Craft Brewing Industry

The beer industry underwent major changes from 2010-2016 when craft beer gained popularity and drove up competition in the market. This new product created difficulty for popular brands such as Bud Light and Budweiser who struggled to collectively dominate the beer industry. Since the peak of craft beer in 2016, craft breweries are experiencing problems maintaining sales and thriving within the industry. Craft beer was initially an attractive product that consumers were excited to buy. There was a uniqueness that intrigued individuals and skyrocketed interest in craft beer which peaked sales.

There are various factors that contribute to companies’ overall growth and success. Various forces within the market can affect breweries resulting in positive or negative business outcomes The purpose of this case study is to identify the problems that have occurred within the craft brewing industry since 2016 and find a possible solution. This research will allow both new and existing craft breweries to be informed on forces within the industry and help them to overcome challenges in the industry in order to gain back momentum and compete in the beer industry. The Craft Brewing IndustryThe craft brewing industry significantly impacted the beer industry in the early stages of the 2010s. Craft beer is an attractive product for many reasons. It is both locally and regionally produced. Because of this, craft beers are high in quality as compared to cheaper, more popular beers such as Miller Lite. Craft brewers also have the ability to differentiate their products by creating unique recipes and flavors. By 2015, the following craft breweries were ranked among the top 10 largest breweries within the United States: D. G. Yuengling and Son, Inc. ; Boston Beer Company; Sierra Nevada Brewing Company; New Belgium Brewing Company; Craft Brewing Alliance (Gamble, 2017). This shows how present craft breweries became in the market, as they were ranked among the largest, well-known beer companies such as Anheuser-Busch, Inc. Craft breweries added value to the beer industry as a whole, reaching $39. 5 billion in revenues by 2016 in a five year time span, which was a 6. 7 percent increase annually (Gamble, 2017). By the end of 2016, craft breweries began to decline in sales. In 2017, 165 craft breweries closed, which is the highest amount of closures for any given year in the past decade (Siegel, 2018). This closure percentage is 42% higher than the prior year, 2016, when 116 craft breweries closed (Siegel, 2018). Smaller breweries are continuing to close due to high competition and partial market saturation.

Case Analysis

Porter’s Five Forces of rivalry, potential new entrants, substitutes, buyer bargaining power, and supplier buying power are a good basis of evaluation for this specific industry. I will use these five forces to evaluate the beer industry, focusing in on craft brewing specifically and the factors that have affected their sales. There is a great amount of rivalry within the beer industry. There are 15 categories of beer comprised of more than 70 styles (Gamble, 2017). For years, it appears it was easy for the top beer companies to dominate the market. However, the rise of craft brewing from 2011-2016 really took a toll on these top companies as they began to innovate beer products. Innovative products give companies a competitive edge that attracts consumers and drives sales. This is exactly what craft brewers did, resulting in a rapid increase of sales within a short period of time. While innovation is a great way to get a customer base and market share, it is still not enough to dominate the industry when there are larger companies with the ability to use market push to take over the industry.

The largest industrial beer companies have found a way to take back their industry and put an end to the growth of craft breweries. These larger companies are acquiring smaller craft breweries and relying on consolidation to deal with the rivalry and competitiveness within the industry. Anheuser-Busch has already taken action by acquiring smaller craft breweries such as Wicked Weeds, Goose Island, and Devil’s Backbone. The large brewers naturally have more power because they are able to buy the smaller breweries and acquire their competitive edge and unique recipes and flavors without having to innovate themselves. Bart Watson, chief economist of the Brewers Associated pointed this out by saying, “The Largest brewers have a lot of ways that they can push into the market, rather than relying on consumer pull” (Siegel, 2018). In an industry in which the largest companies have been known and at the top for years, even innovation and a competitive edge may not be enough to take over the market.

The next force that is extremely pertinent to the beer industry is the force of substitute products. Not only is there competition among other beer brands, but also among other types of alcohol. It is common to think that competing beer brand’s are each other’s biggest rivals, but this may not be the whole truth. Wine and spirits is a very close substitute to beer. Data shows that millennials are less interested in beer than wine and spirits. While beer declined an entire 1% from 2016 to 2017, wine and spirits remained constant. Wine and spirits replaced 10% of beer’s market share in the years from 2006-2016 (Taylor, 2017). President of AB InBev’s craft line, Felipe Szpigel, spoke out and said that wine and liquors are his competition (Taylor, 2017). Szpigel believes there is a potential for craft beers to replace wine and spirits. AB InBev is working on getting younger crowds to be more interested in having a beer in their hands while they eat, rather than a glass of wine or a liquor drink. It is easy for these big companies to limit the growth of smaller craft breweries by simply buying these companies and acquiring their products. They cannot do the same with wine and spirits, which makes it harder to compete with wine and liquor companies. The beer industry may have to find ways to compete with other companies of substitute products, once they take care of battle within their own industry against craft brewers.Potential of new entrants is an important force to look at when assessing the craft brewing industry.