Competition in the Craft Beer Industry in John D
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Added on 2021-03-26
Competition in the Craft Beer Industry in John D
Added on 2021-03-26
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Competition in the Craft Beer Industry in John D. VarlaroJohnson & Wales UniversityJohn E. GambleTexas A&M University–Corpus ChristiLocally produced or regional craft beers caused a seismic shift in the U.S. beer industry during the early 2010s with the gains of the small, regional newcomers coming at the expense of such well-known brands as Budweiser, Miller, Coors, and Bud Light. Craft breweries, which by definition sold fewer than 6 million barrels (bbls) per year, expanded rapidly with the deregulation of intrastate alcohol distribution and retail laws and a change in consumer preferences toward unique and high-quality beers. The growing popularity of craft beers led to an approximate 5 per-cent sales volume increase in craft beer in 2017.1Yet, the overall beer industry had remained flat in 2017 with total beer sales dropping by 1.2 percent in the United States.2The craft beer industry, too, had begun to show signs of a slowdown going into 2018. While volume sales had increased by 5 percent in 2017 and annual growth had averaged 13.6 percent from 2012 to 2017, projections had slowed dramati-cally to 1.3 percent from 2017 to 2022.3Yet there did not seem to be a slowdown in the number of new craft brewers entering the market. Industry com-petition was increasing as grain price fluctuations affected cost structures and growing consolidation within the beer industry—led most notably by AB InBev’s acquisition of several craft breweries, Grupo Modelo, and its acquisition of SABMiller—and cre-ated a battle for market share. While the market for specialty beer was expected to gradually plateau by 2020, it appeared that the slowing growth had arrived by 2017. Nevertheless, craft breweries and microbreweries were expected to expand in number and in terms of market share as consumers sought out new pale ales, stouts, wheat beers, pilsners, and lagers with regional or local flairs.THE BEER MARKETThe total economic impact of the beer market was estimated to be 2.0 percent of total U.S. GDP in 2016 when variables such as jobs within beer pro-duction, sales and distribution were included.4Total revenue for the craft beer industry was estimated at $6 billion.5Exhibit 1 presents annual per produc-tion statistics for the United States between 2006 and 2017.Although U.S. production had declined since 2008, consumption was increasing elsewhere in the world, resulting in a forecasted global market of over $700 billion in sales by 2022.6Global growth seemed to be fueled by the introduction of differing styles of beer to regions where consumers had not previously had access and the expansion of demographics not normally known for consuming beer. Thus, exported beer to both developed and developing regions helped drive future growth. As an example, China recently saw a number of domestic craft breweries producing beer as well as experimenting with locally and regionally known flavors, enticing the domestic palette with flavors such as green tea.The Brewers Association, a trade association for brewers, suppliers and others within the indus-try, designated a brewery as a craft brewer when output was less than 6 million barrels annually and the ownership was more than 75 percentindepen-dent of another non-craft beer producer or entity. The rapid increase in popularity for local beers led to the number of U.S. brewers to reach over 6,000 CASECopyright ©2018 by John D. Varlaro and John E. Gamble. All rights reserved.
C-42 PARTCases in Crafting and Executing StrategyEXHIBITBarrels of Beer Produced in the United States, 2006–2017 (millions of barrels)YearBarrels produced (in millions)**Rounded to the nearest million.Source: Alcohol and Tobacco Tax and Trade Bureau websiteEXHIBITTop 10 U.S. Breweries in 2017RankBreweryAnheuser-Busch, IncMillerCoorsConstellationHeinekenPabst Brewing CompanyD.G. Yuengling and Son, IncNorth American BreweriesDiageoBoston Beer CompanySierra Nevada Brewing CompanySource: Brewers Association.EXHIBITTop 10 Global Beer Producers by Volume, 2014–2016 (millions of barrels)*RankProducerAb InBev**HeinekenCarlsbergCR Snow***N/AN/AMolson Coors Brewing CompanyTsingtao (Group)AsahiBeijing YanjingCastel BGIKirin* Originally reported as hectoliters. Computed using hL = .barrel for comparison; to nearest million bbl.** Now includes SABMiller; previous volumes for SABMiller in years and prior to acquisition were and , respec-tively, ranking it as second for both years.*** Was not in top for and .N/A:Not available.Source: AB InBev -F SEC Document, , , .in 2017—nearly triple the number in 2012. Of these breweries, 99 percent were identified as craft brewer-ies with distribution ranging from local to national. While large global breweries occupied the top posi-tions among the largest U.S. breweries, three craft breweries were ranked among the top-10 largest U.S. brewers in 2017—see Exhibit 2. Exhibit 3 shows the production volume of the 10 largest beer producers worldwide from 2014 to 2016. The number of craft breweries in each U.S. state in 2015 and 2017 are presented in Exhibit 4.THE BEER PRODUCTIONPROCESSThe beer production process involves the fermenta-tion of grains. The cereal grain barley is the most common grain used in the production of beer. Before fermentation, however, barley must be malted and milled. Malting allows the barley to germinate and produce the sugars that would be fermented by the yeast, yielding the sweetness of beer. By soaking the barley in water, the barley germinates, or grows, as it would when planted in the ground. This process is halted through the introduction of hot air and drying after germination began.After malting, the barley is milled to break open the husk while also cracking the inner seed that has begun to germinate. Once milled, the barley is mashed, or added to hot water. The addition of the hot water produces sugar from the grain. This mixture is then filtered, resulting in the wort. The wort is then boiled,
CASECompetition in the Craft Beer Industry in C-43which sterilizes the beer. It is at this stage that hops are added. The taste and aroma of beer depend on the variety of hops and when the hops were added.After boiling, the wort is cooled and then poured into the fermentor where yeast is added. The sugar created in the previous stages is broken down by the yeast through fermentation. The different styles of beer depend on the type of yeast used, typically either an ale or lager yeast. The time for this process could take a couple of weeks to a couple of months. After fermentation, the yeast is removed. The pro-cess is completed after carbon dioxide is added and the product is packaged.Beer is a varied and differentiated product, with over 70 styles in 15 categories. Each style is depen-dent on a number of variables. These variables are controlled by the brewer through the process, and could include the origin of raw materials, approach to fermentation, and yeast used. For example, Guinness referenced on its website how barley purchased by the brewer was not only grown locally, but was also toasted specifically after malting, lending to its char-acteristic taste and color. As another example of dif-ferentiation through raw materials, wheat beers, such as German-style hefeweizen, are brewed with a mini-mum of 50 percent wheat instead of barley grain.DEVELOPMENT OFMICROBREWERIES ANDECONOMICS OF SCALEAlthough learning the art of brewing takes time, beer production lends itself to scalability and vari-ety. For example, an amateur; or home brewer; could brew beer for home consumption. There had been EXHIBITNumber of Craft Brewers by State, 2015 and 2017StateAlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareFloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode IslandSouth CarolinaSouth DakotaTennesseeStateTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyomingSource: Brewers Association.
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