Good News for Microbrew fans..

Ian stumbled upon this article today... It's rather long, but this is good news for Microbreweries.



GROCERY: Beer: Honing the craft

The craft beer segment is a prominent growth driver, but grocers need to decide where it fits in a larger category strategy.

By Dan Motelet

AUGUST 01, 2007 -- Craft beers have grown so much in popularity that just about any grocer could be missing a major opportunity by not exploiting the segment. They're the little powerhouses that can help the overall huge but nevertheless struggling beer business better compete with wine and spirits. For supermarket beer merchandisers, the question ought not to be whether to get involved, but to what degree.

Any discussion about craft beers should first begin with a definition of the term, or at least an attempt at one. Brewers, distributors, aficionados, and consumers have offered several definitions over the years. The Brewers Association's definition says that the volume produced, and the person or company ownership in the brewery, determines whether a beer is a craft beer. Others in the industry have slightly different views.

Small batch, heady growth

In the end, though, it's the consumer who defines the segment, just as in every other consumable product category. Consumers tend to think that beer produced in small batches -- fewer than 2 million barrels annually -- qualifies as a craft beer. In any case, these beers aren't considered your "everyday" beers, and appeal to beer aficionados, both boomers and millennials, because they believe craft beers to be original.

No matter how you define a craft beer, however, one thing is certain: No growth within the beer industry in the past decade has been as prominent. The logical questions now are, how big will the segment become, and how long will the boom last?

Even more important for supermarket operators: What should I do about craft beers? Should I change the way I offer them to my customers? Promote them more? Add more brands? Answers to these questions can be as varied as craft beer itself, depending on crucial factors such as an operator's market and its positioning therein.

Craft brewing is not new to America; indeed, people have been brewing, or "crafting," their own beer since the first settlers arrived at Plymouth Rock. Interestingly, beer was among the supplies that the Pilgrims were running out of, which necessitated their landing in Massachusetts instead of their intended destination.

Until Louis Pasteur developed pasteurization in 1871, beer was local, or at least, with few exceptions, not distributed nationally. As a result, because of the requirements of freshness, thousands of small brewers, as well as countless home brewers, occupied the beer landscape.

And until America's big brewers were able to employ pasteurization, as well as advancements in refrigeration, it could be said that for the first 100 years of America's existence, craft beers were a huge chunk of the total beer industry. In 1870 there were 3,200 breweries in the United States -- virtually all of which are no longer in existence today.

The modern craft movement began when Fritz Maytag purchased and revived the old Anchor Brewing Co. in San Francisco in the 1960s. At first, growth came slowly for the segment. Intrepid home brewers struck out to share their creations with an audience beyond family and friends, but transformation into commercial brewing was still a pipe dream for many well into the 1970s. In 1980 there were only 48 commercial beer brewers in the United States.

But as American consumers clamored for variety in everything they consumed, and the home brewer became more daring, craft beers finally began to take off -- first, thanks to brew pubs and microbreweries that often doubled as restaurants, and then with products bottled for sale in retail outlets such as liquor stores and, in a limited number, supermarkets.

A small setback in the early 1990s, brought about by, among other things, under-capitalization, seemed to slow the expansion of craft beers. Today, however, the hurdles faced in the 1990s seem to have been cleared, with more than 1,500 brewers of all sizes (including the biggest brewers) producing beer in the United States.

For many reasons, today's landscape is much different from the 1870s in such areas as distribution laws, consolidation, marketing, and globalization, the last of which has brought countless import beers onto America's retail shelves.

There now are craft beers with a myriad of types and flavors -- everything from Belgian pale ales and hefeweizen (a German style of wheat beer) to beers flavored with chocolate or berries, as well as countless seasonal varieties.

Today's craft brands aren't nearly as many as could be counted 150 years ago, but there still are many, and, more importantly, the number of offerings keeps growing.

Over the 52 weeks ending June 9, 2007, 646 craft beer brands have sold at least 1,000 cases each in America's supermarkets. That's an 11 percent increase compared with 2005.

By way of comparison, only 245 import brands have crossed the 1,000-case threshold in supermarkets over the same period. Import brand count has also increased over the past two years, up nearly 12 percent vs. 2005.

As a result of all this brew brand proliferation, the shelves are growing crowded. Today the average American supermarket stocks over 23 different craft beer items. When balanced against the average number of items stocked for the entire beer/malt-based beverage category count of 195 items, craft beers appear to be a fairly small presence, yet they've increased their count by more than 33 percent over the past two years, exceeding the growth rate of import beers.

Craft beers have been increasing their presence in other channels as well. In convenience stores, craft beers account for only 2.5 percent of all items stocked (year to date May 19, 2007); however, their average of 2.4 items stocked is up 35 percent vs. two years ago.

Penetration rises

The story is similar in liquor stores, with the average store stocking 52 craft beer items, accounting for about 17 percent of all beer/malt-based items carried by the average liquor store (26 weeks ending May 19, 2007). And their presence is growing in liquor stores as well, with the average store stocking 24 percent more items than in 2005.

Craft beer household penetration has been growing as well. Since 1998, penetration for craft beers has increased by 60 percent, over three times the growth rate of the category average of a 19 percent increase.

While penetration growth for crafts was steady from 1998 through 2006, a large increase, pushing penetration to 8.0 percent, has occurred in 2007, indicating that the consumer base purchasing craft beers has grown at an accelerated pace this year.

However, craft beer's household penetration level is still a fraction of premium beer penetration, so it may take quite a long time to catch up to the penetration levels of the category's largest contributor, especially given the level of consumer promotion employed by the premium segment, where the majority of advertising dollars come from today.

What has all this distribution gain and increased household penetration meant for craft beers? They've enjoyed a sustained period of category share growth -- a period that has seen the segment go from a share of 2.3 in 1995 to 4.6 for 2007 year to date. And this growth has been accelerating since 2005, with share growing almost one full point in the three-year period.

While this growth is impressive, craft beer is a relatively small piece of the beer industry, especially when compared with premium beers, which command a 45.8 share of the category (52 weeks ending May 19, 2007).

Total dollar sales for craft beers in supermarkets only (ending Dec. 30, 2006) were about $537.6 million, out of the $8 billion beer market.

It's hard to say whether increased distribution has driven the share gain, or if increased sales have helped to fuel increased presence in America's stores, but one thing's certain: More Americans drink craft beer today then they did even three years ago.

And these consumers are likely attracted to craft beers for several reasons, including, but not limited to, a desire for more variety and choices in flavor, much in the same way that variety seeking is causing a profusion of flavors in beverages such as juice, coffee, wine, and spirits. Craft beers also appeal to those seeking a stronger, more complex flavor profile.

Crafting a retail strategy

All of this leads retailers to ask, "What role should craft beers play in my beer category?" By all indications, it probably shouldn't be a leading role for most conventional grocers.

The appeal of craft brews is undeniable, but the segment can't provide the core volume needs of today's supermarket in the way that premium light beers do. Nearly four times as many U.S. households purchase premium light beers, so the audience for them is much vaster, and the feature lift index for premium lights is 30 points greater than craft beers, so premium lights are still, and will continue to be, the key segment to feature.

However, craft beers provide an array of experiences and tastes that today's variety seekers are looking for. Other channels, including liquor stores, have stepped up their craft offerings, and many supermarkets have joined in.

Nick Lake, v.p. of Nielsen's Beverage Alcohol Division, sees it this way: "Craft beers provide a clear image-enhancing role. Specifically, a retailer should offer a good selection of brands and styles, be competitive on price, feature and merchandise selectively, and not strive to have the lowest craft beer prices in town."

Lake adds that retailers should look to premium beers "to fulfill other roles, such as traffic building and turf protecting, due to their continued broad-based appeal. These rules dictate aggressive promotions, especially on large packages where appropriate, are the tactics to be deployed."

Others industry experts see significant intrinsic value to craft beers. Ed Gawronski, v.p. of market & business insights at Milwaukee-based Miller Brewing Co., sees the segment as a catalyst for improving the performance of the total beer category.

"In the age of beer sameness, the craft segment offers a differentiated brand and product experience that is boosting the beer category with offerings that can compete with wine and spirits," says Gawronski. "The craft segment is addressing a consumer desire for sophistication and flavor within the beer category, and has therefore generated consumer interest in the beer category once again, benefiting all types of brands, including mainstream domestics."

In the end, there's no doubt that craft beer is an important segment that provides variety for the high-end beer lover. Successful retailers will follow a defined category management plan and use craft beers accordingly.

Dan Motelet is associate client director in Nielsen's Beverage Alcohol Group.

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