Craft Brew vs Big Brew
- Posted by Jeff Carter
- on November 17th, 2012
This morning I clicked over to Abnormal Returns and saw an article on craft brewing. It really interested me because I have tried to use my dollars to support local brewers here in Chicago. When I travel, I try and support the local brewers where I stay. There are a lot of issues underneath the surface of the Fortune article.
In case you haven’t been following the beer industry, craft brews are small microbreweries. Their goal is to make a highly differentiated product of high quality. If you have never had one, give one a try. They are always priced higher than the multinational brands. But they taste a lot different than them too.
The explosion of the craft industry can trace it’s roots to Oregon, and to Boston’s Sam Adams. It also paved the way for the importation of many different beers from around the world, like Belgium. They don’t account for a lot of the industries total sales, but they increased 11.2% last year. It’s now 5.5% of the total market. Meanwhile, the macro beer market isn’t expanding as big brewer sales decreased.
What have big beer companies done in response? Trotted out faux microbrews. I was in West Virginia at a coffee house a few weeks ago and had a Shock Top. For all anyone could tell it looked exactly like a local microbrew. Kitschy name and label, different taste than a regular Budweiser ($BUD). When I found out it was a Bud I laughed. It’s not that I hate the big brewers, I don’t. But I do like to sample local food and drink when I am in certain areas of the country. So, I did feel like I got taken a little. It didn’t change the taste of the beer. It was decent enough. From the Fortune article,
Obfuscating the parent company behind a beer denies a drinker the right to exercise that choice. However, Tom Cardella, the CEO of Tenth and Blake, doesn’t see the issue this way. In addition to the Blue Moon brand, Tenth and Blake houses Jacob Leinenkugel Brewing Company, Crispin Cider, as well as imports such as Peroni and Pilsner Urquell. “There’s a lot of chatter about it within the industry but, at the end of the day, I really don’t think it’s a big issue. These businesses are marketed differently, they’re targeted differently against consumer segments within the marketplace.”
And the counter point from the article,
To Greg Koch, CEO and co-founder of Stone Brewing Company in Escondido, Calif., it’s a cut and dry matter of how much American consumers value truth over deception. “It’s my personal philosophy that the truth should be easy to understand and require no special knowledge,” says Koch. That similar practices occur with other products, like “artisanal” cheese or “natural bread,” doesn’t justify it, says Koch. “They’re basically co-opting imagery that’s not consistent with reality. That’s where, as a consumer, I get ticked off.”
Is it deception? Or, does it validate a category and then it will all be about execution and marketing? Should we ban competition to allow little guys to have an advantage? How should regulations be written on labeling and distribution? Should we put our trust in consumers to make the right choice?
Immediately, a lot of people will have the knee jerk reaction and ask, “Is it fair?”. I say, “What’s fair?”. Fairness is all about individual perception. As soon as we allow our minds to trot down that path, we are prone to applying normative economic standards to decision making, not positive ones.
One result of the craft brewing industry taking hold; it has forced the big brewers to up their game. That has provided more choice to consumers, and better quality. That phenomena is repeated over and over again in different industries. In Chicago, where we are having a huge fight over the operation of Uber, one thing people have noticed is normal cabs are a lot cleaner than they used to be. The cab consumer has been the beneficiary of Uber coming in the marketplace.
Creative destruction and competition are a good thing for consumers. It drives down price, and usually ups the quality of services or products provided.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)