In October 2014, the Brewers Association held their 32nd Annual Great American Beer Festival, the longest-running gathering of craft brewers and craft beer drinkers in the country and by far the largest with nearly 50,000 people attending the Denver event. The T-shirt-and-jeans crowd was searching for what’s new, what’s different, what’s next in craft beer: sour beers, bourbon barrel-aged beers, and wacky brews from off-the-grid nooks and crannies in the country that are just getting their first neighborhood breweries. With 700 breweries showcasing 3,000 beers, it was impossible for anyone to see it all.
That’s why beer fans love the craft revolution. Corporate giants may pad their wallets peddling a stream of cheap “refreshment,” but these crazy craft artisans stand behind their tasty stouts and hoppy IPAs with pride. Their mantra: the bottom line takes care of itself if you make good beer. The best of the craft distillers and artisan hard cider makers follow the same business logic. In this black-and-white world, craft’s success is a thumb in the eye of corporate America, Wall Street, and Madison Avenue all at once.
aha!
Harness the love of the craft fanbase—all of them. “Craft beer drinkers used to be 30- to 45-year-old guys. Now everyone is drinking craft right out of the gate; it’s everyone’s first beer. Brewers are like chefs, they have fans now,” says Michelle Soltys, co-owner of Pacific Stainless Systems, a San Diego-based brewhouse manufacturer.
The craft consumer has been a reflection of this culture and, logically, craft producers approached their customers as so many Mini-Mes. They designed their promotions to appeal first and foremost to themselves.
Going forward, the mass audience will be driving sales, if the sector is to continue its rapid growth. It presents a new set of challenges, although at this point craft’s fastest-growing audience is the masses of Millennials. Highly individualized and independent, America’s young adults have both the group-conscience to want to change the world for the better and the self-assuredness to believe they know how to do it.
The current surge in demand for craft directly tracks the rising number of Millennials (people born between the early 1980s and early 2000s) reaching legal drinking age. The generation’s peak birth year turned 25 years old in 2014. Craft reflects their particular preference for local, environmentally sustainable products, and while these beverages may cost a little more, they are affordable luxuries that reflect this generation’s idea of sophistication and education. Enough of this generation is happy to pay a bit more to drink something they believe is special to shift the whole market upscale. If that preference becomes a habit, craft will become the main event in alcoholic beverages.
The question is how will customers behave in a future where “craft” is less clearly defined? The most successful craft brewers are now major national companies. Big Beer is launching craft-ish brands as well as buying up small craft breweries to cash in on the craft craze. Some craft distillers are masquerading industrially made spirits as “handmade.” The leading producers in the burgeoning hard cider sector are pumping out this new libation on a massive industrial scale. According to consumer research from Craft Brew Alliance, more beer shoppers identify Blue Moon, produced by MillerCoors, as “craft” than correctly identify either Sierra Nevada or Lagunitas as craft beer brands.
tip
Generate buzz through good word of mouth via social media. Unlike America’s wine culture, craft customers are not collecting or otherwise following what widely recognized authorities define as the “best.” They trust their friends to tell them what’s good and rely on social media to communicate that knowledge.
At the current inflection point, craft consumers are still identifiable. They crave novelty and will pay a premium to be surprised and delighted with what is in their glass. When it comes to beer, the failure of traditional brands to inspire is fairly universal. With spirits, it is less about being offended by what has been on offer from large producers and more of an eagerness to discover something new. Hard cider customers are discovering a whole new category, which female drinkers are particularly pleased is lower-calorie than beer or wine and gluten-free.
Craft consumers know when they find what they are looking for and have favorites, but that doesn’t stop them from continuing to explore new craft offerings. While there is an aspect of seeking the rare and elusive, craft consumers have enough of the pub crawler in them to offset the snobbishness of drinking a “better” beer.
Big Beer distributors see things differently. There are solid reasons to believe the current craft audience is an aberration, says Lester Jones, chief economist for the National Beer Wholesalers Association (www.nbwa.org). The Bud drinker hasn’t died; he’s just been dormant. The craft boom tracks the rising fortunes of the top 1 percent of all American consumers as much as it tracks Millennials. “Right now, there is a high-end gold rush chasing them.” The question is whether the four million people today aged 21 to 34 will continue to pay a premium for alcoholic beverages as they age. “Not everyone is going to drink Dom Perignon. Eventually, most consumers step down to inexpensive cavas.”
Of greater concern for craft producers, says Greg Koch, cofounder of Stone Brewing Company in San Diego, is a consumer who unknowingly trades down when they buy “craft-ish” products, such as Anheuser-Busch’s Shock Top. “Most Americans aren’t paying attention. The downside of fooling customers is very low and the upside is high,” says Koch. Craft producers can claim the moral high ground, but will consumers continue to care?
When the craft movement began in the late 1980s, the interest in drinking a better beer drove the craft beer market, which went from zero to capture 5 percent of the total American beer market. Subsequent generations joined the movement, but it plateaued during the decade from the late 1990s until the late 2000s. When the first of the Boomer offspring reached legal drinking age, the market took off again. The Brewers Association predicts craft beer will account for 20 percent of the overall American beer market by 2020.
According to Brewers Association statistics, in 2001, the median craft beer drinker was a 39-year-old, highly educated, white male with a relatively high income living in a region served by several local craft breweries. Today, 75 percent of adults of legal drinking age live within ten miles of a brewery. The Millennial drinker brings a broader spectrum of Americans to the craft party, with women now constituting 15 percent of the craft beer market.
tip
Embrace the “day drinking” market. These younger drinkers are driving a new and somewhat unexpected demand for lower alcohol, lighter bodied craft beers that can be drunk all day, often referred to as session beers. “We will be introducing a year-round pilsner in 2015 called ‘Nooner Pilsner,’ says Sierra Nevada’s Ken Grossman, noting that he has produced plenty of lighter lagers over the years, but this current effort is driven by consumer demand. Supermarket sales of Session IPAs grew 339 percent in 2014, according to IRI.
Overall, beer continues to lose market share to other alcoholic beverages: beer was 55 percent of the market in 2000, dropping to 49 percent in 2011, while spirits’ market share rose from 29 percent to 34 percent in the same period, according to Demeter Group Investment Bank. Yet craft beer’s strength in the beer market is growing rapidly. “Despite crafts’ thinly resourced marketing and sales departments, five of the fastest-growing beer brands are craft—Dale’s Pale Ale from Oskar Blues Brewery, Lagunitas’ India Pale Ale, Ranger IPA from New Belgium, Torpedo Extra IPA from Sierra Nevada, and Shiner Light from Gambrinus.
Craft drinkers are experimenters; nonlinear explorers who jump from one new beer or spirits or hard cider to another without an obvious, discernable progression, says Demeter. Their omnivorous tendency tracks styles rather than brands. They are pushing the overall market toward a style-first identity—they overwhelmingly favor hoppy IPA beers—and away from the brand-first identity that has long dominated beer consumption. The extremists among them drive the development of new breweries with their willingness to try every new beer they find.
The craft drinker wants to feel a connection to what is in their glass, says Christian McMahan, a principal in Smartfish, a Connecticut-based marketing firm specializing in craft beverages. Speaking to Brewbound in December, he told new brewers to tell their personal stories to consumers. “Authenticity matters” to Millennial drinkers, McMahan says. They will drop a product that makes them feel manipulated by false hype.
warning
To you, your brew is the best thing going. But to others, it may be a bit “meh.” Accept that you won’t be all things to all people. “Craft beer isn’t for everyone,” says Dennis Hartman, manager of the craft beer department with Wine Warehouse (www.winewarehouse.com), a leading California distributor. That sense of being something “special” is why people drink it. No one wants to feel ordinary anymore.
The craft drinker knows more about what they drink than noncraft drinkers, according to surveys by market research firm IBISWorld. They are health-conscious consumers choosing higher-quality beverages. And they tend to do most of their drinking at home.
The overall improvement of the economy expected to continue for the next five years will buoy the craft sectors, according to IBISWorld. “Improving disposable incomes will enable more consumers to fit high-end products like craft beer into their budgets. Changing consumer preferences, driven in part by the buy-local movement and a political push against large corporations that stemmed from the financial meltdown, drove up demand for small breweries. Per-capita consumption of beer is higher among 21- to 35-year-olds than other age groups. The proportion of the overall population within this age range, and its increasing disposable income, will have a positive effect on demand for beer during the next five years.” This age group is expected to account for more than 32 percent of craft beer sales in 2015, according to IBISWorld analysts.
The craft shopper knows what they like, says David Hayslette, a marketing strategist with MeadWestVaco packaging suppliers, whose research shows that 73 percent of craft consumers say they usually know what beer they are looking for when they enter a store. Yet they are extremely open to discovery, he says, noting that 64 percent say they buy something new after reading the craft packaging. On average, craft shoppers spend four and a half minutes reading beer labels. This compares with 30 seconds spent by the average Anheuser-Busch or MillerCoors customer.
Thomas Touring, director of restaurant operations for the House of Blues chain of music venues, says he shifted his restaurants to an all-craft beer menu because his customers were demanding local beers. Once he made the shift, beer sales went up and so did food sales. “The bottom line is that a lot more people were coming in to House of Blues.”
Consumers outside of the United States are responding to craft alcoholic beverages too. Demand for American craft alcoholic beverages is rising around the world, says Dennis Hartman with distributor Wine Warehouse. Ten years ago, American breweries couldn’t sell beer to the Mexican market; now, the Mexicans are clamoring for U.S. craft beers. Vietnam, Philippines, and Thailand are small countries with improving economies and a thirst for American craft beer. In five years, they likely will be making their own craft beers, but for now they are importing as much as they can get. With the big beer companies focused on China and Russia, craft is dominating these smaller markets.
American craft beer exports reached $100 million in 2014, according to the Brewers Association. Sales rose 64 percent in Brazil and 38 percent in the Asia-Pacific region. There are now 80 craft brewers exporting beer to international markets by the end of 2014.
Craftport (www.craftport.com), a small Portland, Oregon-based craft beer and spirits exporter focused on Latin American and Southeast Asian markets, is just getting started in this game. “The growing middle class in developing countries wants American craft products. They are educated and they’ve traveled abroad and want to have at home what they experienced when they were in America,” says Lars Burkholder, Craftport’s regional account executive for Latin America and Brazil.
Michael Vachon, founder of Maverick Drinks (http://maverickdrinks.com), an American craft spirits importer in England, says young Brits are wild for “hands-on” spirits. The word “craft” is important, he says, because consumers understand it means something special. “It was very easy to move up to craft beer, and craft beer set the scene for craft spirits. Consumers have come to appreciate its authenticity. It means it is a better product.” The very American-ness of craft adds to the allure, Vachon says. “Bourbon and rye are on the rise. The U.K. is so dominated by the big brands that people find small brands exciting.”
Exports of American craft beer are expected to rise at an annualized rate of 16.3 percent between 2015 and 2020, according to IBISWorld analysts. “Exports are forecast to be a major source of industry growth during the next five years because neighboring markets are relatively untapped by craft breweries. A weak U.S. dollar, especially compared to the Canadian dollar, is expected to benefit craft brewers as they expand distribution contracts with the northern neighbor. Exports of American craft beer are expected to rise at an annualized rate of 16.3 percent between 2015 and 2020,” according to IBISWorld analysts.
Because of varying state-by-state regulations, “it is easier now to sell beer internationally than to a different state,” says Keith Lemcke, vice president of Chicago-based Siebel Institute of Technology and marketing manager for the World Brewing Academy. International demand is growing so fast you can feel it rise in places like the Nordic countries, Argentina, Brazil, and Columbia.
At the same time, according to IBISWorld, American craft consumers’ thirst for variety extends to the emerging foreign craft beer industry, driving growth in this category during the next five years, especially as disposable income expands. As a result, craft beer imports are projected to grow at an average annual rate of 6.8 percent through 2020.
In the meantime, the Great American Beer Festival in October 2015 is on track to be even bigger, and the Brewers Association will be featuring many more non-U.S. craft beers.
Everywhere there are young drinkers, the audience for craft beverages is growing. Never assume that because a city or state hasn’t responded to craft before that they aren’t interested. The quality of that region’s early craft producers may have been inconsistent. Or perhaps the legislature was particularly slow in providing the necessary regulatory relief to foster craft producers. The common denominator of underserved niches is a simple lack of exposure to good craft beverages.
If you see an underserved niche, jump on it. Chances are, folks in that corner of the world don’t know what they are missing. When you expose them to craft products, they will respond. At the same time, no market in the U.S. can be described as “saturated” regardless of how crowded it appears. New craft producers in San Diego; Portland, Oregon; New York City; and Chicago are struggling to keep up with demand. Craft sales are increasing everywhere.