By Published on .

Ask Bob Joanis about what the flood of craft brew brands has done to the U.S. beer business and he'll offer you a firsthand glimpse.

"Whenever anyone thinks we don't have a major marketing and sales problem, I tell them to go to Apple Jack," said Mr. Joanis, VP-marketing for UniBev, the import and specialty brewing arm of Adolph Coors Co.

Like hundreds of similar stores in other cities, Denver's Apple Jack Liquors crams aisle after aisle with nearly every variety and style of imported or domestic beer imaginable, from honey porters to oatmeal stouts, amber ales to American lagers, wheat beers to fruit beers.


The inherent problem for each is the same: They are competing with thousands of other labels, representing a sea of small-name brewers, for the attention of an increasingly fickle consumer, trying to wrestle share in a beer market that grew less than 1% in 1996.

With its five-label, Blue Moon brand, Coors is among the bevy of large and small breweries that have raced to bring specialty beer products to market over the past two years.

Whether through subsidiary operations, such as Coors' UniBev, or line extensions, such as the recently introduced Michelob Specialty Ales & Lagers, major brewers have become particularly aggressive recently in trying to gain market share in a segment first tapped by small, scrappy operations like Boston Beer Co., Pete's Brewing Co. and Redhook Ale Brewery.

Attracted by nearly a decade of 40% compounded annual growth and price points two to three times that of conventional beer, micr0- breweries and regional craft brewers continue to proliferate.

David Goldman, analyst for Robinson Humphrey Co., said some 320 new craft-brew brands came on line in 1996, each with the same goal: to win over an easily bored, core audience of twentysomething males in search of the antithesis of mass-produced, mass-marketed beer.


"The typical consumer is a 29-year-old male whose loyalty to any product extends only until the next product comes out," Mr. Goldman said. "All those new entries means that there is less and less business for larger, nationally marketed craft brewers."

Agreed Dain Bosworth beer analyst Diane Daggatt, "There are too many craft brewers putting out too many brands."

That creates something of a marketing dilemma.

"The category has fostered a focus on beer style over brand. We're not seeing a lot of brand loyalty at this time," said David English, VP-specialty brands for Anheuser-Busch. "There are so many brands, so many choices, that consumers are saturated."

Specialty brews account for an estimated 3% to 5% of the $50 billion U.S. beer market. Loyalists maintain the specialty segment could potentially reach 10% by 2000, surpassing the current 10% share of the combined specialty and import market.

But market demand shows signs of slowing. The craft-brew sector expanded 25% last year, according to Mr. Goldman. That's exceptional by conventional standards, but half of what the growth rate was in recent years.

And, Mr. Goldman added, "Most of that growth came from new entries."

In recent months, Wall Street essentially declared the bloom off the rose, citing decreasing profit and earnings growth in 1996. Once-hot stocks like Boston Beer, Pete's Brewing, Pyramid Breweries and Redhook Ale today trade for roughly half the price of their initial public offerings.


Tom McNichols, exec VP-marketing for Chicago-based importer Barton Beers, is the first to admit the mixed blessing of craft beers.

"It's definitely broadened the circle of brands that consumers will try and gotten them to look beyond price as the primary influence," he said. "But the bottom line is that consumption is flat, per capita, so it's a zero-sum gain. For every micro that's being bought, that's 12 ounces of something else that isn't."

Ultimately, the problems of craft brewers may mean new opportunities for another segment of the beer market.

"The real winners in all this are the imports," Mr. Joanis said. "When you move up in price point to spend $4.75 for [a craft-brew] lager, you figure, for the same amount, maybe I'll have a Heineken."

Industry experts agree a shakeout is looming and say marketing and advertising will become increasingly vital for survival.

"The segment got the consumer's ear and found a way to grab his palate," said Tom Pirko, president of consultancy Bevmark. "That's a wonderful first step, but it doesn't carry beyond that unless you're able to solidify that with brand development. The industry is having a hard time getting to step two.

"The advertising and promotion of these products to create solid brand imagery is becoming quintessentially important," Mr. Pirko added. "But the race to reach critical mass points to having the right financial equations to invest in marketing. Very few have that. Many of these brands have hit the market supported only by word-of-mouth."

Indeed, existing ad budgets for craft brews are minuscule. The biggest spender in the category, Boston Beer, spent only $4.6 million in the first nine months of 1996, according to Competitive Media Reporting. That compares to $85.7 million for Budweiser.

Mr. English said A-B is deliberately taking a less-is-more approach in marketing its craft brews.

"You have to keep this in perspective," he said. "The fact is that 15% of beer drinkers represent the market. So while we want to participate, you've got to balance" priorities between core and extension brands.


A-B's ad support for its specialty brands, including the new Michelob brews, its American Originals series, and its Ziegenbock and Pacific Ridge Pale Ale regionals, will come primarily from local outdoor, print and radio, with little or no TV.

"We don't intend to come in with our guns blazing," Mr. English said.

Coors' Mr. Joanis believes marketing overkill would likely turn off the target audience.

"The worst thing you could do would be to do a national TV campaign and say this [product] is available in every supermarket in 12-packs. That would defeat the purpose," he said. "This category was developed by people who could not afford big advertising. They made their friends with their beer."

"This type of brand requires a different sales and marketing approach," Mr. Joanis added. "It tends to be more on-premise than off; more regional; a little more urban than rural; and more tactical marketing than mass advertising."


Past experiments with TV haven't been hugely successful for craft brewers. Despite a successful run of radio spots for Samuel Adams Lager, featuring the voice of founder Jim Koch, Boston Beer's foray into TV hasn't gone as well. A first attempt by Wieden & Kennedy, Portland, Ore., that presented a somber recitation of Samuel Adams' beer virtues was deemed a failure by the brewer.

An estimated $7 million to $10 million spot TV campaign from Carmichael Lynch, Minneapolis, put a more humorous spin on the message last summer; it featured angels rolling kegs of Sam Adams beer in heaven, and the Grim Reaper befriended by a would-be victim thanks to a bottle of the amber brew. Still, Boston Beer executives are skeptical about a long-term commitment to TV spending.

The battle for brand positioning became even more intense last fall, when A-B unleashed a bevy of print and radio ads blasting the "microbrew" posturing of Mr. Koch and pointing out that Sam Adams is actually brewed on contract by companies like Stroh Brewery Co. and Genesee Brewing Co.

Boston Beer responded with a 60-second national radio spot of its own, wherein Mr. Koch essentially positioned the brewery as being unfairly picked upon by A-B.

For their own part, major breweries have been equally criticized for building marketing cachet by hiding their own specialty beer efforts behind subsidiaries with faux-microbrand names, such as Coors' Blue Moon, Miller Brewing Co.'s Plank Road Brewery or Stroh's Red River Valley Brewing Co.

In part to avoid such controversey, A-B deliberately put its corporate name on its Pacific Ridge Pale Ale labels when it introduced the brew in November.


As craft brewers look to consolidate their positions, branded line extensions are becoming predominant.

A tightly crafted strategy of line extensions and strategic alliances has been key to Boston Beer's marketing. From a single brand, Samuel Adams Lager, in 1985, the Sam Adams line now includes eight year-round beers and several seasonals.

Largely as a counterattack on Pete's, Mr. Koch launched spinoff Oregon Ale & Beer in 1994 to address taste preferences in the Pacific Northwest market without hurting the Sam Adams brand.

Anticipating future competition from giants like Coors and Anheuser-Busch, Mr. Koch also has entered R&D alliances with big-name players, such as Seagram Co. and British brewer Whitbred.

Ultimately, experts agree, operational and budget issues will largely determine which craft brewers remain to compete for that sought-after 10% market share.

"We're going to see a trough for a while," said Mr. Pirko. "What we'll come up with is six to 10 brands [that] will hang in there and increase their share over a long period of time. But that's only going to come from a concerted move

In this article:
Most Popular