A Missed Opportunity— Did The Craft Beer Industry Lose Their One Chance To Grow Their Market Share?

“The general answer is that pricing is incredibly hard. We think of consumers as having a demand function, but in fact, if you think about it for five minutes, you’ll realize how difficult it is. For example, think about something as simple as a cup of coffee or a Popsicle, and then I ask you how much this is worth to you in terms of money. This is an incredibly difficult judgment to make. Imagine, right now, here’s a cup of coffee. How much pleasure is it giving you in terms of money? This is very, very difficult. So what do people do instead? They resort to responses that they can more easily compute. We look at how much it cost us last week or last month.”
Behavioural Economist Dan Ariely speaking about his book: Predictably Irrational: The Hidden Forces That Shape Our Decisions

As I see it, for most of us, a beer is a beer. It’s what you drink with your Dad or with your buddies. It’s next to you while you watch the World Cup or when you’re eating chicken wings. Beer has its place in our society — put simply, it’s everywhere. But so is wine. The two dominant kings of the alcohol consumption community have been brewed and fermented for thousands of years. Yet, for some reason, one stands above the other. For many, a bottle of wine is a treasure, a treat, a social grace you give when you visit a friend. It has appeal and an apparent lure of quality. It’s this bit of social gamesmanship which has crafted a hierarchy for the grape that could. But should it be this way?

I ask this question solely based on the notion of perception. Why has the wine world been afforded the luxury of prominent pricing while the beer community is still relegated to prices akin to what you’d have seen 10, 15, even 20 years ago? You can get away with charging $60 for a bottle of wine, but if you were to charge the same for a six-pack of beer, most would cry foul. Why is that?

For both industries, beer and wine have many of the same qualities. They both have their big brands that cater to the masses with affordable, easy drinking fare. Think Budweiser and PBR for beer and Yellow Tail and Copper Moon for wine. These are necessary positions within the economics of their industries, as offering accessible forms (i.e. low priced) of their products is a large part of their business. A bottle of wine for $11 and a six-pack of PBR for the same price equate to pretty much the same thing. This section of their industries needn’t change. But as we progress forward, the wine industry takes on a whole new level of pricing and sophistication. Bottles of wine can be found in the stratosphere of the Liv-ex exchange. A bottle of Dom for $300? Why not. Petrus for $1000? Sure. Wealthy buyers clamour for these wines and their cult like status with such fervour, their ability to become copied has in itself created a burgeoning economy. But again, at the lowest of levels, what you find in a bottle of Yellow Tail and in a six-pack of Bud stands to reason that they come from similar origins. Both hail from agricultural roots and are by and large manipulated and formulated to exacting measures so as to make buying them over and over a pleasing experience — they are always consistent. But as the beer community has grown and developed a more nuanced palate with producers taking the concept of simple beer to amazing new heights, their ability to command the kinds of prices they deserve has been stilted by a weird dogmatic reality — it may be better, but it’s still just a beer.

I ask then: is this fair?

Can the craft beer community absolve itself of this reality?

**I understand that there are beers out there which are selling for a high price. My take here is to argue for the majority. I also know that there are big differences between how you make beer and make wine. However, let’s enjoy a thought experiment to boil down how one has a price cap for the most part, while the other does not. Just want to make that clear.

To better understand this idea, as well as to hopefully answer this question, I’d like you to realize that there are two large factors which have helped shape the way we perceive beer. The first is social association while the other comes from a herd mentality. For a craft brewer who toils away perfecting his or her latest batch with the utmost quality and care, their efforts to extoll a premium price often land on confused faces, not because their beer isn’t a vastly better product than your average domestic lager, which it is, but that it’s view in the consciousness of the average beer consumer is one and the same. I’ve argued this fact at many of the bars I’ve worked at, saying that you could honestly strip all the tap handles on most bars of their designations and replace them with the words, lager, pale ale and so forth and most wouldn’t bat an eye. This has nothing to do with the quality of the beer, or the styles in which most source out, but it harkens back to the notion that for many, a beer is a beer. Ideally, you might want Stella, but if they’re out, you’ll take whatever.

The bit of social association I’d like to you pick up on is the way we consume our favourite brew. Beer has its roots in the publican and in large gatherings. Sporting events have fuelled this connection for decades, even centuries. Wine was and never will be subjugated to the same effect. Swap out beer at a world cup game with wine and you’ll see how different the energy of the crowd changes — it just doesn’t fit. It’s this bit of social association which has created a tying bind between beer and its place within our society. But in living this way, we seldom stop to ask if change is possible. We the consumers probably never would, but if you were a craft brewery and wanted to garner a higher price for your new highly crafted IPA, you would need to understand the basic foundation of beer and its place within social consciousness. But this understanding comes with an unfortunate reality. As I wrote in my last column, our perception of price is often linked to our initial exposure to a product, a term behavioural scientists refer to as Anchoring. Getting a consumer to pay more than their anchored price tells them is a very hard thing to do. For years, beer was a simple product sold by a few massive companies. It’s why Anheuser Busch and Molson Coors dominate the land. Their beers were never tied to complexity. Not until the rise and popularity of Sierra Nevada did the concept of craft beer start to become a thing. Eventually, the notion you could drink a 60 IBU IPA of 7.5% abv was so unheard of for many that in doing so craft brewers now found themselves abreast in a new reality — there’s a market here and we need to capitalize on it. The problem is, they did and they didn’t. Beer they made and as we’ve all seen over the ensuing years, craft beer has now become a very big thing. But what they didn’t do was take advantage of the new thing they had created price wise. Their beers were only marketed slightly above what you’d pay for a Corona. By doing this, they gave consumers an anchoring price for what these types of beers should cost. As the years have passed, pricing now has to fall along their initial lines, which as I’m trying to argue, has unfortunately led me to wonder: was this a big opportunity missed?

Think about what could have been had one of the early adopters of craft beer charged say $100.00 for a six-pack of their new IPA. Even $60.00. It might have been a gamble for those whose whole operation was strictly craft beer, but it could have paid off had it been smartly marketed. You might want to scoff at this idea, but it can be done. I only say this, because it’s happened before. Which leads me to Grey Goose, the vodka that swindled them all.

Back in 1996, Sidney Frank had all but conquered the spirits business. Known predominantly for helping turn a German digestive, Jagermeister, into a shot taking phenomenon, Frank set out once again to find his next project. However, instead of importing or sourcing out a new or yet undiscovered brand like Jagermeister, Frank chose to create one. From thin air, he came up the idea for an ultra premium vodka, one that would position it much higher in price than Absolut, which in 1996 was seen as the premium vodka on the market. But Frank knew that to charge a much higher price, he needed to give a reason for his consumers. At the time, Absolut was selling for $17 US a bottle, and what Frank set out to do was to charge $30 for his new brand. In a New York Magazine feature, Frank admits as much when asked why he chose to charge so much: “People are always looking for something new,” says Frank. “It’s all about brand differentiation. If you’re going to charge twice as much for a vodka, you need to give people a reason.” What he would end up coming up with would be a vodka of French origin, snow, a graceful bird and the French mystique. In building this narrative, while also crafting an iconic bottle that was so tall it only fit on the premium botttle shelf in the average bar, and a decent vodka, Frank was able to lift his new product to the top of the vodka game. Eight years after conception, he would sell Grey Goose to Bacardi for 2 Billion dollars. Cash.

Take that for data.

Now think about this with me, a prominent distributor saw the potential for growth in one industry and chose to change how we perceive it to be by offering a product so expensive, $13 more than its closest competitor at the time, that it gave him not only the most prominent selling vodka in the world but an eventual windfall of $2 Billion dollars. If I were to tell you this story in a fictional world, you’d laugh at me all the way to my grave. But the reality of this story is poignant and one not to lose sight of — if given a good concept and with some smart marketing, the opportunity to charge a new path is there, sometimes you just have to see it. How this relates to craft beer is this: the way in which beer has been sold and consumed for years is one and the same, it’s been cheap and accessible. But what if it wasn’t? What if a craft brewer out there had seen the potential of the industry and created a beer unlike any other, one that was expensive and exclusive. With the help of some smart marketing, would this not have become a thing? Put into an exceptionally designed bottle, one which could be recognized in the hands of consumers everywhere, was this not an opportunity missed?

Now the unfortunate reality of all of this is that it might be too late for such an opportunity to arise. Craft beer is no longer a niche thing; it’s been around for a while now and new craft breweries keep popping up every day. Consumers have now been anchored to a price of what they believe a craft beer should cost. Getting them to see it differently will take something new and innovative, which I don’t see happening. Big brands have been trying at this for years, as they’ve consistently looked for ways to innovate their markets. Bud light lime anyone? Most of their efforts fail however, but it’s understandable why they pursue this route. They know “new” is king with consumers as we desire to be charmed all the time. Think about the sale of Casamigos most recently to Diageo for 1 Billion. In building a brand centred on a famous actor and a great name, Casamigos took off flying. Even here in Vancouver, local brand hey y’all! is a cautionary tale of how being creative and new can be a big advantage when looking to find market share. Their brand of southern style hard ice teas with a caffeine kick have propelled them to pole position in this province in just 4 short years. With strategic growth, prominence nationally shouldn’t be too far off. Plus, as I’ve written in the past, a strong name can go a long way. 33 Acres is another story along these lines as they’ve crafted a strong identity tied more to their branding than their beer. Their design work is miles better then most and it’s helped propel them to being one of the best breweries in British Columbia. But a better thing to take note of about 33 Acres is that they were one of the first craft breweries to open in Vancouver. In being one of the first, coupled with their excellent branding and their delicious beer they were able to position themselves at the top of their market. This isn’t any small coincidence; being one of the first at something has its advantages. It gives you a chance to anchor the market.

“Well, this line of thinking is centrally important. So one of the lessons, if you think seriously about the usage of historical prices, is that companies, when they introduce a new product to market, can determine historical prices. That’s incredibly powerful and particularly useful for new products. If you introduce another VCR into the market tomorrow, you don’t have much leeway. But think about the guys who introduced TiVo. They could have introduced TiVo at $200 in the beginning, or $1000. Now both of those could have made sense, but once they’ve done it, imagine that in these two universes they decide to go to $500. The claim would be that in the world in which it went from $1000 to $500, the people would think of it as a great deal and start buying it like hotcakes. On the other hand, in the world in which it went up from $200 to $500, people would not buy anything.” — Dan Ariely

One of the more prominent themes of social stratification and how it divides up social classes within a given society is how certain markers begin to emerge when you look to assess how each class differs. Tennis is a good example of this, as by and large it has been seen as a more predominantly upper class sport for decades. Golf is another sport seen in this vein, one which Malcolm Gladwell touches on rather poignantly (hint: he’s not a fan) in the opening episode of season two of his Revisionist History podcast. When it comes to beer and wine, wine has been seen as the more upper class of the two since the Egyptian age. It’s this narrative of historical precedence which leads to the understanding of why wine has been able to carve out a much higher profile in our consciousness. Exclusivity, style and social gravitas have made wine the choice of the upper class. Beer on the other hand has been seen as the common man’s elixir, a refreshing treat to enjoy with your friends at the pub. These two separations have given us the reality we now see on every shelf in liquor stores across the globe. It may have been a big climb towards a new stratosphere — in terms of pricing that is — for beer to achieve some of the monetary gains with which wine has been afforded. It might have happened as it did for Sidney Frank or it might not have, we’ll never know. But in part, maybe that’s okay. The men and women who craft some of the best beers we now love are most likely the same lot who want us to enjoy beer in very much the same manner that it has been enjoyed for centuries. At bbq’s, sporting events, late night parties and everything in between. Higher price placement would have favoured a small percentage and possibly caused beer to be looked at in a different light. But as I digress, we’ll never know, and that’s the point. Was this an opportunity missed or one not worth exploring?

I’ll let you decide.

FOODJamie MahApril 22, 2019Comment