The Brewmaster's Dilemma

Don Gordon

The 1970s – where I resided for the bulk of my childhood – remains for me a touchstone of sorts. From music to clothing to facial hair, my consciousness was shaped by those clog-shod years. Looking back, however, it strikes me that in certain respects the ’70s were culturally lacking. Take the matter of beer. My father, his friends, my uncles – each man swore allegiance to a brand, whether Pabst or Budweiser or Mickey’s Malt in the big-mouth bottle. For a nicer dinner party, my parents might spring for a fancy import like Heineken or Molson Golden. Each of these beers has, of course, its own appeal. My point is simply that variety was limited.

I distinctly remember when Miller Lite beer was launched, because the beer-drinking adults I knew took to it with genuine enthusiasm. In terms of innovations that quickly achieved mid-’70s ubiquity, I would rank it up there with waterbeds and leisure suits. But whereas those proved (thankfully) just passing fads, light beer emerged as a powerhouse category unto itself. By 2013, Bud Light had become far away the most popular beer in the U.S., with nearly $5.5 billion in sales. The dominance of the major brewing companies – Anheuser-Busch and MillerCoors – was seemingly unassailable.

But in parallel with the consolidation of the industry there was, quietly, another movement brewing. In the 1980s, the U.S. began to see the reemergence of craft beers – so called because the earliest devotees were home-brewing small batches in their basements and garages. Samuel Adams, the signature beer of the Boston Brewing Company, was the most notable early success, expanding beyond its regional roots with a series of brew pubs serving seasonal varieties.

As the market for varieties like India pale ale, Belgian-style ale, and American stout slowly expanded, terms like “dry hopped,” “fruity,” and “floral” entered the beer lexicon. By 2010, craft beer had carved out a respectable niche, with five percent volume share of the U.S. beer market. And the demand for Belgian lambic and other varietals kept growing. By 2014 the share had reached 11%. In terms of dollar share, the craft beer market is now in excess of $19.6 billion in the U.S., or 19.3% of the total market.

Of course, the major players in the U.S. beer market did not sit idly by on barstools as this all happened. In 2010, Magic Hat Brewery was acquired by North American Breweries (now part of Florida Ice & Farm Co.). The following year, Anheuser-Busch bought Chicago brewery Goose Island for $38.8 million. Finally, last year, Heineken International purchased, for an undisclosed amount, a 50% stake in beloved Lagunitas Brewing Company. Craft beer purists bemoaned these deals, fearing perhaps that quality and authenticity would be sacrificed.

Other large breweries have responded by marketing their own “micro” brews – think of Blue Moon (served with a slice of orange), which is made by MillerCoors. Or Shock Top, which comes from Anheuser-Busch. It’s not surprising that these brands have done well, given the leverage of those two brewing giants. In a bid for beer-snob credibility, the parent brands have sought to maintain a distance between their flagship products and their craft beer offspring. But at the end of the day, a mere 11 companies still produce over 90% of all U.S. beer.

It’s an interesting case (if you will) of how large consumer products companies deal with changing customer demands. If you acquire a smaller brand with cachet, you need a plan for maintaining quality and authenticity even as you seek to expand. If you develop your own product, you need a way of marketing it as something new versus just another variant on your established line. You can ignore a trend like microbrews for a time, but eventually you need to come to terms with a changing marketplace.

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About Don Gordon

Don Gordon leads global Consumer Products industry marketing for SAP. Previously he led global Retail industry marketing for IBM. He lives in Philadelphia, considered by many to be the finest city on earth.