[Above: line of craft beers from Beaufort's The Digitel via Flickr]
Earlier this afternoon, Brewbound held a small gathering of beer industry professionals in Southern California to discuss, what else, craft beer. Here are some notes from the talks:
Kona President/CEO, Mattson Davis:
- Big Growth: Predicts there will be 3,000 to 4,000 breweries in five years but primarily hyperlocal/niche breweries and brewpubs.
- Why go hyperlocal? An anecdote on ‘horizontal growth’ to new markets: First year on West Coast, sales doubled. The next year, sales grew by only 800 barrels.
- Played down the fact that most of Kona production is outside of Hawaii at CBA breweries in Pacific Northwest. Says authentic origin of the brand is more important to the consumer than source of the beer in that glass. Cited anecdote that drinkers he talked to about Corona said it was brewed in Chicago. Davis may have been making the point that people have no idea where beer is brewed and don’t care. Corona is produced in Mexico.
not only didn’t care that it was brewed in Chicago, they already knew.
- As part of that discussion, called out Maui Brewing, saying not to put retailers in the middle of squabbles. For context, as part of its marketing/press releases, Maui says the following: “Maui Brewing Co. is one of only two truly local Hawaiian breweries, brewing and packaging 100% of product in the state. Maui Brewing Co. and Hawaii Nui (on the Big Island) are very proud to be wholly produced ‘on-island.’” Kona obviously doesn’t like that messaging as it refers to them.
First Beverage Group CEO, Bill Anderson:
- Read recently that it will take $1.5 billion in capital investment (read: expansion of brewing capacity) to grow craft segment from 5% market share to 10% market share so get ready to see more players getting into the game
- Says there is no shortage in investors that want a piece of the craft beer pie. Hears from private equity firms once or twice a week about wanting introductions (doesn’t think they’re a great culture fit in craft industry so usually says no). Recently heard from large international company (they’re coming) and three “large family offices” in New York that want in on craft. Why so interested? They see huge growth potential in high-end and the allure of large iconic brands that are culture-impacting like New Belgium.
- Doesn’t feel that Magic Hat sale to private equity firm, KPS Capital, will serve that brand well. Will take the right kind of investor to pump money into a brand and not damage image. That said, panel later alluded to fact that Goose Island sales haven’t been affected by AB sale. Also, if I recall correctly, Magic Hat numbers have been strong this year. Slightly related to this discussion, more insight on the Magic Hat-KPS deal from Magic Hat Founder, Alan Newman.
- On things that could weigh down craft segment long-term…
- Big beer is in great danger of losing millennial generation completely to wine and spirits and its poor image limits ceiling of craft beer (low brow, masculine marketing that has especially turned off women)
- Shortage in strong domestic leadership atop the U.S. beer industry. Says he recently put New Belgium, CEO, Kim Jordan, on the spot on this issue.
- Increased in-fighting between beer industry stakeholders and even between craft brewing companies
- Limited access to market. In regard to brewers finding distribution in light of AB seeking increased exclusivity, sees a critical need for craft-centric distributors going forward. MillerCoors and AB have enough control of distribution that they ultimately control how much craft will grow.
- Growing trend of brand promiscuity is bad because it will scare off investors that are willing to put in lots of money hoping to build a big brand [which some would argue is a good thing but it goes against 10% market share tenets.]
- Private-label crafts will confuse customers who seek craft.
Tomme Arthur, Co-Founder & Director of Brewery Operations, Port Brewing:
- This actually came prior to his panel session…Arthur asked a panel about whether craft breweries should try to distance themselves from AB-MillerCoors cat fight by building up an “ultra-premium” segment. He alluded to the potential for craft brewers to command pricing similar to what wine and spirit producers charge for limited edition products (well above $100/bottle). He said nothing about whether The Lost Abbey has plans to do this. Kona’s Davis answered, didn’t have much to offer other than the price ceiling will continue to creep up.
- Spoke to challenges they face in keeping old customers happy while serving new ones as the brewery grows past 11,000 barrels this year. This despite not having a single sales rep outside of local market (distributed in eight states). Noted that they struggle to get consistent attention at some accounts as a specialty brand.
John Bryant, formerly with Odell, Oskar Blues & Deschutes and CM Profit Group, Partner, Tom Fox:
[These guys spoke about strategies at retail]
- Breweries must know what message they will bring to market and weave stories around their brand, their products
- Storytelling is critical but so is bringing in facts/stats to boost your case. Also, placements don’t grow on trees. They’re limited so if you want space at a retailer, know whose placement you are taking and the data to back up that the brand is a slow mover.
- Attractive qualities in brands that retailers like: volume growth, dollar profit above growth, attractive image, a driver of a larger “market basket” (craft consumers spend more money), gateway ability (make buyers of lower-margin products trade up to higher-margin products). Every decision maker at a retailer is different so some factors will be more important than others depending on who it is.
Jason Mussetter of Mussetter Distributing:
- Spoke about importance of new breweries building brand in the on-premise channel and in sampling. Most new breweries will have to give away a lot of beer as part of sampling.