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Millennials are quite frequently criticized by older generations for a litany of various reasons. Some of these grievances vary from a  weak work ethic to having an unwarranted sense of entitlement. Many of these claims are squarely qualitative making it possible that many of these observations are distorted by bias. Since millennials have entered adulthood there have been some interesting shifts in consumer preferences. These characteristics of the Millennial generation can be more objectively measure through tracking sales.

Over the past decade articles reading “ How Millennials are killing ……. Industry” has proliferated throughout the internet. Millennials have chastised for being the death knell for industries ranging from napkins to chain-restaurants. Come on folks, was the food at Applebee’s ever any good in the first place?  All joking aside, this is truly a fascinating phenomenon.  One sector where the departure from traditional sensibilities has been the most pronounced is in beer. Yes, Millennials are trading up to craft beer slowly making the ubiquitous backyard barbeque with a cooler filled with Budweiser cans a relic of yesteryear.

Naturally, there are some sour grapes on the part of Gen-Xers and Baby boomers who are fans of the American adjunct-lager. The unprecedented growth of the craft beer industry coinciding with the late 2000’s early 2010s is not an accident. This is the timeframe in which many Millennials had reached the legal drinking age. Even as recent as 2019 the projected numbers for the growth of the industry have been looking strong.  In 2018, the craft beer market was valued at $108,912 million and was projected to mushroom to $186,590 million by 2025. Unfortunately, the advent of the COVID-19 pandemic has dampened someof the previously projected growth. It estimated that the pandemic has cut overall craft beer sales by approximately 20 percent.

Virus or not, odds are the established mainstay craft brewers with national followings like Dogfish Head, Sam Adams, Sierra Nevada, Stone, Rogue, etc. will weather the storm. Its more likely the regional and local favorites are the companies that are barely hanging on for dear life. The fears of macro breweries and their devoted fan base concerning the rise of craft beer epitomizes the process of creative destruction. An economic concept first devised by Austrian economist Joseph Schumpeter. This concept isn’t isolated to the shift in consumer preferences towards craft beer, but also the other industries millennials are “killing”. Creative destruction can be loosely described as the process of innovation in the market driving out previous products, services, and production methods into obsolesce. Therefore, these developments can fail the less innovative firms in the industry. When Schumpeter first synthesized the conceptual bones of the process he was referring to increases in productive efficiency (p.81-83).  

The production of craft beer if anything is far less efficient than the production of a standard adjunct-lager. Rather, the craft beer example is a different manifestation of creative destruction. Cost-efficiency and are no longer the name of the game. Consumers prefer more flavorful beer are willing to pay a premium for it. Due to this sway in consumer preferences, making hyper-efficient and economical beer is starting to become antiquated. Consumers are starting to become savvier when it comes to the intricacies of the brewing process. They are well versed in the subtleties and flavor nuisances in different hop varieties. The contemporary beer aficionado is looking for a beer that pushes the very boundaries of the definition of beer. Relishing the possibility of obtaining a bottle of the Sam Adams’Utopias beer. Clocking in at a staggering 28 percent alcohol by volume and aged in ex-cognac barrels paralleling a vintage port more than a beer. Demonstrating the dynamic essence of capitalistic markets, to quote Schumpeter :

“Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment that changes and by its change alters the data of economic action (Page 82).”

These innovations are merely an evolution of how we perceive beer. The efforts of craft breweries not only gives us a break from the monotony of drinking Coors Light but expands what was a previously narrow beverage category. Millennial beer drinkers have spoken in the democratic process of market exchange. They don’t want to drink the same beer their dad drank. If the bigger breweries do not adapt they will continue to lose business.  

Not so fast! It would be hasty to assume that millennials and their love of fancy beer are going to be the death of Miller, Coors, Pabst, and Budweiser. These companies and brands survived prohibition, surely, they have an ace up their sleeve. Especially considering they have considerably more capital and resources to invest in the brewing process than the smaller firms. They have found a way to continue to do what they do best and enter the craft beer segment of the market. One early attempt of bigger beer to get in on the craft beer action was in 1995 with the introduction of the wheat ale Blue Moon to their brand portfolio. Back in the mid-1990s, most Millennials were in Elementary School or Junior High School. The craft beer boom of the 1990s was minor in comparison to the current growth in the market. Other attempts of the big guys attempting to craft some suitable alternatives to craft beer have come in the forms of Michelob Amber Bock and Shock Top.

The current trend in big beer thwarting the present wave of artisanal creative destruction has been buying out existing craft breweries. As the old saying goes if you can’t beat them, join them. The phases of acquisitions began back in the early 2010s. The first notable craft beer acquisition by big beer was  AB InBev’s acquisition of  Illinois-based Goose Island back in 2011 for $38.8 Million. The acquisitions only continued throughout the decade. It started to be commonplace for big beer conglomerates to shell out millions of dollars to buy out established craft brewers. In all honesty, this was a very shrewd move on the part of big beer. Why? It is much more efficient to purchase an established brand that produces a good product and has a following. Versus spending millions more on R&D, marketing, packaging design, etc. 

It should be noted that this has been met with some backlash from craft beer consumers. Some IPA imbibers viewing these companies as “selling out” acting like their favorite underground hardcore band just inked a record deal with Atlantic Records. Ethical opinions aside, strategically this move makes good business sense for both parties. The big guys easily slide into the craft beer game and the owners of the bought-out brewery can either retire or pursue other, business interests, or get hired on an employee (the benefit is it can be less stressful than running your own business). Not every small-scale beer entrepreneur is celebrating the prospect of an acquisition. Veteran craft breweries Sam Adams and Dogfish Head completed a $128 million merger in May 2019. It can be strongly suggested that this merger took place partly to resist either company from being acquired by one of the macro beer conglomerates. After having read a few books written by DFH founder Sam Calagione it becomes quite clear he wouldn’t be one to sell his business. Displaying the fact there are hold outs. However, as the market becomes more concentrated will more craft brewers have to form alliances similar to that of  Sam Adams and DFH to stay competitive? Only time will tell. But if it wasn’t for the tides of the Schumpeterian gales constantly altering the dynamics of the domestic beer market this wouldn’t even be a concern. On the other hand, if it wasn’t for creative destruction we would all still be drinking the same beer favored by our grandfathers.

5 thoughts on “Craft Beer and Creative Destruction

  1. Great post (again!). While we are on the subject of Millennials, let me just say that I have nothing but respect for this generation. Why? Because they changed the world! Think of social media, social justice, etc.

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    1. Full disclosure I am a Millennial and a craft beer fan. In my opinion every generation has their triumphs and challenges.

      I wasn’t trying to disparage my own generation. Rather, attempting to reflect popular opinion of my generation from a decade ago. The genesis of the craft beer boom.

      What happens is as people get older the end up kicking the can down the road. End up directing all the criticisms the previous generation directed towards their generation. Creating a circle of intergenerational bashing.

      It dates back to Ancient Greece at least. Per quote from Socrates:

      “The children now love luxury; they have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise. Children are now tyrants, not the servants of their households. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and tyrannize their teachers.”

      A statement ironically made by a man damned to drink hemlock tea due to be charged with corrupting the youth.

      Liked by 1 person

  2. 100 years ago, those pesky twenty-somethings buying new-fangled “automobiles” killed the buggy whip and harness industries. Sixty years ago, jet-setting twenty- and thirty-somethings bought airplane tickets and killed passenger rail and passengers ships. No doubt we can find a Cuneiform inscription complaining the kids who wanted iron swords were killing the bronze industry.
    Hmm. I see a trend . . .

    Liked by 1 person

    1. I appreciate the jocose response. Clever and entertaining. However, I actually tend to favor the process of creative destruction. It is the process that has lead the way towards human betterment (in the material sense).

      Being a millennial and a craft beer fan I found this example to be an interesting application of the concept. This isn’t so much me complaining about changes in consumer preferences. Rather, demonstrating how these shifts contribute to innovation.

      Like

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