Breaking down categories by brand perception is one of my passions. It doesn’t matter how big or small your brand is, this kind of analysis never fails to provide competitive insight. Recently, I had a chance to take a brand snapshot of a playing field in the domestic beer sector. In addition to the bench-emptying kerfuffle among hundreds of individual labels, it turns out that conflict also lies at the place in the market spectrum where “mass” and “craft” beer categories reach out to each other.
Another passion is baseball, and since the new season is here, I hope you’ll forgive me for structuring this post as a metaphor to America’s game.
Setting the Playing Field
For the record, the domestic beer market is controlled by a very small number of America’s breweries. About 93% of US beer production comes from just 56 breweries (that’s 2% of all breweries). The other 7% comes from the 2,360 companies considered craft breweries by the Brewers Association, the trade organization of craft brewers. (www.brewersassociation.org, April 2013.)
Domestic beer consumption dropped 1% in 2011, while the craft sector grew 13% in volume! Not surprisingly, the trend was maddening (and terrifying) to the two percenters. In 2012, there were about 200,000,000 barrels (BBL) of domestic beer sold in the US. You figure the dollars foregone.
The volume below which a brewery, including all its labels, is considered by the Brewers Association to be a craft brewer is 6 million BBL annually. If you’re looking to hit a grand slam (the next Bud Light?), this isn’t the sector to target. It’s appealing enough, however, that the majors have stroked a series of singles and doubles in its direction, any one of which could potentially exceed the craft barrel limit.
Batter Up for the Bigs
Gambling that there might be a large demand for something that tastes like a craft, the big labels are pushing what are often referred to as “faux craft” beers, like AB InBev’s Shock Top, and from Miller Coors, Third Shift as well as Blue Moon Belgian Wheat. Working the free agent market, they’ve also bought actual craft breweries like Widmer Brothers, Redhook, Goose Island and Leinenkugel. Finally, although this master brand naming approach removes them from the craft beer conversation, beers like AB InBev’s Budweiser Black Crown and MillerCoors Molson XXX are super premium extensions of flagships.
Faux Craft and Super Premium Packaging. Upscale, distinctive, and appealing.
The Brewers Association also takes the position that any label with more than 25% ownership by a major brewery is not a true craft beer. So AB InBev and MillerCoors can sell as much as they want, but they seem to have run up against a wall of perception regarding their craft legitimacy.
You’re Blind, Ump!
Hang on a gosh darned second. If it’s made like a craft and tastes like a craft, who says it isn’t a craft, barrel limits and ownership percentages be damned? That’s where an understanding of perception is involved. Managers who focus on numbers and fail to account for what ordinary people think about beer miss the boat.
It turns out that craft beer drinkers themselves care deeply about the distinction between mass-marketed beers and craft beers. They take pride in their ability to enjoy a wide range of tastes in limited production, often very local brews made with high quality hops, barley and other natural ingredients. In fact, and without the benefit of research that surely exists somewhere, I believe they control the public perception that this craft / non-craft construct is important. It seems to me that Americans accept the notion that, as with wineries, small makes better possible, while big means drinkable, reliable and reasonably priced.
The consultation that afforded me this sector snapshot was a review for market research firm Blueshift Research. A significant aspect was developing a POV, strictly from a brand perspective, on the infringement of faux crafts upon the traditional territory of Sam Adams brand labels. Sam is the most valuable craft in the sector (MVC?). The majors’ strategy must account first for him.
So let’s take a look at the brand identity issues involved.
Sam Adams, The King of Craft • 62 labels featured on web site (about 30 with formal Sam trade dress) • Brewed by The Boston Beer Co. • 3 million barrels (bbl) per year production • Respected among beer drinkers though some purists consider it “too big” • Founder and CEO Jim Koch is a fifth generation brewer
Scouting Report: Sam Adams’ Brand
Starting from scratch in the mid-1980’s, Sam Adams was the leader of the craft revival movement. Given its heritage in the craft brewing world, Sam’s is a pioneering brand identity, worthy of its historic New England namesake. It’s perceived as having integrity, courage and strength of character, in flavor as well as brand personality. Like the beers his great great grandfather and each successive male descendant in founder Jim Koch’s family brewed, it’s made with a craftsman’s touch. Sam Costs more than Bud, and an awfully lot of people buy it. Sam Adam’s brand identity seems well-matched to the craft beer sector.
Yet aspects of Sam’s identity resemble the national brands more than they do other crafts.
Its label hews to the principles of commercial graphic design, with consistent repetition of graphic icons, handsome and traditional typefaces, a helpful and attractive color palette, and more.
Craft Beer Branding. In contrast to Sam Adam’s more formal trade dress, many traditional crafts celebrate the uniqueness of their approach to brewing with highly expressive, sometimes even hand-drawn labels.
With a market cap over $2 Billion, the Boston Beer Co’s large scale (for a craft) affords it a more traditionally organized distribution system, including national coverage in multiple channels (liquor, supermarket, on tap, etc.)
It also provides a workable advertising budget (in 2010, about $30 million). It’s campaign effectively conveys Jim Koch’s obsession with taste and quality.
Sam gets the best of two worlds, the lucky boy! He’s found a sweet spot in the market that’s rooted in the craft sector, but delicately steps beyond it into the mainstream market without compromising its fundamentally “craft” identity.
On the Other Bench . . .
Threatening Sam’s prosperity, perhaps, is the emergence of faux crafts. What’s their brand identity? To true craft beer fans, the kind that care about the 6 million bbl size limitation, they’re not worthy. (See some reviews for Shock Top at beeradvocate.com.) But what about those on the rungs below, consumers who like a uniquely flavored, higher quality brew they can rely on for consistent satisfaction. How vulnerable is Sam in this area?
After all, real success for faux crafts depends on upgrading enough mainstream beer drinkers (of which there are tens of millions) to affect the bottom line, not stealing significant share from the smaller and more discerning craft sector. Early results are positive. In 2012, according to Nielsen (quoted here by food and beverage pundit Phil Lempert), the domestic super-premium segment generated sales of $2.1 Billion, with dollar growth of 29% year over year. That’s “just” a third less in dollar sales than the entire craft sector, which itself grew by 18% to $2.8 Billion.
I would argue that as long as the Boston Beer Co. plans to remain a true craft brewer, success for faux crafts is not a threat. The core markets are too different, as are the brand images. I think the bigger problem belongs to the makers of faux craft beers, which have to be perceived as superior to mainstream beers to earn price premiums. To communicate this, do they not have to reach out toward identity characteristics owned by the craft sector? Here’s a major source of their image problem. Authenticity is a critical brand element of most craft beers. Yet the majors do not even declare parenthood on their faux craft labels. A lot of people think that’s sneaky. And sneaky is the opposite of authentic.
Faux Craft Labels. These labels are craft-like, albeit slicker looking than is typical in the sector, suggesting distinct character and personality. Neither one declares its connection to the world's larges brewers.
- A Look at the Telestrator
- These charts provide a graphical summary of my point of view. Plotting perceived “craftiness” against sales volume, the dogleg shape of the distribution is clear. High quality and distinctiveness has been a niche market play. Craft manufacturers like Boston Beer Company might push outward toward the area of opportunity (the green rectangle), but if they remain true to their identity, they won’t exceed the craft manufacturing limit. Major brewers, on the other hand, not encumbered by the Brewers Association’s guild-like distinctions, are trying to approach the opportunity as well.
Perceived Beer "Craftiness" vs. Sales Volumes in BBL (by label). There are hundreds (even thousands) of low volume but very crafty beers, dozens of low-to-moderate volume and non-crafty ones (the amorphous purple shape), and a few very large brands. The latter dominate mass market mind-share. Craftiness ratings are the author's. Volumes are approximated based on various published sources.
When Craftiness is plotted versus the size of the parent brewery, the market perception gap is even more apparent. As long as craft beer lovers prefer attributes like small and local, the majors will have difficulty luring them, no matter how craftily their beers are brewed.
Perceived Beer "Craftiness" vs. Parent Brewer Sales Volumes in BBL. The Perception Gap. (The size of each square represents sales volume by that specific label.)
Respecting Your Legacy
As a corollary, if The Boston Beer Co. is to remain true to it’s own brand, it won’t care about the success of faux crafts. An awakened taste in quality beers, and a continued migration upward toward “real” craft beers should be good for them and the craft sector as a whole. Also, the company is pursuing alternative beverage categories for now (hard tea and cider), a strategy that carries diversification value as well as the possibility of continued growth without compromising BBC’s craft brewery status.
The best news for crafts in general, at least those whose managers care more about quality than market domination, is that if they stick to their core identities, there appears to be plenty of room for continued growth, even in an economy that is still in recovery.
In EVERY category, brand identity analysis is a big league tool you can use to size up the competition. It’s not enough to know the current stats: sales, penetration, promotional spending. You have to establish a context for evaluating potential. I’ve written elsewhere about the fundamentals of brand identity (for example here and here), but the bottom line is that every brand has an essence that carries valuable genetic information about the strategies and tactics it can pursue to fulfill its destiny, as well as those it must avoid. If you understand the brands, you’re half-way home!
What are your thoughts on this line of thinking? If you’re in the brewing sector and have a take on the category, please chime in. And if you’re in another sector, do you see how these principles apply in your case too?