How Craft Brewers Are Fighting Big Beer’s Distribution Advantage

If  you wanted a sense of how enormous the craft beer business has become, the place for a granular look in early May was Philadelphia, where more than 13,000 attendees – mainly brewers, but also scores of vendors, consultants, investors and plain beer fans – gathered for the annual Craft Brewers Conference.

Vendors promoted everything from logo design services, bottling lines and floor mats to giant brewing kettles, endless hop varieties, and even a chance to spend time at a test brewery to experiment on new recipes with a crack team of brewing specialists. Even gleaming copper and stainless steel stills were evident, a sign of the synergy between the craft beer and craft spirit explosions.

The growth of this event mirrors that of the industry overall; not even ten years ago, barely 1,000 attended the event. But the talk of the conference (beyond beer styles, marketing and growth) was the pending impact of the hook up of AB InBev and SABMiller. While the AB InBev purchase of a handful of craft brewers in the past few years earned some attention, the real concerns were expressed by Brewers Association director Paul Gatza. He pointed out that with control of major beer distributorships in a handful of states, the parent company already has a portion of control over distribution.

More worrying is the recent distributor’s incentive program, which rewards distributors for whom 95 or more percent of their sales come from AB InBev brews, along with reports that the mega-brewer has told its 500 distributors they would qualify only if craft brewers they carry produce less than 15,000 barrels or sell beer only in one state. Craft brewers fear their pipelines to market are getting far too narrow.

Getting distribution in a saturated market was already a concern, as evident by the number of seminars devoted to the issue – “Self Distribution: Temporary or Long-Term Solution,” “Collaborating with Your Distributor Partner” and “Distribution Contracts.” Other seminars ranged from nuts and bolts topics like how to avoid workplace citations to more ambitious panels on selling beers internationally.

While the buying and selling of breweries was an issue of concern, there’s no sign of retreat, even if the percentage of annual double-digit growth can’t continue much longer. Brewery closings have remained fairly steady: in 2014 it was 73; last year it was 67. Meanwhile, openings far outpace closings: 881 in 2014 and 620 last year.

Gatza pointed out that openings underestimate market dynamism. Nearly half of craft breweries increased capacity by at least 10 percent, and more than a quarter increased capacity by half or more last year. Average case price of craft rose nearly four percent, with the healthiest growth at the $51-66 price. Overall craft was up 21 percent in dollar share, while only up 12 percent in volume.

While IPA continues its dominance of craft, accounting for more than 26 percent of dollar volume, the big current promise lies with sessionable ales, which are up about 200 percent last year. The Brewer’s Association predicts that the next frontier may be joining the large brewer sandbox: pilsners, golden ales and other sessionable styles

As if to signify the differences between craft and Big Beer, the same week Budweiser announced that its cans and bottles would be labeled “America” during the summer and fall, craft brewers offered a beer specially made to mark American Craft Beer week in late May. Called the “Biggest Small Beer Ever Made,” the brew is produced by participating brewers in 50 states using the same ingredients and recipe but made in their own breweries.

Says Julia Herz, craft beer program director for the BA, “Craft beer is a unique community where competitors work together to provide beers that represent authenticity, quality and innovation. The unity and collaboration behind the Biggest Small Beer Ever Made shows brewers believe that the success of other independent brewers leads to their own success.”

Jack Robertiello is the former editor of Cheers magazine and writes about beer, wine, spirits and all things liquid for numerous publications. More of his work can be found at www.jackrobertiello.com.

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