Wednesday, April 13, 2016

Blue Ocean in the Beer Industry?



Craft beer is so mainstream that it’s hard to imagine a world without it.  However as recently as a few decades ago, there were less than 100 breweries in the United States.  According to Charlie Papazin in a craftbeer.com article, “Between 1933 and about 1982, about 700 breweries… were reduced to close to 50.” Then in the 1980s the craft beer revolution began.

Reading the “Blue Ocean Strategy” (Kim & Mauborgne, 2004) and the excerpts from The Innovator’s Dilemma (Christensen, 1997a,b), my mind immediately went to craft beer.  Although not on nearly as large scale as the companies discussed in these articles, craft beer certainly filled a major market hole in the US.  I certainly don’t see craft beer as a disruptive technology, as Christensen (1997a, p. 7) describes these as “innovations that result in worse product performance…” however the craft beer market certainly was new (at least new to that generation). And although craft beer doesn’t seamless fit into the concept of a Blue Ocean (Kim & Mauborgne, 2004), it does fit some of the major criteria.  Craft beer was not a new technology. The beer industry was already popular and successful.  However craft brewers brought additional value to the product that buyers apparently desired. Big flavor. Small-scale (at least for some craft breweries). Variety. Connection. Branching away from the big name breweries that perfected their recipes for drinkable, standardized beer, the craft beer movement has provided customers with seemingly unlimited varieties and styles of beer. And not at a discounted price (the Blue Ocean Strategy (Kim & Mauborgne, 2004) talks about Blue Oceans as offering value for a better price).

Without the space to truly explore this topic during this blog, a number of questions arise.

First, what factors lead to the entry of craft beer into the beer industry? Could the macro breweries like Anheuser-Bush or MillerCoors have successfully branched into this market before the boom (say if they had read the Innovators Dilemma)? Apparently this substitute product was not something that these big players felt threatened by.

Second, at what scale has craft beer affected the profits of the biggest macro breweries? With companies like Anheuser-Bush buying up microbreweries (with its fifth microbrewery purchase just announced (Noel, 2016)), it would seem as though such companies are feeling pressure. If so, will buying microbreweries really allow them to gain control of that market?  I know personally, I avoid any beers bought up by companies like Anheuser-Bush, opting to purchase from the brewery down the street, which is a major allure of craft beer.

Third, at what point will the craft beer industry become saturated? It seems like every month I hear of a new brewery or supporting company (hop farm, malting company) coming to Pittsburgh, with the most recent being CNC Malting Company in Bulter, PA which I just discovered yesterday.

And finally, not having background or extensive experience in the content of this course, I wonder whether craft beer could/may not be considered a Blue Ocean or a disruptive technology for some of the reasons I mentioned above? Either way, the movement has made great strides since it reappeared in the 80s and certainly isn’t going anywhere.

Christensen, C. M. (1997a). Introduction: Why Good Companies Fail to Thrive in Fast-Moving Industries. In The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (pp. 1-19). Boston, MA: Harvard Business School Publishing.

Christensen, C. M. (1997b). Discovering New and Emerging Markets. In The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Boston, MA: Harvard Business School Publishing.

Kim, W. C., & Mauborgne, R. (2004). Blue ocean strategy. If you read nothing else on strategy, read thesebest-selling articles., 71.

Noel, J. (2016, April 13). Anheuser-Busch buys Devils Backbone, its 8th craft brewery. Chicago Tribune. Retrieved from http://www.chicagotribune.com/dining/ct-anheuser-busch-craft-beer-20160412-story.html

Papazain, C. (2016). The Revival. Retrieved from http://www.craftbeer.com/the-beverage/history-of-beer/the-revival




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