Forecasting the Future of Craft Beer

Photo by Meagan Klementowski.

As Mike and Leigh Harting started building their brewery in St. Petersburg, Florida, one question kept cropping up, impossible to weed out: How much beer would they need to sell to put their three young daughters through college?

That persistent parental anxiety inspired the name of 3 Daughters Brewing, which opened in December 2013 with a lineup of approachable, outdoor-themed beers, such as Beach Blonde Ale. Nearly six years later, 3 Daughters’ beers have become Floridian fixtures, sold in some 4,000 retail accounts statewide and distributed internationally to Brazil, the Bahamas, England and elsewhere. Walt Disney World is the company’s biggest account, beers like Bimini Twist IPA nearly as omnipresent as Disney’s iconic rodent. “When the Mouse needs beer, we load up the truck and send it,” says Leigh, the head of sales and marketing.

Increasingly, the couple’s course to college payments won’t be paved with beer alone. The brewery also cans hard seltzers and ciders, and its taproom offers housemade boozy sodas and even sangria, red and white alike. “We never wrote our original business plan thinking we’d get a winemaking license,” Leigh says, adding that Key Lime Cider is the company’s second-biggest brand. “For us, our mantra is to make great beverages, whether that’s a craft beer or a seltzer,” Leigh says. Running a brewery “isn’t all about being a purist.”

What changed? Five or six years ago, the American brewing industry waged fierce verbal warfare over the concept of purity, branding brewers using corn with a scarlet letter. Anheuser-Busch InBev went on a shopping spree, buying Blue Point, 10 Barrel, Goose Island, Elysian and other companies, seeding confusion about craft brewing’s very definition. You’re craft! You’re not! What a quaint recollection.

Angry rhetoric has since faded like foam on an hour-old beer. Where lines were once drawn in the sand, crossed at peril to a brewery’s reputation, the sand’s now been shoveled into a snow globe and shaken willy-nilly. Forget tradition. Brewers are serving fruited goses through slushy machines and packing imperial stouts with peanut butter cups, as well as taking tea and seltzer on a hard turn.

Ownership lines are also blurring. In an era of heightened competition, with more than 7,000 breweries in America and climbing, independent breweries are teaming up to better weather the economic storm. Victory, Southern Tier and Sixpoint now comprise Artisanal Brewing Ventures, while in May, The Boston Beer Company—the makers of Samuel Adams beer—merged with Dogfish Head in a $300-million deal. It’s tempting to deem this a new beer landscape, but that’s too mild. A cultural and economic earthquake is rattling the industry’s foundation, with no certainty of how things will settle, or crumble beyond recognition.

Independent Thought

Damn-the-man independence has long stoked craft brewers’ insurgency against big beer. Deep-pocketed conglomerates’ purchase of independent breweries only tightened that tension wire, cries of “sell-out” echoing down the beer aisle. But that tidy little narrative went haywire when independent breweries began embracing big-business techniques and buying each other.

Photo by Meagan Klementowski.

In 2015, Oskar Blues sold a controlling stake to Fireman Capital Partners, a private-equity firm, creating the CANarchy Craft Brewery Collective that now owns seven brewing businesses, including Florida’s Cigar City and California’s Three Weavers. Spanish beer company Mahou San Miguel recently increased its investment in Michigan’s Founders to a 90% majority stake, and the two companies acquired a controlling stake in Colorado’s Avery Brewing earlier this year.

Concurrently with all these acquisitions and mergers, small breweries pollinated cities, farmsteads and industrial parks far and wide, selling pints to stay and four-packs to walk. “Local” became a massive selling point, sometimes more so than consistency and sometimes even quality. Regional and mid-size breweries were caught inside the industry’s maw, their business chomped by “tasting room breweries on the lower jaw and … international breweries on the top jaw,” says Dogfish Head founder Sam Calagione, who notes that “it’s a challenging moment” for all breweries right now.

Calagione and his wife, Mariah, drove Dogfish Head’s meteoric rise with a deft mix of showmanship, marketing savvy and memorable beers like 60 Minute IPA. The piney, citrus-scented beer debuted in 2003 and helped kindle America’s nascent love affair with IPAs. Today, most every brewery big and small sells an IPA, if not four or five of them, like a cloning experiment gone amok. The excess exerts extra pressure on widely distributed breweries like Dogfish Head, which largely sells its beer through the three-tier system; brewers sell to distributors that in turn sell to retailers such as grocery and liquor stores. To strengthen his brand and better sail across the teeming, turbulent waters of retail sales, Calagione merged Dogfish Head with Boston Beer.

It ticked two essential boxes. First, Boston Beer primarily sells through the three-tier system. Secondly, and perhaps more significantly, the merger aligned two of America’s loudest voices for non-corporatized brewery ownership. “It was important for both of us to remain independent American craft brewers,” says chairman Jim Koch, who is Boston Beer’s controlling shareholder. For decades, “that’s what we fought for.”

Down the line, the combined breweries’ cans and bottles will bear both brand logos, creating transparency about ownership. That’s why many breweries have also adopted the Brewers Association’s seal, an upside down beer bottle touting “independent craft.” The word “independent” cuts to ownership in a way that “craft” never could, offering customers full transparency to make informed purchasing decisions.

Ask an average consumer if they support independence and locality, and the answer will likely be yes. But do consumers dig those ideas enough to sway real-world behavior? “We all thought the answer was yes, then we found out the answer was not yes,” says Nikos Ridge, the co-founder and CEO of Ninkasi Brewing. People like to think they’ll only drink local beer, for example, but when none is available, the handiest corporate-owned brand will do—convenience trumping principles. One of Ridge’s good friends lives in Seattle and attended Sounders soccer games, back when the stadium’s beer selection skewed 10 Barrel and Elysian (both now owned by AB InBev). “He’s a huge proponent of independent craft, and he was like, ‘If that’s all that’s available, I’m going to drink it,’ ” Ridge recalls. “ ‘It’s not like I’m not going to drink a beer.’ ”

In 2006, Ridge co-founded the Eugene, Oregon, brewery that conquered the Pacific Northwest with zeitgeisty IPAs, such as the rich, piney and fittingly named Total Domination. Ninkasi expanded, and expanded again, its 2014 growth boosting its potential capacity to 275,000 barrels. Consumer appetite seemed as endless as a Las Vegas buffet. Until, you know, it wasn’t.

The craft brewing industry’s volume growth decelerated to 4 percent in 2017 and again in 2018, according to the Brewers Association. These percentage increases are the smallest in a decade, an end to the days of double-digit growth. Ninkasi sold around 90,000 barrels last year, leaving tanks idle or underutilized. “We have resources and capabilities beyond the needs of Ninkasi only that we can bring to others,” Ridge says.

In April, the company sold a majority stake to the Legacy Breweries start-up. The new venture aims to buy several Ninkasi-size breweries in strategic regions, creating manufacturing hubs. Legacy then plans to partner with smaller, growth-minded breweries near the hubs, providing access to production and packaging capabilities, plus raw materials and the company’s brewing talent and sales force.

In short: Ninkasi built a high-performance sports car. Climb aboard, because there’s plenty of room in the back seat. “We’ve done all that work,” Ridge says. “For breweries that are in the right spot and have growth opportunities, it’s a pretty big advantage.”

The Flagship Days Have Sailed
For years, breweries built business models atop a single strong brand, cash cows sent to far-off pastures, returning home to fill barns with bucks. Sierra Nevada Pale Ale, New Belgium Fat Tire and Brooklyn Lager were the beers to buy, no need to try anything else.

Photo by Michael Piazza.

Cash cows can’t be milked forever. Last year, for example, dollar sales of Fat Tire declined more than 17 percent in convenience, grocery and off-premise stores, according to research firm IRI. Continuing to count on a single brand can be bottom-line suicide, requiring breweries to reinvent themselves on the fly. “We had a great 20-year run with Harpoon IPA, but if we just continued to ride it for the last five years we would not be an independent company today,” says Dan Kenary, the CEO and co-founder of Boston’s Mass. Bay Brewing, Harpoon’s parent company. It was founded in 1986, finding success with its IPA—one of the first widely released on the East Coast, in 1993—and the UFO line of cloudy, unfiltered wheat beers. “To some people we’re your dad’s beer, which is never a great place to be,” Kenary says.

Over the last five years, the company has reinvented itself through partnerships, new product lines and purchases. “We’re almost a completely different company,” Kenary says. The company is now comprised of five brands (UFO is also a separate division), each one tailored to a different niche. To better compete in the “adventurous end of craft,” Mass. Bay bought Clown Shoes Beer in 2017, while Harpoon regularly collaborates with Dunkin’, the Massachusetts-born coffee chain, on beers such as this year’s Summer Coffee Pale Ale. This spring, Mass. Bay teamed up with Polar Seltzer to launch the Arctic Summer line of alcoholic seltzers, part of its bigger foray into the beyond-beer category, including relaunching its rebranded cider line, City Roots Craft Cider. “We’re looking to build a 100-year business,” he says. “We’re one-third of the way there, but we’re not going to last another three years, let alone another 70 years, if we don’t constantly adapt and react to the marketplace.”

Breweries are entering a permissive era that’s formally blessed by the Brewers Association, which last year eliminated the requirement that a brewery’s production be mainly beer. Most prominently, boozy sparkling water has bubbled up, headlined by Boston Beer’s Truly Hard Seltzer. In Kentucky, Braxton Brewing makes Vive Hard Seltzer, while North Carolina’s NoDa Brewing Company offers Brizo Craft Spiked Seltzer, and Colorado’s Oskar Blues sells Wild Basin Boozy Sparkling Water nationwide. For 3 Daughters, Florida Hard Seltzer serves a specific need for Sunshine State residents and tourists. “Florida is a very active lifestyle where people are on the beach, they’re in their boats, they’re at the pool,” says co-founder Leigh Harting. “People will pick up cases and drink it all day.”

What else do people want to drink? The Craft Brew Alliance, which includes Kona, Widmer Brothers and Redhook, created the pH Experiment “to look at the periphery of beer,” says general manager Karmen Olson. She works closely with brewer Thomas Bleigh on a fast-moving innovation pipeline, fed by focus groups and market research, that aims to take products to market in 60 to 90 days, compared to the typical 18 months for the CBA’s breweries. “I’m calling them ‘innovation sprints,’ ” Olson says. Trials are sent to cherry-picked wholesalers—around five per launch, including Amazon Go stores—and their marketplace success, or lack thereof, is evaluated.

“It’s not so much a shotgun strategy as a deliberate way to put new category-blurring products in front of consumers,” Olson says. To date, the pH Experiment has released Pre, an aperitivo-inspired cider that’s “placing a bet on aperitivo becoming the next rosé,” and Pacer, a 2 percent ABV hard seltzer. There’s no marketing fanfare or a massive ad spend, so the monetary risks are minimal. What’s monumental is the shift in the approach to product creation.

“Our job is to really solve drinker problems and drinker needs,” Olson says. Beverage companies have long created drinks that are targeted solutions. Don’t like sugary soda? Try the diet version. Need energy? Here’s a caffeinated turbo boost. “Somewhere along the way we abandoned the consumer,” Olson says. “Beer companies looking more like beverage companies is a step in the right direction.”

Photo by Aubrie Legault.

On the Grow
Branching beyond beer lets breweries flex their muscles, utilizing infrastructure and fermentation know-how to fashion newfangled beverages. They’re increasingly necessary tools for expanding the consumer pool. “If [industry growth] was at the same level of three years ago, we wouldn’t be as adventurous,” says Marcelo “Mika” Michaelis, the president of the Brewers Collective, Anheuser-Busch’s group of 11 craft breweries and a cidery. “I’m not saying we’d be doing nothing, but the pace would be much slower.”

Brewers Collective members (Goose Island, Virtue Cider, etc.) are courting new customers by thinking outside the grain bill. Golden Road now offers the Spiked Agua Fresca in flavors such as cucumber-lime, while 10 Barrel makes canned cocktails and the LQD Creative Liquids line, including green tea and coconut water gone hard. The brand is made in Bend, Oregon, but it could potentially go nationwide. “Local” matters to an IPA’s provenance, not kicked-up coconut water.

“This thing about local that is so important for craft is less of a big deal for beyond beer,” Michaelis says. Few may read the fine print on, say, a slim can of ABI’s Bon & Viv Spiked Seltzer, instead fixating on calories, sugar and carbs. “That brings an advantage to craft brewers because they can travel farther from their home markets.”

Beer is also traveling farther from its customary makeup. In particular, companies are brewing the likes of lagers, witbiers and IPAs, then de-alcoholizing them and adding THC, the psychoactive cannabis compound. (The federal government forbids mixing alcohol and THC.) Early movers include Ceria Beverages, co-founded by Blue Moon creator Keith Villa, and Cannabiniers, makers of the Two Roots THC beers. Sipping, not smoking, is a more culturally acceptable method of consuming cannabis, says chief operating officer Victor Jerez. “We’re tying into already accepted nodes of social consumption where it’s around having an elevated experience together,” he says.

Photo by Michael Piazza.

You can crack THC beers wherever legality allows, yet for many breweries, taprooms are the business lifeblood. It behooves breweries to create compelling experiential draws, which brings this story to the slushy machine. Breweries from Boston’s Trillium to Los Angeles Ale Works have loaded the churning contraptions with fruity sour beers and more, served frozen and sometimes topped with tiny umbrellas. “We’ve had people come in that don’t drink beer and have really gravitated toward the slushies,” says Paul Wasmund, the head brewer and blender at Barrel Culture Brewing and Blending, in Durham, North Carolina. “We’ve had people drive in 30 or 40 miles because they hear we do a beer slushy.” The brewery’s taproom regularly offers several different Melt slushies, a Berliner weisse–style beer complemented by fruit, such as raspberries, peaches and pineapple.

The machine’s novelty produces repeat customers, no minor victory in this brewery-mobbed moment. “Many people that come in for the slushy will come back for the beer,” Wasmund says. They can stick around for several rounds, sometimes served with a side of outrage. “Brewers have told me that they lose a lot of respect for me as a brewer for doing a beer slushy.”

Bulldozing orthodoxy is coded into American breweries’ DNA. Creativity, run rampant and rule breaking, has been the beer industry’s most potent fuel source, burning old ways to ash. From the razed earth rose the world’s most radical brewing culture, restless and unleashed. “One of the beauties about brewing in America is that we can do whatever we want,” Wasmund says. “If you’re not pushing boundaries and doing something different, then what are you doing?”

In the coming months and years, breweries will continue to modify forms and philosophies, pumping out fermentations I can’t fathom, my crystal ball cloudier than a New England IPA. New breweries will open, others will crash or cash out, their sales a gamble and not a guarantee. Constellation Brands bought Ballast Point for $1 billion in 2015, only to see sales plummet, closing brewpubs, canceling expansions and writing off nearly $200 million in impairment charges—oops, we paid too much.

Brewing is a business. Staying solvent and successful requires paying close attention to consumers and meeting their needs, be it a hazy IPA today or a hard seltzer tomorrow. Breweries will continue to go beyond beer, but they’ll always rubber band back to their core. “As I look around at all of my co-workers, I remind myself that nobody joined Boston Beer Company to make Truly Hard Seltzer,” Koch says. “Our central and core passion is independent American craft beer.”


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