Competitive Strategies for Independent Texas Craft Breweries
There is a dream that America has instilled to the rest of the world: The American Dream. It is a dream where individuals can hope to own a business; it is a dream where individuals can hope to become wealthy enough to retire young; it is a dream where individuals can devote more time for their passions; it is a dream where individuals can hope to create a better future for their families and themselves. It is that same dream, The American Dream, that alcoholic companies have taken to heart, especially craft beer companies. The richness in their beer, the way they brew it in the process, the way customers can enjoy the local characstic of the beer, and the different ingredients for a more pure beer has created a huge desire for craft beer in the nation. In fact, the craft beer industry accounts for a large portion for Texas with a $4.5 billion impact that has become the third highest that sells in the United States (Pellegrin D). However, the industry has prevented small companies from growing, thus has allowed major corporations to stay on top in their positions. So, although major reform must take place, that solution will be the most difficult to tackle. Small breweries must reinvent their marketing strategies and enhance the taste quality of beer in order for the industry to become a healthier and more competitive market or else the tragic realization for any potential company will be that it will always be a difficult situation to break out of the financial state.
The situation of the unfair balance between beer companies has always been the same in the past; if not, it was worse for smaller companies to break out of that financial state. The principle behind England’s tied houses that created six major corporations and the United State’s saloons are no different, because it forced retailers to exclusively sell their beer and pushed competition away (Pellegrin D). While the Temperance Movement pushed for the 18th amendment to prohibit alcoholic beverages and punish an industry with monopolies, it was amended into the 21st amendment based on the fact that it had caused a black market for beer (Pellegrin D). While the intention was good, the hindsight was badly thought out by the movement and the government that allowed the 18th amendment to pass. Simply put, people craved beer. However, the sad fact was that companies with more money than others used their power to act not only as a manufacturer but as a distributor were placed above the pedestal to have large market share.
Therefore, in today’s industry, distributors have been favored heavily by the Texas government in order to prevent another imbalance in the industry again and to attempt to create a fair-level playing field between all beer companies; however, the attempt to create equal resources for everyone does not allow for everyone to have equal opportunities. The concept of the tier system is to create a chain market whereas it begins with (1) manufacturers to produce for (2) distributors so they can sell it (3) retailers that forces each dependence for each other, but Texas policy has made a specific process that allows allows distributors more control by the One Share Rule, eliminating the possibility of cancellation from manufacturers, and forcing them to hand territorial rights to distributors for free in order to prevent another saloon situation to occur again (Pellegrin D). The one-sided chain focused on distributors will have an effect in the economy in the long run if there is no direct change. The Brewers Association released the 2018 Economic Impact Report that shows (3rd Highest) Texas contributing $5.1 billion to the economy with a total $79.1 billion impact and involving about 600,000 jobs in the craft brewing industry (Brewers Association Releases). The main principle shows that the amount of monetary impact and jobs dealt with have a positive influence in the nation’s GDP, and it is important to protect small breweries in order to not only sustain the value they currently have but to create growth in the market.
So, the future of the industry needs to grow where breweries need to show more market value by demonstrating a change in brand marketing and reach toward better taste. Luckily, it has shown small glimpses of hope that it will change. Small beer companies have been allowed to sell their beer in their brewing facilities, but there is still a long way to go since the Beer Bill’s impact limits that ability based on the amount of beer they produce (Pellegrin D). While legal matters have to change to disrupt the flow of the chain that allows distributors to have decision control, brewers can demonstrate the government and other distributors what they are capable of that will pressure reform, because IBISWorld US shows that the industry outlook of the craft brewery industry has copycats and acquisitions that will. The first recommendation that revolves around the marketing strategy needs to be traditional yet innovative; it needs to show a lifestyle. Just like Harley-Davidison is a lifestyle to people who love their motorcycles, craft beer is a lifestyle to those who love their crafted beer. For example, Wal-Mart has changed their marketing strategy in recent years to focus less on their low prices and more on the lifestyle that Target has always focused on with their in-store experience with bright colors and musical beats (SN) (Preece D). The strategy is vital because all industries are affected by the fact that there is a group of consumers that want to have a good experience, so craft brewing companies have the opportunity to showcase their lifestyle while being aware of the threats that come with alcohol awareness; moreover, while the weakness is that it might be more expensive than traditional beer, craft brewing companies have the strength of being focused in the niche business of crafted beer. The second recommendation that revolves around higher quality in taste in craft beers will directly impact the entire alcoholic beverage industry, because it will drive more demand from people who desire for better beer. For example, Dominos faced pressure from the media in 2009 from a scandal that tainted their brand and forced the company to rebrand themselves in a campaign that made them self-aware of how customers viewed the taste in their pizza as “cardboard” into a new pizza made from scratch that tasted better which boosted sales to the point that Domino’s now has 1.2% market share. (Pizza D) (Clifford S) (Pizza Restaurants). The increased investment to create better taste is critical because most people would want quality products, so it’s a strength for craft brewing companies since they create from natural ingredients regardless of the threat that alcohol beverages are toxic based on the fact it is in a market that people would actually want. There is always room for improvement, and for the craft brewing industries that’s a positive sign since the industry will face an annual growth of 1.5% from 2018 to 2023 (Craft Beer Production). It’s important for brewing companies to improve on these key success factors to show the government and distributors that by limiting them, they are also limiting themselves.
In addition to the disadvantages small breweries face, I went to a liquor store in 9350 North Central Expressway called Total Wine and found a yellow can from the company, Four Corners. The main product was the company’s Local Buzz Golden Ale. The honey-rye golden ale beer is mostly white but has a yellow center with the product’s name in the middle that captured my eye for its simplicity. However, the product was in aisle 12 which was in the back of the store while the wine and mainstream beers were in the front. The space allocation meant that the company’s product was tailored to those looking for more sophisticated consumers that focused on a niche market regardless if it was distrubutor’s decision or not based on how far it was in the back of the store. Moreover, the price for the Golden Ale compared to other beers, especially those that were not crafted, was higher. It was priced at $3 per can while others were competing with lower prices that started at $1.50 and ranged on average at $2 which means that Four Corners had to accommodate a factor for it to be priced high whether it be a lack of customers in the area, margin to make the beer, or margin to distribute it. In fact, the company’s merchandise breadth only sold that particular beer in the store when they sell four other types while other companies were selling at least two of their products, so that only solidifies that the company suffers from high costs or not enough demand to accommodate to sell more of their products in the store (Year-Round Brews).
Ultimately, small breweries face enormous competition in the tier system but with refined marketing brands and greater quality in tastes, they can have a fighting chance to enable a lifestyle many can seek. The chance will allow customers to continue to support their favorite craft beers and create a healthier competitive market that will be based on who is better and not who has more resources to the point it could one day lead to independent breweries that do not depend heavily on a distributor's decision. It is that fighting chance that connects the nation, because it’s toward a dream every person would want to one day achieve: The American Dream. It is a dream where individuals can one day strive for a better future for their lives, especially for breweries. It is a dream that breweries can hope to become a sustainable business to enter, and the reality is the future dream can no longer be in the far future but an action that can be done now.
References
Year-Round Brews - Four Corners Brewing - Craft Brewery in Dallas, TX. Four Corners Brewing. https://fcbrewing.com/year-round/. Accessed October 3, 2019.
SN. Walmart Commercial 2017 - (USA). YouTube. https://www.youtube.com/watch?v=Ry0ebZZe2QA. Published June 19, 2017. Accessed October 3, 2019.
Preece D. Target Commercial 2013 - Height of Summer. YouTube. https://www.youtube.com/watch?v=AdaUg27IlII. Published January 21, 2014. Accessed October 3, 2019.
Clifford S. Video Prank at Domino's Taints Brand. The New York Times. https://www.nytimes.com/2009/04/16/business/media/16dominos.html. Published April 15, 2009. Accessed October 3, 2019.
Pizza D. Domino's® Pizza Turnaround. YouTube. https://www.youtube.com/watch?v=AH5R56jILag. Published December 21, 2009. Accessed October 3, 2019.
Craft Beer Production. IBISWorld US. https://clients1.ibisworld.com/reports/us/industry/ataglance.aspx?entid=4302. Accessed October 3, 2019.
Pellegrin D. Micro-Brew, Macro-Fees: Texas Law Favors Beer Distributors While Curbing Growth and Investment in the Nation's Third Largest Craft Beer Market. SSRN Electronic Journal. 2019:190-212. doi:10.2139/ssrn.3412197.
Pizza Restaurants. IBISWorld US. https://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=4320. Accessed October 3, 2019.
Brewers Association Releases 2018 Economic Impact Report. Brewers Association. https://www.brewersassociation.org/press-releases/brewers-association-releases-2018-economic-impact-report/. Published September 25, 2019. Accessed October 3, 2019.