Craft Beer and Big Business
Monday June 25, 2007
Over at Lew Bryson's and Stonch's beer blogs there's a discussion about what is craft beer. It's interesting reading. As for me, I'm not too worried about defining craft beer. I just look for good beer.
But what happens when craft beer meets big business? I'm not talking about when big business attempts to make craft beer as in the case of Anheuser-Busch. I mean when a brewer dedicated to making good beer and brewing innovation faces the pressures of big business, which always seems to dilute any beer it encounters. A great example of what I'm talking about is the Boston Beer Company. They brew Samuel Adams beer. While the beer, though consistently good, isn't usually my first choice, I am continually impressed with how they handle their business. Their TV ads do as much for the craft beer industry as they do for Samuel Adams by moving the discussion about beer from sex and cheap humor to flavor and diversity. The annual Longshot homebrewer's competition doesn't do a lot for the bottom line – although I can't deny the branding benefits – while it does put a lot of focus on homebrewing. The owner, Jim Koch, seems as interested in promoting good beer in general as he does in promoting his own good beer.
To illustrate how business tries to dilute good beer, consider this article from Forbes. Boston Beer is publicly traded and everything points to it being a great stock to buy. The company enjoyed an impressive 15-20% increase in sales growth for the first half of this year. It is the clear leader in sales for the craft beer market in the US and the company has done nothing but steadily grow since it opened back in the eighties. From an investor's perspective, what's not to love? But the analysts remain “neutral” about the company's stock's potential. Why? Because Boston Beer is considering building a new brewery. That's right, a move that can only improve the product, help the company adapt to its increasing sales, and bring even more innovation is seen by Wall Street as a negative thing.
I'm not saying that they are right or wrong I'm just saying that the expectations of business seem to be at odds with the demands of good beer. And when breweries begin to nurture their business more than their beer then the quality of the beer will inevitably decline – or at least it certainly won't improve and keep up with the industry. So far the Boston Beer Company has made the right decisions and their beer remains interesting and relevant in the rapidly changing industry.
But what happens when craft beer meets big business? I'm not talking about when big business attempts to make craft beer as in the case of Anheuser-Busch. I mean when a brewer dedicated to making good beer and brewing innovation faces the pressures of big business, which always seems to dilute any beer it encounters. A great example of what I'm talking about is the Boston Beer Company. They brew Samuel Adams beer. While the beer, though consistently good, isn't usually my first choice, I am continually impressed with how they handle their business. Their TV ads do as much for the craft beer industry as they do for Samuel Adams by moving the discussion about beer from sex and cheap humor to flavor and diversity. The annual Longshot homebrewer's competition doesn't do a lot for the bottom line – although I can't deny the branding benefits – while it does put a lot of focus on homebrewing. The owner, Jim Koch, seems as interested in promoting good beer in general as he does in promoting his own good beer.
To illustrate how business tries to dilute good beer, consider this article from Forbes. Boston Beer is publicly traded and everything points to it being a great stock to buy. The company enjoyed an impressive 15-20% increase in sales growth for the first half of this year. It is the clear leader in sales for the craft beer market in the US and the company has done nothing but steadily grow since it opened back in the eighties. From an investor's perspective, what's not to love? But the analysts remain “neutral” about the company's stock's potential. Why? Because Boston Beer is considering building a new brewery. That's right, a move that can only improve the product, help the company adapt to its increasing sales, and bring even more innovation is seen by Wall Street as a negative thing.
I'm not saying that they are right or wrong I'm just saying that the expectations of business seem to be at odds with the demands of good beer. And when breweries begin to nurture their business more than their beer then the quality of the beer will inevitably decline – or at least it certainly won't improve and keep up with the industry. So far the Boston Beer Company has made the right decisions and their beer remains interesting and relevant in the rapidly changing industry.
Comments
Ever been really into a band that most people don’t know exists, then after a while they “make it big” and everybody knows them and owns their CDs. Sort of ruins it, doesn’t it? Chances are your appreciation for that band diminished and you’re not so into them anymore because everybody is into them now.
You’ve lost the “intimacy” - The exclusivity.
There is something to the notion of having a thing (an idea, a band, a restaurant, a brewery, a beer) that your average Joe doesn’t have a clue about. You feel a certain sense of ownership by virtue of the fact that you are in a relatively small group of people who support and enjoy that “thing.” We all like to have something that most others don’t have.
This is the paradox of the craft brewery - stay small enough to keep your devoted supporters, but big enough to keep the doors open and the lights on … get too “big” and your die-hard fans will move on to the next new thing. Your relative value to your core audience is contingent on walking this line.
… give everyone a diamond and all of a sudden a diamond isn’t worth what it once was.
With the die-hard beer geek crowd, it seems that an innovative brewer can never win. Koch’s biggest hurdle in his earliest years of operation was the fact that he wasn’t a “real” brewer; he contracted out his production, utilizing his resources for marketing and distribution.
Despite the fact that The Boston Beer Company consistently makes great tasting beer, he’s had to go out of his way to court beer geeks, running ads in beer publications and promoting homebrewing with his Longshot event.
For some reason, perhaps to finally put to bed the idea of not owning a “real” brewery, Koch renovated the old Haffenreffer Brewery in Boston and purchased the fading Hudepohl-Schoenling Brewery in Cincinnati. Do these purchases now give The Boston Beer Company some sort of legitimacy in the eyes of those who charged that his beers weren’t really “craft” beers?
Now the quandry; after satisfying the geek crowd, he now has to satisfy investors who worry that a large-scale purchase of a new brewery might bite into the bottom line.
Koch might be better off my following the campaign of Russ Cleary who built the G. Heileman operation in LaCrosse, WI from a small regional operation to a multi-regional operation that picked up other small regionals that were facing bankruptcy during the ’70s and ’80s. At the time, it made more sense to pick up a brewery like Rainier, for instance, for $8 million rather than leverage a $40 new plant.
On the other hand, there’s also a possibility that he might make a deal with A-B, MolsonCoors or SABMiller while retaining majority status in the business. Who knows?
What I do know is that The Boston Beer Company is successful because Koch looks at the contemporary brewing industry as a business, not some romantic notion that all to often permeates the mentality of the craft industry.
Koch has certainly proven, almost more than any other of the current generation of brewers, that good beer and a successful business are not mutually exclusive.
You’re certainly right about that romantic notion, Bob. I often realize that I’m guilty of that. Good beer has to live here in the real world with the rest of us, doesn’t it?
“Koch might be better off my following the campaign of Russ Cleary who built the G. Heileman operation in LaCrosse, WI from a small regional operation to a multi-regional operation that picked up other small regionals that were facing bankruptcy during the ’70s and ’80s.”
I called this, didn’t I?
Not only will Koch pick up a Diageo-owned brewery, but he’s also in talks to acquirean interest in the City Brewery-owned brewery in Latrobe, the old Rolling Rock plant.