The stereotypical perception of a craft beer comes from a small brewer working out of a brewpub or even his garage or basement, creating small batches of beer that often sell out and are re-created only seasonally. The truth is, some of the largest “craft beers”—as consumers may know them—are actually brewed by the largest beer companies in the world.
Retailer Bill Nolan of Family Express, Valparaiso, Ind., has no doubt that craft beers, imports and other specialty brews are having and will continue to have an effect on the category, especially now that many of the majors have developed their own “better beer” brands. At the same time, independent brewers and brewpubs continue to evolve the subcategory.
Tastes are shifting. While Nolan and other boomers may stick with a light premium at parties or while out, he knows his younger family members, in-laws and friends are typically sampling different crafts or bringing over six- or 12-packs of mixed craft bottles.
Nolan, who’s vice president of marketing for Family Express, works in a state that prohibits his stores from selling cold beer. But his suppliers have been suggesting endcaps from which customers can mix and match, which is popular in other states.
The way he sees it, whether it’s the big beer makers or local brewers, “It’s a real trend [in which] a rising tide floats all boats.”
One could view the movement by the likes of Anheuser-Busch and MillerCoors—once premium-focused houses—into this subcategory as an ominous sign, with the major players attempting to garner more shelf space. Entrepreneurs often feel threatened when variety and options narrow.
But on the plus side, supply and delivery get stronger, says Joe Vonder Haar, president and CEO of iSee Store Innovations, St. Louis. A veteran of the beer category, Vonder Haar sees the movement of major brewers into subcategories such as ales and flavors as a natural progression, something retailers can only benefit from when out-of-stocks, margins and even trade dollars are all significant considerations.
“Beer is going through the same renaissance as wine did in the 1990s,” he says. “There’s great interest from both consumers and suppliers.”
Major Moves
While investing in new packaging and marketing of its core Budweiser and Bud Light brands last year, St. Louis-based Anheuser-Busch also made decisive moves into craft beer last year with the purchase of Patchogue, N.Y.-based Blue Point Brewing and Bend, Ore.-based 10 Barrel Brewing. And this year it announced its purchase of Seattle-based Elysian Brewing.
A-B purchased the Chicago-based Goose Island craft brewery in 2011 and has since expanded sales into all 50 states (from 26 at the time of acquisition) and developed a national ad campaign. It now sells 30 different beers, up from 19. Sales were expected to triple to 400,000 barrels last year, according to the Wall Street Journal.
A-B already produces and markets its own Shock Top line to compete in the craft space. It’s also been successful with Stella Artois as an import, part of its merger with Belgium-based InBev in 2008.
Another major brewer, Chicago-based MillerCoors, started an in-house division called Tenth and Blake in 2010 to handle its craft and import brands. Those names include its flagship Blue Moon, Chippewa Falls, Wis.-based Leinenkugel and imports Peroni, Pilsner Urquell and Grolsch.
Besides supporting its import brands, which include Amstel Light, Newcastle and Desperados, Heineken USA, White Plains, N.Y., has been developing its ciders, introducing two new flavors to its Strongbow brand as part of a variety pack to encourage sampling.
Flavored beverages beyond beer already account for 30% of upscale consumption and are growing three times faster than the upscale segment, says Todd Camassar, director of off-premise channel and customer development, commercial marketing, for Heineken USA. He says his company is focused on premium products, with its ciders and flavored beers all competing in the upscale segment.
“The majors are simply responding to new demand, as any customer-centric company would do,” Vonder Haar says. “Many are actually launching historical recipes and brands that were around generations ago.”
CONTINUED: A Beer Renaissance
A Beer Renaissance
The wave building around craft breweries began in the late 1970s and early 1980s, Vonder Haar says. State and local laws that existed post-Prohibition in this country began to expire. And regulations around being a brewer, a wholesaler and a retailer began to change. Soon brewpubs began sprouting up in communities when some state laws began to allow companies to both brew and sell beer.
Oddly enough, these craft breweries don’t produce the lagers that the majors do. “One of the hardest beers to make consistently is the American lager,” Vonder Haar says. “It’s a narrow window of taste that will show any defect.”
So local brewers essentially produce ales, he says. They have very short brew cycles and are heavy on flavor, which makes variability in taste less of a factor in the brewing process.
Right now, India Pale Ales (IPAs) are popular but they’re very “hoppy,” Vonder Haar says. The hops are a spice in beer but were originally put in as preservative, he says.
“In the British Empire, the furthest outpost was India,” he says. “They put it in for the soldiers because beer was part of their daily rations and the hops would help it last the sea journey from England to India.”
The surge in demand for flavor may come from millennials, says Camassar of Heineken. Seven out of 10 millennial and multicultural consumers are “eager to experiment and seek out new styles, experiences and expanded flavor profiles,” he says, while 50% are willing to pay more for something new and unique.
Major Pluses
For retailers weighing the pros and cons of working with local breweries or major manufacturers, one of the benefits is supply, Vonder Haar says.
“The major brewers have some of the best wholesalers, who are [already] in your stores weekly or twice weekly,” he says. “You’ve got reliable lines of supply and reliable service.”
While some of the local craft brewers work with strong distributors, they may not provide enough trade dollars to promote their products, he says.
The ad muscle that the majors can supply is obvious. Camassar of Heineken says the company’s recent outreach to consumers included “aspirational and experiential campaigns, with a heavy emphasis in the digital medium.”
It led to a “significant trend shift” for the Heineken brand in the last half of 2014, he says: “Breakthrough marketing and retail programming targeting the upscale millennial and multicultural consumer at multiple touch points—traditional, digital and social media, in-store merchandising, special events and sponsorships—has delivered renewed momentum and increased sales on our flagship brand.”
From the local brewer’s perspective, having ties to a major means access to raw materials, including a wider variety of hops and grains for brewing or aluminum for cans.
The majors also bring science to marketing. John Knapp, director of customer solutions for Chicago-based MillerCoors, says the company’s first step in product development is to look for unmet consumer needs or “white spaces.”
Then a consumer-testing process starts to ensure new items are well positioned to meet those unmet consumer needs. After that, the company starts what Knapp calls “360-degree, integrated marketing support to help connect with consumers and drive awareness of our new products—and help retailers capture these new sales.”
On the other hand, what could be a major plus for local brewers still competing against major brands is the culture surrounding craft beer. For many, particularly younger consumers, the idea of a beer coming from the neighborhood is appealing. There’s a hip factor that local brewers cultivate, using storytelling label art, special runs and community tastings to garner loyalty.
In a Nielsen study, 22% of beer drinkers said local was an important factor in picking their craft beer, with that number rising to 32% among 21- to 34-year-olds.
“The importance of being made locally has increased for a third of consumers aged 21-34 over the last couple of years,” wrote Bart Watson, chief economist for the Brewers Association, Boulder, Colo., on the group’s blog. “Even subtracting out the ‘less important’ group, on balance, more than one in five 21-34 beer lovers have moved ‘local’ up in importance.”
Growth in the number of breweries may play a part, with about 75% of people 21 or older now living within 10 miles of a brewery, Watson wrote. For decades, he said, “[There has been] a century of scale beating small-town production, [with] national marketing campaigns trumping local word of mouth. … It’s taken a lot of hard work on the part of determined, small brewers, but local beer is back.”
Crafting a Retail Strategy
So what should retailers do with the popularity of craft beers? Vonder Haar suggests they consider the role of beer in their stores.
For c-stores, beer is a destination category, he says, and c-store retailers need to have the highest-selling, fastest-turning brands available. “The craft segment may command higher dollars and margin, but inventory turn is not anything near what your core premium and value brands deliver,” he says.
Space also is an issue. Grocery stores have the space for variety and image and have a customer who’s shopping in that way.
“If c-stores sacrifice the space [held for] destination or daily routine, it’s a less profitable use of space,” he says. “If you’re going to put in variety and image, you’ve got to be prepared to hold more inventory, [store it] longer and [have space for more] facings.”
Beer caves present an opportunity for retailers, but either way, space is at a premium, Vonder Haar says. He suggests treating craft as a “new category” section, offering a small, rotating selection to see what sells.
Knapp of MillerCoors says retailers in most markets need only the top four to eight craft SKUs to satisfy most shoppers: “Keep these cold, and if you add more, consider a warm shelf.
“While the premium category is flat, it’s a huge business,” he continues. “If you want to get into variety and image, be prepared to create new space—or walk away from the destination business.”
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.