The Thirsty Beagle: Dispatches from the road: Part 2

Wednesday, May 11, 2016

Dispatches from the road: Part 2

Yesterday I shared with you Part 1 of the Craft Brewers Conference recap from Marshall Brewing's Wes Alexander.

Today, I bring you Part 2, where Alexander digs into the state of the country's craft beer union.

Give it a read:

Readers Note: While my first report was fairly flowery, filled with experiences of visiting breweries and experiencing wonderful hospitality, the conference itself dealt with industry issues. Some may find this reading a bit dry as it is driven by facts and conjecture. If you have trouble getting through the report, pour yourself a craft beer. Still having trouble? Repeat as necessary. Cheers!

The Craft Brewers Conference officially began Wednesday, May 4th in the Pennsylvania Convention Center with the opening address offered by Bob Pease, CEO of the Brewers Association. Pease advised that there were more than 13,000 conference attendees. A stark contrast to the 2,000 attendees just a decade ago in Seattle at CBC.

In his State of the Union-style address, Pease offered that the top mission of the Brewers Association and craft brewers was to change the culture of the beer drinkers in our nation. Mission accomplished. 

“Small brewers are job-creating machines in small local markets,” Pease declared, demonstrating that craft beer was now highly visible and an economic engine across the U.S. Pease went on to further caution craft brewers that while we have grown and strengthened our industry significantly, we must not rest on our laurels. In his final thought, the CEO opined that “mega brewers” were working to become “ultra mega brewers” through acquisitions and seeking to limit access of craft brewers to market and ingredients. Pease promised the Brewers Association would fight for fairness for small brewers.

Next up was Brewers Association Chairman of the Board Rob Tod of Allagash Brewing. 

“Today with members from small and large brewers our board is truly representative of our industry,” Tod explained as a few board members from larger craft breweries transition out due to term limits. Seats are also being vacated by members that are acquired, such as Devil’s Backbone with their recent sale to AB Inbev.

Craft matters

The Brewers Association does not define what a craft beer is, rather defines what a craft brewer is. It is ultimately up to craft beer lovers to define craft beer. The purpose of defining a “craft brewer” is to know who to protect from threats and promote as small, independent and traditional.

Tod extolled: “Craft is about who brews the beer.” This echoes sentiments that we have felt growing in the industry over the past several years as the quality of the beer available across the country has risen significantly. With this, we are hearing consumers choosing beers based on the personalities of the brewers they prefer to support.

Tod’s final thoughts on craft matters are rolled out with his use of the term “indie craft beer.” A phrase crafted to remind consumers that some of their favorite breweries have been acquired by mega brewers, and though their beer may be considered craft, their ownership decidedly isn’t.

So why is this such a big deal? Mega brewers have been working to limit access to ingredients, materials, and the marketplace. While mega brewer acquisitions of previously held “craft brewers” offer those acquired companies increased access and a distinctive advantage, the real threat comes in the tactics used to do so.

Simply put, the mega brewers do not play fair. The choice is in the consumers hands as to who they choose to support. Tod, and many others hope that choice is “indie craft beer.”

State of the industry

Paul Gatza, director of the Brewers Association, opened his address in a somber mood and announced the theme for the 2016 State of the industry offers “mixed news,” before handing the presentation to Bart Watson, chief economist for the Brewers Association. Watson began by proclaiming, “The American beer market is the most innovate and creative market in the world.”

Craft beer growth

2015: Craft beer share of the market in terms of dollars = 21%

2015: Craft beer share of the market in terms of volume = 12%

In 2015, growth in craft beer slowed from 18% to 13% over the previous year. A contributing factor relating to the slowed growth is that craft has grown to the point where significant growth means adding a ridiculous amount of production and sales to keep pace. 

In 2015, craft beer added 2.8 million barrels sold. The outcome is that while growth slows, year-over-year the volume is increasing. A positive and healthy sign. Another factor affecting growth is the loss of several craft brewers through acquisitions moving their volume outside of the craft beer umbrella.

Warning signs

While craft beer looks healthy with significant growth in the number of breweries opening and growing, and increased access to consumers, there are still concerns for the future.

2012: 2,100 craft brewers

2015: 4,400 craft brewers (6,000 TTB licensed brewers... More are coming soon.)

More than doubling the number of breweries in a few short years has lead to only 2% growth of volume. Are we cannibalizing ourselves? Are we introducing new folks to craft beer? These questions will remain unanswered for now. However, the growth in the number of breweries forces brewers to continue to stay focused on improving quality and innovation. Finally, as craft beer drinkers, we relish selection. More brewers equals more selection.

Concerning trends

“People getting into craft that don’t care enough about the beer as they do the business,” Gatza said. This is a huge concern moving forward as craft has all the attention of the beverage industry. Attracting investors and banks is easier than it has ever been, harking to a time in the 90s before the dot-com bubble. 

Access to market

The sheer number of breweries and brands is straining the wholesale and retail system. Where most brands historically have found their way to market, it is no longer a guarantee. Distribution channels are clogged and AB Inbev is threatening to squeeze craft beer out of their tied distribution houses.

Reason for optimism

-“Customers love craft," Watson said. "Customers will defend craft from those that try to threaten our ranks.” 

-Demand is on our side. Craft beer drinkers understand and demand craft beer. This simple fact cannot be overlooked in the face of access to market concerns. 

-Craft beer is driven by demographics. Each year drinkers come of age during the craft beer revolution, we gain craft drinkers for life.

-Craft beer means local highly valued manufacturing jobs. Craft brewers employ more than 120,000 folks with manufacturing jobs.

Final thoughts

Acquisition was on the tongues of most people at the 2016 Craft Brewers Conference. Acquisition is tough to see as a brewer and for craft beer lovers alike as it creates an emotional response. Paul Gatza remarked that the news of some acquisitions made him feel “crappy.” The good news is, that as consumers you have a choice, and many of them. Choose to support independent craft brewers.

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