Analyzing the Craft Beer Industry

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)