Sunday, June 7, 2009

Craft beer sales increase, but why?

The prolific Jeff Alworth at Beervana posts what appears as good news for the craft beer industry in these dark hours of recession. Indeed, if you are in the brewing business, you want to be in the craft segment. I agree with Jeff that this is good news and I also support his contention that craft beer sales are partially the result of a rise in average price for a barrel of craft beer.

Because this is a blog about brand and marketing, I think this rise in prices is an interesting one given the current economic downturn. To recap a couple of statistics that are contained in my comments to Jeff's post, craft beer volume is up a bit shy of 6% 2007 to 2008. A report in a Chicago area newspaper says that craft beer sales are up 12.6% according to the Neilsen Company.

I know that I am stepping into dangerous land when I start to discuss statistics, but it appears that the increase in sales has to come, partially, from an increase in prices. And, this was accomplished in spite of a declining economy.
Assuming you believe my math that you cannot get to 12.6% sales increase on 6% volume increase without charging more, we are left to speculate as to how to get there. And, here's what I think has happened.

Craft brewers know or should know that their product is a luxury product if you believe the data about the consumer. The dominant cohort of craft beer buyers is male, 25-34 years-old and earns $100K/year. I imagine that this buyer is purchasing Starbucks coffee in the morning after a few rounds of Bridgeport IPA the night before. In other words, what we once associated with luxury--expensive alcoholic beverages, premium coffees, etc.--is now considered a normal purchase, at least by this niche.

How did brewers exploit this advantage? By bringing out increasingly more expensive products. My opinion only, but you cannot have that sort of sales volume increase by cranking out another ordinary pale ale. You need to have new products that sell for more because they have more to offer.

Witness the rise of the seasonal and the proliferation of "Belgian-style" beers. It wasn't long ago that just a few breweries brought out a holiday ale around Christmas. Reflecting the "winter warmer" heritage of the British cousins, these bigger, maltier beers were limited in production and a bit higher in price. Now, it seems, every craft brewery has a holiday ale.

On to the Belgian-style products. I might be blinded by living in Oregon where we have so many breweries and they are often leading the market in style and product development. I use Belgian-style as a metaphor for the great expansion in the line-up of beers on tap from any given brewery. And, Belgium seems to be a big inspiration. Our major brewers in Portland were once satisfied to offer perhaps five to six products most of the year with the occasional addition of a seasonal or the introduction of a new product. Now, go into the tap rooms of Bridgeport, Deschutes or Widmer Brothers. There, you will see many of the same five to six alongside that many or more seasonals, specialty products, "reserve" series, etc. Granted, the price of a pint of most of these beers will be about the same, but you are surely paying close to $5 a pint (honest or not) for them. The real differences come at the retailer when you're buying packaged beer. Those specialty beers come at special prices.

I, for one, applaud these changes as it demonstrates the growing sophistication of the buyer, the producer and a vastly improved variety in product. I'll probably never tire of a Blue Heron, Mirror Pond or Ur-Alt. But, I also am a ready target for that special new brew for which I am likely to plunk down a few more shekels.