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Oakes Weekly - June 9, 2007

Oakes Weekly June 9, 2007      
Written by Oakes


Richmond, CANADA -

So what will the beer landscape look like? Ten years out, fifty years out? I mean, anybody can crunch a few numbers and tell me what’s going to happen next year. It’s good information to have, especially for folks in the business or looking to get into the business.



But let’s be visionary for a moment. Sometimes we envision what’s going to be in terms of our own company, sometimes our own little beer region. I know right now there’s a couple of us in Vancouver that are trying to picture what we want the scene to look like and trying to figure out the best way to make that happen.



For this exercise, I’m going to do it on a North American scale, a reflection that despite a few cultural and regional differences the beer markets in Canada and the US are no different from each other than two different regional markets within these countries. So we’ll assume that there is no great cultural shift with regards to attitudes towards alcohol and no great changes in the rules and regulations regarding international, interstate or interprovincial beer trade. Those sorts of macro-level variables of course can lay down sweeping changes to the industry. Sometimes of course it’s the other changes that don’t immediately come to mind that are the key ones.



So taking a look just at beer itself, what can we expect? As I’ve said in previous articles in this series, the grand vision for craft beer should be dominance within a generation, maybe two generations at the outset. That’s about what it took for industrial brewing to wipe out the first craft brewing industry in North America. It can be argued that the cataclysmic impact of Prohibition sped up the process and without a similarly cataclysmic event the process cannot be fully reversed. We can speculate that at some point fuel prices will drive a shift towards locally-made products and clearly away from our transportation-driven economic model. This could be that cataclysmic event, even if it happens in fits and starts.



But we’ll ignore that speculation for now. This is about formulation of a vision…next article I’ll talk about sowing the seeds for the implementation of that vision.



Right now industrial brewers have total dominance. For the time being, this isn’t going to change. They have variously ignored craft beer or attempted to undermine it with inferior products, or just plain tried to imitate and cash in on what they view as a fad. Of course, that myopia is what’s gotten industrial brewers into the vicious cycle of declining marketshare and increased marketing budgets that we see today. The good news is that I’m not convinced any of the macrobrewers has the smarts to step out of their myopia. Many of them are still family run, while others are home to folks who understand number crunching and market research but seem a little too lost when it comes to how history works to truly understand the juggernaut they’re about to face. Hey, there were a lot of folks who dismissed the Mongols and their “Genghis” Khan, too. A tiny, hardscrabble collection of steppedwelling nomads can’t possibly build a multigenerational empire from Muscovy to China, could they?



So let’s, as craft brewers and fans of craft beer, take advantage of this oversight while it still exists.



Industrial brewers have dominance but they’re losing ground. Right now they’re mainly losing it to boring imports except in a few key beer regions. But why? Because industrial isn’t sexy anymore. First of all, most people don’t relate to it. We work in offices now. We drink less, so we drink for pleasure. And that’s something that happens more as we age, which we’re doing.



Okay, so craft beer is still more or less a blip. But it’s a blip with a passionate fan base just waiting to be engaged as I’ve described in previous articles. It’s also a blip that is finding its way into places it wasn’t even a few years ago. When we started up the Ratebeer places section, a good beer bar was something most towns didn’t have. Even the biggest cities only had a few. I’m one of the folks who screens new entries to give them the thumbs up or thumbs down. I’m amazed at how many places are just putting the stuff on tap, selling a healthy array of bottles, and aren’t beer bars. They’re just regular places – restaurants, sports bars, pubs – catering to regular people. Remember every new drinker today grew up in a world where beer came in every shade, every smell, every taste.



The mindset of industrial lager as the only option is still a dominant mindset, yes. But it’s dying. If you look at the beer scene as it stood in the 60’s and 70’s, most of the big brands of that era are gone, or exist as relics available only in legion halls and old-man taverns. Budweiser is a survivor, yes, but where the hell was Coors Light in 1965? It wasn’t. You’d be amazed how much this turns over. The beers my grandfathers drank are hard to find now. When I’m a grandfather, my grandkids will probably have a hard time finding a Kokanee or an Alexander Keith’s or an MGD or a Bud Light. You’ve got to figure of the top twenty beer brands today, maybe two or three will still matter when I’m a grandparent. That’s what’s happened throughout history here in North America. And the same thing goes for mindsets. The majority of beer drinkers today grew up with one mindset. But every day they die off, stop drinking or whatever and are replaced with kids who grew up in a different world. Some of those kids start off with the mindset of their fathers and grandfathers but a lot of them will drop that.



Walk into a wine shop. It’s amazing, isn’t it? Hundreds if not thousands of labels, each with half a dozen varietals and vintages available, sometimes many more. It’s dizzying…heck it’s been an obstacle to me exploring wine. I almost have to do wine tours and tastings just to be able to walk into a wine store and not feel like I’m playing Californian roulette.



That’s craft beer. That’s what a craft beer store looks like. Dozens of microbreweries, each with an array of products. Each of those products is different from the last, but all with a certain house character.



This isn’t how people used to buy wine. They used to buy wine like they used to buy beer – from a small selection and with very few decent products to choose from. That way sucked, and so the wine world has more or less dispensed with it. That doesn’t mean the big boys have packed up and gone home. In wine, major global conglomerates own a lot more than most people realize. The labels don’t hint at global ownership, but it’s there. That bottle of Chilean red, Australian syrah or Napa chardonnay didn’t get into every grocery store in the country by accident. That multimillion dollar visitor’s centre that draws all the crowds on wine country weekends wasn’t built by mom and pop.



So that’s the first thing you’ll see with beer in the coming decades. That would actually be a major shift – and a major gain – for small brewers. It would shake the industrial mindset of beer and replace it with a cooler, sexier and, well, smaller image. Who’ll do it? Well, it could be some visionary at the big breweries. Don’t laugh – with the right leadership it would be easier for them than for anyone else. They tried a little bit in the 90s but you never got the sense their hearts were in it.



It could be someone who is currently a mid-sized player. Sam Adams has the right mindset. Sleeman has some of the elements and now they’ve got the money (though Japanese ownership is probably the opposite of what they’d need). It could be one of the large spirits-and-wines companies. Aside from Diageo, most of these are only minimally involved in beer, if at all. But boy they’ve got the money, and they’ve got the experience having done to wine and spirits what I think will happen to beer.



Or it could be someone who is still quite small…or hasn’t even entered the business yet. One thing that is for sure is that beer is actually a fair ways behind the times right now…the blueprint is laid out already and all that’s needed is for someone – or a group of likeminded individuals – to seize the opportunity to shape the destiny of the industry and their firms.



So there will still be “big guys”. They’ll probably look a little different, mixing low-margin industrial brands with higher-margin fare from takenover craft brewers and global product lines. InBev has begun to integrate their product lines globally…tentatively mind you, but they’ve been successful thus far. Coors has a bonafide craft beer hit with Blue Moon White…probably surprised them a bit but it’s begun to find a nice comfortable place in their product line and that’s more than you can say for most big brewer attempts to crack into the craft biz.



I think the big guys in beer are a little more used to market dominance than the big guys in wine ever were, so they’ll command a higher market share…50-70% seems fairly reasonable, even 20 years out.



The next slot are the craft brewers…we need to find a better way to describe them…you know, the ones that beer geeks don’t get excited about but who are out there today doing pretty good volume. I think most markets have them. I guess in the weakest markets these brewers come from nearby cities and states but there’s a lot of this kind of brewer out there already and they command most of the market share that craft beer enjoys. As beer geeks, we probably still drink their stuff, especially their seasonals and special editions, but it’s the non-beer-geek craft beer drinker who makes up their market. And that’s the biggest part of the craft brew market on the whole. It’s also the one, as described earlier in this series, that is going to be the biggest source of growth in craft beer. You’re talking 20-30% market share in twenty years sort of growth. How many Ratebeerians, BeerAdvocates, brewers and craft beer dorks do you know with young families? That’s our kids. And we’ll still be there. And many of our friends will have joined us. And all of our kids’ friends will be there, too, thanks to their influence, our influence and the fact that they never knew the world of industrial beer dominance.



So craft beer, pseudo (or stealth, if you wish to term it that way) craft brew, decent imported brew will all grow to match the growth we’ve seen in wine, and are starting to see with food (yeah, the influence of celebrity chefs isn’t all that bad…it’s bringing an appreciation for quality to the masses that our pork chop and boiled broccoli-eating parents can barely comprehend). This will bring along with it the hardcore stuff. The stuff beer geeks love. Already we have breweries that exist solely to serve this market. Now! With 3% market share! It started with some bold mofos back in the 90’s. Your Hair of the Dogs are still here, but there’s some Tall Ships (sunk in ’98) in there as well. Now there’s AleSmith, Craftsman, Jolly Pumpkin, DDC, Kuhnhenn, Three Floyds, and bloody hell you’ve got them doing it in Scandinavia, too. Though the fans of this type of brewing are the true leaders and will inspire many of the changes in the business to come, in terms of market share this stuff will more or less ride to coattails of the rest of the boom. Why? Because even at 30% market share or more most craft beer drinkers will only dabble in the stuff we drink everyday. But we’ll be 5% of the market in 20 years and every beer market worth mentioning will have at least one nutjob dedicated to serving our picky, picky needs.



That’s how I see it breaking down…next up I’ll try to lay down a foundation of ideas as to how precisely we get there.

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the grand vision for craft beer should be dominance within a generation, maybe two generations at the outset.