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The Craft Beer boom – first signs of trouble ahead?

Last week I was at Paddington station, heading out to the countryside on an uncharacteristically sunny day. Naturally I sought liquid sustenance ahead of my departure. Normally I pop into the excellent Mad Bishop & Bear for a cheeky ESB, but on this occasion I was enticed by an alluring new sign on the platform beckoning to me into what was advertised as a ‘Craft Beer House’.

The site of previously grubby boozer, it appeared to have undergone a welcome upgrade, along the lines we have discussed before in The Future of Travel is… beer. My sense of anticipation betrayed me in the heartier than usual shove I gave the somewhat creaky door. I shouldn’t have bothered. The disappointment was palpable; it hung in the air and etched indelibly on the faces of fellow punters who had been similarly duped. On the bar were Greene King IPA and London Pride. In the fridge was a broad sweep of nationally distributed brands, punctuated by a solitary bottle of St. Stefanus, itself clearly pining for more illustrious company. Now, I know the definition of what is and what isn’t craft beer is a little hazy in places, and I am not suggesting these are poor ales (well, maybe a little bit) but I certainly know this range cannot, in the slightest, credibly constitute the definition of a craft beer house. This is blatant piggy backing and frankly, a little worrying. As I swung on my heels and headed to the sanctitude of a rival establishment, it got me thinking. Are there signs the real ale and craft beer boom is overstretching itself?

The history of previous beer bubbles (sic) is not encouraging. Both here and the in the US, we have seen several examples of rapid expansion of craft, batch beer and real ale only for its’very popularity to sow the seeds of its undoing. The cycle flourishes initially but then overcapacity, competitive encroachment by the big players and ultimately declining standards and consumer disillusionment set in. Such conditions are not exclusive to beer. Cigars and whisky have suffered historically in a similar fashion, whilst you only need to peruse the supermarket shelves to see it happening in such ‘healthy’ areas as smoothies and organic cereals. In this respect, the current phase is showing some troubling early parallels.

The most fertile conditions for new microbrewery openings are actually tough economic conditions and tax breaks. Recession encourages those with limited opportunities elsewhere to branch out on their own, whilst fiscal incentives level the playing field with big Gorillas. No-one could argue that economic conditions are anything less than difficult right now, whilst Gordon Brown in the UK (progressive beer duty) and Jimmy Carter in the US (deregulation of the beer industry) past incumbents and justifiably much maligned leaders of their respective nations, earn a rare tick in the box here. Given this scenario, it is therefore not a surprise that there has been a surge of new brewery openings, with a record 1717 breweries on the Perfect Pint site at the time of writing. This has led to a wonderful expanse of styles and variety for the beer drinker, and one much appreciated by our users and well documented throughout the web. It has also given the complacent big brewer’s a welcome alarm call.

But, of course, just opening up a new brewery is not enough. Differentiation through quality and innovation is necessary as well as good distribution, and promotion (which is where Perfect Pint comes in!). There are some fabulous microbreweries, but unfortunately and increasingly, some decidedly average ones as well. In a tough market where pubs are still closing, this is an untenable situation. This has led to some unfortunate side effects as they seek to stand out in a crowded market. We are seeing brewers tripping over themselves to embrace rarer or more obscure (but not necessarily better) ingredients, an unhealthy arms’ race to develop the hoppiest beer, some frankly undrinkable novelty beers and other brews clearly developed to with the sole intention of grabbing headlines. This very innovation and experimentation is, in a number of instances, coming at the cost of purity and beer quality. That is beers’ very foundation and when it is compromised you are asking for trouble.

At the same time, as we anticipated in the Perfectpint.co.uk Top 10 Predictions for 2013,the big boys are fighting back – hard.  Not only are they vastly expanding their seasonal ranges, but they have increasingly begun to open their own pilot breweries and produce their own craft beer brands. Marston, Brains, Robinsons and Sharps have been noticeably prominent exponents of the art in recent months but there are many others, and it must surely be a priority discussion around boardroom tables for those who have yet to dip their toe. Some happily advertise their parent brewer affiliation. Others are arguably more underhand, with bold label designs and quirky names clearly designed to infer to the drinker it is of artisanal origins.  Followed to its logical conclusion, it can only be a matter of time before as in the US, the big players start to subsume the smaller (the highest profile and most controversial being Anheuser-Busch’s purchase of Goose Island last year).

Meanwhile, in pub land, aside from the faux craft beer bars that pushed me down this road, there a few creeping examples of what I will, for want of a better phrase, call ‘pump fatigue’. This is where reputable establishments, sensing and anticipating that real ale is one true growth market for long alcoholic drinks, have enthusiastically added extra handles to the bar. Whilst initially these might have gone well, as more and more pubs do the same they are finding the volume per pump is becoming a little compromised, the barrel a little harder to shift. As a result, quality, ever so slightly is beginning to become impaired. I don’t think it is unique to my area that one or two of my local pubs, whilst still being excellent watering holes, have been passing off some subtly flatter, fractionally tired pints of late. Once installed, the extra pumps are difficult to row back on, both for practical and credibility considerations. But row back they must or the damage to reputation can be terminal.

In the 1980s it was the decline in quality, over proliferation and above all lack of consistency that led to crash of the last cask ale boom. Real ale volumes regularly fell by double digits annually and its share of the alcoholic drinks market plummeted to less than 10%. A whole generation of new drinkers were driven away from the category and into the seductive embrace of lager.  More depressingly, it created fertile conditions for the birth of smoothflow and the rampant consolidation (and/or closure) of many a historic family brewer.

Now, I am certainly not suggesting that we are in for a repeat of these conditions, merely there are a few cautionary markers out there. Put simply, the emphasis needs to be, above all, on quality and consistency. If those are retained, real ale and craft beer can continue to prosper. Expansion needs to be disciplined and judicious. Microbreweries need to be careful in the number and nature of the new brews they bring out each year, be clear there is demand for the product and probably need some vertical integration (i.e. pub ownership) or other forms of guaranteed outlets to ensure consistent quality. Landlords meanwhile, need to ensure cellar and staff training are of the highest order and be contained in their real ale expansion, perhaps by adding craft keg or the wonderful array of bottled beers out there before installing extra pumps.

The good news is the industry, and the drinker, are coming from a huge position of strength. Let’s just hope that discipline and good management can keep it that way.

The brewing industries in many countries are undergoing dramatic changes, with increasing numbers of craft breweries challenging the traditional volume-based business model of major corporations.

In the US for example, more than 400 breweries opened in 2012, an increase of 17% from the year before. Craft beer continues to grow even when beer consumption overall is declining in many markets around the world. This certainly seems to be the trend in countries like the US, Canada, New Zealand and indeed Australia.

In 1990, the centralisation of the Australian beer industry seemed complete; three companies controlled the market and the whole country had just 11 breweries. Yet this seems to have been the turning point rather than the end state: 20 years later the craft beer sector had well and truly made its entrance so that by 2013, Australia’s beer industry consists of over 130 breweries.

The trend suggests craft breweries have found a niche market where the large breweries find it hard to compete. Craft beer is often differentiated by taste, as a food companion and by the raw material used to produce it. Enthusiasts sometimes refer to the common beers in derogatory terms as “fizzy yellow lagers”. Some may reject mainstream beer products based on a perceived lack of flavour; others reject it based on ownership of the label.

Some pub mangers around Melbourne refuse to serve beers that are not produced by small independent companies due to negative attitudes towards large multinational businesses, and a belief that craft beer can only be produced by small and independent businesses. Independent craft breweries have been able to make something positive out of their small size by framing themselves as unique and it is resonating with drinkers and pub owners alike.

While beer consumption in Australia has decreased steadily every year since 1979, consumers increasingly demand quality beers and the consumption of craft beers is increasing. ABC news reported that the consumption of craft beer in Australia is increasing by 6% every year. Nevertheless, the beer industry in Australia is still largely centralised, with multinationals SAB Miller (UK) and Kirin Holding (Japan) controlling about 90% of the market.

Yet it is this very high centralisation of the industry, where the large players can be regarded as “generalists”, that provides the opening for small players to enter the market as “specialists”. For craft breweries, such concentration of power in the industry is actually good news because these breweries serve a different market.

The specialists are often focused on selling more than just beer. They are selling an experience, quite often centred on educating consumers about beer styles and how to match it with food. As such, the craft beer industry is tapping into the monopoly of the wine industry as being the natural beverage to accompany a meal.

Beer appreciation, tasting and food matching is growing in popularity in Australia; it is also becoming an important part of tourist activities. For example, the festival Good Beer Week ran in Melbourne in May for the third year with rapidly growing popularity. The festival attracts beer tourists to Melbourne from around the country and overseas.

Large corporations are not ignoring craft beer, even if they generally serve a different segment of the market. The industry recognise that Australians are drinking different beer for different occasions, and craft breweries are leading the way by developing more styles and products to cater for this growing trend. In response, the large breweries are launching their own “craft” labels and buying out existing craft breweries.

For example, Fosters Group (owned by the world’s second largest brewing company SAB-Miller) has acquired one of Australia’s first craft labels, Matilda Bay. Similarly, Lion Nathan (owned by the Japanese giant Kirin Holding) acquired Little World Beverages, which operates two craft breweries, Little Creatures and White Rabbit.

Meanwhile, Australia’s leading retailers, Woolworths and Coles, have launched their own craft-looking beer ranges, Gage Roads Brewing Company and Steamrail Brewing Company. Time will tell whether these large companies can obtain a specialist position through telling genuine stories consumers will buy into. And yes, when it comes to beer, stories are important.

For specialist craft breweries, one of the assets of “smallness” is that they can afford to be more personal and local in how they brand their products. This personal and local touch adds a new dimension to conventional brand building theory in forming relationships with consumers.

An analysis of over 1,000 craft brewery labels from around the world revealed that the local and personal were key elements in the branding strategy of craft breweries. In particular, local and personal myths, including heroes and folklore, were key components of many craft beer brands.

For example, Bridge Road Brewers in Beechworth, Victoria, use local bushranger Ned Kelly as an integrate part of their brand and local storytelling. The attractiveness of mythology and the stories connected to place are also part of the romance that is the craft beer story. As such, an important brand element for craft beer is related to a sense of place.

Understanding craft beer branding does help to explain the attractiveness of a craft beer you have seen, but not yet tasted. Unless offered a taste by the bar staff, we have to buy a beer before we actually taste it. As such, we often buy the story before we buy the beer. A connection to a particular place helps humanising the brand and brings it closer to us.

To create closeness with consumers around local products through local history, heroes, stories and folklore enrich the ‘invisible landscape’: that perception of place and connection inside our mind what we envision when we think about a particular place, sparked by a particular brand. For example, the Trappist breweries in Belgium tell the story of beer produced in old monasteries by the trappist monks for hundreds of years.

A mystical “sense of place” blended with culture, tradition, religion and beer fills our minds. A sense of place brings to life emotions of identity, attachment and even dependence on place, and focuses on people’s own experiences and how they feel about it. Craft beer marketers, I would argue, are experts in emotive storytelling.

Another example of folklore comes from the regional brewery Holgate Brewhouse in Woodend, Victoria. The brewery is named after the owners, Paul and Natasha Holgate. Paul Holgate’s parents migrated to Australia from England in 1965, and the Holgate Brewery has created its sense of place and humanised the brand using the Holgate’s family folklore. Taken from the family coat of arms, a bull’s head and horns form part of the Holgate Brewhouse logo and label design.

Folklore suggests that a bull’s head on a coat of arms represents bravery, valour and generosity, while its horns represent strength and fortitude. These attributes personify the brand through the connection with the brewer. At the same time, however, the bull resonates with the farming area surrounding the brewery, thus communicating the story about the physical place where the brewery is located, as well as the owner’s family traditions.

The brand relies on the historical folktale about the Holgate family and a real place, both of which humanise the brand. Some consumers may connect with the story around the brewer’s British background and the many British style ales he brews, others simply to the brewery location. Either way, it allows the consumers to ‘pick and choose’ the elements that have a meaning for them, hence allowing co-creation – or buy in ­– of the brand narrative.

Why we drink the beer we drink is a fascinating question and one that may have several answers. But one thing that is clear from the way craft breweries market their beer is that it’s not only about taste: we are also buying the story before we actually consume the products, consciously or subconsciously.

http://theconversation.com/small-brands-big-impact-why-craft-beer-is-top-of-the-hops-13972