Wednesday, October 9, 2013

Is Craft Killing Big Beer — Not Through Sales, But Brand Status Erosion?

The last decade sure has provided journalists with some very reliable stories about the booze industry, hasn't it? Each year, the stories are pretty much the same, but since no one can quite unravel what's happening, the simultaneous growth and collapse of beer remains a fascinating economic case study.

In the last five years, craft beer has grown from 4.4 million to 7.3 million barrels produced (according to the Brewers Association), and so the story every year goes: craft shows no signs of slowing down, but maybe there'll be a bubble? Meanwhile, the big broad world of beer loses market share to wine and liquor. It makes for some interesting analysis: how is one small-but-broad niche growing so rapidly, while the over-arching industry crumbles? AdAge points to a number of culprits, everything from the economy to cold weather, but most analysis usually comes back to beer versus wine and liquor. After all, craft beer sales may rise dramatically, but still aren't a very big chunk of the overall market, whereas sales of liquor and wine together make for a massive economic juggernaut. According to Gallup, beer's lead over wine has slipped by 20 percentage points since the early 1990s.

I devised my own tentative theory a few days ago, when AdAge covered the recent National Beer Wholesalers Association annual meeting. I found a few paragraphs in that story to be very telling of the mindset of Big Beer marketers, so I'll just block quote them in full.

"At a private meeting with distributors, MillerCoors said it plans to meet that challenge with the 2014 launch of the high-end Miller Fortune, a higher-alcohol line extension. Ads will have the look and feel of liquor marketing, with messaging that "your fortune can change in an instant," according to a person at the meeting. 
But the most obvious way forward is to pay more attention to blue-collar consumers, the "most loyal drinkers of beer," MillerCoors CEO Tom Long said during a panel discussion. According to a person at the private meeting, the brewer plans to ramp up spending on Keystone Light and Miller High Life and return the brands to national TV.
While the industry has seen an explosion of brands and line extensions, Heineken USA CEO Dolf van den Brink said the pace of introductions "is not sustainable." Craft brands have flooded the market with new beers on an almost weekly basis. The activity is creating some fear that beer is becoming more like wine, in which styles are emphasized over branding. "There has to be a focus on building brands," said Bill Hackett, president of Crown Imports, whose brands include Corona."
The industrial complex has a deep-seated obsession with the concept of brands, and starting from this perspective, I think we can unravel some of the problems Big Beer is having. As the market changes, these companies just can't shake that mentality: we need premium brands, blue-collar brands; male and female-targeting brands; nostalgia brands; We must compete against "craft brands," and liquor and wine brand positioning. For every hole, there is a peg, for every consumer, there is a brand. Corporations have a very difficult time thinking any other way; understandably, as this approach has largely worked over the last hundred years. Beer has, traditionally, been driven by brands. And under this model, beer is sold much like cars, or computers, or any other industrial good. There is an economy brand, a medium-tier brand, an upscale brand, etc. The persistent attempts of macro breweries to convince people that "premium beer" is a specific type of beer is hilarious, and increasingly, kind of desperate.

But they are not exactly wrong. Many consumers do view the world, and alcohol, this way. Brands are a powerful thing. For a long time, the notion of "premium brands" was highly successful, as Big Beer was only really competing against itself, and night life establishments could position high end liquors and premium beers as roughly equivalent. Most people understand how beer works about as well as they understand how a car works, so if you keep insisting that a product is the "premium" version, they'll probably believe you. The branding model could establish its own rules, choose its own hierarchies. And for the marketers, it didn't really matter whether the "lite" category or the "premium" category was the most popular; they're all ultimately just brands.

But then craft beer came along, and, without even realizing or trying to do so, mucked up the whole hierarchy model. Sales of craft beer were insignificant at first — arguably, still are, in the general scheme of things — and nobody was really competing directly against the core brands of the big guys. But as consumers became increasingly aware of craft beer, something fundamental shifted. Craft brewers largely weren't marketing themselves, but nonetheless, managed to spread the general notion that they were making a better product. The use of "better ingredients" was often touted, even if consumers didn't have any direct interest in how beer was made. Craft beer was definitely more flavorful — even if you didn't like the flavor. Craft beer experimented, got nerdy, got technical, got obscure, got specific. Big Beer did not try to fight on this turf. Big Beer was satisfied to keep playing the "drinkability" card, the "lawnmower beer" card, the "you like to party, right bro?" card. And it did hit a few homeruns with "brands" that it never expected to sell — like Blue Moon — because they themselves did not fit into the traditional marketing approach. Blue Moon proved to be a massive success for Coors, but it was not the ultimate solution Big Beer needed. Because even though the majority of consumers are never going to show interest in Cantillon, or Hill Farmstead, or chase down a bottle of Kentucky Breakfast Stout, or trade for a case of Heady Topper, almost all consumers are now aware that craft beer exists. The world has conceded, perhaps begrudgingly, that beer crafted by small-scale, passionate artisans is probably the true high end. Many of these consumers do not themselves think craft beer is "better," in that they still prefer the taste of macro brews. But they are aware of the shift, the paradigm that now exists: craft beer is the "fancy" beer. The beer that aficionados and nerds and snobs drink.

And now, I would argue, a premium beer from the big guys doesn't quite equate to a top shelf liquor or wine. No matter how "into" beer you are, how could it? Fancy bars serve craft, townie bars serve macros. High end restaurants are still comically oblivious to the rise of pricey, profitable craft beer, but now a high end restaurant just looks ridiculous for serving a $6 Heineken alongside $80 bottles of obscure wine. So what happens then? A certain type of consumer switches to liquor and wine — maybe for status, maybe for the perceived value, maybe because, with beer shifting rapidly to a perplexing realm of un-marketed, obscure-sounding words-I-don't-understand, they feel that beer in general is lost to them. Wine has always been this way. Liquor has maintained a hierarchy that is easily understood. It becomes increasingly difficult to pretend that an expensive lager is a status symbol, so if you never were in love with the taste of it to begin with, why not order something else?

Obviously, beer marketers have not come to the same conclusion as me; or if they have, they are trying to realign their world through sheer perseverance. (And to be clear, my theory is certainly not the only factor, even if it's right. Many other trends, such as health claims and economics, shift the market share of these various drinks over time). Miller will make another grab for the premium beer market soon with Miller Fortune, following the lead of some recent introductions by Budweiser. Have these brands tanked, or will they? Nah. They still do fit into a branding slot that is decades old, and will appeal to a segment of the population; a segment that just happens to be dwindling rapidly. And thus, overall beer sales shrink, seeming to lose to the superior marketing efforts of high end liquor makers and the no-marketing-required, white-collar appeal of wine. Which then inspires Big Beer to copy the marketing techniques of high end liquor even more.

So Bill Hackett, president of Crown Imports, still worries: "There has to be a focus on building brands." But what happens when the notion of brands continues to erode, driven by a craft beer market that, like wine, pushes styles and regions and rating systems to the front of the conversation? We live in a world where, upon Googling for Budweiser's new Black Crown brand, the very first result is an influential review site that allows this premium beer a rather dismal 66 out of 100 rating. Most people may never glance at a word of those reviews, or care what they say, but this loud and immediate condemnation of quality can't be good for building luxury brand status.

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