ANALYZING THE CRAFT BEER

INDUSTRYChristopher Fadule

MBA 592

Wilkes University

Craft Beer Industry•Rapid growth in the past decade

•Number of breweries in the U.S. (more than tripled)• 2005 – 1,447 breweries• At 6/30/16 – 4,656 breweries & another 2,200 in planning

•Mergers and acquisitions in recent years

What is “Craft”?

•Defined by Brewers Association

• “Small” – 6 million bbl. or less per year

• “Independent” – less than 25% of brewery owned/controlled non-craft brewer

• “Traditional” – uses traditional/innovative brewing ingredients and fermentation

History•Anchor Brewing Company (1896)

•New Albion Brewery (1976)

• Legalization of homebrewing (1978)

•Sierra Nevada Brewing Company (1979)

•Boston Beer Company (1984)

Breweries by Type•Microbrewery• Less than 15,000 bbl. per year• Sells at least 75% off-site• Most common in U.S. (56% of all breweries)• Ex. – Susquehanna Brewing Company

•Brewpub• Restaurant & brewery• Sells 25% or more on-site• 39% of all U.S. breweries• Ex. – Breaker Brewing Company

Breweries by Type (cont’d)•Contract brewing company• Contracts another brewery to make its beer• Can use hybrid approach to meet demand• Ex. – Lancaster Brewing Company

•Regional craft brewery• 15,000 to 6 million bbl. per year• Ex. – Boston Beer Company

•Non-craft (regional & large breweries)

Geographical Factors and Statistics

Geographical Factors and Statistics (cont’d)

•State highlights

• Most craft breweries in the U.S. – CA (518)

• Highest annual craft beer production – PA (4.06 million bbl.)

• Most breweries per capita – VT (9.4)

• Most gallons of beer produced per 21+ adult – VT (17.4)

Geographical Factors and Statistics (cont’d)

2014 Economic Impact by State

RANK STATE OUTPUT ($)

1 CALIFORNIA 6.9 billion

2 PENNSYLVANIA 4.5 billion

3 TEXAS 3.8 billion

4 NEW YORK 2.9 billion

5 COLORADO 2.7 billion

2014 Output Per Capita by State (21+)

RANK STATE OUTPUT PER CAPITA ($)

1 CALIFORNIA 709.39

2 OREGON 631.35

3 VERMONT 579.52

4 PENNSYLVANIA 476.98

5 ALASKA 469.09

Five Forces Model of the Craft Beer Industry

• 1. Rivalry among sellers – moderate

(+) (-)

Low buyer costs to switch brands Buyer demand growing

High differentiation Finite # of styles

Numerous competitors Vary in size/competitive strength

Five Forces Model of the Craft Beer Industry

• 2. Competition from potential new entrants – moderate to high• Barriers to entry• Small scale – low capital requirements

• 3. Threat of substitute products – high• Non-craft beer, wine, liquor, non-alcoholic beverages

Five Forces Model of the Craft Beer Industry (cont’d)

• 4. Bargaining power of suppliers• Most ingredients – low• Hops – high

• 5. Bargaining power of buyers• Wholesalers – low to moderate• Retailers – low to moderate• Consumers – high

Marketing - Consumers•Millennials

• Lack of brand loyalty – style over brand

• Know what they like, but open to trying new things

• Local pride• 75% of Americans live within 10 miles of brewery

• Female Millennials – over index

•Bottom 60% income households = 40% consumption

Marketing Strategies•Social media• Facebook• Instagram• Twitter

•Beer websites/apps• BeerAdvocate• Brewgene

Supply and Demand

• The Alchemist – Waterbury, VT

•Heady Topper• IPA• #1 on Brewgene Top 100• #5 on BeerAdvocate Top 250

Pennsylvania•Breaker Brewing Company

• Troegs Brewing Company

•D.G. Yuengling & Son

Mergers and Acquisitions

Mergers and Acquisitions (cont’d)•Ballast Point Brewing Company

• Lagunitas Brewing Company

• Founders Brewing Company

Infiltrating the Craft Market•Craft or “crafty”?

• Blue Moon

• Shock Top

Conclusion• Industry cannot sustain current pace of growth

•Consolidation has already begun, but will become more common

•Non-craft infiltration causes threat

•Mergers and acquisitions for survival

References

References (cont’d)