07 January 2009

2009 State of the Six Pack - Part 2

When the New Year begins, it is not uncommon to reflect on the year that had past and ponder what lies ahead in the coming year. Organizations give annual reports. Newspapers and television shows do special review pieces. Politicians give their annual address (the President’s State of the Union, the Governor’s State of the State, the Janitor’s State of the Mop Bucket, etc.).

It is in this spirit that Hoosier Beer Geek sent a Six Pack of questions to everyone we knew in the Indiana craft beer industry. Breweries, bars, restaurants, distributors, and stores across the state were included in this Six Pack. We packaged their comments, along with our thoughts, into the first annual State of the Six Pack address.

We have broken this up into three parts. Yesterday, we looked at the economic factors that have played into the Indiana craft beer market. And tomorrow, we will conclude with thoughts on Indiana’s laws relating to beer and alcohol. But today, we will discuss the craft beer market slice of the larger beer market pie. We hope that you find this to be as interesting and illuminating as we did.

Question: Mega-breweries still dominate the Indiana beer market. How do you see the impact of craft beer in the Indiana market? What do you see (or hope to see) coming in 2009 and beyond?

It is hard to escape the fact that Indiana is a macro-brewing state. From the repeated television and radio commercials to the print and billboard ads, from Lucas Oil Stadium and Conseco Fieldhouse to your local grocer and corner bar, Indiana is painted in Budweiser red, Miller blue, and Coors silver.

Jim Schembre at beer distributor World Class Beverages points out that only 1% of the beer market in Indiana is dedicated to craft brewing, while the national average is around 4%. We all want to see our favorite beers readily available at our favorite bars, restaurants, and stores, so for fans of craft beer, those market numbers seem pretty daunting.

But most people in the industry seem to be “the pint glass is half full” guys and see the opportunities that come from being the underdog. “In a state as conservative as Indiana, craft brewing is going to be a grassroots insurgency for a very long time,” says Roger A. Baylor of New Albanian Brewing Company. “The upside of that is that if 90% of the marketplace doesn’t know or care about your product, there’s nowhere to go except up.”

Mat Gerdenich of Cavalier Distributing, puts his view in investor speak. “We are in a bear market, all things considered. However, I am BULLISH on craft beer in Indiana! The MACRO SWILL guys do what they do and will continue to do so. I would like to see more people vote with their pallets and not fall for mass marketing gimmicks.”

Based on the number of special “craft” and seasonal beers that the mega-brewers have been producing, it doesn’t look like they will be giving up any of their market share without a fight. But Mike Sprinkle at Crown Liquors is optimistic that beers like Blue Moon and Budweiser’s American Ale can make an eventual positive impact on the local craft beer industry. “Since all these mega-breweries started making all of these intro-craft beer styles, I like to think its just going to make the movement towards craft even faster.” Essentially, getting the consumer to jump away from the American light style into something else, even if it is another BMC product, is the biggest leap.

I don’t think any of us would disagree with those thoughts. But what does the craft beer industry need to do to make their slice of the pie grow? “We think the key to the cumulative success of craft-brew is to offer opportunities for consumers to try and understand the nature of the beast,” says Elizabeth Morse at Corner Wine Bar and Old Town Ale House. “Our plan is to keep offering our mega-brew drinkers alternatives that are a step-up...it's a process.”

“[Craft beer market] growth has still been very localized to certain areas of Indiana, such as Indianapolis, Bloomington, Lafayette, and Muncie,” observes Courtney Hall at The Hop Shop, “but has been fairly slow to make its way into the more rural areas of the state. My hope for 2009 and beyond would be to see continued growth in the larger cities, but also interest and growth in more of the small towns and Bud/Miller/Coors sort of markets.”

Roger Baylor takes an outside-of-the-brewery approach that any of can try. “Craft brewing growth here remains predicated on patience, education and personal contact. I’m a member of the board of two economic development entities in New Albany, and I take beer to every event that I can legally do so. Recently one of my comrades, a wine drinker with no interest in beer, has become enamored with pairing cheese and smoked beer. If each one of us scores a convert every week, critical mass isn’t too far away.”

It is amazing the interest that can be gained by bringing a couple of bombers to a tailgate, family gathering, or party at a friend’s house. I’ve converted many friends and family just by bringing craft beer and a small stack of sample cups or plastic shot glasses.

Question: Consolidation has been a favorite in the mega-brew's playbook. There have been some instances of one craft brewery purchasing another craft brewery. Do you see mergers making further strides in the craft beer market? Do you think that consolidation would help craft beers become more well known to the general public? Or does it go against what craft brewers are trying to accomplish?

Miller merges with SAB. Coors merges with Molson. SAB Miller merges US Operations with MolsonCoors. And InBev merges with Budweiser. Eventually, we’ll see InBudSABMillersonCoors with a US market share of 99%, right?

The big boys in the brewing industry seem to think that merging, cutting costs, and streamlining are the key to continue holding on to their market share. Would there be any benefits to the craft beer industry or craft beer consumers if craft breweries were to take a similar approach?

“The leitmotif of craft brewing is stylistic diversity and free choice,” says Roger Baylor, “and this is the polar opposite of megabrewing. Therefore, insofar as craft beer consolidation doesn’t mimic the megabrewing strategy of stylistic monoculture and the absence of free choice, it probably helps to some extent. It’s a slippery slope, indeed.”

Courtney Hall replies, “I feel as though this is a double edged sword for breweries. The idea of increasing production and distribution is enticing, I’m sure, but it does seem to come at a price. Too many of the beer purists, this is seen as “selling out”, so there is some backlash from that group; and because the breweries are often combined and more recipes cranked out, there is a little less TLC in each batch which does seem to lead to a slight loss of flavor profiles. This may gain them some customers by having a less edgy flavor that is acceptable to more palates, but it causes the people looking for that edgy flavor to look elsewhere.”

But Jim Schembre observes that “this is the business cycle that is emerging. Some of it good; some of it bad. Craft specialty beers were originally developed because somebody loved to try to drink a different style of beer and wanted to try something new. This new consolidation of micros (Red Hook, Widmer, and Goose Island; Pyramid, Portland and Magic Hat) are happening because of the financial concerns companies have. And with this comes the ideal of brewing items that make money, not what they love to brew. You are either developed because of love of the beer or love of the money. Love of the beer started the category, but now love of the money is taking over. I think it goes against the original ideal of why and how the category got started.”

So given the economic condition of our country, will we continue to see such mergers? Mat Gerdenich thinks we will. “This really depends on each situation. In these difficult economic times consolidation is going to increase as a matter of survival. The big question is do these merged breweries want to be the next macro swill brewery or are they going to stay true to the craft beer roots? If the craft part goes away and it is more about big business and less about the beer, than that can be problematic.”

Courtney Hall, though, thinks that this discussion might be moot. “[T]here are not likely to be many breweries looking to make the investment to purchase another brewery right now, and even if they wanted to, it is will likely be difficult for them to acquire the financing to do so.”


  1. Consolidation is fine -- it is not an indication of the brewers' passions waning, just a realistic result of the color of your numbers at the end of the balance sheet. Sure, it impacts a lot of steps in the process, and that ends up in the end-drinker'd glass, but that is a price the consolidators pay.

    You can expect your truly local, non-distributing brewpub to maintain a higher level on consistency because of the level of control they have over the product and its market. So just be sure to spread the love and visit your local producers too. It will probably save you a dime or two in this economic climate anyway.

    Nitpicking the financial decisions that large craft breweries make is like trying to tell our politicians that we don't want to borrow 700 billion dollars. No matter how loud your voice is, the end result ends up being whatever is best to those in power. If you don't want to be a part of the bad decisions, distance yourself from the company making them. Easy to do with products...difficult to do with tax revenue.

  2. The comment..."It is amazing the interest that can be gained by bringing a couple of bombers to a tailgate, family gathering, or party at a friend’s house." ...could not be more true. Sampling is the key to education and education is the key to our movement. Consolidation will hurt many brewer's access to markets in the short term, but if people develop a taste (and hopefully passion) for great beer, nothing can stop that.

  3. Cool posts on the state of the state. I think that consolidation in the craft brew industry is inevitable. Looking back over the last 500 or so years of brewing history, we see consolidation again and again. The spread of hopped beer brewing, porter brewing in London, pure culture fermentation, the rise of the big three. Much consolidation in the industry has been spurred by technological developments, but also by market necessities. The consolidation of the American market in the 20th century was driven by economic necessity. Once organic growth was completed, expansion of distribution channels into untapped markets, price and advertising competition became important and ultimately a furious round of acquisitions that continue to this day, i.e. SABMiller, InBev-Bud etc. The only way to grow in a saturated, price-driven, ad-driven market is to consolidate. As craft brewers continue to grow rapidly, and as the market becomes saturated, advertising and price competition, and ultimately mergers/acquisitions must happen in order for the few largest "craft brewers" to continue growing. I just think that the pattern historically is too consistent to say that it won't happen with craft beer.

    Of course there are breweries like Anchor who have taken a different tack, they have chose to stop growing and to sit comfortably just under 100,000 bbls a year or so. But I think this is ultimately an untenable strategy as the price of raw materials and distribution continue to climb.

    Though I suppose the benefit of all this for Indiana is that we are certainly a state that has the potential for a lot more organic growth.