For a few decades, beer has had a dividing line so bright it jumps out at the grocery store. On one side are traditional mass-market lagers, on the other “craft beers.” Containers are roughly the same price in each category, but quite a bit different on either side of that line. If you’re an old graybeard like me, you even remember when that divide separated what we derisively called “cheap beer” from the “good beer.” That dichotomous relationship is beginning to collapse, and in the future, the craft side of the aisle is predicted to stratify into different tiers based on price.
A few forces are at work. One is the tightening and ever-more-crowded marketplace. For more than a decade, year-over-year growth has ranged from 6 percent to 18 percent. This incredible demand meant breweries had no incentive to discount; breweries were selling everything they could make. But 2016 saw the first major recent slowdown, and many of the biggest brands have had the unfamiliar experience of watching their volumes decline.
A second force is consolidation, as multinational breweries acquire regional and smaller outfits. The vast majority of the craft segment is produced by a handful of major players, and increasingly, they have been targeted by the giants for acquisition. With production of key high-volume brands shifting to hugely efficient industrial plants, the cost to produce these beers drops sharply.
The rise of Goose Island’s IPA as a best-seller is a case in point. This stodgy old brand has been around since the ’90s; it was never even the brewery’s flagship. As IPAs gained in popularity, parent company Anheuser-Busch InBev saw an opportunity. It shifted production to A-B InBev’s large plants, and the company could then offer it at far lower prices, particularly on draft. As a result, the brand saw 250 percent growth in 2015 and became one of America’s best-selling IPAs. Paul Kirbabas, who recently joined SweetWater Brewing Co.’s leadership team after decades in the distribution business, points to the tightening market. “You don’t want to be that guy who drags the whole category down because of price,” Kirbabas says, “although the guys who have the efficiencies can do it and still make money.” With declining sales, the incentive to discount has mounted.
But there are reasons to eschew the race to the bottom, too. We’ve begun to see some breweries carve out a price point above the average. Mark Smith, category manager for the Harris Teeter grocery chain, says beer consumers are more knowledgeable than wine and liquor buyers. “They’re willing to pay more for better beer. How else do you explain Ballast Point? We’re selling them at $13.99 and $14.99.” Along with Ballast Point Brewing Co., Stone Brewing, Rogue Ales & Spirits and others pursue premium pricing.
The premium model also works for small producers. Ten- or 15-barrel breweries can’t hope to compete on price with “mass-market craft” of Goose Island and Blue Moon. Instead, they build brands through a reputation for quality. In states where they can self-distribute, this means they can grow fairly large and still enjoy decent margins. Others will sell at their breweries or at specialty stores that fetch premium prices. If you can’t go low, the reasoning goes, go high.
This process is natural—and inevitable. Chris Ormand, who has spent time as a retail buyer and now works for General Distributors in Oregon City, Oregon, says the choice is already here for breweries. “If it hasn’t already, it’ll force the breweries to decide whether they want to make a lot of beer and a little profit per unit or a little beer and a lot of profit per unit.” That will be reflected on those grocery shelves, where you’ll be able to buy a discount IPA, a standard IPA, or a premium IPA (and every other style, too).
We have the habit of thinking that the mass market will be dominated by one beer style (quite reasonably, given the history), but there’s no reason to think this will always be the case. This recent period of the divided grocery case is probably the anomaly. In other product categories, we don’t elevate one type or flavor above others. Chocolate is not more luxurious than strawberry ice cream. White house paint isn’t more highly prized than ecru. In the cheese aisle, people understand that Kraft’s Swiss cheese is more like Kraft cheddar than an imported, artisanal Stilton. It is not hard to imagine a future beer market where price, not style, distinguishes the mass market from the specialty. The future of beer will be one in which tiers develop, and customers will choose not just among different types of beer, but differently priced beer.
Editor’s Note: This story is part of a special section on the future of beer, which appeared in the March 2017 issue of All About Beer Magazine.