-produced, fresh beer. People are getting back to beer dinners, small festivals and talking face-to-face with consumers. The collective enemy that we face is beer ignorance."
Jim Koch, founder and president of the Boston Beer Company, was the primary keynote speaker for the convention. In his address, he sketched out the hills and dales of the craft beer landscape in punchy, incisive fashion.
"We are at the end of the beginning," Koch said. "There was no growth last year, and as many micros closed as opened. I'd love to tell you that the boom days will return, and that if you build it they will come. I'd also love to tell you that I'm the son of a poor Alabama sharecropper and worked my way up from nothing. Unfortunately, that's not true either."
Koch observed that Paul Shipman's much maligned keynote address at the 1997 Craft Brewers Convention has proven to be on the mark. In that speech, the Redhook Ale Brewery founder predicted the demise of middle-tier regional breweries. With the Stroh sell-out, this has become reality.
But Koch noted some reason for optimism. "In 1973, 99% of the beer market was full-strength regular domestic beer," he said, "and by 1999, that 99% had fallen to 46%, dropping by half, and it continues to fall. The low end and high end in terms of flavor and taste have grown."
He said the "better beer" category, made up of imports and crafts, rose from 1% share in 1973 to 12% today, in volume terms, and now comprises 16-18% of industry dollars.
"I think 'better beer' is a useful term for the craft beers and imports," Koch said. "Consumers don't care about categories the way we do. They say 'I'll have a regular beer or a better beer'."
Koch said craft brewers should be grateful that they are in the part of the industry that is growing, and noted that the "better beer" segment is increasing by 8-10% at a compounded annual rate. 'We're in the growing part," he said, "we're just not getting our share."
Koch said that craft pricing has been relatively stable, with some ups and downs and normal post-off activity, but said that import pricing has gone up. "That can give us some head-room on pricing," he said, "and have a big impact on some breweries' viability. I don't think $4.99 six-packs are the way to be a successful business."
Koch said he sees steady long-term growth for "better beer" but again encouraged small brewers to shake free of meaningless categorizations.
"We share our drinkers with lots of other beers," Koch pointed out. "The same drinker drinks many brands, and doesn't care if we're a micro or a contract. We're all in the same pot. Only 5% of craft industry volume goes to people who only drink craft. Among craft drinkers, 90% also drink major domestics, 90% also drink imports, and 83% drink Sam Adams. An average craft drinker drinks 8-10 different brands regularly or occasionally. We are competing for share-of-stomach with imports, and somewhat with domestics, but I believe consumers sort it into regular or 'better' beer."
Koch said that imports are direct competitors, but suggested that they are not really the enemy. "It's a funny competition," he said, "because both are trying to get people to drink better beer. As a result, we will prosper or not prosper together. If imports take a nose-dive, that probably won't help us. We have to earn our share, but that won't get an easier, given the clout of the importers."
Koch noted the dramatic increases in marketing expenditures by importers in recent years. "Imports are spending a lot more money," he said. "if you go back 35-40 years, the big domestics with powerful ad budgets eliminated small brewers over a 25-year period. The big guys could get to the consumer, and the little guys couldn't. We could hypothesize the same thing happening here. Ten years ago, Heineken was owned by the Van Munching family; now Heineken USA and most of the other importers are big global players with huge resources."
Koch reiterated that "better beer" is now about 12% of U.S. business volume. In comparison, high-end wine holds 20% of the wine business, and 40-50% of dollars; In spirits the high end is also 20% or greater.
Koch said that to keep growing, craft brewers will have to recognize that humility is a virtue. "We thought we were the best thing going," he says, "and that distributors existed just to sell our beer, and that they would do everything they could for us simply because they loved good beer. In the last year or two, I've learned that humility is a good thing."
Koch recalled that his father had once told him, "Life is hard, and it's harder if you're stupid." He said that industry growth rate plummeted after a Dateline NBC piece trashed the craft beer industry. "The industry growth rate went from the high 20s down to the single digits," he said. "It did the same thing to us that the urine rumor did to Corona, and we did it to ourselves. I'm not blameless - Oregon Originals was a dumb idea. But we have to avoid self-inflicted wounds, and we have to build on our community of interest."
Koch lamented the fact that Anheuser-Busch has seized the freshness issue from craft. "They took it away from us," he said. "Now if you ask a consumer who has the freshest beer, it's Budweiser."
Koch had several prescriptions for a healthy craft segment. He encouraged small brewers to join the Institute for Brewing Studies and the Brewers' Association of America; to use freshness dating and to work to define craft beer clearly to consumers.
Koch also suggested inclusion of imported beers in the judging at the Great American Beer Festival. "I think we make better beers than they do," he said, "and we should be willing to prove that."
Finally, he said, small brewers should try to have fun. "As my partner Rhonda always says, if you're not having fun, you're not doing it right."
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| Publication: | Modern Brewery Age |
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| Date: | May 10, 1999 |
| Words: | 1171 |
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