New Belgium Ranger IPA

New Belgium is set to release a new set of beers and packaging design: http://tiny.cc/awPCR

I think this is a great move and something that can help New Belgium penetrate deeper in their own markets. The label is a big departure from their traditional water color designs which will make it unique and differentiated but the bike logo will help facilitate customer sampling.

So long as this label doesn't cannibalize other tap handles or shelf space that New Belgium currently holds, it's a great way to leverage the large and presumably quality distribution network that New Belgium has built. A beer company of New Belgium's size has a couple of key assets - a brand and a distribution network. This play seems to leverage both in the right way.

If the new brand is sufficiently distinct from the rest of the brands in the portfolio, New Belgium could even have this brewed under contract without further complicating their operations in Fort Collins - they have enough authenticity in their flagship and it's something I think they could pull off from a marketing perspective.

From a brand perspective, although there is some risk that brewing this style of beer takes New Belgium away from it's Belgian story, the IPA style is at least proven, popular and growing. New Belgium can use it's brand equity for brewing high quality tasty beers to encourage people to sample the beer. The next trick will be getting consumers to adopt in in their regular purchases or push a few other IPA styles out of the market.

I wonder which markets they will target first - Colorado of course and I would think CA would be a close second - both are nearby with strong sales teams and distributors, as well as a drinking palate that likes IPAs. I'm hopeful that the beer is as good as we'd expect from New Belgium.

Outrageous beer pricing

We just bought a keg for an event that we are hosting and ordered a keg of Blue Moon, assuming it would be a reasonable compromise between craft and macro - a compromise both on taste (target as wide of range of preferences as possible) and more importantly on cost.

I was blown away when my colleague reported that the keg of Blue Moon, brewed by MillerCoors, was $160!! (A keg of Coors Light is $99)

Quickly checking keg prices from the same store (BevMo):
Sierra Nevada: 152.99
Sam Adams Winter: 149.99
Full Sail Amber: 144.99

It's my feeling that these prices are completely out of line and it's a shame that this beer can be sold at this price. Nothing against Blue Moon but I'm shocked that the market isn't more competitive to drive that price lower.

It's a sign of the strength of the brand, however, and probably the pricing power of MillerCoors. To get a sense of what this means for all of the players involved in the supply chain, I checked Connecticut's FOB price (the price the brewery sells to the distributor) for November '09 (FOB is public information in CT). It's $80. So a rough approximation is that the product is marked up by 100% from when it leaves the brewery to the time the beer crosses your lips.

A couple of other data points to help us zero in on where the money is going, you can buy a keg of Tied House beer (a local brew pub) for $60 from BevMo, or the same beer from the brewpub for $44. This is a 34% mark up between the brewery and the retailer (I assume that the brewery can capture most of the distributors margin for beer that doesn't have to get routed through a wholesaler).

So with this 25% margin on kegs from BevMo, we can assume that the Blue Moon keg cost BevMo $120 from the wholesaler for a gross profit of $40. Using the CT FOB pricing, the distributor also makes $40 at a 33% margin or a 50% mark up.

The FOB pricing for a Coors Light keg is $46 and I have a hard time believing that there is that much more cost in the Blue Moon product - I think a lot of that is just their ability to piggyback off of the price points in craft.

A final conclusion - when the growth in craft slows/stops, the craft breweries are going to have a real tough time competing with the scale of the big boys, especially if the big brewers can find a way to play in the craft space as MillerCoors has done with Blue Moon. So far, it's the only exception in my mind but they and AB-InBev have to be working on ways to more effectively get into this more profitable segment.

Connecting with consumers

Harpoon recently posted a piece on its blog about the upcoming 100 Barrel Series and I think it's an instructive piece of marketing and a good example of how some breweries are finding ways to connect with their most loyal fans.

I think Harpoon achieves a couple of things in this piece:

• Bring customers inside the tent – let them see what the process is like, fantasize about being a brewer, etc. This is a unique industry where your consumers crave more information about the product and, if given the choice, many would drop what they do for a living to work for the brewery. This is something few industries can use to their advantage and given the complex science involved in brewing, there is an almost infinite depth of knowledge that could be shared with your consumers.
• Personalize the brewing process – everyone wants to think that the brewmaster hand crafted the beer you're drinking with you in mind. But the reality is that to achieve repeatable, shelf stable, beer that is free of off-flavors, brewers need repeatable processes, large scale production, scientific/instrument control, etc. But, displaying the human side of the brewery promotes an image that adds value to the beer drinker's experience.
• Environmental consciousness, localism, sustainability – All trends in the craft industry and many upscale restaurants, these themes are promoted in the piece as a component of an image that many drinkers value. “The hops were picked just yesterday at Pedersen Farms in Seneca Castle, NY...”
• “Extreme/experimental brewing” – This is also a trend in craft and Harpoon seems to be taking a stab at this trend by communicating that they too are experimenters, crafters, etc. by brewing with hops that sound special, different or unique.
• Build anticipation – People will value what they can't have and building pull demand at the consumer level will help the brewery sell shipments to wholesalers and help the wholesalers get over their reluctance to buy and sit on new inventory that may not move. Also, they promote two other specialty beers that the brewery is trying to get traction around (Leviathan series and UFO White).

My last thought on this topic is that I think Harpoon's promotion of this blog post was an effective use of Twitter. I follow a number of breweries on Twitter and think that no one has really figured out how to use the media for marketing purposes yet (at least in this industry). Many breweries post random ramblings that might mean something to the poster but mean nothing to the reader (Magic Hat and Lagunitas are two examples) while others continually promote tastings and events that 99% of their followers probably don't have an opportunity to attend (Flying Dog comes to mind - although to be fair, they may be promoting to a more local audience and I'm one of the few followers who are not in their area).

"Branded Pours" - Gimmick or Product Enhancement?

Most beer drinkers are familiar with the Guinness pour - The two parts, the lore around how long you wait between sections, etc. But I learned yesterday that Stella Artois also has a very specific pour that is to be followed whenever the beer is served. InBev even hosts competitions among its staff to determine who can most closely follow its rigorous procedure. An internal marketing video detailing the Stella pour can be found here.

There is a lot of great material in this video. The drawn out steps and care that the bartender pays to the beer enhance the image of Stella Artois as a "rich man's beer" (indeed, one of Stella's marketing messages used to be that the beer is "reassuringly expensive" - they were so bold as to explicitly declare that you know it's good because it's expensive).

The 45 degree angle of the glass and finishing upright without the tap touching the inside of the glass should be standard practice in serving all beers to release the carbonation and aromas to the drinker's nose. The extensive cleaning procedure seems to be overkill, but I suppose it wouldn't be harmful to clean the glass immediately before serving the beer.

Where the video loses me is at the discussion of carbonation and the head. "The froth head naturally forms a protective cap on the beer. This keeps the carbonation in the beer and helps maintain its taste and character." This has to be an outright lie. I can't imagine that the head creates enough pressure to prevent the dissolved CO2 from coming out of solution. From a marketing perspective, they would be better off noting that pouring a beer with a healthy and appropriately sized head enhances the drinkers physical and psychological enjoyment of the beer. I don't see the connection between the bar tender, the beer or the customer with the protective head claim, other than it is aligned with the beer's elite image ("so delicate it must be protected").

On the knife cutting - I've seen bartenders do it, and it's exciting and it makes them seem like they know what they're doing - no problem here. There might even be some science behind the claim that the larger bubbles break down the head. But the video ends on a winner with the chalice glass - there's no question that this is a marketing tactic and an effective and appropriate one at that. Visiting Belgium and having all beers served to you in the brewery's own branded glassware no matter where you go is a special experience and something that is hard to replicate in the US. More on this later.

On the Stella Pour, I'll give it a 7 out of 10 - there's nothing really specific to Stella in the pour but it fits with their brand image and I applaud them for their attention to detail and attempt to control their brand image all the way to the customers lips.

How big is Sam Adams?

Following up on my last post about the President’s beer summit and some of the industry dynamics at play, I thought it would be interesting to look at the position of the Boston Beer Company in the US beer market and the craft category. A quick look at the relative size of a few well known breweries yields some interesting insights.
The first thing that jumps out to me in the chart on the left is the dominance of the macro lagers and imports in the US. After combining AB/InBev and Miller/Coors, The Boston Beer Company (NASDAQ: SAM) was the 8th largest beer marketer in 2007. But they hold a mere 1% share of the total market, according to Beverage World. Jim Koch has commented in the past that Anheuser-Busch spills more beer than he produces in a year. This is absolutely true: if AB were to have a 2% yield loss on their packaging line alone, this would be more beer than the Boston Beer Company produced in 2008.

However, diving into the craft segment with the chart on the right, we see that the Boston Beer Company is clearly the dominant player in this segment, much larger than even Sierra Nevada or New Belgium. In my mind, this puts Boston Beer in an interesting position with regards to their brand and marketing strategy and makes me wonder, where do they go from here? Owning the identity of being a small craft brewer and one of the pioneers of the industry seems to have been critical to the company’s success so far. But as they continue to grow, it may be hard to have it both ways – claiming to be a small brewer but dominating craft.

I think they are still in a strong position. They’re probably the only craft company that can compete effectively in nearly every market in the US, they can invest far more in advertising and marketing (SAM spent $133MM on advertising, promotional and selling expenses), they can employ a large sales force (which is critical to having presence with distributors and retail accounts), and can make greater demands from distributors and possibly even lobby governments. These advantages are almost completely absent from even the Sierra Nevada, the second largest craft brewer and are out of the question for the smaller guys.

But what do they do about their brand image? As the largest American brewer in the US, they could launch a campaign along the lines of “we are America” or “drink American” and play up the fact that they’re the largest American owned brewery. But I think this would place too much emphasis on their size, an aspect I believe they are keen to downplay. I expect we will see more external messaging from them promoting the craft category, their heritage and their dedication to beer, while simultaneously leveraging the advantage that size and scale gives a dominant player in any segment.

President Obama and the Beer Industry

Yesterday President Obama, Professor Gates and Sgt. Crowley met over a beer. As others have written about, they initially each chose a "foreign" beer - Budweiser (ABI - Belgian/Brazilian), Blue Moon (Miller - London/S. Africa?), and Red Stripe (Diageo - Jamaica). Of course, those in the craft beer movement were annoyed and made a lot of noise about how none of the gentlemen were drinking a local beer. However, I think it was an insightful expression of how dominant the macro lagers and imports are in the American palate, how strong big business is, and the advantage held by companies with large marketing budgets.

Anheuser-Busch holds a nearly 50% share of the beer consumed in the US (with Bud Light alone 20% of the market), Miller/Coors approximately 28% of the market, imports ~14% and craft ~4% (I assume remainder is other such as Pabst, Yuengling, etc?)

So with the choice of Bud Light, Blue Moon and Red Stripe, they selected the three most dominant beer segments by volume. Shouldn't really be a surprise, right? Why would a small 4% share expect a dominate seat at the table?

But also interesting is that a major staple in America, an iconic product and a major industry is over 95% foreign owned. Can you name another industry with this same dynamic? I think the auto industry could be an interesting example if not for recent government intervention (Foreign name plates such as Toyota on cars made by Americans in American factories, purchased and driven by Americans).

As it turns out, Professor Gates ultimately settled on Sam Adams Light from the Boston Beer Company - a small player in the US beer market but a company that holds a dominant 20% share of the craft segment. Of course this meeting is a small sample but I think it provides an instructive example that while craft is growing rapidly and makes a lot of noise, it is still small relative to the total. Furthermore, it's a good example of how dominating your market, however it is defined, is strategically critical for any business.