The craft beer industry has grown steadily during recent years in the United States, even though the overall beer market has dropped in volume. Americans today drink less beer than they did in the early 2000s, but are willing to pay more for better quality products. What are the key factors that play into operating a successful microbrewery these days? Keep reading to find out.
Craft brewing 101
A success story in microbrewery begins with understanding the craft beer industry. According to the Brewers Association, an American craft brewer is both small and independent. This means the business produces up to six million barrels of beer annually, and only 25% or less is owned or controlled by an alcohol-beverage industry member (that is not itself a craft brewer).
Innovation is another pivotal trait of craft brewers. They interpret historic beer styles to create refreshing takes on classics. In order to do so, they use both traditional and non-traditional ingredients.
These are the top trends to keep in mind about craft brewing:
- Craft beer businesses contributed almost US$83 billion to the American economy in 2019, as well as 160,000 direct jobs. These figures account for the three-tier system of breweries, wholesalers and retailers.
- In terms of volume, the sales of craft brewers grew by 4% in 2019. This rate placed them at 13.6% of the U.S. market share.
- Regarding retail dollar sales, craft brewers reached US$29.3 billion in 2019, which earned them over 25% of the U.S. market share.
- The 5 states with a largest economic impact from craft brewers in 2019 were California (US$9.7 billion), Pennsylvania (US$5.6 billion), Texas (US$5.4 billion), New York (US$4.9 billion), and Florida (US$3.8 billion).
Where does microbrewery stand in the industry?
Microbrewers are one of the six craft beer segments. Essentially, they produce less than 15,000 barrels (460,000 U.S. gallons) of beer per year, and sell 75% or more off-site (outside their tasting rooms). Their usual methods of reaching the public include the three-tier system, selling to retailers and selling directly to consumers.
These businesses increased steadily between 2006 and 2018 – the year they peaked with 4460 businesses existing nationally. During that year, they were responsible for over 80% of craft beer production growth with over 5.9 million barrels made.
As reported by the Brewers Association, some 2058 microbrewery companies operated in the United States in 2019. They made over 4.8 million barrels of beer, which accounted for 18.6% of the industry’s production volume that year. The segment falls second to regional breweries, which take up 68% of all American craft beer industry production.
What a microbrewery entrepreneur looks like
In some senses, running a craft brewery is like running a business in any other sector. But there are certain traits that pose a benefit for an entrepreneur in the industry.
As stated in Start Your Own Microbrewery, Distillery, or Cidery (2015), craft producers go into the business bent on creating high-quality specialized items. To do so, microbrewery entrepreneurs need to be transparent about their products and operations. This should help them maintain their customer’s loyalty, which plays a key role in their success in marketing their beer.
An honest portrayal of the alternative nature of craft brewing should also contribute to effectively conveying the brand identity to the market.
What a microbrewery entrepreneur should do
With hundreds of microbreweries opening annually in the United States, it’s only wise to enter the industry with some business expertise. Some critical knowledge for entrepreneurs in this field includes:
- An understanding of the perishable-goods business.
- Knowledge of how alcoholic beverages are produced.
- Marketing know-how to build brand awareness among consumers, distributors, and competitors.
- Legal resources to properly navigate regulations at the local, state and federal levels.
- Setting optimistic yet realistic goals is also of paramount importance. Some people are looking to be their own boss, some are pursuing financial security, or maybe even wealth. Microbrewery entrepreneurs need clear business goals, as well as specific plans and monitoring methods to ensure they are on the right track.
For example, it is commonplace for microbreweries to abandon on-site sales as they grow, in order to focus on distribution efforts. But this step does not come without great challenges for any segment of craft brewery.
Ken Grossman (2015), founder of the third-largest craft brewery in America, Sierra Nevada Brewing, says about distribution: “there is a lot of consolidation among beer distributors, shelf space is limited, and the market is crowded. Self-distribution is a rational option for a new brewery in the right community, but it is limited.”
Finally, making friends in the industry is vital. As is the case in other fields where craft intends to compete with industrialized producers, craft brewers need to work together to grow their market. Going up against Big Beer (major breweries like Anheuser-Busch and Molson Coors) is not something a single business can do on its own.
Jim Koch (2015), founder of the nation’s second-largest craft brewery, Boston Beer, advises to “embrace your fellow brewers with magnanimity. We’ll succeed together or not at all.”
Craft beer industry trends to navigate
Making it in the microbrewery segment relies heavily on where the entire craft beer industry is going. According to outstanding players, these are the major challenges entrepreneurs will face in the next decade:
The boom will end, separating solid businesses from the rest
As mentioned earlier, craft beer has grown strongly and steadily in recent years. This boom has happened even as the overall beer market has shrunk. Back in 2018, The Atlantic reported that between 2007 and 2016, shipments from five major brewers worldwide decreased by 14%.
Today, executives at top craft breweries believe that increased competition will boost the consolidation of fewer, larger players. Buyouts are set to happen. This trend is also fed by the fact that fewer brands will have the power to permeate distribution and retail in order to succeed.
Keeping up with changes in the consumer’s taste
A few years ago, the top 3 most consumed beers in America were light beers from major breweries. In opposition, craft brewers have usually offered more flavorful and aromatic beers. As if to meet the light trend halfway, crafters placed their bets on the fast-growing segment of golden ales. They have similar Alcohol by Volume (ABV) to mainstream light beers, but are richer in taste.
Adaptations such as this are key to the microbrewery and the craft industry in general. Experts recognize some clues regarding what tomorrow’s consumers will be looking for:
- Lower ABV and calorie content.
- A cool narrative surrounding the product and the brand.
- A lot of flavor, and suitable to food pairing.
Connoisseurs also point out that people in the beer business (both big and independent) will need to ensure that beer continues to be America’s drink of choice. For example, the rise of easy-drinking products like White Claw and Truly have highlighted a switch in consumer’s tastes.