Friday, September 3, 2010

The growth of craft beer and Rural Markets, a "Tipping Point" response

As many of you know, recently did a series of stories on the growth of Craft Beer and the trends therein. (Part 1, Part 2, Part 3) Great pieces. One of the larger issues brought up in this argument is can Craft Beer keep up the ridiculous growth pace of 10% a year? Will people grow tired of it? Will Bud/Miller/Coors push back and "make a stand"?

I'm guessing, if anything, it will take a mix of those two events, and pushing back will involve introducing/buying up more "craft" brands like Blue Moon and Leinenkugel's. But, I still think there is hope, at least for a while, to continue growth. A sort of afterburner that can push Craft Beers a little harder now that they've mostly picked all of the low hanging fruit of trendy urban spots and affluent suburbs.

If you haven't figured out where I'm going with this, let me introduce one more peice of information, about the concentration of the population in the United States. The following "chart" shows what percentage of Americans live in Urban Areas of varying sizes, with the cumulative percentage in parenthesis:

Urban Areas over 200,000 : 58.274%
Urban Areas 50,000 to 199,999: 10.372% (68.619%)
Urban Clusters 5,000 to 49,999: 8.918% (77.537%)
Urban Clusters 2,500 to 4,999: 1.654% (79.191%)

Basically, 20% of people live in truly rural America, and there are a lot of people who live outside of metro areas at all. However, beyond a few local/regional crafts and the biggest craft brewers (Sam Adams, Sierra Nevada), the lot of which aren't even a given in some places, Craft Beer and Craft Beer Culture is absent from the stores of 20%-25% of the population. That is a lot of room for growth. And you can add to that, not only are those people not drinking Craft Beer on the farm, but those are the people migrating to the cities and taking their love of Bud with them.

I'm not saying that every liquor store in Cherry Nebraska or Bluefield, WV needs to have 700 different craft beer labels. But with a little effort they could have 50 or 100, far more than they have now.

And I know, some of you will say that would be expensive and inefficient. To take those in reverse order, I can tell you it's not inefficient to enter a market until the market is saturated, and rural America is no saturated with craft beer. This is especially true when most beer is distributed from at least a minor metro area, and adding that distributor or telling them to push more in the rural areas is really no new cost to the brewery.

As for being expensive to actually have to push your product or send out a sales rep, that's what we call in Economics diminishing marginal returns to cost. It was easy for word of mouth to spread the news about your brews in Chicago and Boston, pretty much free advertising. That can't and won't last forever, and the last 10 barrels are going to be a lot harder sell than the first 10 were.

So, in conclusion, I'm not saying small town America is where the next 10% share of the beer market is going to come from for Craft. But I do think it's foolish to think that it shouldn't be a bigger part of it than it has been.

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