Beer Monopoly




    International Reports










Posted February 2017

The big disruption: craft, politics and the Beer Monopoly

Globalisation, like history, knows no end. How will it progress further? And which role can craft brewers play? Ina Verstl (IV) and Ernst Faltermeier (EF discuss the state of the brewing industry with Michael Schmitt (MS), the publisher of Brauwelt International. Here are their key arguments.

MS: In your book you argue that the Beer Monopoly - your metaphor for the globalisation in the brewing industry - knows three major disrupters: consumers, politics, and craft beer.

EF: Despite decades of research and analysis, understanding consumer behaviour is still one of the most daunting tasks for beer marketers. The consumer remains a black box while new technology is creating a new deluge of data, in which marketers risk drowning.

IV: I remember interviewing Miller’s CEO John Bowlin in 2000 who told me that the brewer’s chances of raising beer output and market share in the US were positive, given demographic trends for the age group 21 to 30 years. But only a few years later younger consumers would desert mainstream brands and take to craft beers in a big way. To this day I wonder: were Miller’s consumer insights erroneous or did Miller’s people fail to read them correctly?

MS: Talking about beer, many beer writers have lamented that globalisation did impact beer as a product and negatively so. Is this the case?

EF: Surveys seem to suggest that consumers have a very uniform set of expectations towards beer and this certainly has been reinforced in the past few decades. Consequently, the differences among the large mainstream brands have levelled out to a large degree – not through a decline in quality but rather by increasing it. What some hold against globalisation - that it resulted in blander products - has actually been a boon for product quality overall. This makes products, brands and producers interchangeable, but also opens up new niche markets.

The rise of craft beer

MS: You mean craft beer has benefitted from this trend towards unchallenging, more uniform mainstream beers? If I understand you right, craft beer was an influence originally unforeseen in the Beer Monopoly.

EF: The rise of craft beer is governed by a simple economic rule that has been proven empirically quite often. The rule says that, in consolidated markets with very few players, inevitably a counter-movement will occur, drawing new entrants into the market.

MS: You say the pendulum has swung the other way?

IV: What Ernst has just said – this economic rule does not automatically apply. In the case of the US, it took some external prodding, namely lowering the barriers to entry. We would have never witnessed the rise of craft beer had President Carter not legalised homebrewing in 1978. Prior to that, homebrewing was a punishable offence. What’s more, it was thanks to the US beer market being so heavily regulated – think of the Three Tier System – that craft brewers could capture such a large chunk of the market.

EF: In Europe, there are no markets where craft beer is as prominent as in the US in terms of market share. Nevertheless, craft beer has evolved to become a real challenge for the big brewers – first in the US and then in other countries – where local craft brewers established new breweries, inspired by advances in the US market.

IV: We have chosen the term ‘disrupter’ for craft beer in our model. Since craft beer has taken market share away from the big brewers in their key markets, we find ‘disrupter’ is an apt descriptor and fits well into our overall picture.

EF: The perception of craft beer among the big brewers is also of interest. Does it represent a threat or an opportunity? Do the big brewers have the nous to actively play a role in the craft segment, or is craft beer a veritable Achilles heel for the business concept of the big brewers?

IV: Actually, it depends on whether you have a couple of hundred million dollars to put on the table to acquire craft brewers, just as AB-InBev has done. EF: For those who don’t have the money, craft beer is a threat. For others, it is an opportunity to grow market share.

MS: Did the big brewers see the rise of craft breweries coming? Could they have predicted or planned for consumer behaviour? Or did it take them completely by surprise?

EF: If they had been smart, they would have actively been monitoring the market. It needs to be said the big brewers have tried to launch their own products similar to craft beer, known as ‘crafty’ in the industry.

IV: The best example is Blue Moon. It took Coors 20 years to hike the sales of Blue Moon to 2 million hl. This process is too slow for a brewer in search of growth. It’s easier to buy established craft breweries.


The cult of ownership

MS: Does anyone really know what craft beer is? There are lots of definitions out there, mainly revolving around size, ingredients and ownership.

IV: They are far too formalistic for my taste. If we were to apply the US Brewers Association’s definition, nearly all of Germany’s brewers ought to be considered craft. How useful is that? Incidentally, the Bavarian Brewers Association with its 600 plus members has argued that they have been ‘craft’ since 1516, which was the year the purity law for beer was introduced. All this kind of undermines the BA’s well-meaning efforts.

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