Beer Wars: Craft Brewers Are Using This Strategy to Compete

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American beer has undergone a metamorphosis since the 1970s. Three decades ago the only choice available to consumers was what the Brewers Association terms a “mass-produced commodity with little or no character, tradition or culture worth mentioning.”

While the traditional pale lager has not disappeared from breweries or grocery store shelves, commercial-style beer no longer dominates the industry. Through innovation, narrower margins, and changing American tastes, small-scale, tradition-inspired breweries have grown; in the first half of 2012, craft beer sales represented 6 percent of all beer sold in the United States.

After a long period of dormancy, the craft beer brewing tradition has reasserted itself. Prohibition devastated the local and regional brewery business, which up until that point had been thriving. Once prohibition was lifted in 1933, the Great Depression and the Second World War prevented small, independent breweries, which had previously characterized the American brewing landscape, from taking root. Instead, the breweries that had begun to crop up after the 18th Amendment was repealed were consolidated. Now, the four largest beer companies, Anheuser-Busch InBev (NYSE:BUD), SABMiller (SBMRY.PK), Heineken (HINKY.PK), and Carlsberg, command a 55 percent share of the global market, according the consultancy Marakon.

But as the Wall Street Journal reported on October 1, commercial brewers “face a consumer-led backlash in favor of niche craft beers and microbrewers,” and industry executives fear that the beer business will become like the wine industry, dominated by local producers.

When the 1970s came to a close, there were only 44 brewing companies in the United States, and at the time industry experts predicted that the number would decrease to 5. But craft brewing intervened. According to the Brewers Association, the “renaissance of American craft brewing” came in 1976, with the founding of The New Albion Brewery in Sonoma, California. While its doors were open for only six years, hundreds of home-brewers took inspiration and started breweries of their own in the early 1980s.

Despite the difficult market conditions these small brewers faced entering an industry dominated by brands like Budweiser and Coors (NYSE:TAP), the number of craft breweries in the United States has grown significantly. In 1980, there were only 8 craft brewers, by 1994 there 537, and today’s figure is close to 2,000. Sales of craft beer have grown proportionately as well. In the first half of 2012, craft beer sales rose 12 percent, compared to 13 percent in 2011.

To be considered craft brewer, a company must meet several criteria: the brewery must be small, independent, and traditional. Specifically, this means that the company must brew less than 6 million barrels of beer per year, less than 25 percent of the company can be owned by an alcoholic beverage industry member, and its flagship beer must be an all malt brew or 50 percent of the total volume the company brews must be malt.

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