December, 2006
Ten Years After
(12/1: I'm not going to get a Buzz done before I leave for
Ireland tomorrow: sorry. Instead, I'm going to give you a prediction
piece I wrote for BeverAge two years ago. Fellow writer Steve Frank just
happened across it and sent me a congratulatory e-mail on how well my
predictions were working out so far. The only thing I screwed up on so
far is predicting a plateau for Sam Adams: believe me, I'm happy to be
wrong on that one. I may write a new Buzz while I'm in Ireland...or I
may just let this stand. Talk to you when I get back.)
Beer is a short-term kind of business. We’re
often not looking any further down the track than the next delivery, or
maybe to the next season. Beer is a fresh food product and it has to be
sold relatively quickly, so we fall into a short decision cycle, and it
rules our thoughts. That’s not always so bad, but it can set you up to
get blind-sided by things like the Pabst explosion, or the malternative
backlash, the microbrewery shakeout, leaving you with pallets of stuff
you can’t move with a fire sale.
So it’s a good idea to step back a bit
occasionally. Think of it as driving a road that’s not overly
familiar. You have to lift your eyes from the car in front of you every
now and then and take a look at the traffic, check the exit signs a
quarter mile away, and make sure you’re going the way you want to be.
Otherwise you may find yourself making really good time, while going the
wrong way.
In that spirit, I offer these ten predictions
on how things will look ten years from now in the U.S. beer market. No
guarantees, of course, and there will always be unpredictable bumps in
the road – the Atkins Diet and the carb craze, for instance – but
there are some things that are easy to see, and some that are more like…hunches.
Predicting the beer industry’s progress in
American markets and America’s mind set has an advantage, of course,
and that advantage is knowledge of wine’s history in the American
market. Thirty-five years ago, wine was in the same market position as
beer is today: a commodity. Largely, it was bought by the jug, it was
bought on price, and it was not bought with any consideration to
"pairing" with food…except that maybe you got an Italian
wine when you were having spaghetti. "Red with meat, white with
fish" was about as far as anyone got.
Over a third of the market was imported wine
that largely tasted like the domestics, but had a higher price and a
different bottle. American wine had a poor reputation in the rest of the
world, even though we made and sold a lot of it. And when we saw
a drunk on the street, holding up a building, we called him a
"wino."
It’s symbolic of how drastically things have
changed that the word "wino" has practically disappeared
from everyday speech, because wine’s image has improved dramatically,
to the point where it is almost impossible to think of someone drinking
wine just to get drunk. Wine is almost universally considered a fine,
upstanding drink that has vague associations with wealth, nobility of
character, sophistication. It is recommended by doctors to their
patients for heart health, even though studies increasingly show that it’s
the alcohol, not the redness of the wine that has the effect.
Look at wine, and see beer’s future…if brewers
are smart enough to secure it. Wine’s redemption came about
through small producers with a vision of what was inside the
bottle, not the labeling and marketing on the outside. It was vintners,
winemakers who toiled for years, making better and better wines
that couldn’t always find a market. Sometimes they stumbled, but
always it was interesting. Eventually they had a product that was worth
selling, a product that objective tasters were surprised to find was the
equal of long-established European vineyards.
That’s when the real work started: getting it in
front of people. The smartest thing these small vintners did was
connect wine and food. Getting chefs interested in how fine wine paired
with their food ensured that those fine wines would appear in their
restaurants, particularly once the margin was established.
But of equal importance was the whole idea of
distinctive wine types and styles, so that "red and white"
became "cabernet sauvignon, merlot, barolo and chardonnay, pinot
grigio, blanc de noirs." The very difference, the taxonomy, became
interesting, and more importantly, became a point of differentiation.
People who knew what these wines were became pleased; they owned
their wine knowledge, and it made them willing to pay more for a good
wine.
When these two trends became solid and broad, the
small vintners began to find themselves the chevaliers of the
American wine market, the champions of a new market. The new
market had very little place for jug wines. It was segmented, it was all
about difference, not similarity. It was more knowledgeable, it was more
demanding, it was more exciting, and by heavens, it was profitable, much
more so than selling a bunch of jugs of Hearty Burgundy and case after
case of screwtop Ripple and Thunderbird.
Everyone knows this story…so why does
everyone find it so hard to believe about beer? Even craft brewers seem
to find it hard to believe that they’ll ever break out of their little
3% of the market. But it’s all up to them. They have to make good,
consistent, interesting beers, they have to make some new ones every
year, and they have to sell the public on them – or at least the
chefs, to start. Once they do, and they’re verging on it now, the
market is going to change.
And that’s just one of the big changes coming in
the next ten years. I don’t claim they’ll all come true, but who’s
going to hold me to it in 2014? I’ll be happy to be proven wrong, so
long as I’m around to enjoy whatever’s being brewed then.
1. Say good-bye to the three-tier system. Current
court cases make this almost inevitable. Wholesaling will change
completely as the legal basis of the business will go away – possibly
before five years is up – and wholesalers will compete and survive
solely on their business merits – service, selection, price. Those
with the most cost-effective operations will have the best chances.
Current affiliations with large breweries may not be an advantage, as
those breweries are the ones most likely to be pushing hard for direct
sales to large retailers, who would mostly just as soon buy direct.
(Given the costly experience of some manufacturers with big retail
chains like Wal-Mart, the large brewers should perhaps be careful what
they wish for.)
Earlier this year I gave a presentation on this
subject to the Pennsylvania Malt Beverage Distributors Association. As
some of us left the hotel afterwards to go get a beer, I pointed to a
Sysco truck making a delivery at a restaurant: "There," I
said, "is the future of beer wholesaling. They don’t have a
three-tier system, but they still have a business." Then a man
hopped out of a small delivery truck alongside the Sysco semi and
started unloading crates of live lobsters. A craft brewer who was with
us [Bill Covaleski of Victory Brewing!] said, "But that’s
the future of beer wholesaling, too." He’s absolutely right.
There will be real opportunities for small, specialist operations who
are willing to work hard for a much larger margin on smaller sales.
2. The retailing of beer will also change when the
three-tier system goes away. State licensing
laws regarding where beer can legally be sold will inevitably come under
attack next. They may or may not stand court tests; they are also under
attack by European businesses as being in restraint of trade against WTO
rules. There is speculation that these laws will be the bone America
throws to Europe to keep them from breaking open the market for
privatization of public libraries, municipal water systems, and the Post
Office. If chain retailers – supermarkets, convenience stores,
warehouse stores – get the right to freely sell beer, large producers
will sell beer directly to them. It will change mom and pop retailing as
everyone flocks to the supermarket for cheap mainstream beer. Beer
specialty stores will survive in the same way wine specialty stores
survive: by going to the top of the pyramid. As the beer market changes,
the specialty stores with solid relationships with their suppliers will
thrive.
3. The market will change. The
history of the wine market is an indicator, the growing, serious
presence of high-end beers in newspapers like The New York Times
and the Wall Street Journal and magazines like Saveur is
an indicator, and the growth of the craft brewed beer segment against
the drop in the overall beer market last year is an indicator. Both
American and foreign craft brewers are showing the necessary consistency
and useful innovation they will need to win over both the everyday
drinker and the serious aficionado. They have the money to invest in the
equipment and talent they need to produce high-quality beer every batch,
and they’re using it.
How quickly will the market change? It’s changing
already, and it’s accelerating. The two major small brewers’ groups
in America, the Association of Brewers and the Brewers Association of
America, just announced a merger, a move that is sure to lead to a
unified, louder voice for these brewers. Growth continues, and most of
the brewers between 10,000 barrels and 100,000 barrels annual production
are growing at a pace over 5%.
That’s something that should fall by the wayside,
too: like the wine industry did in the 1970s, craft brewers should stop
looking at raw volume. It’s what you make that matters most in
the new market, not how much. Dogfish Head is one of the first brewers
to realize this, downplaying barrelage in favor of critical acclaim and
figures on profitability.
The push could falter if brewers lose sight of the
ideal: better beer, at better prices, in better variety. Beer is still a
ridiculous bargain, even in the face of wine prices lowered by the
recent grape glut, and price increases that are too steep could cut into
growth. But a failure to raise prices will both mire beer in the image
of a cheap drink and deny breweries the margins they need to improve and
expand.
If craft brewers continue to close the gap between
high-end beer and mid-grade wine in pricing, they will become more
attractive to retailers as they do, because if the pricing increases are
done correctly, there shouldn’t be any drop in sales to consumers.
Consumers are certain they like these beers, and they will pay higher
prices for them, as long as they can buy consistent, innovative, and
above all, fresh, well-kept beer from stores that take beer
seriously.
4. That doesn’t mean the big brewers are going to
collapse any time soon, say, before the next
geologic era. Anheuser-Busch is in good shape to continue to dominate
the U.S. market, and their international operations continue to grow.
SAB/Miller is showing growth for the first time in years with new ad
campaigns that show a smarter company in charge. This is the Miller that
came out of nowhere in the 1960s to become a strong player; they have
stopped the decline in their sales, and should show growth, defying
negative predictions.
But Coors-Molson (or Molson-Coors, if you prefer) will
continue to slide as their competition grows larger through acquisition.
They are up against three of the five largest breweries in the world:
Anheuser-Busch and SAB/Miller in America, InBev in Canada, not to
mention the competition from Grupo Modelo’s Corona family. Coors has
put all their eggs in the Coors Light basket, and that always-risky
strategy is starting to show its flaws.
Any discussion of big brewers in American has to
include Corona and Heineken. Grupo Modelo and Corona seem secure. Their
international market is booming, the American market continues to buy
the vacation in a bottle idea. The only possible fly in their sunblock
is Anheuser-Busch’s relentless attempts to gain control of the company…which
likely won’t affect U.S. sales anyway, but will change relationships.
Heineken still seems to be running scared in a Europe caught in the grip
of consolidation fever, but their U.S. position remains strong.
But the increased market share of the craft brewers
will have to come out of someone else’s piece of the pie. Where?
Imports are a likely target, as are the domestic premium brands.
Inevitably, these beers are the jug wines and the imports that taste
like domestics. The large brewers, who can read American Vintage
as easily as I can, will likely take the Gallo route and create
craft-type beers of their own (Again; they jumped the gun in the mid-90s
with Elk Mountain, Blue Moon, and Miller Reserve).
5. Yuengling will continue to grow on the East
coast, and will continue to keep itself to the
east. They currently are filling a large niche between the big
mainstream brewers and the craft brewers, transition beers for people
who want something more but are still price-conscious. Samuel Adams has
likely peaked, and will continue in a slow decline. The
"mega-micro" idea is too dissonant for the consumer: the
Samuel Adams brand may taste like a craft brewed beer, but it
increasingly acts and looks like a mainstream brand. Sam Adams Light, a
very good beer, suffers from the same dissonance. Craft-brew, in most
consumers’ minds, should be at least regional if not local, and the
idea of a light craft brew simply jars too much. Redhook and Widmer,
also good beers, have the same problem.
How Sierra Nevada, a home-grown national craft brewer,
avoids this has a lot to do with their silence in the market. The craft
brew consumer is not one who can be easily swayed by advertising. They
want to taste the beer. This may change as the market for these beers
expands, or it may actually grow with the market. Remember: focus on the
inside of the bottle.
6. High-end beer will finally find its way into
high-end restaurants, and the pay-offs for
everyone will be large. Chefs don’t really care about advertising
campaigns. They are artists, they are passionate: what they care about
is taste. Get beer into the hands of chefs, and their palates
will tell their heads that this is a drink that is at least as
complementary to food as wine is. The chefs will get excited, the chefs
will excite the staff, the staff will excite the customers, and the
customers decide on a relatively inexpensive up-sell that tastes great.
When they go home, they will know they can go to their local beer store
and repeat the experience at will.
7. Beer does not have terroir.
The closest thing is the origin of the barley and the home of the hops,
but these ingredients can be bought by any brewer on the open market.
The same goes for equipment, yeast, and any adjuncts. What does make a
difference is the brewer. It is the particular brewer’s skill,
training, heart, vision, passion, and depth, their will that
makes exceptional beer. A small number of brewers have become known to a
small number of fans: John Maier of Rogue, Ray McNeill of McNeill’s,
Vinnie Cilurzo of Russian River, Phil Markowski at Southampton Publick
House, Rob Tod at Allagash, and Massachusetts’ own Todd Mott and Dan
Paquette.
The reputations of these brewers will continue to
grow, and will influence the sales of the beers they produce. If they
move to another brewery, that reputation will follow them. Producers
will value this asset and reward it; retailers will become aware of it
and emphasize it.
8. American brewers have mastered the hop. They
proudly display hop varieties on their labels, websites, and marketing
materials. They know what varieties will add spice, grass, citrus, and
earth notes to their beers. They understand malts, and work with a
dizzying assortment of British, American, German, Belgian, and Canadian
malts. American beers show a broad range of color and almost all the
malt characteristics the rest of the world enjoys – a true malt
dryness in the manner of Munich lagers still seems to elude them.
But what about yeast? For years, American craft
brewers have mainly used four yeasts: a standard lager yeast, the
so-called "Chico" ale yeast (said to be the Sierra Nevada
strain) that is a dependable and clean workhorse, a similarly clean altbier
yeast, and the much-derided (unfairly so) Ringwood yeast. There are
others, to be sure: hefeweizen strains, Belgian yeasts for
specialty beers, and some use a couple different ale yeast strains. But
by and large, most American craft beers are made with one of those four
strains.
That’s going to change. After years of talking about
how wonderful British beers are without the courage to use the yeasts
that make them that way, American brewers are beginning to switch from
the clean, dependable, safe yeasts they’ve relied on to the sometimes
more temperamental but distinctly more flavorful yeasts British brewers
use. They’re opening all-Belgian style breweries, all-weizen
breweries, and trying new lager strains. That change is real and
happening, and it’s accelerating as more brewers realize that their
customers are looking for beers that are really different, not just
hoppier or darker.
9. Hop varieties, yeast strains, and malt
characteristics will start to become as
familiar to beer-lovers as grape varieties and wine regions are to today’s
wine-lovers. I asked this question of various craft brewing pundits two
years ago: is differentiation on yeast or hops of value or interest to
the consumer? No, they all said, they don’t know or care about the
difference.
That’s going to change, and the current popularity
among aficionados of the new Simcoe hop is only the start of it. Hop
varieties and their characteristics will become as familiar as grapes
are to wine-lovers, and similarly, they will become sought after. This
happened on a small scale with the Cascade hop back in the mid-1990s,
and again with the advent of the ‘super-Cascade’ Centennial hop, but
now with the Simcoe it is taking off. Maltsters will gain new importance
as consumers learn that they actually favor the taste of beer made with
Durst malts, or Crisp malts, or Briess malts, or different base malts
like 2-row pale, Munich, or pilsner…and start to look for those beers.
Yeast strains have the potential to be just as desired, once the public
gets the information about them.
All of these things are about telling the consumer
what to expect in the bottle, something brewers have been woefully lax
about for the most part, despite the "style guidelines" they
supposedly brew to. Some brewery websites and marketing information
presents the bare bones, but the consumers are waiting for someone to
bring it to them in a way that makes sense, so they can truly know what
to expect when they buy a beer.
Ridiculous? No one’s going to go looking for Sharp
Creek Simcoe Sparkling Ale instead of Harpoon IPA? Then why do we buy
Chardonnay and Merlot and Zinfandel instead of Big Red and Dry White?
More information means a consumer who has a better chance of buying a
beer she likes. More attention paid to that consumer by the brewer –
and the retailer – means more repeat sales.
10. Alcohol levels of "standard" beers
will continue to creep upwards towards wine
levels; consumption levels and price levels will adjust accordingly.
Wagner Valley is a successful winery in the Finger Lakes. They added a
brewery to their operation a few years ago, and contrary to all ‘normal’
brewery expectations, their biggest seller is their Sled Dog Doublebock,
a massive, sweet beer that is one of my favorites of the type. Why does
this big 8.5% ABV beer sell so well, when beers around 5% ABV are
supposed to be the big sellers, because you can sell more of them before
people get stupid?
Think about it. What do the people coming to Wagner
Valley usually drink? Wine. Wine drinkers don’t like bitter beers –
they’re not used to the whole idea of "bitter" – and they’re
completely comfortable with beverages of 8% ABV and more. I’ve been
harping for years on the idea that brewers should be producing more low
alcohol beers, because you can enjoy more of them…and I’m starting
to think I’ve been looking at it all wrong.
Perhaps what brewers should be doing is brewing beers
with plenty of flavor, regardless of the alcohol, and price and package
the bigger beers appropriately. A truly big beer is expensive to make,
due to ingredients and longer aging time: charge for it. A bigger beer
will not sell as much per customer, because they can’t drink as much:
charge for it. Brewers, thankfully, are smarter than I am, and are
beginning to do just that.
