The Macro-ization of Craft
Bryan Roth put on his green eyeshades, dug around the numbers, and has been cranking out thoroughly fascinating reports at Good Beer Hunting over the past few days. Taken together, they form an unmistakeable gestalt: there is nothing functionally different separating the business approaches of larger craft and national breweries. “Craft” beer has become big business, and breweries all consult the same playbook. This was inevitable and predictable, but that doesn’t make it welcome. More in that in a moment, but first, let’s consider the evidence.
Lord Hobo as Tech Startup
The first story is about Massachusetts’ Lord Hobo, a brewery founded in 2015. Conceived as a growth machine from the start, there is nothing about this story that would seem out of place in a story about a tech maker from Silicon Valley. Fast growth out of the gate to demonstrate potential, infusions of private equity capital, post-infusion worker layoffs to lower costs, a charismatic founder fawned over by the press, and promises of future growth that while theoretically possible seem implausible by close observers. Check, check, check, and check.
Like tech firms, the company seems to be pursuing growth rather than profitability, pushing into low-margin retail sales and appealing to customers by dropping prices. The founder boasts that Lord Hobo, now a $10 million company, will become a billion dollar brewery in ten years. Growth growth growth is the mantra, and the techniques used to get there come from a business 101 playbook. Not surprising—founder Daniel Lanigan was previously an account manager for Anheuser-Busch.
There’s absolutely nothing wrong with following a classic business playbook, of course—but it departs rather sharply from the starry-eyed approach of the early craft brewers.
Mass Market IPA
Article two discusses the latest IRI data, and what’s shaking in the top-performing category. There’s an overarching point to be made from Bryan’s data: IPA is by far the biggest slice in the “craft” pie, and the big guys are increasingly coming to dominate it. Half the top-ten selling IPAs are made by brands partly or entirely owned by multinationals—including the top three.
Bringing a Knife to a Gun Fight
The final story is in some ways the starkest. In this piece, Bryan addresses the large-pack format popularized by Founders’ 15-packs of All Day IPA. At first glance, it seems to be a nod to Sally’s Rule—it’s a bad sign when a brewery is selling packaging rather than beer—but actually points to a foot race happening among brewers scrambling to attract customers with ever bigger packages at ever lower prices. There’s a logic to this development. As breweries grow, they produce beer at lower and lower per-unit costs, and they can attract customers by passing those savings along. But as Peter Frost notes at the MillerCoors blog, entering a playing field marked by economies of scale may be self-defeating for mid-sized breweries.
That’s because suitcases have formerly been the province of cheap beer. But now that craft breweries have entered the space, ABI is happy to join the fray. With ten “craft” brands that each specialize in different styles, they can compete across the craft spectrum in any size package. Needless to say, ABI, with 20 plants continent-wide, the best distribution network in the country, and a sales force of legions, has a bit of an advantage on economies of scale.
Take the three pieces together and a picture emerges that might unsettle fans who have come to think of “craft” as something different from mass market lager. The reality is that as the craft segment grows, it begins to enter the mass market. IPA is a long way from catching light lager as the country’s best-seller, but it has grown large enough that big breweries can make it at scale. That was a potential ABI and others had a hard time unleashing, however, because large-format packages were seen as markers of cheap beer.
When Founders started selling 15 packs—or rather when those 15 packs started really selling—we crossed a conceptual rubicon. Since the outset of microbrewing, there has been a literal and figurative bright line separating it from mass market lager. People thought of them as categorically different products, and this was reflected by the way they were sold at the grocery store: bottled six-packs and 22s on one side, hulking budget-sized macro packages on the other. Founders, in introducing a budget pack of IPA, crossed that line and took the first step in dissolving the perceived-quality advantage the entire craft category had. That had allowed little brewers to charge more—which they desperately needed because of their inefficient little facilities. That perception is fading.
More and more, customers are going to think of “craft beer” as just beer, and expect to see it priced accordingly. And guess who’s positioned best to take advantage of that?