A bright spot in an otherwise slow growth industry has been the rapidly proliferating craft beer segment. When Prohibition-era laws outlawing the manufacture of small batches of beer changed over 40 years ago, it was a slow race to the top for start-up breweries. Besides, these young start-ups had to compete with the likes of Miller, Coors, Budweiser, and a host of imports such as Becks and Corona. Entry into such a mature category seemed impossible,
Small brewers indeed proliferated and did so primarily for two reasons, both of which involve product differentiation. The alcohol content of these craft brews was usually higher than the mainstream domestic or import categories which is obviously a desirable trait, and the flavors were dramatically different from mainstream offerings. Instead of various brands of pilsners and lagers, the industry offered dozens of different styles. Borrowing from the wine culture, tastings became common and eventually spawned a beer festival which is hosted in Colorado and now sells out within minutes.
Craft beer, which by definition must be produced in amounts of less than 6 million barrels per year, now comprises almost seven percent of the total beer market and will be ten percent within a few years' time. And the trend shows no signs of letting up. But there is a hurdle.
These beers are made in smaller batches and with more expensive ingredients and thus command price points of over double that of most domestics. What most people don't know is that at two million barrels, a hefty excise tax kicks in, and large beer companies have had to absorb these costs for many years. Currently the only craft brewer that has reached the two million mark is industry pioneer and market share leader Samual Adams, the only craft brewer to be subjected to this tax thus far. As more brewers increase distribution and inevitably reach the two million barrel mark, prices will surely rise beyond where they are now. If beer is an elastic product, which it usually is, such a price increase should result in lower demand.
To deal with the impending issue, the industry has banded together to lobby the government to raise the excise tax bar from 2 million to 6 million barrels, thus continuing the tax break for craft brewers up to the 6 million barrel limit, the point at which a brewery is no longer "craft". The craft industry has very little influence compared with most special interests and will probably see resistance from other beer companies as well as producers of alternative alcoholic libations (what we would call "substitutes"). A failure on the part of the industry, which is likely, will result in some creative ways to stay under the 2 million mark such as forming multiple breweries. Otherwise prices will surely rise, stemming this otherwise outstanding growth. But is it fair to the big companies to give these smaller players a tax break the larger companies don't receive? You decide.
Filed under: Product, Market Segmentation and Targeting, Pricing, Consumer Behavior, Marketing, Product Life Cycle, Marketing Environment, Competition, Economic Environment, Political/Legal Environment, Marketing Strategy