The Economist's View of Widhook

At the Oregon Economics Blog, Patrick Emerson suggests a factor I hadn't considered:
The question will be, do consumers love variety enough to shell out $9 for a six pack of Dead Guy versus $5 for a six of Broken Halo? (Psst...go for the Dead Guy) I fear the answer to that question, for it is one thing to have brew-pubs where you can find quality, interesting craft beer, but it is another thing to find it in supermarkets (especially when you have two young kids and pubs are not so easy to frequent).
A question arises: will Broken Halo sell for less, or will it just be more profitable at $9? Looking at the other two bigs in the market, Sierra Nevada and Boston Beer, I don't see the efficiencies of scale getting passed along to the consumer. They seem to sell for about the going rate. Of course, if hops and barley squeeze the market, lowered production costs may make the difference between survival and bankruptcy.

A more likely scenario is that Widhook will roll its savings from production costs into muscle to break into new markets. It is difficult to find shelves in places where breweries have no track record, so they often have to sell to retail at drastic discounts for a period of time while they build a consumer base. This loss-leading strategy necessity means only larger companies have the capital to break into new markets. (The Fat Tire assualt on Portland from a few years back is a case in point--New Belgium didn't enter a market where there was huge demand; they tried to saturate the city with supply in the hope that it would create a market.)

Will that affect small breweries elsewhere? Could be. But there's another possibility, too. In places where there is effectively no market for craft beer, the arrival of two more national brands--along with Boston Beer, Sierra Nevada, maybe Anchor and a couple of faux micros from A-B--it might actually help create one.

Patrick's hypothesis isn't one I'll dismiss. Widhook could spend its capital consolidating existing markets. But it could also use it to create new ones. The former is bad for small breweries, but the latter could be good for them.
Jeff Alworth7 Comments