As you sit in the sunshine at your local pub having just queued 3-deep to get your tipple of choice, you may not realise that beer consumption is at a 65-year low in the Australian beer market. Australia’s favourite alcoholic beverage, wine, has knocked beer off the top spot and it’s also losing more and more fans to its fruitier cousin cider. This isn’t just a change in Australia’s drinking habits – the trend is being seen all over the Western world.
Traditionally the Australian beer market has been highly concentrated and largely produced for Australian tastes and consumption, with brand giants such as Tooheys and VB being the nation’s favourites. The Australian market is largely a duopoly between Lion (Tooheys, XXXX, Hahn Super Dry, Little Creatures, James Squire) and Carlton and United Breweries (VB, Carlton, Crown) which together command almost 90% of the market and traditionally produce full strength beer, representing 88% of the beer consumed in 2013. All you need to do is look at the tap beers in your local. Commonly, a pub aligns with one of the big breweries which then own rights to 80% of their beer taps, allowing the pubs to choose the remaining 20%. Pub managers wouldn’t run the risk of stocking anything but the competitors “big beer” for fear of ostracising punters who have dedicated a lifetime of drinking to the other brand.
However, the market is seeing a shift in consumer trends towards lesser-known craft beer brands. While the craft segment still has a seemingly small market position (<5%) Australian researchers at IBIS World have forecast craft brew revenues to grow 5% per annum for the next 5 years. Recent announcements that two giant brewing groups are merging (Anheuser-Busch InBev and SABMiller) suggests that big things are stirring and the traditional mind set of economy of scale – bigger, more efficient distribution and operations – Is not being hampered by the rise of craft beer.
Craft beers (also known as Artisan, Micro or Nano) have seen a resurgence in the past 5 years. Historically, the word conjured purposefully forgotten memories of tasting an “enthusiasts” home brew, or a decision to save some money at the supermarket, only to get home and instantly regret your frugality. Nowadays, craft represents the consumer’s choice of quality over quantity – it allows one to show their individuality, his or her diversity and maturity of their pallet, and makes a beverage-laden statement to those who care to notice.
Realistically, craft beer has been around for centuries and is showcased nowhere better than in Belgium. In fact, little known to most “casual” drinkers, is that a very specific sub-type of beer is lauded the world’s best – Trappist. Trappist beer is made by Trappist monks who trace their roots to a monastery in 17th century France and have since spread globally, sharing one main concept behind their lifestyle – that the abbey should be self-sufficient. This has led to a variety of innovations but none as famous as their beer, and no beer as famous as Westvleteren 12 which has been rated the best beer in the world for several years. But before you start googling local stockists, I’m afraid to say you can only purchase Westvleteren 12 from the Trappist Abbey of Saint Sixtus in Vleteren, Belgium, in person by appointment at a maximum of one crate per person.
So whilst “big beer” sales seems to have taken a hit recently, the past few years have seen a huge upsurge of excitement around creative brewing and radical new beer styles. Australia, Britain and the US are now firmly in the grip of a craft beer revolution, and supplying the revolution are small breweries. Although they are small, craft brewers are portrayed confidently in the media. They love the taste of their beers, they relish the story behind them, and many of them have a very non-business-like feel. While they know they need to turn a profit, they prefer to be proud of what they make than chase a larger share in an ever competitive market.
This being said, there have been some real success stories of start-up craft brands being sold to the big groups, or aligning with them to increase opportunity to scale. Examples include Little Creatures, owned by Lion, and Mountain Goat which was purchased by Asahi in 2015. In the UK, Meantime Brewing Company sold itself in 2015 to SABMiller to expand production due to increased demand. However, recent speculation reveals the brewing giant may sell the brand in order to meet European regulations over their merger, a typical concern for a small brand being bought by a big one?
So what does the craft beer revolution mean to big breweries?
Strategically it can be seen that large beer manufacturers are already implementing strategies to retain their market share. Examples of this from the US include:
- Create your own “craft” brand
- Shock Top beer is a US award-winning Belgian white beer, but not well known is that it is Anheuser-Busch InBev’s best-known faux craft beer
- Absorb craft brews that require help to meet demand
- Generally speaking, craft beer diehards call this ‘selling out’, but these brands vigorously proclaim that their quality and dedication to customers won’t diminish as the result of a change in ownership
- Defend macro brews and bash the craft snobs
- Interestingly, Anheuser-Busch InBev ran an ad campaign during the 2015 Super Bowl mocking craft beer. The slogan ran, Bud “Proudly a Macro Beer,” while stating “it’s not brewed to be fussed over”, “it’s brewed for drinking, not dissecting” and a last piece of advice to “let them sip their pumpkin peach ale”.
- Control distribution
- In October 2015, Reuters reported that the U.S. Justice Department is currently conducting an investigation into allegations claiming that Anheuser-Busch InBev is violating antitrust regulations by purchasing distributors and only distributing its own products.
Perhaps most interesting to those of us operating as Consultants in the industry is what effect this will have on brewing operations. Declining sales in “big brands” and growth predicted in smaller craft beers may offer opportunities to support larger breweries delivering value to their shareholders. Some considerations may be:
- Smaller production runs of larger variety will need world class changeover performance
- Reducing volumes will drive the need for leaner operations to retain profitability ($/carton)
- Optimisation of end-to-end logistics will be required to deal with smaller volume runs of a larger variety of beers
- Generation of a network-wide, long term strategy that will evolve with the changing environment will be necessary
- Ensuring the asset strategy meets the certain need for increased flexibility
- Best-in-class planning rules will be required to meet changing forecasts
- Accurate sales forecasts will be necessary to facilitate best-in-class planning
Written by beer enthusiast Oliver North, Coriolis Consulting Pty Ltd