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Why Craft Beer Is Gaining Ground In The Beverage Industry

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Why Craft Beer Is Gaining Ground In The Beverage Industry

For many beer drinkers, once you go craft, you never go back. The battle is on between Big Beer and craft brewers, and while Big Beer still dominates, craft beer is making ground.

Budweiser, Miller and Coors are the big daddies in Big Beer for now, but craft beer is making a stand and gaining ground on these companies with each passing year. The craft beer market share was 5.4 percent in 2005 and grew to 8.7 percent in 2010, and gas continued to grow for the past four years. Its strong, fast uphill climb comes without the backing of multimillion-dollar marketing campaigns that include everything from billboards to Super Bowl commercials.

Over the same five-year time period, domestic premium beers feel from 45.3 percent to 40.9 percent. Wonder where that market share went?

But wait, there’s more. According to Demeter Group Investment Bank, while the beer industry as a whole has decreased by 3 percent from 2007 to 2012, craft beer actually grew 10 percent annually. Annually. And while 2013 was yet another 10-percent-increase year for craft beer, overall beer production still dipped 1.4 percent, signaling a resurgence of craft beer in spite of ailing times for Big Beer. Demeter reports that craft beer is projected to represent nearly 15 percent of the beer industry by 2020, assuming it holds to current growth rates. Other estimates are even more generous.

So what makes craft beer so great? And for that matter, what exactly is craft beer anyway?

What Makes A Beer Crafty?

What makes a beer a craft beer? Predominately, it’s the number of barrels of beer shipped that distinguishes craft breweries from Big Beer. Craft breweries ship fewer than 6,000,000 barrels per year, as compared to Budweiser’s annual shipments of roughly 30 million+ barrels of Bud Light alone. Because of its limited distribution, craft beer also tends to be higher in price. However, the common consensus is that you get more bang for your buck in terms of both flavor profiles and alcohol content, so the price for the quality evens itself out.

Another important aspect of craft beer is the focus on subtle and unique flavors, much like those of wine and coffee before it. Actually, to be deemed a “craft” brewery by the Brewers Association, most of the alcoholic beverages produced by the brewery have to be beers whose flavor derives from “traditional or innovative brewing ingredients and their fermentation,” which means no flavored malt beverages allowed. Craft beer is thought to be more “upscale” than the Big Beer brands in terms of taste, and it has even begun to be compared alongside fine wines in terms of quality of flavor, diversity of flavors, and even food pairings.

Craft Beer Budweiser

BudMillerCoors say they’re dedicated to the taste of their beers and even release certain products and advertisements to attempt to illustrate that point (Bud Light Lime, anyone?). But the fact of the matter is that these mass producers are far more focused on the bottom line than improving their arguably watered-down flavors. Craft brewers take the time to intricately, well, craft the flavor profiles of their offerings in ways that sometimes only a true beer enthusiast can really appreciate.

While there are notable exceptions, craft beer also tends to be local or regional in its distribution, and many vie for inclusion on bar and restaurant taps before grocery stores. One consideration for beer buyers is the region from where the brew came, so locality is something that is marketed on some beers as well, particularly in the naming of the beers to suit local themes.

Restaurants are also taking part in the craft beer craze, expanding their offerings beyond wine bottles and domestic beers to include craft brews on their menus as well. A lot of these restaurants are brewpubs, which is typically a smaller brewery that is conjoined with a restaurant. Generally, the restaurant sells the beer itself and sometimes even incorporates it into its recipes. New brewpubs have been popping up all over the country, but it’s the numbers for new breweries that are the most impressive.

In 2012, more than 400 new breweries were launched, increasing the total to more than 2,400 nationwide, plus there were another 1,500 in the planning stages. Amassed in just one year, this number is equal to the total number of the new independent breweries that were founded between 1996 and 2012 altogether. Also in 2012, 13 million barrels of craft beer were produced, for an increase of more than 71 percent since 2006. It’s clear that this beer phenomenon is not to be underestimated.

Craft Beer Selection 2

Continuing in this trend, craft breweries quickly multiplied to 2,768 operating in the U.S. as of 2013, and new craft breweries are opening at a rate of approximately 1.2 a day, or hundreds per year. In terms of retail dollar value, craft beer brought in $14.3 billion in 2013, which was 20 percent growth over 2012, bringing craft beer up to a total beer market share of 14.3 percent, well on its way to even surpass Demeter’s prediction of 15 percent by 2020.

Big Beer’s Attempts To Appease Craft Beer Lovers

The funny thing is, now even Big Beer is attempting to jump onto the craft beer bandwagon. MillerCoors has responded with Blue Moon, and Anheuser-Busch InBev with Shock Top, and the two have indeed quickly dominated the market for specialty beers. According to Business Insider, Blue Moon’s two million barrels represent approximately 15 percent of the craft market by volume, and Shock Top grew 100 percent between 2010 and 2011 and continues to gain ground.

Though these two beers arguably can’t compare to “true” craft brewers’ products, it shows that even the big guys know how big craft beer is and how big it will become in the coming years. It should also be noted that the names of these two brands’ corporate parents are conveniently left off of the label as to not sway potential buyers away based on Big Beer’s reputations alone. Many who do know of the brands’ true ownership claim them to be “faux craft,” merely imitations of the real thing that dupe craft drinkers into unwittingly contributing to lining the pockets of Big Beer.

Big Beer companies such as AB-InBev have also moved in on acquisitions of craft beer companies, such as its acquisition of Chicago’s own Goose Island in 2011, which caused a great stir among many Goose Island aficionados. Again, even Big Beer dutifully notes the shift of consumer preferences and is trying to adapt in every way that it can. These craft brewers often defend the decision to merge or sell by pointing out increase production and distribution capabilities, but many craft beer loyalists are turned off by such business ventures.

Craft Beeronomics

Another notable marketplace shift is the competition for craft beer. It is not entirely Big Beer, as is commonly thought, but in reality, it’s each other. Some of the bigger craft beer companies are expanding their territory from strictly local to other larger cities and beer markets, such as Lagunitas, who is opening a new facility in Chicago, projected to have the capacity to produce 1.7 million barrels per year. This introduction of Lagunitas into the Chicago beer scene could drastically affect the sales and production of local craft brewers, as Lagunitas can potentially offer a lower price for a still high-quality product.

Craft Beer Lagunitas

According to Patrick Emerson, who runs the Beeronomics blog, “As a cold-hearted economist, that’s a good thing—it increases the pressure to be exceptional.” In a strictly capitalist sense, this is good for the consumer, who will be offered a greater selection at a wider range of prices. But for the local craft brewer who can only afford to sell beer at a premium, this means higher stakes and pressure to produce a product that stands far above the rest, including its less expensive competition.

As a result, the sheer amount of choice for consumers is becoming almost overwhelming, from dozens of tap choices at beer bars to an endless selection at the local liquor store, which causes many craft brewers to get lost in their own market. But at the same time, this is opening up the doors to attracting still more craft beer drinkers away from Big Beer, which is a big reason for the rising industry’s success.

According to Demeter, craft beer is even reshaping the way beer is marketed, from brand before style to style before brand, just as retailers merchandise wine by varietal. Today’s consumer often chooses the style of beer first, such as IPA, pale ale, or wheat, before landing on a brand. This means browsing the liquor store or grocery store beer aisle will pull an IPA drinker to that style of beer first and then to the consideration of brand, alcohol content, region, and so forth.

Being locally or regionally produced in smaller amounts and with an intensity of flavor that arguably far surpasses the adjunct, light-colored “beer water” of its Big Beer domestic counterparts, craft beer is surging in popularity with Millennials and will continue to be a dominant force in the beer industry as a whole. Brewers are getting crafty, and beer drinkers are following suit, taking their business and the beer industry in a new direction—one that it will likely not stray from anytime soon.

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