Major brewers are coming for the craft beer sector

M&A and investment in the craft beer sector has enjoyed a surge in the past 12 months with Carlsberg’s acquisition of London Fields brewery, and in the past few months, Heineken buying a stake in Beavertown and Fourpure being acquired by Australian firm Lion.

A key driver of this uptick in transactional activity is the brand resonance and counter-culture cachet that is associated with craft brewers, which appeal to millennial consumers’ thirst for innovative, untypical products with stories representing an alternative approach. While we expect this trend to continue, and even accelerate, larger players will need to be careful to preserve the integrity of brands to ensure they create value.

When it comes to “cool” beers, craft is king. The craft revolution has reinvigorated a beer market that has been in continual decline. Craft beer sales increased 1.7% in 2017, with 500m pints of indie “sherbets” sunk last year, equivalent to 6.5% of total UK beer sales. This shows how consumers are increasingly shunning mass-produced beers thanks to the evolution of changing tastes of the modern consumer.

There are more millennials in the workforce than any other age bracket, and their choices are dictating how food and drink retailers operate. This is clearly evident in the craft brew segment, which demands a unique approach to taste, brand and provenance and caters to a new generation of customers, which are driven to purchase not on price or habit, but by an affinity to a brand’s distinct market positioning, the stories it represents and wider brand credentials.

Surveys of this cohort reveal that millennials are searching for novel drinking experiences and are keener to try new drinks than previous generations, which puts more pressure on big breweries to innovate.  Smaller brewers, such as Beavertown and Fourpure position themselves in opposition to  Britain’s beer establishment and its stack them high sell them cheap lagers, which fits with a major players, such as Heineken’s thirst for local, artisanal products that appeal to millennial consumers seeking new brands with more authenticity and a strong brand story.

Spending heavily on smaller brands makes sense

For large brewers, it can make good commercial sense to spend heavily on acquiring smaller, newer players. If they do not acquire, innovation is something they need to foster internally, which can be difficult in large organisations which typically more at a slower pace. Conventional marketing initiatives can be confused with genuine innovation so it can make better sense for large players to just focus on what they do well: distribution, supply chain, sales and marketing and infrastructure.

However, large acquirers must be careful not to damage the defining appeal of smaller brands with consumers. A flurry of acquisitions signals success in most markets but there is a genuine and reasonable fear for the craft segment that big brewers will not be true to the original formula and philosophy of the products that they acquire.

According to Bloomberg, six out of ten drinkers believe a brewer’s independence is important when picking a craft beer and there are instances whereby drinkers have been concerned at the intrusion of big business acquiring their favorite brands.

Primed independent craft brewers will ask if relinquishing independence will mean diminishing their products’ desirability. Finding themselves in a catch-22 situation, selling to a multi-national will help grow the brand but will also potentially leave existing customers confused and abandoning the brand in protest.

Craft beer is the story of the everyday man or woman disrupting a multinational industry dominated by two or three dominant players. It’s is about attitude and taste, rather than size, but evidence suggests that corporate giants will continue to take over as craft brewers struggle to adapt to the new realities of a maturing market landscape.