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Part I
Globalization, Marketing and Trade in the Brewing Industry
1
Interesting Times: Changes for Brewing
Charles W. Bamforth and Ignazio Cabras
1 Introduction
āMay you live in interesting timesā may have no authentic Chinese heritage, despite it being referred to as the Chinese Curse. Nonetheless it is a very apposite descriptor of the current state of the worldās brewing industry. At one extreme we have the mergers of major brewing concerns to become truly global operators, led by Anheuser-Busch InBev and SAB-Miller. At the other pole there is a multiplicity of small brewing companies springing up, almost daily in some countries, rejoicing in the umbrella terms ācraftā or micro-breweries.
Brewers of all scales would justifiably refer to themselves as ācrafts persons,ā but the term craft is not easily defined. A recent attempt in the United States1 (US hereafter) would have it that such a brewer is āsmall.ā For the Brewers Association, this represents less than 6 million US barrels (7.15 million hectolitres) ā only a little less than the entire volume brewed per annum in Ireland. Such definitions appear to be arbitrary and politically driven.2 What cannot be denied is, while the craft sector in many countries is the only component of the brewing industry wherein volumes are growing, the volumes of some long-standing brands from the large companies is in decline. These trends focus our attention not only on the nature of volume change in the worldās beer markets but also on the factors that are impacting the beer business.
This chapterās main objective is to ignite a fruitful debate about the current state of the beer and brewing industry worldwide. By developing their argument from an economic perspective, the authors examine multiple issues related to consumption, perception, taxation, appreciation and education towards beer. Data and information are explored in the light of possible future developments at a global level, with outcomes evaluated in relation to the type of contribution that different stakeholders operating in the beer industry may provide.
2 Beer volumes
Table 1.1 reports data gathered from the British Beer and Pub Association (BBPA, 2014) that describe levels of production in different countries. Whereas there is remarkable growth in the volume of beer being sold in counties such as China, Brazil and South Africa, the traditional beer markets, such as the United Kingdom (UK hereafter), Germany, Belgium, the Netherlands, Czech Republic, Ireland and Denmark, are in sharp decline. Interestingly, most countries reporting a downturn in beer consumption witness healthy growth in the sales of wine, although the opposite trend exists in a few counties, e.g. Spain, where beer is gaining the ascendancy over wine.
The data, however, disguises a shift in the dynamic within the brewing sectors of some nations. For instance, in the US and the UK, where beer sales are in overall decline, there is a healthy upturn in beers belonging to the so-called craft or micro-brewing sectors (Brewers Association, 2014; BBPA, 2014; SIBA, 2014). This positive trend in both countries has occurred in the past 30 years. As shown by Figure 1.1, the number of breweries in the UK was about 142 in 1980, increasing to 1,113 in 2012 (BBPA, 2014). An even larger growth was registered in the US within the same period, with the number of breweries passing from 92 to 2,751, although this figure comprises both craft/micro-breweries and brewpubs (1,149 and 1,155 respectively) alongside larger brewers (Brewers Association, 2014). Notwithstanding the space left to new entrants by the high concentration processes in the brewing industry, several other factors which deserve some consideration contributed to reviving micro-brewing in the two countries.
In the UK the growth occurred in three waves. The first wave, arriving between the late 1970s and mid-1980s, was mainly due to a general dissatisfaction about the decline in the variety of beers available to customers, which led to the creation of the Campaign for Real Ale (CAMRA), a movement of beer lovers who lobbied for the revival of āreal-ale,ā viz. cask-conditioned ales brewed by traditional methods. CAMRA activities and campaigns increased awareness of traditional ales, creating a potential customer base for new breweries representing an alternative to mass producers (Mason and McNally, 1997). The second wave, which arrived in the early 1990s, was mainly characterized by the entrance to the industry of new founders with little or no previous connection with breweries or brewing, such as retirees or beer lovers in search of a career change (Knowles and Egan, 2002). Two factors characterize this period: the rapid increase in the number of new businesses brought the development of specialized real-ale producers which enabled many new breweries to start with more efficient and more cost-effective brewing equipment (Mason and McNally, 1997), and the introduction of the Beer Orders in 1989 which forced the larger brewers to either sell or free a large number of their pubs from the tie (Preece et al., 1999; see also Preece, this volume). The latter enabled the formation of large retailing companies or āpubcosā purchasing the majority of pubs and selecting a very limited range of breweries as their suppliers, creating fewer opportunities for new breweries to expand their supply network (Pratten, 2007; see also Preece, this volume). The third and most recent wave arrived early in the 2000s which saw a further and sharper increase in the number of micro-breweries, fuelled by cheaper and easier-to-install equipment (Mason and McNally, 1997; Wyld et al., 2010), and by the introduction of the Progressive Beer Duty (PBD) to support smaller brewers, granting these businesses a lower tax levy than large brewers. The PBD boosted the growth of micro-brewing throughout the country, shaping the size of new businesses which tended to keep their production volumes low in order to take advantage of the tax break. Moreover, the most recent financial crisis hit large pubcos severely, forcing them to put large parts of their estates on the market and creating more opportunities for small breweries to acquire their own pubs (Preece, 2008; Andrews and Turner, 2012).
In the US just 20 micro-breweries were operative in 1972, located predominantly in the Northeast and Midwest areas (Flack, 1997). However, in the late 1970s changes in government regulations, cuts in federal taxes for smaller breweries, and the introduction of discounted excise rates for brewers selling less than two million barrels per year, all had a significant effect on the costs of small producers (Tremblay and Tremblay, 2005). In 1979, the Cranston Act legalized home-brewing for the first time since before Prohibition; the Act opened the market to many home-brewers and created a sharp upsurge in the number of breweries in the second part of the 1980s, which grew from 37 in 1985 to 192 in 1994, doubling to 405 in 2000 (Tremblay and Tremblay, 2005; Brewers Association, 2014).
Between the 1980s and 1990s, a growing number of US micro-brewers started to contract their production to larger breweries. By doing so, smaller brewers avoided building or enlarging new facilities, while large brewers could reduce their excess capacity (Tremblay and Tremblay, 2005; see also chapter by Moore et al., this volume). In the 2000s, micro-breweries and brewpubs continued to rise in number, but some of the older breweries consolidated their presence in the market by enlarging their brewing facilities and acquiring new plants to increase their capacity. The Boston Beer Company, for example, developed from serving a specific regional market to expanding its production into other states through a series of acquisitions and mergers, becoming a major national brewing company while exporting to different markets worldwide.
The growth of micro-breweries and craft beers in the US and UK was rapid, with fostered trajectories mainly characterized by changes in tastes and legislation that altered the structure of the beer markets at different stages since the late 1970s. However, a similar growth has been registered in other countries in recent times, although with sharper and more rapid trajectories. In the Czech Republic the number of micro- and small breweries almost trebled from about 80 to more than 220 between 2003 and 2012 (Balach, 2013). Interestingly, this sharp growth has also been observed in non-traditional beer-drinking countries, such as Italy and Spain, where micro- and craft breweries grew from a few dozen breweries operating in their markets to 650 and 430 respectively in 2014 (Garavaglia and Pezzoni, 2013).
Table 1.1 Alcoholic drinks consumption, per capita, 2012
Figure 1.1 Number of breweries in the US and UK
Source: Cabras and Bamforth, 2015.
3 Drivers of beer consumption
The rise of micro-craft breweries in the US and UK, as well as in other countries, helped to diversify the beer market, expand the variety of beer styles and widened customer choice. However, it also generated the belief among consumers that, simply by turning to the products of smaller artisanal companies, especially from a nearby location, they were buying beers categorized by higher standards (Wells, 2004). In this way, too, wine is perceived as being ācloser to the landā with the same perceived cachet of individual superiority (Bamforth, 2008). In contrast, the interpretation of the (often) blander beers of the larger brewing companies is that they are industrial, mass-produced, uninterestingly uniform and made from cheaper raw materials in inferior ways.
The reality may be very different: many craft brewers still have much to learn from the larger breweries regarding process control and quality delivery. The technical brewing staffs of all brewers retain a brotherhood and sisterhood, sharing the same goals and challenges, meeting regularly and exchanging dialogue on pertinent issues within organizations such as the Institute of Brewing and Distilling, the Master Brewers Association of the Americas and the American Society of Brewing Chemists. It is really in the sales and marketing arena where battles are fought and goodwill is at a premium.
Irrespective of the scale on which beer is brewed, there are a range of drivers that impact the beer market. Wright et al. (2008a, b) demonstrated that customers are influenced first and foremost by the taste of the product. It is acknowledged that the perceived flavour is heavily impacted by parameters such as the package and the appearance of the liquid such as foam, colour, clarity (see Bamforth, 2000; Bamforth et al., 1988 Clark and Bamforth, 2007). Therefore, the achievement of consistency in product delivery should be a major priority for all brewers. In addition, Wright et al. (2008a, b) place consumersā segment/background and the provenance of beers (including whether the brewery is within spatial proximity) respectively in second and third place with regard to purchasing likelihood. Other factors that may have a significant role in the selection process, such as price and alcohol content, are not considered as important by the authors.
Equally striking is how consumers appear to be swayed least by issues involving the impact of beer on health. Although there is burgeoning evidence that beer is a healthier product than wine (Bamforth, 2004; Preedy, 2008), it seems that consumers are less inclined to consider the impact of beer on the body, but view it hedonistically or from a certain perspective. In the collective imagination beer is associated with fishing and mowing the lawn, and wine for culinary events.
Nevertheless, interest in beer as part of the dining experience is growing, and indeed it can be fairly claimed that perhaps there are even more foodābeer pairing opportunities than exist for food and wine (Oliver, 2005). To take one example, the enormous respective diversities of cheeses and of beers surely allow for a greater chance of an āidealā partnership than could possibly exist for the much more limited variety of wines (Fletcher, 2013).
The burgeoning number of breweries in ma...
