March, 2005
Success! And How to Go Further.
”The challenge for the industry is clear enough: to teach
Americans about the product’s traditional uses at the table. We have
to sell it as art.”
The craft brew numbers are out, and they're big. The sales
numbers for 2004 show that sales of beer by craft brewers, a group that
includes everyone from Boston Beer Company to your local brewpub,
were
up by 7.0%. That's doubling last year's growth (around
3% and change) and it still represents a steady string of 35 years in
which craft brewed beer (whatever it was called in those 35 years, we
knew what it was) showed volume growth, regardless of what you may have
heard. It wasn't much some years, but it always grew.
What does 7% growth mean? Well, it means that in 2003 there
were 6,563,461 barrels of craft beer produced, and in 2004,
the number went up to 7,023,651 barrels, a total of 460,190 more
barrels last year, barrels that hadn't ever been sold before (I
know, none of them were, but an amount of barrels, new barrels
sold). Barrels are kind of weird, though, no one really drinks
barrels, so let's look at something a bit more easily understood. For
instance, that's 6,340,395 new cases of 12 oz.
bottles sold, or 14,265,890 gallons of new beer...no, wait, let's
put that into terms most of you understand better: 28,531,780 growlers
of new beer sold. And at an average of three minutes per fill, that
would take your local bartender 163 years to fill them up. Hmmmm....maybe
we better have a few pints while we're waiting: That's over 114 million
MORE pints of craft-brewed beer sold last year than was sold the
previous year.
Our joy is made more complete when you compare the
numbers. For instance, craft-brewed beer grew more than wine did
in 2004. Wine eked out 2.7% positive numbers, not bad, winemakers,
but hardly craft beer territory... and neither is spirits'
growth of 3.2% (although with spirits, I'm kind of glad to see
continuing growth there again; been a long time.) That's great news in
the face of beer's overall continuing doldrums (thanks, dead Dr.
Atkins). Mass market beer -- A-B, SAB/Miller, Coors -- rose a trifling
0.5% on volume, and imported beers, the segment that's been
on a wild double-digit tear for ten years, rose only 1.4%.
I like imports as much as the next guy, and
I've got some in the fridge, but the huge growth over the past 12
years, the bulge in the curve, is all about Corona and Heineken.
Two beers that are both fine examples of their style, but they're just
not that different from all the mainstream beers already sold here.
They just don't excite me as much as other imports, like British
bottle-conditioned ales, Belgian oddities, and German weizenbocks.
Imports are being hit by the weakening of the
dollar, of course, but they were off quite a bit in 2003, as well,
so something more is up than just currency rates. What makes it
even sweeter is that there are no qualifiers this year. Before, the
argument was always made, "Well, yes, but it's percentages.
Crafts are a much smaller volume, so a small increase makes for a
much bigger percentage uptick." That's true, to a certain
extent. Belgian imports, for instance, were on a huge growth curve
for a while, similar to the 30 and 40% growth craft brewing experienced
in the early 1990s, and for an identical reason: when you're only
selling 30,000 cases, 10,000 cases more in a year looks HUGE in
percentage growth, but disappears in the overall market.
Sorry, that doesn't work this year. Why not?
Let's look. Imports are 11% of the total market, which means they sold
23,849,827 barrels of beer last year. That's a lot, but it's only
332,108 more than in 2003. Craft brewers are 3.3% of the
total market, which means they sold 7,023,651 barrels of beer last year,
about a third of what the importers sold. Not much, but it's 460,190
barrels more than in 2003. That's right: craft-brewers beat
imports on percentage growth AND actual volume growth last year. Can
I have a big "WHOOOO-HOO!!!" over here?
So we have craft brewers clearly leading the beer
market for the first time in 10 years. And ten years ago, these guys
were young scramblers, without much of a clue on what a market even was.
Now they're established community members, they're selling beer
to people of legal drinking age who have always known about craft beer,
they're making good, consistent beers. Craft brewers have made a
good start on the process of figuring out what they need to make
to sell to a wider public, and they're getting out there in the market.
They have staying power, they have decent sources of funds,
they have credibility.
What they're lacking is vision. No, not when it
comes to creating new beers, although sometimes I wish they'd ease up on
the whole innovation thing -- how many double-hopped bourbon
barrel-aged twin yeast strain chamomile-spiked doublebocks does the
world really need? Where American craft brewers are letting me down,
letting you down, letting themselves down is in market vision.
Craft brewers are scared to think big.
I remember when we used to joke that the
craft-brewing growth rate couldn't keep up; if it did,
Anheuser-Busch would be out of business in 20 years! Brewers were
growing 35 and 40% each year, everyone was brewing beer as fast as they
could. What happened? Did people stop drinking the beer? No. What
happened was that too many people got into the game. The margins
dropped because people discounted to maintain sales numbers, and brewers
fixated on volume numbers instead of beer quality and profit.
Once discounting stopped, sales began to recover because beer got
better: marginal producers dropped out, brewers became more
experienced, the pressure stepped down a notch or so. The potential
never went away...but brewers got cautious.
That puts us in the paradox of brewers leading
their market in growth, but being afraid to step up and reach for
what could be theirs. You don't hear that kind of caution from A-B. They
openly declared in the early 1990s that they intended to be at
50% of the U.S. beer market; this at a time when they were still
hovering around 45%. They've reached that goal, and they're
moving past it, in the face of strong, unexpected growth from the
imports.
What do we get from craft brewers? "Well,
we might be able to get to 15% of the market, but 5% is a more
realistic goal. We might make that in 5 years or so." Come
on, people! You are not going to do the kind of thinking you
need to do with an attitude like that. There are exceptions, of course: Greg
Koch at Stone Brewing is an obvious one, and the folks at New
Belgium are another. But all too many American brewers just
can't seem to imagine a future in which they are a significant
chunk of the beer market.
I have been absolutely fired up about this in the
past six months by having read a book. The book is American
Vintage, by Paul Lukacs. It's a history of the American wine
industry. Sound crazy? I'm not going wine-boy on you, listen
to this. Forty years ago, wine in America was like beer is today:
mass producers of very well-made but run-of-the-mill table wine
(Gallo Hearty Burgundy) and crappy fortified wines (think Thunderbird),
a large import segment made up mostly of table wines in pretty
bottles with a small number of truly excellent and varied wines, and a
number of small producers who were trying to produce great wines in
America, with an American style all their own. Sound familiar?
Now, look at the American wine market today.
It's all about varietals, quality, and difference, it's about
wines you don't even have to think twice about buying. Jug wines and
fortified wines, which were over 80% of the market forty years ago, are marginalized
fringes that people joke about. People used to joke about
wine. Drunks were called "winos," anyone remember that? No
more. America's small winemakers had a vision, they thought -- knew
that they could interest the American public in better wine. They
succeeded spectacularly, to the point where now the world makes its wine
the way America does.
That's the kind of vision America's craft brewers
need today. I'm hoping I hear that kind of vision at the Craft
Brewers Conference in Philadelphia next month. But I'm afraid I'm going
to hear people who have a vision of 15% of the market hooted
down as crazy. "Business" has crept into the offices of
America's small brewers, and it is strangling their passion. You cannot
run a successful brewery without good business practices, that was
proved over and over in the past 25 years. But you by God cannot run an innovative,
driven, paradigm-changing brewery without the passion, either.
Thesis, antithesis, synthesis. I see Hegel's
triadic vision of the progress of thought everywhere in history and
current events. There is a thesis: Let's make great beer, the
best beer, and people should love it because it's great beer! Then
there is the antithesis: We can't make great beer, we have to ease
into good beer, the kind of beer people already like, or we'll go out of
business and we won't make any beer! Finally, there is the
synergistic and transcendent synthesis: We can make great beer, and
work as hard and smart at selling it and explaining it to people as we
do at brewing it, and we will have a prosperous business that makes an
excellent beer.
Success requires both business and passion.
Leave either one behind, and you lose. The big craft brewers are where
the growth is: regional specialty brewers grew 10.5% in 2004. I hope
that gives them the confidence to regain their vision.
There's nothing wrong with making bold predictions: you may sound nutty
now, but if you're right, 30 years from now, you'll look like a flippin'
genius.
7% is GREAT. I hope it's the boost this industry
needs to plan for a future in which it dominates the American beer
market. Why not? The beer is great. More people realize it every
day. Why would that stop now?
Oh, I almost forgot. That quote at the beginning?
It's from 1962, spoken by a man who has real vision: Robert Mondavi.
