Is Craft Beer The New Wine?

A craft beer store opened a few years ago in an upscale suburban town west of Boston. Knowing a thing or two about retail, and having once operated a bookstore in that same town, a couple doors down, I was curious about how the owners of the craft beer store were thinking about the niche they had carved out for themselves, and their business plan.

So I became a customer, got to know the owners a little, signed up for the newsletter, set up a frequent-buyer account, and over the next few months attempted to educate myself about what was actually in some of those $8 bottles of beer with the clever labels, from small breweries with ironic names that were seemingly springing up everywhere, blessed by home equity loans, angel investors, and the Gods Of Venture Capital. The various beers were said to be infused with all kinds of things, some of them aged in whiskey barrels, and all of them subjected to a wide range of other free-range processes. They were discussed in a language that reminded me in many ways of how wine is discussed and marketed. Some of the bottles I purchased were good, some were awful, but all of them were expensive, relative to what I could buy a six-pack of Samuel Adams for (or Yuengling whenever I was in Philadelphia, before they expanded their distribution into New England).

I attended a couple of "Craft Beer Expos" and chatted up a few founders and principals of craft brew start-ups, most of whom were bright young fellows who spoke passionately and knowledgeably about the manufacture, quality and particular characteristics of their beers. After a time, I noticed an "us versus them" theme emerging, pitting the upstart small craft breweries and their customers (us) against Coors, Budweiser, Miller, and the other giant breweries (them). When I inquired as to whether any of the founders/principals would be open to being acquired by one of "them" someday, the answer was "no", but I imagine that if old Adolph Coors came calling with a fistful of dollars, looking to add a "craft beer" label to his lineup of mainstream beers, they would likely rethink their position. I've noticed some of "them" already marketing new beers with clever ironic names (like Shock Top) which make them look very much like craft beers.

Something about the craft been phenomenon feels to me like a bubble. I browsed a gigantic beer selection at a Boston area Wegman's the other day, and was astonished at how much real estate craft beers occupy, relative to mass market beers. Real estate at Wegman's is not inexpensive, and they don't bequeath it to a product or a category unless that product produces profitable retail dollars. And as with all of the products they carry, Wegman's has priced the craft beer to sell.

I'm reminded of an early episode of "Mad Men", in which Sterling Cooper has landed the Heineken Beer account, at a time when imported beers were all new and shiny in the United States in the early 1960s. Don Draper developed a successful marketing campaign for Heineken that infused (sorry) the brand with status and prestige and resulted in consumers paying a premium to feature the brand at special dinners and for special occasions.

I'm going to use Wegman's beer department as a barometer to gauge the extent to which craft beer will carve out a permanent niche for itself. I'm sure there are a lot of Don Drapers out there trying to figure out how to make that happen too.