In Start Your Own Microbrewery, Distillery, or Cidery, the staff of Entrepreneur Media Inc. and writer Corie Brown with Zester Daily Contributors explain how you can get started in the craft alcoholic beverage industry, whether you want to start your own microbrewery, distillery or cidery. In this edited excerpt, the authors offer expert advice about the type of customers who are buying craft alcoholic beverages.
If the craft alcoholic beverage sector is to continue its rapid growth, it's the mass audience that will be driving sales. And at this point, the craft’s fastest-growing audience is the masses of Millennials (people born between the early 1980s and early 2000s). Highly individualized and independent, America’s young adults have both the group-conscience to want to change the world for the better and the self-assuredness to believe they know how to do it.
The current surge in demand for craft directly aligns with the rising number of Millennials reaching legal drinking age. Members of this generation’s peak birth year turned 25 years old in 2014. Craft beverages reflect their particular preference for local, environmentally sustainable products, and while these beverages may cost a little more, they're affordable luxuries that reflect this generation’s idea of sophistication and education. Enough of this generation is happy to pay a bit more to drink something they believe is special to shift the whole market upscale. If that preference becomes a habit, craft will become the main event in alcoholic beverages.
At the current inflection point, craft consumers are still identifiable. They crave novelty and will pay a premium to be surprised and delighted with what's in their glass. When it comes to beer, the failure of traditional brands to inspire is fairly universal. With spirits, it's less about being offended by what has been on offer from large producers and more of an eagerness to discover something new. Hard cider customers are discovering a whole new category, which female drinkers are particularly pleased is lower-calorie than beer or wine and gluten-free.
Craft consumers know when they find what they're looking for and have favorites, but that doesn’t stop them from continuing to explore new craft offerings. While some are seeking the rare and elusive, craft consumers have enough of the pub crawler in them to offset the snobbishness of drinking a “better” beer.
Big Beer distributors see things differently. There are solid reasons to believe the current craft audience is an aberration, says Lester Jones, chief economist for the National Beer Wholesalers Association. The Bud drinker hasn’t died; he’s just been dormant. The craft boom tracks the rising fortunes of the top 1 percent of all American consumers as much as it tracks Millennials. “Right now, there's a high-end gold rush chasing them.” The question is whether the four million people today aged 21 to 34 will continue to pay a premium for alcoholic beverages as they age. “Not everyone is going to drink Dom Perignon," Jones says. "Eventually, most consumers step down to inexpensive cavas.”
Of greater concern for craft producers, says Greg Koch, co-founder of Stone Brewing Company in San Diego, is a consumer who unknowingly trades down when they buy “craft-ish” products, such as Anheuser-Busch’s Shock Top. “Most Americans aren’t paying attention. The downside of fooling customers is very low and the upside is high,” says Koch. Craft producers can claim the moral high ground, but will consumers continue to care? When the craft movement began in the late 1980s, the interest in drinking a better beer drove the craft beer market, which went from zero to capture 5 percent of the total American beer market. Subsequent generations joined the movement, but it plateaued during the decade from the late 1990s to the late 2000s. When the first of the Boomer offspring reached legal drinking age, the market took off again. The Brewers Association predicts craft beer will account for 20 percent of the overall American beer market by 2020.
According to Brewers Association statistics, in 2001, the median craft beer drinker was a 39-year-old, highly educated, white male with a relatively high income living in a region served by several local craft breweries. Today, 75 percent of adults of legal drinking age live within ten miles of a brewery. The Millennial drinker brings a broader spectrum of Americans to the craft party, with women now constituting 15 percent of the craft beer market.
Craft drinkers are experimenters and nonlinear explorers who jump from one new beer or spirits or hard cider to another without an obvious, discernable progression, according to Demeter Group Investment Bank. Their omnivorous tendency tracks styles rather than brands. They're pushing the overall market toward a style-first identity—they overwhelmingly favor hoppy IPA beers—and away from the brand-first identity that has long dominated beer consumption. The extremists among them drive the development of new breweries with their willingness to try every new beer they find.
The craft drinker wants to feel a connection to what's in their glass, says Christian McMahan, a principal in Smartfish, a Connecticut-based marketing firm specializing in craft beverages. Speaking to Brewbound in December, he told new brewers to tell their personal stories to consumers. “Authenticity matters” to Millennial drinkers, McMahan says. They'll drop a product that makes them feel manipulated by false hype.
The craft drinker knows more about what they drink than noncraft drinkers, according to surveys by market research firm IBISWorld. They're health-conscious consumers choosing higher-quality beverages. And they tend to do most of their drinking at home.
The overall improvement of the economy expected to continue for the next five years will buoy the craft sectors, according to IBISWorld. “Improving disposable incomes will enable more consumers to fit high-end products like craft beer into their budgets. Changing consumer preferences, driven in part by the buy-local movement and a political push against large corporations that stemmed from the financial meltdown, drove up demand for small breweries. Per-capita consumption of beer is higher among 21- to 35-year-olds than other age groups. The proportion of the overall population within this age range, and its increasing disposable income, will have a positive effect on demand for beer during the next five years.” This age group is expected to account for more than 32 percent of craft beer sales in 2015, according to IBISWorld analysts.
Craft shoppers know what they like, says David Hayslette, a marketing strategist with MeadWestVaco packaging suppliers, whose research shows that 73 percent of craft consumers say they usually know what beer they're looking for when they enter a store. Yet they're extremely open to discovery, he says, noting that 64 percent say they buy something new after reading the craft packaging. On average, craft shoppers spend four and a half minutes reading beer labels. This compares with 30 seconds spent by the average Anheuser-Busch or MillerCoors customer.
Thomas Touring, director of restaurant operations for the House of Blues chain of music venues, says he shifted his restaurants to an all-craft beer menu because his customers were demanding local beers. Once he made the shift, beer sales went up and so did food sales.