The State of Beer
All Roads Lead to experimentation
Jim Clarke

While the big domestic brands were down about 1%, imports took a bigger hit and were 9.8% off from the previous year. Off-premise sales are somewhat healthier than the restaurant and bar business, where sales were down almost 4%. However, if you’re crying in your beer over these numbers, it’s probably not a craft beer. Despite their higher per-unit prices, 2009 was actually a banner year for crafts, with 7% growth by volume. “Craft beers are still sexy,” says Bill DeLuca, VP of sales at Manhattan Beer Distributors in New York. “Good quality, high-end beers have a smaller base that’s going to grow no matter what kind of economy we’re in.” Craig Purser, president of the National Beer Wholesalers Association, says the trend applies across the nation, noting that consumer demand for a wide variety of styles and brands has trumped concerns that consolidation at the production level—Anheuser-Busch and In-Bev, SABMiller and Coors—would lend their national brands even greater weight in the distribution chain.

Statistics say the import category is underperforming, yet specialty imports, like their domestic craft kin, actually have some positive numbers to boast about. Some observers even suggest that the domestic-import split is less relevant these days than the dichotomy between mainstream vs. specialty beers. B.United International is one of several importers focusing on specialty brands like Hitachino Nest, Reissdorf and Baladin. GM Matthias Neidhart says they were up 12%-13% in 2009 over the previous year. Reissdorf, which grew 70% in the first three months of 2010, is notable not just for its size; Neidhart says that all-malt beers of its kind-—moderate alcohol, not aggressively hopped and a familiar blond color—are often “transition beers” that make a comfortable introduction for new specialty beer drinkers. Tara Carraro, senior director of Heineken USA, says they are positioning its Newcastle Brown Ale in a similar role as “the dark beer that’s easy to drink.” This is good news for Newcastle’s latest product unveiling: the Geordie Schooner. Meanwhile, Guinness, the famous Irish stout, continues to be one of the most popular brews poured in the on-premise. This could bode well for Jamaican import Red Stripe, part of the Diageo portfolio. Red Stripe just introduced its new light beer in March, and the company has already indicated it’s off to an encouraging start.

For small breweries, distribution can be a challenge—one that may have been exacerbated by the consolidations among large brewers. Jim Koch, founder of Boston Beer Co., best known for Sam Adams, notes that many markets now have only two large distributors. The danger is that small brands may get lost in the portfolio among the others, especially those in the dominant AB-InBev or MillerCoors portfolio. So far, the effect has been minimal. “There are fewer, but better distributors in many markets,” he says. “Their book has more brands in it, so you get less attention from the sales staff, but you’re with a stronger distributor, so those two factors balance out—for now. I’m sure we’re only seeing the beginning of these changes.”

Collaborations are also helping brewers enter new markets. Elysian Brewing of Seattle now brews some of its beers at Colorado’s New Belgium Brewing, increasing production and facilitating distribution further east; at the same time, New Belgium found Elysian’s brewery a convenient place to brew its smaller batch productions like the Lips of Faith series.

Ken Grossman, owner of Sierra Nevada Brewing, says the more usual collaboration, where two different brewers create a new beer together, allows the visitor to introduce their name—and perhaps a bit of their style—to a new market. Last year Sierra Nevada introduced its first collaboration with Delaware’s Dogfish Head. This year, during Sierra Nevada’s 30th anniversary, the brand will unveil new collaborations with past industry leaders like home brewing advocates Charlie Papazian and Fred Eckhardt, and Jack McAuliffe, founder of New Albion Brewing, widely considered the first modern microbrewery.

Sam Adams also has its first-ever collaboration in the works: together with Germany’s Weihenstephan, the world’s oldest brewery, it is presenting a 10%+ alcohol beer, made according to Germany’s Reinheitsgebot law (beer can only be made with hops, malt, yeast and water), which will have a Champagne-like texture, in contrast to the sweet, heavy texture typical to higher alcohol beers. “We’re taking the whole brewing process apart and putting it back together again,” says Koch.

In other cases, breweries on opposite coasts have come together in a more permanent, business-like union. California’s Mendocino Brewing bought Olde Saratoga in upstate New York, for example, where they brew their own beers as well as embark on contract brewing for some other brands. In 2008, Vermont’s Magic Hat and Oregon’s Pyramid Brewing merged, bringing together what had been the 13th and 7th largest craft brewers in the nation, giving both brands the chance to brew and distribute their products on opposite coasts.

With so many beers flooding the market, be they local, domestic or imports, beer drinkers are faced with a myriad of choices. For many brewers, this means the withering of a timeless marketing tool: brand loyalty. Beer drinkers are experimenting, jumping from beer to beer and exploring different products. Reaching today’s “promiscuous consumers is a real challenge,” admits Jake Leinenkugel of Leinenkugel Brewing Company in Wisconsin. Purser adds that today’s breweries have to consider both branding and style to appeal to consumers—something that can be achieved through the right combination of quality and community involvement.

Seasonal beers in particular have proven to be an asset to beer branding. It offers variety to consumers who crave something new while keeping them committed to the brand. In 2009, seasonals became the largest single craft category by dollar sales, representing 17.1% of craft sales and outselling pale ales, which had been the dominant category for years. Bryan Simpson, spokesperson for Colorado’s New Belgium Brewing, says that seasonals are in effect the number two brand for the brewery, after their Fat Tire Amber Ale. Paul Gatza, director of the Brewers Association, points out that for many breweries, seasonals function as a second flagship.

They serve a similar role for bars and restaurants; one tap may vary from season to season, yet customers know each new incarnation is an extension of the same brand. For retailers, seasonals also provide variety and convenience. “Seasonals work really well for off-premise, as they come with the same UPC code,” says Gatza, who also notes that variety packs are becoming another popular addition. They might be a packaging challenge for brewers, but it’s worth the effort: 6.4% of craft beers were sold in variety packs in 2009.

The beer scene is changing, and so is its packaging. Simpson says 42% of New Belgium’s sales are kegs; not only do they keep beer fresh, but they’re also very environmentally friendly. “Nothing is more sustainable; we use each keg up to 200 times out and back,” he says. Growler sales, where permitted by local laws, are also now trendy, allowing the beer fan to enjoy freshly poured draft beer at home, while helping reduce their carbon footprint.

Off-premise, draft specialty beer has another little friend: the can is back. Sly Fox of Pennsylvania offers four of its beers in cans, and Leinenkugel recently introduced its Summer Shandy in cans. A few brewers, like San Francisco’s 21st Amendment and Colorado’s Oskar Blues Brewing, are forgoing bottles entirely, packaging their beers only in kegs or on draft.

With all this innovation percolating in the beer world, it’s a ripe time for suppliers to introduce non-traditional beer products to the forefront as well. As an example, Smirnoff, best known for its vodka, ambitiously taps into new territory with its Premium Malt Mixed Drinks. These single-serve bottles of malt drinks inspired by freshly made mixed cocktails, are available in Blueberry Lemonade, Lemonade and Cranberry & Lime, showcasing malt in a new, non-traditional light for consumers.

Many microbreweries are getting larger; there are now 68 breweries producing more than 15,000 barrels annually, making them Regional Craft Breweries rather than microbreweries by the Brewers Association’s definitions. Eighty-six percent of these breweries reported increased beer sales in 2009. On the other hand, a number of much smaller operations are cropping up in some markets. Nicknamed “nanobreweries,” these are generally home brewers taking the ambitious next steps. “They typically have 15-45 gallon brewing systems,” says Gatza. “They’re not looking for a career; they just love brewing.”

Sierra Nevada’s Grossman, however, says he sees a somewhat opposite trend in the people who are opening microbreweries as a full-time job. “There are less home brewers entering the business, and more people with a business background, coming to the business with a different drive.” There were 129 more microbreweries in 2009 than in 2006; even 2009, at the height of the recession, saw four times as many openings as closings.

Beer events have also fueled the growth of the industry. City-wide beer weeks were non-existent five years ago; now there are more than thirty such events held annually nationwide, increasing beer’s presence in metropolitan centers like New York, San Franciso and the biggest in Philadelphia. More importantly, these events also have a place in import sales. “Across the portfolio, we’re looking to emphasize occasion-based opportunities,” says Heineken USA’s Carraro. “Import and specialty beers are a great trade-up opportunity for volume and dollar sales during key celebration seasons like the Super Bowl, March Madness and summer barbecue seasons.” Amstel Light, for one, launched the “Amsterdam Live Tour” last year, a series of progressive art, music and dance events, marked by the presence of the Amstel Light Beer Bike. Similarly, the “Plug into Summer” on-premise initiative invites consumers to enjoy Heineken and Heineken Light through interactive music experiences.

With beer pervading the mainstream like this, the cheerful sound of clinking pint glasses may be replacing the drip, drip, drip of tears already.

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