Abstract
While most of the beer consumed around the world is produced by macrobrewers such as AB InBev, craft brewers (or microbreweries) currently receive most attention. In part, this is because craft beer represents the growing segment of the malt beverage industry and in part because the craft segment has had so many new entrants. In this paper, we describe the evolution of the craft beer component of the US beer industry, we explain the strategic interactions between US craft and macrobrewers, and we show how the US craft beer industry is having a revitalizing influence upon the brewing industry in Europe. While craft beer has its contemporary roots in the USA, for centuries Europeans have been brewing what could be considered “craft beer” in terms of its batch size and output heterogeneity.
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Notes
- 1.
The term “light” as used here does not refer to low-calorie beer but rather beer that is lighter (or milder) in flavor and transparency. We discuss low-calorie (also known as “light” or “lite”) beer later in this paper.
- 2.
- 3.
For brewers that produced less than 2 million barrels annually, the excise tax rate was reduced from $9.00 to $7.00 per barrel on the first 60,000 barrels produced. When the federal tax rate on larger brewers rose to $18.00 per barrel in 1991, the tax rate on brewers that produced less than 2 million barrels annually remained at $7.00 per barrel on the first 60,000 barrels produced.
- 4.
“Macrobrewer” means any of the large brewers in the USA that produce only (or mainly) lager beer, either as a full calorie or low-calorie (“light beer”) product. Given their combined market share, for the past three decades, the macro brewers have been those producing product within the brand portfolio of Anheuser-Busch, Miller, and Coors. Another term sometimes used for macro brewers is “big beer” or “the major brewers.”
- 5.
- 6.
In contrast, the craft segment has generated greater aggregate hop usage. According to the US Department of Agriculture, growing demand for craft beer led to an 11% increase in hop production in 2015 (CNBC 2015).
- 7.
In fact, as early as August 1948, Consumer Reports reported that “Today’s beers have evolved from pronounced, distinctive flavors toward a blander uniformity” after testing 29 brands of beer (Consumer Reports 2016).
- 8.
In a survey of major brands, light beer had an average of 26% fewer calories and 16% less alcohol than traditional American lager (Consumer Reports 1996). The transformation of brewing in the USA caused by the success of the light beer category is frequently overlooked because of the rapid growth of the craft beer category and the disproportionate amount of press devoted to craft beer. Light beer’s share was 0.3% in 1974 but grew to 22% in 1985 and 43% in 2000 (Tremblay and Tremblay 2005). To put the light beer category into perspective, in 2014 sales of the leading brand of light beer, Bud Light, exceeded 36 million barrels, while total craft beer sales was less than 22 million barrels. Nevertheless, in the last decade, Bud Light’s share has declined as craft’s share has risen dramatically.
- 9.
For further discussion of this issue, see Tremblay and Tremblay (2005, Chap. 5).
- 10.
These features generated an image of quality and status that later led Jim Koch, president of Boston Beer, to call for a new “better beer” category for imports and domestic craft beer (American Brewer 2003).
- 11.
In order to be legally defined as an import beer, it must be brewed outside the USA.
- 12.
Another reason for their success is their location, which gives beer that derives from Canada and Mexico a transportation cost advantage over imports from Europe. Beer is mostly water and expensive to ship. In addition, quality can be compromised through increased exposure to light and heat when beer is shipped long distances.
- 13.
For example, Elzinga et al. (2015) document that craft brewing is less prevalent in Southern states, where local laws have been least favorable to brewpubs and homebrewing. See this paper for a more complete discussion of the reasons for craft segment growth.
- 14.
Anchor Steam Beer technically is a lager, but the recipe made it taste different than a lager. Acitelli describes it as having a “citrusy finish” and a “heavier ale-like mouthfeel” (2013).
- 15.
Some argue that Anchor Brewing was not the first microbrewery because it was a revitalized brewery rather than a new establishment. We think that this unduly undervalues Maytag’s contribution. For example, by 1983, the success of Anchor Brewing caused over 100 individuals to contact Maytag for advice about opening a new microbrewery. For further discussion, see Elzinga (2011) and Tremblay and Tremblay (2005).
- 16.
The Boston Beer Company is not alone in the craft segment to use contract brewing. Schlafly cleverly markets itself as the “largest American-owned Brewery in Missouri”—following Anheuser-Busch’s acquisition by InBev. But while Schlafly in bottles is produced in Saint Louis, Schlafly in cans is brewed and packaged under contract with the Stevens Point Brewing Company in Wisconsin.
- 17.
Zymurgy is the process of yeast fermentation. Zymurgy was not the first periodical devoted to home production of beer. Eckhardt’s Amateur Brewer preceded Zymurgy.
- 18.
“No beers in the United States are more idiosyncratic than those produced by the Anchor Steam Brewing Company of San Francisco… The smallest brewery in the United States has added a whole new dimension to American brewing” (quoted in Acitelli 2013)
- 19.
Jackson has been described as “the most famous and influential beer writer ever—perhaps the most influential food writer on any subject of the twentieth century” (Acitelli 2013).
- 20.
In general, a firm that wanted to advertise on television during the 1950s and 1960s had to advertise nationally or not at all. The advent of spot advertising that allowed firms to use local television ads did not completely eliminate the national producers marketing advantage, however. For example, in 1982, the cost of reaching 1000 viewers between the ages of 17 and 50 on prime time television was $14.14 for national ads and $23.49 for spot ads (Greer 1998).
- 21.
- 22.
Cost data for craft brewers are limited. However, in 2014, the average craft brewer produced 6300 barrels, far below estimates of minimum efficient scale of between 20 and 25 million barrels. In that year, AB InBev, the largest macrobrewer, produced 96 million barrels, and the Boston Beer Company, the largest craft brewer, produced 2.55 million barrels. For 2004, Tremblay and Tremblay (2007) estimate that the average cost of a barrel of beer at Anheuser-Busch (before its merger with InBev) was 15% lower than the average cost at Boston Beer.
- 23.
During the 1980s and 1990s, Boston’s beer was produced under contract with the Blitz Weinhard Brewing Company in Portland, Oregon, High Falls (Genesee) Brewing Company in Rochester, New York, Hudepohl-Schoenling Brewing Company in Cincinnati, Ohio, and Pittsburgh Brewing Company in Pittsburgh, Pennsylvania.
- 24.
This information is obtained from the Brewers Association Web page at www.brewersassociation.org. The Brew Hub Corporation of Florida has extended the concept of contract brewing. Brew Hub calls itself a brewing partner that contracts with craft brewers to not only brew beer but to package and distribute it as well. It currently has facilities in Florida and plans to build additional facilities in the Northeast, Midwest, Texas, and the Southwest. This information is available at the company’s Web page at http://brewhub.com.
- 25.
See Hindy (2014) for further discussion of the marketing tactics used by craft brewers. See Tropp (2014) for a discussion of the “buy local” movement for food, which is motivated by the belief of some consumers that locally produced foods are of higher quality, that doing so supports local business, and that production involves less use of fossil fuels. A buy local movement has benefited microbreweries in Italy as well (Garavaglia 2015).
- 26.
In 2014, Blue Moon sold 2.1 million barrels. In the same year, Boston Beer, the largest craft brewer, sold 2.55 million and Sierra Nevada, the second-largest craft brewer, sold 1.067 million (Beer Industry Update, 2015).
- 27.
- 28.
One can view the Budweiser ad at http://superbowlcommercials.tv/35218.html and the craft ad at http://hopstories.conm/videos/craft-beer-super-bowl. As of November 27, 2015, the Budweiser ad had over 3 million viewers on YouTube and the craft beer ad had over 207 thousand viewers on YouTube. The production of craft beer would not always stop Diogenes in his search for truth. The marketing of Samuel Adams beer in a facility located in Pittsburgh that produced the Iron City brand hardly squares with the New England imagery of the brand. St. Louis craft brewer Schlafly markets itself as the “largest American brewer in Saint Louis” (after the acquisition of Anheuser-Busch by InBev). But its canned product is contract brewed in Wisconsin. The new Sierra Nevada brewing facility near Asheville, North Carolina (capacity circa 350,000 barrels), is so capital intensive that its production function is hardly the “handcrafted ale” as described on the label.
- 29.
For example, the market share of Bud and Bud Light fell from 32.5 to 24.7% from 2000 to 2014 (Beer Industry Update 2002 and 2015).
- 30.
See Leonard (2015) for a discussion of the problems this ad created within AB InBev in the USA.
- 31.
For example, at the Craft Brewers Conference on April 25, 1995, Henry King, president of the macrobrewers’ US Brewers Association, stated that “You can say you have the best beer in the world—I am sure all of you have great beer—but it hurts our industry when in speeches, in writing, or in any way we denigrate anyone’s beer” (as reported by Hindy 2014, p. 30).
- 32.
To satisfy international antitrust authorities, AB InBev has proposed the sale of SABMiller’s interest in CR Snow (the top selling beer in China) to the government-owned China Resources Beer Holdings Company. AB InBev also would divest three major sellers in its brand portfolio (Peroni, Grolsch, and Meantime) to Japanese brewer Asahi. This reorganization reflects AB InBev’s shift from the stagnant US and European beer markets to the growing South African and South American beer markets (where SAB Miller is firmly established). One reason for the stagnant sales of AB InBev and MillerCoors brands in the USA has been the growth of the craft segment, which is not as prominent in South Africa and South America.
- 33.
Similar concerns are raised by Moss (2015) of the American Antitrust Institute.
- 34.
See Wall Street Journal (2015) at http://www.wsj.com/articles/craft-brewers-take-issue-with-ab-inbev-distribution-plan-1449227668.
- 35.
JV Northwest merits citation as a supplier that developed scaled-down capital equipment for the craft segment but no firm has a monopoly over any input, be it land, labor, or capital.
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Acknowledgment
The authors thank Alexander McGlothlin, Jenna Knobloch, and Micah Webber for research assistance, Michael Uhrich of The Beer Institute for providing us with pre-publication access to Brewers Almanac (2015) and Beer Marketer’s Insights for data assistance. Financial assistance from the Marshall Jevons Fund is gratefully acknowledged.
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Elzinga, K.G., Tremblay, C.H., Tremblay, V.J. (2018). Craft Beer in the USA: Strategic Connections to Macro- and European Brewers. In: Garavaglia, C., Swinnen, J. (eds) Economic Perspectives on Craft Beer. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-58235-1_2
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