Predictions for a Beer Market
Thirty-five
years ago, wine was in the same market position as beer is
today – a commodity. Largely, it was bought by the jug, it
was bought on price, and it was not bought with any
consideration to “pairing” with food, except that maybe you
got an Italian wine when you were having spaghetti. “Red
with meat, white with fish” was about as far as anyone
got.
Over a third of the market
was imported wine that largely tasted like the domestics,
but had a higher price and a different bottle. American wine
had a poor reputation in the rest of the world, even though
we made and sold a lot of it. And when we saw a drunk on the
street, holding up a building, we called him a
“wino”.
It’s symbolic of how
drastically things have changed that the word “wino” has
practically disappeared from everyday speech, because wine’s
image has improved dramatically. Wine is almost universally
considered a fine, upstanding drink that has vague
associations with wealth, nobility of character and
sophistication. It is recommended by doctors to their
patients for heart health, even though some studies show
that it’s the alcohol, not the redness of the wine that has
the effect.
Look at wine, and see
beer’s future, if brewers are smart enough to secure it.
Wine’s redemption came about through small producers with a
vision of what was inside the bottle, not the labeling and
marketing on the outside. It was vintners – winemakers who
toiled for years, making better and better wines that
couldn’t always find a market. Sometimes they stumbled, but
always it was interesting. Eventually they had a product
that was worth selling, a product that objective tasters
were surprised to find was the equal of long-established
European vineyards.
That’s when the real work
started: getting it in front of people. The smartest thing
these small vintners did was connect wine and food. Getting
chefs interested in how fine wine paired with their food
ensured that those fine wines would appear in their
restaurants, particularly once the margin was
established.
But of equal importance was
the whole idea of distinctive wine types and styles, so that
“red and white” became “Cabernet Sauvignon, Merlot, Barolo
and Chardonnay, Pinot Grigio, Blanc de Noirs”. The very
difference, the taxonomy, became interesting, and more
importantly, became a point of differentiation. People who
knew what these wines were became pleased; they owned their
wine knowledge, and it made them willing to pay more for a
good wine.
When these two trends
became solid and broad, the small vintners began to find
themselves the chevaliers of American wine – the champions
of a new market, which had very little place for jug wines.
It was segmented, it was all about difference, not
similarity. It was more knowledgeable, it was more
demanding, it was more exciting, and by heavens, it was
profitable, much more so than selling a bunch of jugs of
Hearty Burgundy and case after case of screwtop Ripple and
Thunderbird.
Everyone knows this story,
so why does everyone find it so hard to believe about beer?
Even craft brewers seem to find it hard to believe that
they’ll ever break out of their little 3% of the market. But
it’s all up to them. They have to make good, consistent,
interesting beers, they have to make some new ones every
year, and they have to sell the public on them-or at least
the chefs, to start. Once they do, and they’re verging on it
now, the market is going to change.
Beer has always been
short-term business. We’re often not looking any further
down the track than the next delivery, or maybe to the next
season. Beer is a fresh food product and it has to be sold
relatively quickly, so we fall into a short decision cycle,
and it rules our thoughts. That’s not always so bad, but it
can set you up to get blind-sided by things like the Pabst
explosion, or the malternative backlash, the microbrewery
shakeout – leaving you with pallets of stuff you can’t move
with a fire sale.
So it’s a good idea to step
back a bit occasionally. In that spirit, I offer these ten
predictions on how things will look ten years from now in
the US beer market. No guarantees, of course, and there will
always be unpredictable bumps in the road – the Atkins Diet
and the carb craze, for instance – but there are some things
that are easy to see, and some that are more like
hunches.
1
Say good-bye to the three-tier system. Current court cases
make this almost inevitable. Wholesaling will change
completely as the legal basis of the business will go away
-possibly before five years is up – and wholesalers will
compete and survive solely on their business merits:
service, selection, price. Those with the most
cost-effective operations will have the best chances.
Current affiliations with large breweries may not be an
advantage, as those breweries are the ones most likely to be
pushing hard for direct sales to large retailers, who would
mostly just as soon buy direct. (Given the costly experience
of some manufacturers with big retail chains like Walmart,
the large brewers should perhaps be careful what they wish
for.)
Earlier this year I gave a
presentation on this subject to the Pennsylvania Malt
Beverage Distributors Association. As some of us left the
hotel afterwards to go get a beer, I pointed to a Sysco
truck making a delivery at a restaurant: “There,” I said,
“is the future of beer wholesaling. They don’t have a
three-tier system, but they still have a business.” Then a
man hopped out of a small delivery truck alongside the Sysco
semi and started unloading crates of live lobsters. A craft
brewer who was with us said, “But that’s the future of beer
wholesaling, too.” He’s absolutely right. There will be real
opportunities for small, specialist operations who are
willing to work hard for a much larger margin on smaller
sales.
2
The retailing of beer will also change when the three-tier
system goes away. State licensing laws regarding where beer
can legally be sold will inevitably come under attack next.
They may or may not stand court tests – they are also under
attack by European businesses as being in restraint of trade
against WTO rules. There is speculation that these laws will
be the bone America throws to Europe to keep them from
breaking open the market for privatization of public
libraries, municipal water systems and the Post Office. If
chain retailers -supermarkets, convenience stores, warehouse
stores – get the right to freely sell beer, large producers
will sell beer directly to them. It will change mom and pop
retailing as everyone flocks to the supermarket for cheap
mainstream beer. Beer specialty stores will survive in the
same way wine specialty stores survive: by going to the top
of the pyramid. As the beer market changes, the specialty
stores with solid relationships with their suppliers will
thrive.
3
The market will change. The history of the wine market is an
indicator, the growing, serious presence of high-end beers
in newspapers like The New York Times and the Wall Street
Journal and magazines like Saveur is an indicator, and the
growth of the craft brewed beer segment against the drop in
the overall beer market last year is an indicator. Both
American and foreign craft brewers are showing the necessary
consistency and useful innovation they will need to win over
both the everyday drinker and the serious aficionado. They
have the money to invest in the equipment and talent they
need to produce high-quality beer, every batch, and they’re
using it.
How quickly will the market
change? It’s changing already, and it’s accelerating. The
two major small brewers’ groups in America, the Association
of Brewers and the Brewers Association of America, have
merged, a move that is sure to lead to a unified, louder
voice for these brewers. Growth continues, and most of the
brewers between 1O,OOO barrels and 1OO,OOO barrels annual
production are growing at a pace over 5%.
That’s something that
should fall by the wayside, too – like the wine industry did
in the 197Os, craft brewers should stop looking at raw
volume. It’s what you make that matters most in the new
market, not how much. Dogfish Head is one of the first
brewers to realize this, downplaying barrelage in favor of
critical acclaim and figures on profitability.
The push could falter if
brewers lose sight of the ideal: better beer, at better
prices, in better variety. Beer is still a ridiculous
bargain, even in the face of wine prices lowered by the
recent grape glut, and price increases that are too steep
could cut into growth. But a failure to raise prices will
both mire beer in the image of a cheap drink, and deny
breweries the margins they need to improve and
expand.
If craft brewers continue
to close the gap between high-end beer and mid-grade wine in
pricing, they will become more attractive to retailers as
they do, because if the pricing increases are done
correctly, there shouldn’t be any drop in sales to
consumers. Consumers are certain they like these beers, and
they will pay higher prices for them, as long as they can
buy consistent, innovative and above all, fresh, well-kept
beer from stores that take beer seriously.
4
That doesn’t mean the big brewers are going to collapse any
time soon, say, before the next geologic era. Anheuser-Busch
is in good shape to continue to dominate the US market, and
their international operations continue to grow. SAB/Miller
is showing growth for the first time in years with new ad
campaigns that show a smarter company in charge. This is the
Miller that came out of nowhere in the 196Os to become a
strong player. They have stopped the decline in their sales,
and should show growth, defying negative
predictions.
But Coors-Molson (or
Molson-Coors, if you prefer) will continue to slide as their
competition grows larger through acquisition. They are up
against three of the five largest breweries in the world:
Anheuser-Busch and SAB/Miller in America, and InBev in
Canada, not to mention the competition from Grupo Modelo’s
Corona family. Coors has put all their eggs in the Coors
Light basket, and that always-risky strategy is starting to
show its flaws.
Any discussion of big
brewers in American has to include Corona and Heineken.
Grupo Modelo and Corona seem secure. Their international
market is booming, the American market continues to buy the
vacation in a bottle idea. The only possible fly in their
sunblock is Anheuser-Busch’s relentless attempts to gain
control of the company, which likely won’t affect US sales
anyway, but will change relationships. Heineken still seems
to be running scared in a Europe caught in the grip of
consolidation fever, but their US position remains
strong.
But the increased market
share of the craft brewers will have to come out of someone
else’s piece of the pie. Where? Imports are a likely target,
as are the domestic premium brands. Inevitably, these beers
are the jug wines and the imports that taste like domestics.
The large brewers, who can read American Vintage as easily
as I can, will likely take the Gallo route and create
craft-type beers of their own (Again, they jumped the gun in
the mid-9Os with Elk Mountain, Blue Moon and Miller
Reserve).
5
Yuengling will continue to grow on the East coast, and will
continue to keep itself to the east. They currently are
filling a large niche between the big mainstream brewers and
the craft brewers, transition beers for people who want
something more but are still price-conscious. Samuel Adams
has likely peaked, and will continue in a slow decline. The
“mega-micro” idea is too dissonant for the consumer. The
Samuel Adams brand may taste like a craft brewed beer, but
it increasingly acts and looks like a mainstream brand. Sam
Adams Light, a very good beer, suffers from the same
dissonance. Craft-brew, in most consumers’ minds, should be
at least regional if not local, and the idea of a light
craft brew simply jars too much. Redhook and Widmer, also
good beers, have the same problem.
How Sierra Nevada, a
home-grown national craft brewer, avoids this has a lot to
do with their silence in the market. The craft brew consumer
is not one who can be easily swayed by advertising. They
want to taste the beer. This may change as the market for
these beers expands, or it may actually grow with the
market. Remember: focus on the inside of the bottle.
6
High-end beer will finally find its way into high-end
restaurants, and the pay-offs for everyone will be large.
Chefs don’t really care about advertising campaigns. They
are artists, they are passionate – what they care about is
taste. Get beer into the hands of chefs, and their palates
will tell their heads that this is a drink that is at least
as complementary to food as wine is. The chefs will get
excited, the chefs will excite the staff, the staff will
excite the customers, and the customers decide on a
relatively inexpensive up-sell that tastes great. When they
go home, they will know they can go to their local beer
store and repeat the experience at will.
7
Beer does not have terroir. The closest thing is the origin
of the barley and the home of the hops, but these
ingredients can be bought by any brewer on the open market.
The same goes for equipment, yeast and any adjuncts. What
does make a difference is the brewer. It is the particular
brewer’s skill, training, heart, vision, passion, and depth,
their will that makes exceptional beer. A small number of
brewers have become known to a small number of fans: John
Maier of Rogue, Ray McNeill of McNeill’s, Vinnie Cilurzo of
Russian River, Phil Markowski at Southampton Publick House,
Rob Tod at Allagash, and Massachusetts’ own Todd Mott and
Dan Paquette.
The reputations of these
brewers will continue to grow, and will influence the sales
of the beers they produce. If they move to another brewery,
that reputation will follow them. Producers will value this
asset and reward it. Retailers will become aware of it and
emphasize it.
8
American brewers have mastered the hop. They proudly display
hop varieties on their labels, websites and marketing
materials. They know what varieties will add spice, grass,
citrus, and earth notes to their beers. They understand
malts, and work with a dizzying assortment of British,
American, German, Belgian, and Canadian malts. American
beers show a broad range of color and almost all the malt
characteristics the rest of the world enjoys – a true malt
dryness in the manner of Munich lagers still seems to elude
them.
But what about yeast? For
years, American craft brewers have mainly used four yeasts:
a standard lager yeast, the so-called “Chico” ale yeast
(said to be the Sierra Nevada strain) that is a dependable
and clean workhorse, a similarly clean altbier yeast, and
the much-derided (unfairly so) Ringwood yeast. There are
others, to be sure: hefeweizen strains, Belgian yeasts for
specialty beers, and some use a couple different ale yeast
strains. But by and large, most American craft beers are
made with one of those four strains.
That’s going to change.
After years of talking about how wonderful British beers are
without the courage to use the yeasts that make them that
way, American brewers are beginning to switch from the
clean, dependable, safe yeasts they’ve relied on to the
sometimes more temperamental but distinctly more flavorful
yeasts British brewers use. They’re opening all-Belgian
style breweries, all-weizen breweries, and trying new lager
strains. That change is real and happening, and it’s
accelerating as more brewers realize that their customers
are looking for beers that are really different, not just
hoppier or darker.
9
Hop varieties, yeast strains and malt characteristics will
start to become as familiar to beer-lovers as grape
varieties and wine regions are to today’s wine-lovers, and
similarly, they will become sought after. I asked this
question of various craft brewing pundits two years ago: is
differentiation on yeast or hops of value or interest to the
consumer? No, they all said, they don’t know or care about
the difference.
That’s going to change, and
the current popularity among aficionados of the new Simcoe
hop is only the start of it. This happened on a small scale
with the Cascade hop back in the mid-199Os, and again with
the advent of the ‘super-Cascade’ Centennial hop, but now
with the Simcoe it is taking off. Maltsters will gain new
importance as consumers learn that they actually favor the
taste of beer made with Durst malts, or Crisp malts, or
Briess malts, or different base malts like 2-row pale,
Munich, or pilsner, and start to look for those beers. Yeast
strains have the potential to be just as desired, once the
public gets the information about them.
All of these things are
about telling the consumer what to expect in the bottle,
something brewers have been woefully lax about for the most
part, despite the “style guidelines” they supposedly brew
to. Some brewery websites and marketing information presents
the bare bones, but the consumers are waiting for someone to
bring it to them in a way that makes sense, so they can
truly know what to expect when they buy a beer.
Ridiculous? No one’s going
to go looking for Sharp Creek Simcoe Sparkling Ale instead
of Harpoon IPA? Then why do we buy Chardonnay and Merlot and
Zinfandel instead of Big Red and Dry White? More information
means a consumer who has a better chance of buying a beer
she likes. More attention paid to that consumer by the
brewer – and the retailer – means more repeat sales.
10
Alcohol levels of “standard” beers will continue to creep
upwards towards wine levels; consumption levels and price
levels will adjust accordingly. Wagner Valley is a
successful winery in the Finger Lakes. They added a brewery
to their operation a few years ago, and contrary to all
‘normal’ brewery expectations, their biggest seller is their
Sled Dog Doublebock, a massive, sweet beer that is one of my
favorites of the type. Why does this big 8.5% ABV beer sell
so well, when beers around 5% ABV are supposed to be the big
sellers? Because you can sell more of them before people get
stupid.
Think about it. What do the
people coming to Wagner Valley usually drink? Wine. Wine
drinkers don’t like bitter beers – they’re not used to the
whole idea of “bitter” – and they’re completely comfortable
with beverages of 8% ABV and more. I’ve been harping for
years on the idea that brewers should be producing more low
alcohol beers because you can enjoy more of them, and I’m
starting to think I’ve been looking at it all
wrong.
Perhaps what brewers should
be doing is brewing beers with plenty of flavor, regardless
of the alcohol, and price and package the bigger beers
appropriately. A truly big beer is expensive to make, due to
ingredients and longer aging time – charge for it! A bigger
beer will not sell as much per customer, because they can’t
drink as much- charge for it!
Brewers, thankfully, are
smarter than I am, and are beginning to do just that.
And those are just some of the big changes coming in the
next ten years. I don’t claim they’ll all come true, but
who’s going to hold me to it in 2O15? I’ll be happy to be
proven wrong, so long as I’m around to enjoy whatever’s
being brewed then.
