Five threats to the continued rise of craft beer

Psychologists talk about “magical thinking” in children. It’s kids’ ability to believe they really are flying or chasing dragons or have morphed into Power Rangers. Marketers seem to have their own equivalent.

As but one case in point, Budweiser, long the runaway #1-selling beer, saw its sales-slide begin around 1989. So, at what point did the brand make major changes to its marketing to alter its downward trend? Just this year. That meant 25 years of unrealistically believing its unchanged marketing strategy would somehow start working again. That’s a lot of magical–and dangerous–thinking.

These days, it’s craft brewers who are engaging in this sort of make-believe. The craft guys talk and behave as though their collective gaudy growth numbers of the past decade will only continue. But in business as in nature, nothing goes up forever. The recent slowing rate of craft-beer growth may well accelerate.

In our always-looking-to-help spirit, we offer five threats (there are no doubt more) to the continued growth of the craft-beer category. In some measure, each is already exerting a drag on the crafties. The most forward-looking among these brewers should right now be conjuring ways to minimize these threats, at least to their particular brands.

1. Price fatigue

We begin with the beer drinker. Like any business, craft brewers have a bell-curve of loyalists. On one extreme is the committed hard core, a group unlikely to desert the category. For them, these beers are just worth more. But a substantial remainder of craft drinkers are less than fully committed. They like the beers, choose them often (but not always), and their purchases have played a big part in craft’s growth. At some point, this less-loyal group will inevitably decrease their craft purchases, if for no other reason than, over time, the 100% premium-price for craft will becomes an issue. Are the beers really really worth double? These drinkers won’t suddenly stop choosing craft beer. Instead, they’ll stop choosing it as often.

2. Flavor fatigue

As much as craft folks like to boast their beers are simply better than the lighter mainstream lagers, the fact is they are simply different and more flavorful. “Better” is a subjective assertion. What’s completely true is the popularity of these stronger-tasting beers has grown sharply over a decade. But popularity will wane. And it’s axiomatic: The hotter the trend, the less likely it will endure.

3. Retail and distributor stress

Anyone who has shopped the craft-beer section of a major supermarket knows that there are dozens and dozens of packages, brands, and choices. Retailers rushed to stock many more craft-beer choices than can be supported by ongoing demand. It may have seemed that hyper-choice was part of what stores had to offer their craft-centric customers. But retailers also know to the penny which craft beers carry their weight, and which are simply weight being carried. Expect these businesspeople to become much tougher, and just as in nature, to grow more aggressive at eliminating the slowest-moving–or the standing-still–in the herd.
Similarly, many beer distributors have also taken on more craft brands than they are able to efficiently and profitably bring to market. Their quickest route to improved profits lies less in growing the smaller craft brands at retail, and more in playing hardball with their brewer suppliers. Distributor demands for an even bigger cut will add more stress on many craft brewers’ already tenuous P&Ls. Here again, the larger and more successful craft brands have less to fear. The herd always gets culled from the edges.

4. Downward pricing stress

The most successful of the craft brewers will begin to carefully exploit their efficiency and volume by offering price inducements to the consumer. Skillfully executed so as not to compromise their brand’s premium feel–Founders All Day IPA 15-packs being an early good example–these moves can deliver a double-whammy to competing craft brands. They steal sales volume and they condition consumers to pay a bit less. The less-efficient, smaller craft competition cannot afford the financial consequences of matching these moves, and so have little defense.

5. Geek fatigue

The single dominant benefit driving craft beer growth is the variety of the taste-experiences offered to drinkers. The less agreeable side of this benefit came about with the rise of the know-it-all, hipster beer-geek as the emblematic craft drinker. These “experts” are ever-ready to offer their too-knowledgeable advice on your beer choice. Well-meaning they may be, but there is an insufferable aspect to them that just doesn’t wear well. “Hey, it’s just beer. Do I really need some bearded guy’s approval of my choices?” As this sentiment grows in the consumer zeitgeist, craft demand will suffer.

A scary kicker: The health debacle that hasn’t happened… yet

As some craft beers linger on store shelves months, if not years past their pull dates, the likelihood rises of a biological or beer-quality issue resulting in a health risk. The over-stressed distributor system mentioned earlier means this old beer is out there right now. Add to that, some small brewers can’t afford high-tech quality-control equipment. And there’s always the possibility some employee could produce a bad batch of beer, accidentally or on purpose. When people get sick and the fault can be pinned on a product or category, the media–social and otherwise–will pounce. Craft beer would not be the first consumer product to suffer from news reports and rumors linking it to ill people. Any resulting flight to “safe beer” would probably favor larger, well-known brands, because process and ingredient quality control is a widely accepted BigBeer strength.

Our prediction

All of this is by no means a prediction of the demise–or even the downturn–of craft beer. Nor is it a prediction these stresses and fatigue will reach a critical state simultaneously, and stymie the craft segment. Markets just don’t work that way. But this we do predict: Trends, however commanding, always encounter threats to their continued expansion. Wise marketers prepare accordingly.

Because in business, only fools believe in magic.