Looking Back At the Future of Brewing. Part 2 of 5

Part One --- Part Two --- Part Three --- Part Four --- Part Five

In my previous entry, I posed two questions about the future of brewing. In order to think about them, we need a little historical background.

Let’s pretend it’s, oh, 1960. Bob Beermaker, owner of Acme General Brewing, sells beer in ten states. He’s doing okay, but he wants more. Bob learns that a fellow beermaker in an adjacent region of the country is going belly up. Bob doesn’t sell beer in that market, but he wants to do so. He persuades the other guy’s distributor to carry his beer. Bob now enjoys access to a new retail market.

Of course this means that he must square off against a new set of competitors. Among them is Harry Hops. Harry’s operation isn’t as big or as financially stable as Bob’s. Bob strikes first. He dumps much of his entire advertising budget into the new market. He slashes his prices for a month. (But does so carefully. He knows that pricing practices are governed by state and federal laws.) Customers grab the cheaper beer. They decide they like it (or maybe they like Bob’s advertising). They stick with Bob’s brand, even when the price goes back up.

Harry Hops is in trouble. He can’t afford to lower his prices, and he can’t afford more advertising. His sales drop. The local distributor eyes the situation, calculates his profit -- and makes a decision: He’s going to start carrying even more of Bob’s beer. But if he carries more of Bob’s beer, he’ll have to stop carrying someone else’s.

“Sorry, Harry," the distributor says. “I’m going to drop your beer." Harry can’t recover. He puts the brewery up for sale. Maybe Bob Beermaker buys it because it’s a cheap way to gain more brewing capacity.

Now Bob is selling beer in fifteen states. His sales increase; he earns more profit, which he plows back into the company. “Hmmm," he thinks. “Now I can afford to make a run at a bigger market." Bob uses his clout to cut deals with distributors in eight more states. He marches into battle in the new territory, but this time he collides with Marvin Malt, a much larger, stronger beermaker with an even bigger advertising budget.

This time the tables are turned. Marvin trounces Bob. Bob’s sales slide. His distributors lose interest. Bob limps into a sunset of hostile merger or even bankruptcy.

But even as he limps away, other small brewers smell opportunity. They decide it’s time to make their own run for The Big Time. They figure they’re smarter than Bob and they won’t make the same mistakes he made. They’re not worried about the threat posed by Marvin Malt. The process starts over again. Will that history repeat itself in the next few years? And what’s this got to do with craft brewing?

More next time.