It’s a lazy Saturday afternoon, and here we sit in a Whole Foods quaffing pints of creamy craft beer—Old No. 38 Stout from North Coast Brewing in Fort Bragg, Calif., to be exact. About two dozen of us beverage aficionados crowd into a room constructed of locally salvaged wood that’s designed to feel like a rustic saloon from the Gold Rush era. The focus is on 16 taps, many for brews most of us have never heard of before. For a few bucks, one can get a taste, and for $5 to $11, a pint. Just outside this makeshift watering hole, shoppers with kids in tow pile their baskets with freshly ground coffee, organic cereal and free-range chickens.
Whole Foods has put about 50 such tap rooms, featuring exclusively craft beers (and sometimes wine), deep inside its stores nationwide. The operative concept is craft—boutique beer, often local, brewed in limited batches and with an emphasis on flavor and distinct recipes.
The in-store pub is yet another sign of how hot craft beer has become, as drinkers (especially younger ones) increasingly seek fresh brands and more complex and varied tastes. Craft has emerged as a bright spot in an otherwise flat beer market. Mintel forecasts that sales in the craft segment will grow from $12 billion in 2012 to $18 billion by 2017.
Much of that growth can be attributed to the marketing talents of the makers of craft brands. Forget the costly Super Bowl ads—they don’t have that kind of budget. Rather, independent microbrewers rely on irreverent brand names, an anti-establishment attitude and word of mouth. As the category got bigger and micro became “craft” (think Sierra Nevada,Samuel Adams), the brands never lost their down-home image and youthful appeal.
Craft brewers are so effective at understanding their audience, in fact, that indie brands have begun having trouble producing enough product to satisfy demand, say industry sources.
It is no surprise that as craft has caught on, large brewers have jumped on the trend—in a shrewd (craft brands would say sneaky) way. Take the indie-sounding brands Shock Top and Goose Island, which are actually owned by Anheuser-Busch InBev. Blue Moon and Third Shift? They’re part of the SABMiller empire.
Despite their phenomenal growth, indie beer brands still account for just 6 percent of total sales, per the Brewers Association. Two players—A-B InBev and SABMiller—together account for nearly three-quarters of the market.
In 2012, shipments of domestic beer (whose sales had dipped the previous year) grew by about 1 percent, fed by the double-digit growth of faux craft brands from the large brewers, per Beer Marketer Insights. For example, A-B last year peddled 600,000 barrels of Shock Top, more than double the previous year’s sales.
Younger consumers are driving the trend. Half of millennials over the age of 25 drink craft beer, per Mintel. Naturally, as more millennials reach legal drinking age each year, the potential for still further growth in the craft market is enormous. Consider that this year the number of Americans in their 20s will hit 77 million, according to the Pew Research Center, about equal to the size of the massive baby boomers generation.
In all this, the macrobreweries walk a tightrope, according to Allen Adamson, managing director at brand consultancy Landor Associates. On the one hand, if a craft brand is seen as part of a larger brewer, that could “undermine the perception that the beer is special and disrupt the process of discovery,” he says. And yet, trying to mask a brand’s ties to big beer could well backfire if the consumer perceives the strategy as an attempt to pull the wool over the eyes of beer lovers.
“Being provocative, witty and irreverent plays well in the craft marketplace—being secretive doesn’t,” notes Brian Hankin, partner at Prophet, a strategic marketing firm. A craft brewer doesn’t have to be small, “but it must be transparent because of social media and because that’s what millennials value,” Hankin says.
For an up close and personal look at how the craft of craft beers works, one can stop by the Lagunitas Brewing facility on almost any day of the week. With brands like Censored and Lagunitas Sucks, the Petaluma, Calif.-based brewer comes off like some wacky fringe player, but it’s actually one of the largest and fastest growing craft breweries in the U.S.
Founded two decades ago in the sleepy village of Lagunitas, near San Francisco, the company hit sales of $61 million in 2012, almost double that of just two years earlier. This year, sales are up 68 percent versus last. Lagunitas’ main facility is expanding this year to handle almost 600,000 barrels. And another facility is being planned in a former steelworks in Chicago to initially produce another 200,000 barrels a year. In other words, times are good for Lagunitas.
The company makes its beer in a boring, suburban business park that includes an outdoor “beer sanctuary” which attracts upwards of 1,000 beer fans on weekends. On a recent, warm Sunday afternoon, it’s standing room only in the sanctuary, as musicians play bluegrass under the main tent and waitresses hoisting platters of nachos sprint between packs of intense (and, for the most part, male) beer nerds and more relaxed boomers.
A twentysomething couple who share their table with us weigh in on which Lagunitas variety is best (she likes less hops, he likes more) while they imbibe and munch on free peanuts. They live a few hours’ drive away but always stop by when they’re in the area for the music and brew. Money is tight, the man explains, “and for five or six dollars, we’d rather drink really good beer than mediocre wine.”
“No matter how big we are, our brand will always be grassroots,” says Todd Stevenson, Lagunitas COO. It’s Monday morning and we’re sitting at his tidy desk in offices that are reminiscent of an oversized dorm room. A well-used kitchen counter shares the space with overflowing bulletin boards, and a dog lounges between two desks. “The identity and the attitude of the brewery are the important parts of the brand,” says Stevenson. “The functional part is how good our beer tastes. That taste part is expected—it’s the cost of entry in the craft category.”
Stevenson believes traditional marketing goes against what his consumer base expects. “People want to know who we really are, what our philosophy truly is,” he says. “As we get bigger, our message will not be contrived to present what we think consumers want.”
So, Lagunitas’ marketing approach is centered around those weekend get-togethers and tours of the brewery. It also includes sponsorship of events in the community and an annual camping trip for staffers, retailers and the most devoted customers. Besides the offbeat names of its beers, the brand expresses its personality via point-of-sale displays, blogs and packaging.
Founder Tony Magee is responsible for the unconventional labels for which Lagunitas is famous. (Magee reads the label for Censored Copper Ale: “Originally called the Kronik, this beer was censored by the federal label-approving agency, claiming the word had some sort of marijuana reference. We slapped a ‘Censored’ sticker on it as a joke and they accepted it. Whatever.”)
Magee and Stevenson have confidence that fans of craft beers are savvy enough to tell the large brewers’ boutique-label brands from the real deal. “In beer culture, people talk,” says Magee. “Distributors talk to retailers, who talk to consumers about who owns what. What will help us in the long run is that essentially we are not in the same business as the multinational brewers. We are selling community, and they are selling liquid.”
Other craft brewers, meanwhile, are fed up with the megabreweries trying to ape their style. In a gutsy move, the Brewers Association, a trade group of around 1,500 independent U.S. brewers, is demanding that big brewers put their names on the packaging and promotions of their craft brands, particularly Shock Top and Blue Moon.
“Large multinational brewers blur the lines between their craft-like beers and true craft beers from small and independent brewers,” says the association in a statement. “We call for information to be clearly presented to allow beer drinkers to make an informed choice about who brewed the beer.”
That statement hit newspaper op-ed pages, beer blogs and social media in December and since then has generated scores of media stories. The hashtag for the campaign: #craftvscrafty.
But do beer drinkers really care who owns the brewery that makes their favorite ale, pilsner or stout?
“People want to know if they are supporting large brewing companies or the brewer down the street,” argues Julia Herz, program director of the Brewers Association. “Our members say that in stores and restaurants, people talk about craft beers when they are referring to beers that not owned by independent brewers.”
A Mintel research report in January found that fully half of craft beer devotees are interested in locally made beer, while 25 percent are interested in purchasing craft beer only where it’s brewed.
The large brewers say hogwash, maintaining that most consumers care only about how a beer tastes, not about who owns the brewery. They point to other product categories like automobiles, in which a brand like Audi doesn’t make reference in promotions to the fact that it is owned by Volkswagen.
“Our craft beers need separate identities in order to fulfill what the brand promise means to consumers,” says Paul Chibe, U.S. CMO for Anheuser-Busch. “We are marketing as a house of individual brands.”
At SABMiller, Libby Mura, marketing director of MillerCoors’ craft brands, offers that “the name on the label does not define the beer,” adding that it’s the smaller craft brewers—rather than consumers—who seem to be pushing for more transparency.
MillerCoors tried putting “Crafted by Coors Master Brewers” in small print on cans of its new brand Third Shift during its test rollout this past January. But the Coors name ultimately was nixed, and the labeling changed to indicate the brand is brewed by “Band of Brewers.” Third Shift hit stores nationwide in February, backed by ads via TV, billboards, magazines and digital media.
One might wonder, why not take advantage of the well-established Coors brand name? “We want to focus on the rich story of the new brand,” says David Kroll, innovations vp of MillerCoors. “People can uncover the association to MillerCoors as part of their discovery about the new brand. It’s all about the liquid, after all.”
Straddling the fence in the fight over transparency is Widmer Brothers Brewing (whose varieties include Raspberry Russian Imperial Stout and Drop Top Amber Ale) and its sister craft brewers Redhook Ale Brewery and the Kona Brewing Co., all based in the craft-crazy town of Portland, Ore. A-B InBev owns 32 percent of those brands’ parent, Craft Brew Alliance, but is mentioned on none of their packaging or in any of their promotions.
The Brewers Association demands that the CBA brands reveal “in some way” that A-B is part owner—something Andrew Thomas, CBA’s president of commercial operations and a former Heineken executive, says almost makes him laugh. “Our distribution partnership is not important to people and is increasingly so,” he contends.
Ownership and coming clean about it may be in dispute—but what isn’t is that when it comes to beer, distribution is everything.
A-B InBev and other large companies benefit from enormous global distribution networks that tend to squeeze out craft brewers for desirable shelf space at retail chains. The smaller brewers believe that if more consumers seek out independent craft brands, more retailers will stock them.
Says Herz of the Brewers Association: “We hope informed beer lovers will drive more marketplace diversity.”
That is already starting to happen. Consumer demand for crafts is leading to more availability and shelf space at convenience stores, hotel chains and grocery stores, say industry insiders. Choice Hotels, for example, has started requiring that all its Cambria Suites locations offer at least two varieties of local craft beers because of customer demand, according to a rep for the chain.
The bigger the craft brands become, the more it stokes business for the indies—and potentially for big beer.
A-B CMO Chibe is optimistic. “If people do the work to find out that we own these craft brands, God bless ’em,” he says. “We have nothing to hide. Our reputation is strong for quality, for efficiency and for being green. The fact that Shock Top is Anheuser-Busch is no problem.”