Megabrewers vs. Small Brewers

So, as pretty much everyone knows, Wicked Weed sold to AB-Inbev this week.  Everyone has their own two cents on what this means.  In my opinion, Chris Herron from Creature Comforts has offered the best synopsis on what this and other sales to the megabrewers means.  You can read it here.

This is the perfect time for me to write this post and talk about some related things I have been meaning to for a while.  First, I’d like to talk about the word “craft.”  The Brewers Association offers it’s own definition of craft beer–forgoing the entirety of the criteria, the main point I look at is “annual production of under six million barrels per year.”

So you know, our production level should peak around two thousand barrels per year.  We are a very small regional brewery that sells the majority of its volume on premise.  We are not playing the same game as many other breweries, since we don’t rely on distribution for the bulk of our revenue.  This was always my goal.

However, this doesn’t mean that we don’t pay attention to developments with larger breweries and the industry as a whole.  Years ago, we saw the trend towards hyper local, and our business has been based around this.  I’ve never really like the term “craft beer,” and it is starting to mean less and less.  If I had to divide the brewery industry into two categories, I’d pick “large breweries” and “small breweries.”  Large breweries would be ones that have distribution in five or more states.  Small is anyone else.

I have zero ill will towards breweries such as Stone, Sierra, or New Belgium, but the reality is that these breweries are very, very big, and really aren’t anything like a brewery such as ours, despite the fact that they are classified as “craft.”  They are in a really difficult place, because they are facing pressure from AB-Inbev and Miller-Coors, and also from tiny local breweries like yours truly.  They can’t compete with the megabrewers on price or distribution networks, and they can’t compete with smaller breweries who can take advantage of taproom sales margins to offer beers with extremely costly ingredients that are more exciting and in demand right now.

This is where I knew we would end up.  It’s one of my core principles in business, which is: if you can’t beat someone at one game, play a different game entirely.  It’s a lesson that many smaller manufacturers of any product have either learned the hard way over the last 50 years, or have done from the outset and have been successful as a result.  Right now, you hear a lot about outsourcing jobs and the loss of American manufacturing, but you can hardly throw a rock without hitting a business that has figured out a way to compete by playing a different game.  We have small, direct-to-consumer businesses of every stripe, from clothes and razors to cars or accounting services.

One way smaller breweries are doing this is cans.  Can sales have been a huge development.  Cans sold directly from the brewery have become a huge (and in some the cases the only) source of revenue for some breweries.  I used to think that people standing in line and trading cans online was silly, but then I realized how tremendous this has been for a lot of breweries.  They essentially turned their customers into distributors–a big group of people buying cases of cans may only consume a small amount themselves, and trade the rest to other regions of the country.  Margins remain super-high, and freight costs incurred by the brewery are zero!  Amazing.  Furthermore, the era of a $16 four-pack of cans is here to stay.  No one seems to mind paying more for beer that legitimately is very costly to produce and in limited quantity.

The idea of target markets is a simple premise that has been accepted in other industries, but seems to be causing massive disruption now.  Small, independent restaurants have not really tried to compete with McDonald’s.  Why would they?  Beer is no different.  Larger regional breweries expanded during the unlimited growth era of the 00’s, but are now paying a price in a saturated market.  Some breweries grew slowly and more organically, and are reaping the rewards.  Hill Farmstead, Russian River, and Treehouse come to mind.

What does the future hold?  I see reigns-tightening and layoffs in store for the larger breweries, and more buy-outs.  I think some of the tiny local breweries will either flourish or grow tired of long hours for little reward.

For a brewery our size, the three most important things we can do are:

  1. Behave more like a big, publicly-traded company.  Be acutely aware of costs and maximize production.  Good breweries don’t have empty tanks.  They also figure out how to balance brewing the beers people want while bringing costs down.
  2. Keep thinking of what you can do that other people aren’t doing.  If you’re successful, you shouldn’t rest on your laurels.  Innovation, whether it be new styles of beer or creative and fun events or collaborations, should never stop.
  3. Be adaptable.  We’ve shifted routinely, and will continue to do so.  We are still in a sense throwing stuff at a wall and seeing what sticks.  Beer trends are so short-lived these days, it’s important to always try to keep your finger on the pulse, or better yet, be one step ahead.

About crookedrunbrewing

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