Comment - Beer - Defining Craft Beer
He's back, Back, BACK. After an absence of almost two years, we're delighted to welcome Larry Nelson, the publisher of Brewers' Guardian, back into the just-drinks fold. and, to kick things off again, Larry would like to talk to you about craft beer.
So, did you have a splendid Christmas? Good friends and family, enjoyable food and drink, squabbling over board games aplenty? And under the Christmas tree were there gifts that you really, really wanted, not just socks and ties but really cool adult stuff like single malt, skis and lift passes, and books to treasure?
On the off-chance that you were gifted with a dictionary - I’d consider this an excellent, and essential, gift if anyone’s listening - and you work in the brewing industry, the advice here is to either ask for the receipt, or re-gift it to a particularly irksome school-age niece or nephew. For, when it comes to definition, words today just don’t have the same meaning in the realms of beer than they do for the world at large.
Let’s start with ‘craft’, as in "Goose Island is a well-respected Chicago-based American craft brewer with a particular fondness for big, hoppy aromatic beers".
True enough. And then Goose Island was bought out by Anheuser-Busch InBev and, despite measuring out the same ingredients, utilising the same methods, and working with - by-and-large - the same personnel, overnight it was, in the eyes of US trade body the Brewers Association, no longer a craft brewer.
Why? Well, the BA’s definition of a craft brewer is broadly three-pronged: The brewer must use ‘traditional’ methods, in particular foregoing adjuncts; it must be ‘small’, to be precise brewing less than 6m barrels annually, and it must be ‘independent’, meaning no more than 25% of the equity is owned by a ‘non-craft’ brewer. Thus when Goose Island became an off-shoot of the ABI empire, it ran afoul (pun intended) of two of the three tenants of the BA definition.
Like it or not, multi-national brewers are becoming more intertwined with craft beer. As businessmen, they’d be crazy to overlook the continued success of the segment, with it routinely growing in double-digit percentages in the US. And, it’s not just Americans with a thirst for all things craft: stick a pin in a map of the world – Brazil, South Africa, Denmark, Italy, the UK, Australia, Japan, even South Korea – and you’ll find someone with a dream, a mash tun, and a willingness to cram more hops into a kettle than was previously imagined.
Broadly speaking, there are two approaches for multi-nationals entering the craft market. The first is to buy a producer outright, as with ABI’s acquisition of Goose Island.
The other practitioner of this model is Molson Coors, which owns two craft breweries in Canada, Creemore Springs and Granville Island, and is developing a craft beer unit in the British Isles, this month acquiring Franciscan Well, a little-known Irish micro.
The second approach is to take existing brands and market them as craft brands. ABI has taken this approach in the US. It is exemplified by Heineken’s work with Newcastle Brown Ale: it has now become an umbrella brand for seasonal variants in the US, starting in 2010 with Newcastle Summer Ale and Winter IPA.
In an interview with Brewers’ Guardian last autumn, Heineken CFO René Hooft Graafland welcomed the growth of craft beer as being good for the category, generating consumer interest as well as higher prices.
While these are market trends that can’t be ignored – hence the foray into seasonal beers - Heineken has no intention of acquiring craft brewers. To paraphrase Hooft Graafland, the danger in so doing is to kill the passion of the founders, the fun of making craft beers.
“With a brand like Newcastle Brown Ale we behave like a craft beer. We bring in seasonal ales, seasonal products and we say we are imported craft,” he said.
“So, you play the consumer trends that have created or stimulated craft beers but you do it in your own way.”
And then, there’s SABMiller, with its participation in all things craft beer limited to its American JV. (MillerCoors has its Tenth & Blake craft and import division, which includes Leinenkugel and Blue Moon Brewing).
In a recent interview with Fortune, executive chairman Graham Mackay succinctly encapsulated the deficiencies of being big – and the advantages of being small: “We have our own craft brands," he said. "We also look to selectively acquire, or form partnerships with, or cosy up to people who have incubated good businesses. It’s difficult for big companies to incubate small brands. That, at its heart, is the dilemma. To start a small brand in a credible, consistent, sticking-to-it kind of way is hard for big companies. That’s what small entrepreneurs do best.”
All of which is resulting in blow-back from the craft community. In December, the Brewers Association issued a statement headlined “Craft vs. Crafty” in which it lambasted the production and marketing of craft-like beers by large, non-craft breweries.
Huff and puff they may, but words alone won’t stop larger brewers from pursuing craft beer strategies. More substantively, in the first quarter of 2013 the Brewers’ Association plans to issue a list of breweries that qualify as craft producers, according to their definition. And, there have been mutterings about accreditation schemes, along the lines of a "this is genuine craft beer", or some such, that could be implemented to distinguish BA members from perceived interlopers.
Or perhaps definitions change. Here’s the rub: Is a multinational brewer capable of brewing craft beer? In effect, can they have independent business units, left to their own devices in terms of brewing creativity, which use their owner’s resources just for capex requirements, marketing support and distribution? The ‘best practice’ approach to acquisitions has been along these lines, the creative essence of the acquired craft brewery is best left alone. (Whether the acquirers can keep to this intent in their need for growth – well, the jury is out on this question.)
Nothing is set in stone. Keep in mind that the definition of a craft brewer has been changed by the BA substantively in one respect already. A few years ago, the cap on brewery size, to be deemed as ‘small’ was just 2m barrels. As Boston Beer approached that milestone, the limit was raised by the BA to 6m barrels. Today Boston produces around 2.5m barrels annually, accounting for more than one-fifth of US craft beer production on its own.
As craft brewers expand, as their founders start to wonder about how to further grow and resource their businesses – and this is true of any entrepreneurial enterprise in any industry – there is a need for an exit strategy. In other words, there will be further acquisitions, more Goose Islands to come. Is the BA prepared to excommunicate one and all from the craft brotherhood?
Or, there may be more imaginative outcomes – that big and small come together to create something unique. I’m thinking here of the partnership in Stockholm, of Carlsberg Sweden and Brooklyn Beer, backed by Investment bank D Carnegie & Co. The upshot is that the 9,000-barrel Nya Carnegiebryggeriet (New Carnegie Brewery) will open in Stockholm later this year, operated by Brooklyn with Carlsberg providing sales and distribution support. All three parties have equity stakes. Does working with Carlsberg make Brooklyn a non-craft brewer? Of course not.
Finally, does any of this matter outside the brewing industry? While there’s a community of American craft beer enthusiasts that numbers in the millions, in all likelihood there’s a much larger community of beer drinkers who simply enjoy good suds, be it craft, import or domestic, who haven’t given much thought to the definition of craft beer.
I’ll leave the last word here to Graham Mackay, who in the same Fortune interview recognised the perceptions of the craft community:
“There’s a huge debate in the craft world about us, all big brewers, because we’re like the enemy. We’re the other guys. They think we’re stealing their authenticity. What we say is, ‘Let the consumer decide.’ If we’re authentic enough for the consumer, that’s authentic enough for anyone.”
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