AMERICA’S CRAFT BREW EXPORTERS ARE DRAINING BIG BEER’S GLOBAL MARKET SHARE [By John W. Mitchell]
Jack White, CEO of San Diego’s Ballast Point Brewing and Spirits, says his company first exported in 2009 when approached by Nagano Trading out of Yokohama, Japan. “That our brand would actually sell in Asia was exciting,” he says. “Plus we like to travel. … And we would have to go to Japan to taste our beer!”
Ask the brewery’s VP of Sales & Marketing, Earl Kight, about exporting, and he speaks with an uncommon candor for a marketer, a breed who often pepper their speak with talk of brand identity and unique selling propositions.
“When you sell craft beer domestically, you start small and hope customers like it,” says Kight, vice president of Sales & Marketing for the award winning Ballast Point Brewing in San Diego. “But when you export your beer, you pray like there is no tomorrow that it will sell once it gets to wherever it’s going.”
Kight says overseas markets are worth pursuing. According to Eli Raffeld with Global Craft Trading, Ballast Point’s export distributor, the brewer exports four 40-foot shipping containers filled to the gills with Ballast beer every month—almost 1,300 cases combined to Japan, Australia, New Zealand, South Korea, Chile, Brazil and Sweden.
But is it worth it, what with the high costs of temperature-controlled shipping containers and long transit times? Raffeld notes he can send a refrigerated shipping container of craft beer to Japan for the same cost and in the same amount of time it takes to send craft beer from San Diego to Boston.
“When I walk into a bar in Japan and order a Ballast Point beer and it tastes the same as at our brewery in San Diego, I know we got it right,” Kight says. It took Kight five years to get on the same page as Global Craft Trading, but he now sees the distributor as a trusted and vital partner in satisfying a thirsty global market. Even at $14 per beer, Japan’s bars can’t always keep Ballast beer in stock.
Still, the company doesn’t act on every opportunity, but makes selective decision. “Items we take into consideration: refrigeration, how well do we know the distributor, is the region a craft hot spot,” says White. And getting it right is particularly rewarding. “It is great when folks that drink our beer in New Zealand show up at our brewery on vacation and thank us for sending it overseas,” he says.
It turns out the global village knows better beer when they taste it. According to the Brewers Association (BA), craft beer exports were up 49 percent in 2013, the 10th straight year of increases. While the 282,526 barrels—a measure of volume equivalent to 31 gallons—is not yet an ocean of new trade, craft beer gurus understand that establishing and growing brand preference overseas now is a good market hedge as craft beer brewers continue their relentless overtake of the U.S. market.
“Right now, Americans make the best beer in the world,” says Mark Snyder, export development program manager with the BA, the largest trade group for American craft beer. While his assertion may be provocative to brewers in other countries, such as Germany where beer has been made since the Middle Ages, other experts in the U.S. craft beer export market echo his sentiment.
Raffeld thinks craft beer breweries that export are peeking around market corners: “While there is still a lot of real estate left in the U.S. market for craft beer expansion, some locations are starting to experience saturation.” Export, he says, is a great way to sell excess capacity. “The brewers who get into overseas markets early to establish brand loyalty are going to be the most successful as craft beer competition increases in the U.S.,” he predicts.
Global Craft Trading relies on shippers such as Kuehne + Nagel, Samskip and Dependable Global Express (DGX) to send all of Ballast’s beer in refrigerated containers, Raffeld says. The shipments are tracked through online portals and GPS. He also says that, depending upon the shipper, destination and insurance arrangement, he will sometimes place embedded thermometers within the containers that measure temperature every six hours. The thermometers are retrieved by the buyer upon delivery and returned to Raffeld in California for analyses.
Last fall, New Belgium Brewing—brewer of such consumer favorites as Fat Tire and Ranger IPA—entered Canadian markets, the largest export destination for American craft brewers in 2013. Kim Jordan, New Belgium’s CEO, said at the time that she thought it would be a good time to release an export “trial balloon.”
“We still do not have enough capacity in our Fort Collins [Colorado] brewery to add high-density markets along the East Coast,” says Jordan. “At the same time we realized [British Columbia] and Alberta were in fairly close proximity. [Exporting] made sense logistically and we’ve learned a great deal.” To address its capacity issue, New Belgium just held a groundbreaking for its second production brewery in Asheville, N.C., a town with a rich craft beer heritage. The new plant is schedule to open by the fourth quarter of 2015.
According to the Brewers Association, 47 percent of exports last year went to Canada. With 75 percent of Canada’s population within 100 miles of the U.S.-Canadian border, this is not surprising. Canada allows its citizens to return from the U.S. with up to a case of beer per trip, which has helped to generate a thirst for America’s craft beers.
“We have a very methodical process for choosing new markets,” says Rich Rush, New Belgium’s regional director of the Pacific Northwest, including British Columbia and Alberta. “When we scouted our Canadian markets and walked into liquor stores with our New Belgium shirts on, people immediately recognized our brand and asked, ‘When are you going to sell in Canada?’ That’s a good sign.”
Rush says in the past six months the company has learned a few lessons through trial and error.
“We had a shipment in which the volume amount on the label was incorrect,” Rush says. “It came from our supplier that way and no one noticed it on the filling line. That small detail didn’t match what was on the manifest and the shipment got held up in customs for a week. You have to be really buttoned-up on the details when exporting.” He also admits that the company is learning about the impact of exchange rates. The price of a six-pack of Fat Tire just went up about a $1 because the Canadian dollar declined in value against the U.S. dollar.
“The exchange rate is something we didn’t think about,” he says. “Our distributors and retailers are our partners and it’s not fair that our partners on the Canadian side bear the full cost of the exchange rate disadvantage. So we’re working on a sliding scale price list to help them.”
New Belgium works with Container World for transport and storage. As part of its quality assurance program, Rush oversees quarterly on-site inspections of storage and distribution facilities, as well as checking tap lines for cleanliness.
Beyond Canada, Japan and the rest of the Asian basin are prime targets for American craft beer exports.
“The potential is fantastic,” says Charles Finkel, president of The Pike Brewing Company in Seattle. “Not a week goes by when I don’t get a call from someone in Taiwan, Singapore, Japan or Denmark.” Finkel currently sells beer in Japan, which is sold FOB (freight-on-board) to the buyer who tracks the refrigerated shipments.
Finkel himself is established in America’s craft beer history—he pioneering the import of European beers in 1978, especially from Belgium. The man knows craft beer. For the price of a pint, you can even tour his craft beer museum in his sprawling Pike Place serving room and restaurant in Seattle’s historic Pike Place Market. Finkel, who sends beers such as Pike Kilt Lifter and Pike Stout to Japan, says that what is going on right now with American exports is reminiscent of what happened 30 years ago when he opened up new markets in the States.
“Once you convince brewers there is an interest, that the beer can be moved in reasonable quantities and the quality can be preserved, you have a new market,” he explains. Once overseas customers become knowledgeable about better beer, Finkel predicts there will be no stopping the demand. He cites Japan and China as examples.
“People in Japan and China were impoverished when it came to good beer,” he says. Both countries have some of the greatest food in the world, he says, but their beer was “awful.” Japanese beer is traditionally very bitter without much body and China suffered through a scandal that uncovered formaldehyde in some beers. But Finkel asserts all this is changing. In recent years both governments altered existing taxes and regulations that have spawned a small local craft brewery scene with good beer and beer knowledge.
American craft beer has set an unprecedented example in the nation’s business history: About 3,000 small-time craft producers are chewing away at a sector that was for 50 years owned by a handful of big corporate producers. And they are doing it with the efficiency of an ant colony devouring an elephant carcass, tiny bite by tiny bite.
But to understand craft beer exports, it pays to first know what has transpired in the U.S.
According to the Brewers Association, craft beer consumption in the United States increased 18 percent by volume in 2013 and 20 percent by sales. Over the past decade, American craft beer sales have increased an average of 10.9 percent per year. Yet it still only accounts for 7.9 percent of the total domestic market by volume and 14 percent by sales, so the upside is still enormous. This gain is significant considering that, overall, the consumer beer sector is stagnant, according to a Demeter Group Investment study, which shows beer is losing market share to wine and spirits.
To put a fine point on it, craft beer’s growth is coming right out of the hides of big-beer producers such a InBev, the biggest of the big, which owns more than 200 beer brands internationally. These include Budweiser, Corona, Stella Atrois, Beck’s, Hoegaarden and Leffe. Other big American producers include MillerCoors and Pabst Brewing Company.
For decades the response of the big U.S. producers was to ignore craft beer and the tiny group of brewers slowly carving out a market. After all, following the repeal of Prohibition in 1933 big beer dominated, with only one craft brewery—Anchor Steam— left in the U.S. by the mid 1960s. For decades, big beer companies made a fortune on golden lagers that all pretty much tasted the same—fizzy, yellow, undistinguished. The recipe didn’t change much until 1975 when Miller nationally introduced its highly successful Lite beer. American brewers got rich all over again as light beers further watered down the category and expanded the female market.
Today this long-standing business model has been crunched flatter than a beer can on a jock’s forehead. American beer drinkers are no longer interested in “less filling:” sales of light beers have declined by 25 percent in the past five years, according to USA Today. Now big brewers are scrambling to emulate craft brewers, triggering claims that big beer companies are “crafty” brewers. Coors has developed Blue Moon and Colorado Native; Budweiser has Shock Top; and InBev owns 32.2 percent of the Craft Brew Alliance, which features such brands as Redhook, Widmer Brothers and Kona Brewing.
Tim Cochran has served on both sides of the beer wars. He spent 16 years working for SAB Miller Brewing to develop Asian and Latin American beer and beverage markets. These days he and his wife Carol own the Horse & Dragon Brewing Company in Ft. Collins, Colo.
“Choice is part of the human condition,” he says. “People are very interested in craft beer, especially in countries where there is not a strong craft beer scene.” Based on his experience working in overseas markets, Cochran thinks it will be easy to move the needle for American craft beer exports as long as the beers are handled properly in packaging, transport and storage.
“One thing you can say about big beer companies is they know how to duplicate the taste of a golden lager all over the world. The Budweiser you have in Asia or South America is going to taste the same as the Budweiser you have in America,” he notes. “That’s because they pay attention to the finer points of moving and handling beer.”
While Cochran has no immediate plans to export beer, his experience offers insight into the right protocols.
“The enemies of beer are light, heat and oxidation. So the first thing I would be looking for in a company that exports craft beer is one with a really good packaging line. Beer has to be sealed with as little oxygen as possible getting into the head space,” he advises.
He also says that it is wise for a craft brewer interested in export to have a close relationship with the distributor on the other end, which includes traveling to the country of export to review on-the-ground accommodations.
According to Steven Meier, one of the owners of Western Export Services in Denver, it takes from 11 to 40 days to get beer from the United States to his customers in South Korea and Japan. Craft brewers generally agree their product stays fresh for between 90 to 120 days.
“We always request below deck storage for our containers when we ship product overseas,” Meier notes. He adds that each month his company ships about the equivalent of 100 20-foot shipping containers—which includes but is not limited to their beer exports—working with logistics partners such as Blue Water Shipping, Panalpina World Transport Ltd. and “K” Line Logistics. Meier relies on freight forwarder or steamship online tracking to monitor the shipments. Among his biggest sellers are Boston Beer (maker of Sam Adams), which exports to 30 countries, and Brooklyn Brewing, which reportedly exports up to 25 percent of its production, according to New York Business Journal.
Meier reports that his export volume is picking up, with craft beer shipped to Korea alone up nearly 50 percent in 2013. His experience is similar to the figures cited by the Brewers Association, in which the Asian Pacific market (non-Japan) shipments were up 73 percent in 2013, with big export leaps to Singapore, Thailand and Hong Kong. Meier attributes Korean growth to the government’s action to lower its taxes on imported craft beer by 25.7 percent over five years starting in 2012.
The very quality that makes craft beer a hot commodity in foreign markets is the same that could keep supplies tight for global traders. It’s the paradox of craft beer, that its roots are in small batch production to serve a local, even neighborhood market. The BA’s own definition of craft beer stresses “craft brewers are small brewers,” which it defines as a brewery that has production of 6 million barrels or less.
Boston Beer, the largest craft brewer in the United States, which has built a brand presence in 20 countries, produces about 2.5 million barrels a year. Budweiser, by contrast, produces 125 million barrels a year. Most craft breweries are well below 100,000 barrels a year, so there is built-in scarcity in the U.S. craft beer market. Fred Mendes, director of International Sales for Boston Beer, reports that Sam Adams Lager is the company’s most popular export.
“More and more drinkers outside of the U.S. are asking for quality, full-flavored American craft beer—the demand is only increasing,” Mendes says. “U.S. craft beer is a brand now. We’re on the forefront of providing drinkers what they want.”
New Belgium’s Kim Jordan thinks American craft brewers have good reason to be optimistic—and proud.
“The America craft beer scene is the most innovative in the world right now. The U.S. scene is where you go to be inspired these days. It really speaks to American brewers’ willingness to progress and transcend traditional ideas about brewing as well as beer drinkers’ willingness to take risks and try something new. There’s a great deal of energy around that now.”