Wednesday, February 13, 2013

Craft and Crafty Beer

The Brewers Association recently announced that the time has come to draw a line between authentic craft beer and crafty beer. The BA wants clarity as to what companies produce which beers.  In other words, the BA doesn't want large breweries to claim to be producing craft beer when, according to BA definition of craft, they are not.

Ostensibly, the crux behind this debate is the definitions of craft and large breweries.  Is this simply a case of small companies trying to make a name for themselves? Or is it a case of large companies trying to dominate smaller ones?

The scale of production of a brewery is the central figure used to define “craft[1]” and “macro[2]”, but it’s not the only one.  A craft brewery cannot produce X amount of beer and still be considered "craft". But how does production affect the "craft" side of beer? That's a tough question for BA to address.  So, ownership is another factor, and its salience towards defining “craft” has increased in recent years for several reasons, mentioned below.

For the most part, craft and macro were separate and didn’t directly compete.  Anheuser-Busch's foes were Miller and Coors; Dogfish Head's (DE) foes were…well, that’s hard to say since their share of the beer market was less than 1% and localized.

But times have changed. Craft beer has exploded over the last 10 years, even during the Great Recession, while macro beer has expanded over the globe, into China and India. Today the number of small breweries in the U.S. has eclipsed 2,000 while the number of macros has decreased (due to consolidation) to a handful.  In that time Miller and Coors merged, Anheuser-Busch was bought by InBev and Boston Beer Company’s (Sam Adams) success has persuaded the BA to re-define “craft”.  The latter's growth has pushed the "craft" definition to new limits, literally.

While the big breweries were merging they were also keeping an eye on the small guys.  The latter’s success did not proceed unnoticed. The small breweries’ market share in the beer industry has surpassed 6%, while overall beer sales have decreased: Craft is going up, macro is going down. To assuage this, macros have taken to two tactics: compete with craft, or buy them (or both).
Buying is financially easy, but personally difficult. The beloved Chicago-based Goose Island brewery was bought by AB-InBev and ended that competition, and was greeted with intense beer-geek backlash.  And this highlights a dilemma: is Goose Island still “craft” even though it’s owned by AB-InBev?  And why would that matter? We’ll get back to that.

The other option, directly compete, is tricky, because in order to do so the macro company must admit there is a difference in terms between craft and macro, thus accepting the “craft” definition, and thereby admitting that there's a difference in product.  MillerCoors is attempting to compete directly by establishing smaller brew houses with their own brands and labels, like Blue Moon, Tenth and Blake, AC Golden. But why do they need to do this? Why not just produce the Blue Moon recipe under Coors labeling?  And here we are back to the question posited above: Why does labeling, and therefore ownership, matter?

First, we must establish that it does matter. The actions of BA and the macros establish that it does. And here we (finally) get to the core issues: product and livelihood. 

Product: The difference between the craft breweries' products and the macro breweries' products are vastly different. Craft breweries produce varieties of beer, while the macros produce, mostly, one. While craft brewers detest the product from macros, they do marvel at the consistency macros display on such large scale productions. In short, craft beers are more diverse, while more susceptible to production mistakes, while macros are consistent yet uniform. And this are the stigmas each carry.
Livelihood: The conflict attaches to the product, or perhaps more directly the stigmas.  Many craft beer geeks (their numbers are growing) don't see macro beer as "real beer", but as mass produced flavored water. They are defiant toward the macros and do not want any of their money going to these businesses. Macros know this, so they turn to tactics mentioned above.  If they succeed then the craft breweries will have direct competition with large breweries that they never really had before. And this threatens their passion and livelihood.

The key point here is that the BA and craft brewers do not wish to eliminate the competition. They are not calling for macros to cease production of certain beers. What they are calling for is the claiming of such beers by their owners. Those craft beer geeks want to support the small breweries, but are being deceived by small brewing operations owned (and operated) by the macros. And that is what the BA is trying to confront: displayed ownership of product. Why hide it? Be proud of your product is the BA mindset. Perhaps this sheds light on a larger difference in the modus operandi of marco and craft: To make money or make beer?

Further reading:
John Cochran of Terrapin Beer Company highlighting the complexity of brewing, beer and business.

[1] The term "craft" replaced the common term "micro" as the popularity of small breweries increased, and so too did their production, thus ushering in a need to change the definition
[2] Characterized as "American Adjunct Lagers" and commonly referred to as "BMC" (Bud/Miller/Coors)