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October 18, 2011


I recently saw the movie “Moneyball”.   It’s a great story about how Billy Beane, General Manager of the Oakland Athletics, changed the game of baseball.  Billy decided that the old school way of looking at the game was not going to allow the Oakland Athletics to be competitive with teams that out spent him 3 to 1 in regards to players’ salaries.  He developed a system to statistically analyze the performance of players unlike any other team.  The result of this new process was the American League West Division title, 102 wins and a record setting run of 20 wins in a row.  Billy Beane looked at the game differently and changed baseball, much like many of the craft brewers are doing today in the beer industry.

While growing at 15%, the Craft beer category is changing all aspects of the beer industry that is declining at 1-2%.  It appears that the consumer does not have the excitement for the mainstream premium category as craft brewers are the focus of attention throughout all aspects for the industry.  So what impact is the growth of the craft brewers having on the total category?  There is no question that the craft industry is directly impacting how distributors go to market, how larger domestic brewers look at the industry, and how retailers market products.   

Like the Oakland Athletics, (a small market team) craft brewers (an overall small part of the industry @ 6%) are forcing everyone in the beer industry to change how they approach their business.  Many distributors recognized this trend years ago and began adapting their approach to the market.  In many situations the MillerCoors distributors realized that they needed the additional volume that Imports and craft brands brought just to be competitive with an Anhueser Busch distributor that had a 50 market share.  While growing in market share through acquisitions was the initial goal, the MillerCoors distributors soon found this category accelerating, resulting in a share of the profit pool greater than their AB competitor.  Since this change during the late 90s distributors realized that the addition of a craft portfolio to their premium lineup allows them to be much more profitable in addition to broadening their appeal to the retailer.   As a result of the craft beer growth, distributors have built infrastructure to accommodate a broader portfolio, developed specialist to work with retailers and no longer give the major suppliers their undivided share of mind.  The growth of craft brewers has changed the game with distributors giving them another opportunity to grow their business outside of their core domestic premium brands.  In essence, the craft segment has given distributors an insurance policy that has afforded them both volume and margin growth during a time where their primary suppliers have not grown in volume.  The current growth of craft brewers is not unlike how the import category grew in the late 80’s.  Today the import category is at least 15% of the industry and is a significant contributor to the distributor’s profits. This change with distributors has in turn forced the major domestic brewers to look at the industry differently.

If the Craft Brewers are the equivalent to Billy Beane then I would think the large major brewers would be the equivalent to the baseball establishment in 2001.  The old school teams had historically been successful in drafting players based on how their scouts had evaluated them and were reluctant to change until the Oakland Athletics began winning.  Success of the Craft brewers has forced the major brewers to address a category they had historically paid little attention to.  As the saying goes “if you can’t beat ‘em join ‘em” and that is exactly what these major brewers have done with brands of their own and built an entire separate division with a craft beer mentality.  While these changes have allowed the major brewers to get into the craft segment they have yet to achieve the success of the smaller brewers. Because of their marketing expertise, brewing knowledge, financial capability, and distribution networks the larger brewers will in time excel in this category.  A good friend of mine who is a beer distributor as well as a Gallo wine distributor suggested that the major brewers of today are a lot like what Gallo was 10 years ago.  At that time Gallo focused much of their efforts on the lesser expensive box and jug wines but as the fine wine category grew they shifted their focus.  Today Gallo has either developed or purchased a number of the fine wines on the market today.  Although the consumer may not be aware of it, Gallo is a dominant player in the fine wine category today.  Like Gallo did in the wine industry, I foresee the major brewers changing their approach to capitalize on the growing craft segment. While the major brewers will eventually grow in the craft segment, today they have lost ground in the fact that their distributors have moved away from being singularly focused on their brands.  Where they could once dominate and control a distributor’s sales efforts, in today’s environment they have to share the attention with other brewers who may be growing at a faster rate and offering a better gross profit per case.   Despite losing this singular focus I believe the major brewers can benefit from a multiband distributor as their appeal to the retailer is much better than one whom only offers only a domestic premium portfolio.  While no longer having the total focus from their distributors big brewers do gain by having distributors with better beer knowledge.

What the fans got out of the way Billy Beane changed baseball was a more exciting version of what they always enjoyed.  There were younger and more excitable players playing the game, which translated into wins for the Oakland Athletics. Today’s retailers have seen excitement added to the beer category as a result of the entire craft segment growing.  The challenge for retailers is the overwhelming number of brands and balancing the growth of the craft category while trying to maintain focus on the premium segment.   Retailer shelf space has always been a battle ground for brewers and distributors with the challenge now being how to maintain space for the volume domestic brands while giving the growing craft segment their appropriate exposure.  The retailer must focus on brands that add incrementally to their volume versus those whom may take volume from other brands that are already offered.  This is why in the short term Craft brands should grow in regards to retailer space and focus.  

Like Billy Beane the Craft Beer segment is changing an industry forever.  Going to market the way you have always done it will result in losing out in the craft beer growth.   Like those in baseball who needed to change to catch up with the Oakland Athletics, brewers, distributors, and retailers of today need to change and participate in a category that could be 20% of the beer industry in 10 years.              

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