The Business of Staying Small: Why Some Craft Brewers Shun Expansion

By Justin Dolezal, Foodable Contributor

At its core, operating a craft brewery is a lot like operating most small businesses. A product is produced. Hopefully, if the product is appealing to people, there's a demand for the product. This demand facilitates the growth of the business, allowing the producer to make more of the product and get it into the hands (or, in this case glasses) of more people. In most businesses, the ideal scenario would be one in which this trajectory would be followed, more or less unabated, until all the world is awash in your product. In purely Capitalist terms, this is how it should work. But what if a significant portion of your consumer base viewed this kind of expansion negatively? It's a debate that is currently raging in the world of craft beer, with implications for drinkers and brewers alike.

Moving Up or Selling Out?

Recently, a number of small craft breweries have made headlines (and gained a level of notoriety from purists) by pursuing this seemingly innocuous business strategy in one of the most basic ways possible: they've sold either all or a stake of their operations to much larger macro-beer brands. Long respected and beloved breweries like Chicago's Goose Island, Northern California's Lagunitas, and Seattle's Elysian have had all or part of their businesses bought by macro-brands.

For the companies that buy these breweries, these deals are part of an evolving business strategy. Craft beer is a booming industry. According to the Brewers Association, craft beer's market share increased by 17.6% in 2014 alone. Acquiring successful craft brands allows companies like InBev and Heineken to control a part of the beer market that is quickly transitioning away from macro-beers. For the craft breweries, these acquisitions certainly offer a level of appeal: increased funding allows for more production, access to a larger consumer base, and more security for staff and employees. Press releases at the time of these acquisitions often tout the pure intentions of the purchasing company, promising that nothing will change, and that quality will remain high.

Among craft beer drinkers, however, these acquisitions are often viewed as an act of betrayal. This feeling is likely rooted in the us vs. them mentality of craft beer fans: craft beer arose from the shadows of a bland, macro-dominated market place, in which indistinguishable light lagers were mass-produced by companies who seemed to care more about producing profits than producing interesting, quality suds. The fact that macro-beer brands have responded to craft beer's rise by openly mocking craft beer and craft drinkers (see: Budweiser's widely-panned Superbowl ad) hasn't helped either.  

Staying Small

Luckily, there exists a class of small craft breweries that exemplify the ideal of what craft beer purists want their breweries to be. These breweries operate at the opposite end of the spectrum from the recent slew of “sell-out” breweries: they seem to have zero regard for maximizing profits or growing their brand, instead focusing on producing small batches of eccentric, high-quality beers. Breweries such as Northern California's Russian River, Vermont's Hill Farmstead and The Alchemist, and Oregon's de Garde have become extremely popular and sought after due in large part to the fact that they've refused to make their world-class beers more available.

It's a business strategy that confounds at first glance, but makes sense in broader terms. These breweries are able to drive interest and demand for their products through word-of-mouth enthusiasm among a consumer subculture that is extremely passionate and driven about pursuing rare, eclectic beers. Beer review websites and message boards such as Beeradvocate and Ratebeer have helped to spawn a new kind of beer aficionado, one who seeks both the finest local craft beers, but is also willing and eager to seek out extremely rare and hard to get beers from across the country (or world). Naturally, not having access for something that is regarded as great only increases interest and demand for these products. Certain beloved beers (referred to as “whales” in the craft community) have taken on a cult status, with beer geeks traveling from across the country or trading huge amounts of beer in order to obtain them. It's a kind of artificial scarcity: by choosing not to produce more of a product that people want, these breweries have driven demand for their products through the roof. 

Quality First

Of course, generating consumer demand is just a side effect of a business strategy that values quality control over maximized profits. In most cases, breweries that are able to generate massive demand and remain small have grown organically: they were noticed for producing something great, and demand grew from there. It's not easy to produce great, unique beer, and breweries that gain cult status recognize and value that above all else. There are also plenty of examples of breweries who saw their reputations decline or their product quality change and diminish after being acquired by larger brands. As craft beer sales continue to grow, there should be plenty of demand and business opportunity for breweries who produce interesting, high-quality products and stay true to craft beer ideals. The next time you consider adding a new beer to your beverage program, make sure you know who's behind it. It's well worth supporting breweries doing things the right way.