The fractured future of beer: Consumer demand pushes the industry to innovate
The craft beer industry has been on quite a ride over the last two decades. After many years of successive double-digit growth, the industry is settling into a more mature phase.
The industry is feeling pressure from consumers, distributors and retailers, and it shows in the numbers. According to the Brewers Association, total beer volume sales were down 6.5% in the first half of 2022 versus the same time period a year ago. In response to these changes, the industry continues to evolve.
As we look to the future, expect a field of players who think of themselves as beverage companies, not breweries.
Due to consumer demand, many breweries have begun to make products other than beer (e.g., hard seltzers, non-alcoholic beverages and ready-to-drink cocktails), collectively referred to as “beyond beer.” But this new shift and resulting innovation is not leading to success for beverage producers in all cases.
If a traditional beer producer is struggling in the market, they may try to revive their presence by creating a new beyond beer offering.
A successful transition from beer to beyond beer requires efficient production, competent pricing, a reliable supply chain and strong distributor relationships.
In addition, there is one major factor separating those who win from those who struggle: the ability to create a lifestyle brand that connects with the heart of the consumer.
A brand identity that resonates with consumers’ lifestyle creates a stronger connection and drives more sales.
There are now more beverage alcohol products than ever, but the amount of shelf space in the grocery store has stayed the same. A product needs to compete with and stand out from direct and indirect competitors.
Not only do beer brands compete to be the most attractive beer on the shelf, they must also contend with canned cocktails, hard seltzers, hard tea and all other alternatives.
Retail presence is key, but before getting to the shelf producers must work with two primary business partners: distributors and retail buyers.
Over the last 15 years, there has been a high number of mergers and acquisitions among distributors, resulting in a larger roster of brands represented by each distributor. This, in turn, adds pressure to the producer.
To succeed, a brewery must rise above the noise of other brands in distributors’ crowded books. Additionally, they need to earn authorizations and placements in key accounts. Both objectives require a certain level of staff on the brewer’s side, often increasing operating costs and decreasing profits.
Shift towards sobriety
Another interesting trend in the beverage alcohol landscape is a shift toward sobriety. The low- and no-alcohol space is growing rapidly in beer, wine and spirits.
Consumers are demanding choices that address various needs. Some want a product that gives them the best of both worlds — the occasions and experience of alcohol, without the negative effects of a hangover. Others are driven by a desire to be alcohol-free.
Additionally, there is the perception that low- and no-alcohol fare is healthier than the traditional counterpart. However, this “health halo” is not always what it seems. For example, low- and no-alcohol offerings are not always lower in calories than traditional offerings. Even still, the perception remains and continues to drive interest in low- and no-alcohol beverages.
Success does not come easy
To win in today’s market, a brewery must balance pressure from all sides. It should stay true to its brand while staying flexible enough to bend to the demands of the consumer.
The brand needs to pivot quickly and have an internal staff that can effectively manage distributors and key accounts.
As the future of beer shifts, brands should get comfortable with being a beverage company, not only a beer producer.
And, above all, brands need to create a strong emotional connection with the consumer. Intertwining a brand with the consumer’s lifestyle offers the greatest opportunity for success.
About the Author: Maria Pearman is the Beverage Practice Leader at GHJ. An expert in the beverage alcohol industry, she has written two books about the business side of the industry: Small Brewery Finance and Distillery Finance.