Tag Archives: Boston Beer

As the big get bigger, what do the small get?

The potential acquisition of South African Breweries (SAB) by their larger rival Anheuser Busch Inbev (ABI) has got many commentators gasping for breath: not at the audacity of it – that was reserved for when InBev (as was) took down Anheuser Busch – but rather the implications of the sheer scale. The scale, both of the deal (the fourth biggest corporate takeover) and the ultimate beast it will become (who we shall call ABSAB).

Interestingly, a stock response of commentators is ‘Don’t Panic Mr Mainwaring!’ The deal, as these deals do, will create opportunities for smaller operators. Drinkers, reviled by the deal and the inevitable consolidation / loss of brands in the shake-up, will vote with their wallets and support the little guy. New market niches will open up, too small for a goliath like ABSAB to spot, yet alone exploit. David will win the day! Fleet of footedness, quick decision-making will out!

And there will be some of this. Of course there will. But on balance, it’s a romantic notion and one that, in truth, isn’t borne out by precedent.

The first issue is growth. In most western, mature consumer markets beer is flat-lining or declining. Drinkers are drinking less. This pressure rolls through to licensees: what to stock; how much space they can give to beer and ultimately what brands end up on the bar. What licensees want is a range of guaranteed strong sellers and a ‘something interesting’ selection. ABSAB (Stella, Peroni, Budweiser) can fulfil one side, craft can fulfil the other (in fact, increasingly, ABSAB can fulfil this other side too). In less mature markets, there is underlying growth in beer consumption – in central and South America for example – and that growth is driven by brands. Big brands; famous brands, foreign brands; often American or European: brands that are a status symbol. ABI and SAB are getting together because growth in their core markets is slowing (or has stopped). They’re getting together because in emerging markets it’s about brands. The deal allows more consumers to access their brands in more markets, efficiently and cost effectively. And most consumers won’t react negatively. They won’t even think about it.

The second issue is craft. Craft beer, however you define it, is exciting, interesting and inspiring. It’s been brilliant for beer in many markets. But craft beer is, what? At best 10 – 15% of market volume. Most of us, most consumers, simply aren’t in the franchise or drink it infrequently. Most of us, in short, drink the sorts of beers that ABI and SAB make.   Now, clearly there is growth and clearly craft is slowly, steadily impacting consumer perceptions of the market. But if we assume that the basis of the ‘Innovation-Adoption Curve’ is correct, then most of us are fairly unadventurous. We’ll follow. And what will this mean in terms of brands? It won’t mean opportunities for spontaneous fermented wild beers hitting the mainstream. It will mean the likes of Blue Moon, Goose Island, Meantime, Lagunitas, Kona becoming more widely available, and if we’re lucky the larger – independent – craft brewers – Sierra Nevada, Brooklyn, Boston Beer will be available too. But the real opportunity if for the crafty beers under the umbrella of brewers like ABSAB. They offer the rationale of differentiated choice, with the convenience of a single and efficient point of supply.

What ABSAB appreciate is that currently global brewing is over-supplied. There are two responses. One, consolidate to ensure supply over time reduces and is done cost effectively. Two, build brands. This deal does both and will be successful.

For smaller brewers, given that they can’t consolidate to the same level, the real opportunity is the second option. To build brands. Take the UK beer market. There are now 1,700 breweries. The UK is the most breweried-per-head country in the world. Yet the beer market has been declining at about 4% a year since 2005. Per capita consumption of beer is falling, despite the noise of craft. There will be a fall out, even with the UK Government’s small brewer duty relief (perhaps because of it). Now is the time to build brands not supply product. Look at Camden Town, only three years old, but already widely available throughout the capital. Why? Good beers (with broad appeal); tremendous branding. Look at Beavertown. Good beers (with more challenge to them), impactful branding.

No, the opportunities presented by ABSAB getting together are twofold. For consumers, it’s in the truly niche operators, who make more complex, highly differentiated and challenging beer styles that they can supply effectively to the market. For small brewers who don’t, the real opportunity is to build your brand. And the real money is to be made when the likes of ABSAB buy them from you.

Branded Glasswhere

There’s a quiet revolution going on with beer glassware. I remember when I was at University down in Exeter it was a real struggle to get your pint served in the correctly branded glass. In fact, it was rare to even see a branded glass. Guinness was the exception, so much so that it was quite typical to get a pint of Director’s or Bass served in one, often leading to me asking for it in a plain glass instead (I have nothing against Guinness but somehow any old pint in a Guinness glass spoils the experience both of the beer you are drinking and your future pints of the black stuff too).  Packaged beer was even worse. Frankly, if I asked for a glass with my bottle of swanky lager I was given a thoroughly gone-out look. ‘Look at that wazzock, wanting a glass with his beer instead of necking it from the bottle like the rest of us. Knob.’  Today you may get a glass designed specifically for the bottle.  But back then it wasn’t a case of brand glassware but rather branded glass where?

What really brought the change home was a conversation with an ex wine marketeer,  a friend of mine who has put me right on a lot of commercial issues facing the wine boys which I as a beer boy had been quite ignorant of, if not thoroughly mistaken over.  One of these issues was glassware.  Wouldn’t it be great to have an industry standard set of beer glasses to ensure that each type of beer was served in the right way? This would keep it easy for publicans….not swamping them under a sea of different shapes of beer glasses, or having them confronted by oafs sending their beer back if it’s served in a Guinness glass.  The wine boys: they have it sorted: elegant glasses, consistent across pubs to bars to upmarket clubs. I even attended a beer dinner at The White Horse in Parson’s Green where this was raised.  But funnily enough, I as with many others, was mistaken.

The first issue is how the wine makers see their challenges.  One big issue for them (perhaps not for drinkers but leave that to one side for the moment) is a lack of wine brands. Coupled with over supply this is leading to many wine markets suffering extreme price deflation and discounting, and a huge differential between the pricing drinkers experience in the on trade vs supermarkets. Whereas in beer the difference is double (using the UK example but increasingly this seems the rough rule of thumb in many markets) in wine this can be anywhere up to fourfold. And wine ‘all looks the same’ to drinkers…a glass of rose may vary slightly between labels but there’s little else to distinguish them, including no branded glasses.  The plan: introduce branded glasses. Ah.  Which just goes to show that not only is the grass not always greener on t’other side but in fact, it could be pink with yellow spots.

The second problem has been listening too closely to the licensees. Publicans have it tough, that’s for sure, not only have they got the issues with escalating duty, supermarket cut-throat deals and changing leisure patterns impacting on their business, they also have to run a complicated little business with long hours, the vagaries of staffing and recruitment, coping with weird laws and bylaws, offering food and getting their drink range and quality right. But this doesn’t always mean they appreciate the best way to run their businesses. And beer glassware is one example. If you took operational considerations to the nth degree then you would have standard height, stackable, toughened (shatter not shard to prevent glass injuries), non branded (doesn’t wash off in the dish washer) in two sizes, pint and half, capable of being used for beer, spirit long drinks and soft drink too. Oh, hang on, this is often standard fare in pubs in the UK. So, they’ve got it right, yes?

Nope. Think of your own experiences.  Here are some of mine in the last few weeks. In the Lakes, I had a pint of Black Sheep in The Bridge in Buttermere. Right glass, right setting and definitely the cause for a second.  A bottle of Erdinger nearer to home, in its preposterously curvaceous tulip glass; on holiday in Lanzarote a glass of Estrella Galicia in a handled, frosted glass; numerous bottles of Nastro Azzuro and not just in Pizza Express; in Prague a fantastic cellar-aged Žatec in a simple pilsner glass. I could go on. The point is that the glass is the fireworks over the Disney castle. The theme park is good, but those extra details make it memorable, lift it, make you want to go back.  So it’s a fine thing to see Fosters promoting their new glass; to see Stella Artois continuing to push for sales in its ‘chalice’, for Carlsberg introducing the wonderfully angular San Miguel glass, or abroad for brewers like Boston Beer investing research and development money in the right glass shape for Sam Adams Boston Lager. And sure. They get stolen, but if ever you wanted advertising in the home and prompt to buy the right beer for the right glass then surely this is a investment worth making (or sell them to bars for the price of a non branded glass – bars need to buy glasses anyway and this reduces the hit).

But why is this? What is behind the transformational effect that something as simple as a branded glass has in the purchase of a glass of beer?  Interestingly, the psychology of buying sheds some light on this. Basically when we buy, in fact when we plan to buy, there’s an emotional upside that impacts our physical state: endorphins raising our anticipation to a peak, the apex being when you actually hand over the money and buy. Thereafter the downside kicks in, big for a TV set or clothes and so on, but for a beer is pretty small (one reason beer has traditionally been described as ‘recession proof’). And the branded glass? It simply accentuates the positive …. it’s a triple win, it shows the brewer cares, the pub cares and you can show off your distinctive choice overtly.

Now ok, clearly you can only have so many branded glasses in a bar. But here is another reason for bars to sell a smaller range, with higher throughput and therefore fewer problems with glass storage and serve (as well as all the upsides of beer quality).

Back to that beer dinner I mentioned earlier. As the debate rolled about different issues, out came pudding. And with the pudding came some Trappist and Abbey beers. Westmalle was one, served of course in its Communion style stemmed glass, deep-walled and thick painted. It’s no exaggeration to say that celestial quiet filled the room for the brief moment it took to pour. There, I thought to myself, is the last word on the subject. Whisper it quietly, but ‘Vive La Revolution’.

© David Preston, Beer Tinted Spectacles. Originally posted on Posterous, April 2012