Beer Business Unplugged

Over the years this blog has described the three tier system using an hour glass to illustrate how the beer industry operates.  In this description the top part represents the breweries, while the bottom part represents the retail trade.  The sand is the beer which must flow thru the middle part, aka the wholesalers, to ultimately reach the retail end.

This hour glass model works well when describing how the industry operates to either those not involved in the industry, to students or to those new to the industry.

An article recently published in Beer Business Daily highlighted how quickly the industry is changing. Historically, as the article stated, the beer industry was slow to change, however, the dramatic growth of crafts forced change.  Until recently, the established industry believed that most of the newbies were somewhat oblivious to how and why the industry worked.  To some degree, they were right. BBD’s article goes on to state that crafts have, or are becoming, educated on how the process works, and they now have a grasp on industry operation.

Perhaps one of the best ways to explain this change is to again examine the hour glass model.  When the industry had only 50 functioning breweries, the sand flowed smoothly through the hourglass from the top to the bottom.  The limited number of brands, or SKUs in 1980, expedited the flow of brands thru the middle tier.   Currently, with 4,000+ breweries and brew pubs, all trying to get to market, there is more sand in the top and the sheer volume prevents the beer (sand) from reaching the bottom of the hour glass.  The consolidation of the middle tier only exacerbates the problem

The increased volume is causing the sand to flow over the top to the bottom, bye-passing the middle tier.  More and more craft specific, small, boutique-focused wholesalers are getting into the business, some are even offering statewide distribution, and almost all are focusing on craft-only accounts.  Also, the issue of direct sales from brewpubs, where legal, must be considered.  In addition, more start up breweries are self-distributing.

While this model works well for distributors, many of breweries are looking at the success of Stone and Windy City.  They are interested in acquiring additional partners, whether they be crafts or imports, thus building critical volume and filling a necessary void for others.  Similar to the course of Stone and Windy City, suddenly the brewery becomes a formable opponent in the market.

As ABI continues their effort to buy distributors, closing one more option for craft breweries, it also creates additional opportunity for more sand to spill over the top or the hour glass.

While crafts continue their march to 20% of the US overall market, expect a surge in craft/import small boutique distributors in major markets.

The sand is flowing over the top.  Resistance is futile!

Much has been, and will continue to be written about crafts and how their percent overall beer sales in the U.S. will land.  The stated goal is for crafts to possess 20% market share by 2020.

Stats show that sales have slowed for the on-premise accounts, but continue to grow for the off-premise accounts.  The marketing for crafts seems to be shifting from the off- premise in building the brand from the on premise.  Either way, the craft segment continues to dominate the industry in all areas.

Perhaps nothing more readily demonstrates crafts’ growth than the attached chart for N. Texas.  The current number of breweries and brewpubs, and those coming to this region, is similar to many other parts of the U.S.  Consumers are driving this growth with their continued support of the segment, and entrepreneurs see a great opportunity to make some money.

Politicians have also taken note of the industry growth because crafts help with job creation, taxes, and advertise the cities and states in which a beer is sold.  For both the politicians and the crafts, this continued growth is a win-win situation.

The question is, how does the industry support the craft growth with skilled individuals?  As in previous blogs, we looked at the crafts and how they acquired many ABI and SABMiller employees due to downsizing.  But even that pool of talent is finite.  So what happens next?

For decades, there has been a small but highly effective number of schools who taught the brewing and technical side of the business.  The Siebel Institute led in this field, but other establishments have been created institutes of beer education across the country, now including Dallas.

Those teaching the brewing classes are led by highly trained, credentialed and experienced instructors.  Students who complete these programs are well qualified to work in brewing.

As a natural extension to this technical side, many schools have developed classes for the business side of beer.  Class topics include, but are not limited to, sales, marketing, chains, budgeting, planning, merchandising, pricing, and other key components of the industry on all three tiers.

While at first glance, it would seem that schools would have a large pool of experienced industry executives from which to recruit.  In certain areas, including legal contracts or accounting, there are a number of highly qualified professionals who specialize in crafts from which to recruit.  Such talented individuals can, and do, provide great insight.

What schools, students and companies need to watch for is that there are now some self-proclaimed experts who have become involved in attempting to educate people in beer.   Some have written books delineating how to become successful in crafts or teach subjects on crafts.  Frequently, such individuals have no, or limited, skills/experience in crafts or in the beer industry as a whole.

There is no doubt that the industry needs schools to help educate a workforce.  This was evident last summer as almost 30 breweries, wholesalers, importers, and crafts responded with their lists of needed skills for potential employees.  It was eye opening!

In a future blog these desired skills will be outlined. Schools and potential employers, however, should take whatever time necessary to ensure potential workforces have the right skills from the best teachers.  It is not the teaching, it’s the learning.