Source: Business Day
Creating new customer opportunities will add to viability of the business
A few months ago, I penned an opinion piece on the trials and tribulations of the country’s craft brewing industry, including practical solutions to overcoming them.
Like most of the country’s industries, challenges affecting the sector have included increased load-shedding and power outages, higher input and operating costs, and a consumer market under pressure.
I mentioned a few of the country’s leading craft beer brands (or those that came to mind based on my own and friends’ and colleagues’ consumption patterns and trends), which resulted in “mild backlash”. A few of the industry’s stakeholders felt that I should not have mentioned some of the brands, based on the article’s context.
My pushback was that the article was not about the brands. It was more about the industry in general and a response to other articles on the sector’s challenges over the past few years. My article was written to further discuss sector dynamics and position solutions that could be explored to sustain its viability.
Following the publication of that piece, I was fortunate to be contacted by one of the brewer’s co-founders and marketing director at Jack Black Beer, Meghan McCulloch. I appreciated her and the Jack Black team engaging with my article’s contents, including responses to some of my raised points.
Our call, therefore, became a debate that discussed some of the innovations the business had rolled out over the past few years which have contributed to and sustained the business’s market success and year-on-year growth.
One of the initiatives was around offering diversity. Over and above the brewer’s lager, the company’s brews include a CPA (Cape Pale Ale) as well as a range of fruit-inspired beers (Super Crush Radler and Cherry Ale) and several limited-edition brews (produced seasonally) including an oatmeal stout, a fresh hop IPA, an amber ale, and a co-brewed pale ale (in partnership with another leading craft brewer).
According to the Jack Black team, this diversity has led to the brewer catering to a wider audience and gaining top-of-mind brand status across the country’s seasoned and occasional beer drinkers. Growing the company’s offering has been successful based on it being guided by feedback obtained from its taproom, with experimental brews that are consumed in large quantities being forwarded to the next step of bottling and wider distribution.
The shared feedback suggested that to stay ahead of the pack, innovation is paramount. I do agree that for craft brewers, innovation can be centered on offering diversity, which enables the brewer and its brand to be appreciated across a wider audience (by catering to different palates).
In addition, innovation must contribute to operational efficiency, an aspect I feel should be prioritized by all craft brewers because of margin-tightening. Tightening margins for the sector have been worsened by the biggest short- and medium-term challenge of available, sufficient, and stable electricity supply.
Like most of the country’s industries, challenges affecting the sector have included increased load-shedding and power outages, higher input and operating costs, and a consumer market under pressure.
I mentioned a few of the country’s leading craft beer brands (or those that came to mind based on my own and friends’ and colleagues’ consumption patterns and trends), which resulted in “mild backlash”. A few of the industry’s stakeholders felt that I should not have mentioned some of the brands, based on the article’s context. My pushback was that the article was not about the brands. It was more about the industry in general and a response to other articles on the sector’s challenges over the past few years. My article was written to further discuss sector dynamics and position solutions that could be explored to sustain its viability.
Following publication of that piece, I was fortunate to be contacted by one of the brewer’s co-founders and marketing director at Jack Black Beer, Meghan McCulloch. I appreciated her and the Jack Black team engaging with my article’s contents, including responses to some of my raised points.
Our call, therefore, became a debate that discussed some of the innovations the business had rolled out over the past few years which have contributed to and sustained the business’s market success and year-on-year growth.
One of the initiatives was around offering diversity. Over and above the brewer’s lager, the company’s brews include a CPA (Cape Pale Ale) as well as a range of fruit-inspired beers (Super Crush Radler and Cherry Ale) and several limited-edition brews (produced seasonally) including an oatmeal stout, a fresh hop IPA, an amber ale, and a co-brewed pale ale (in partnership with another leading craft brewer).
According to the Jack Black team, this diversity has led to the brewer catering to a wider audience and gaining top-of-mind brand status across the country’s seasoned and occasional beer drinkers. Growing the company’s offering has been successful based on it being guided by feedback obtained from its taproom, with experimental brews that are consumed in large quantities being forwarded to the next step of bottling and wider distribution.
The shared feedback suggested that, to stay ahead of the pack, innovation is paramount. I do agree that for craft brewers, innovation can be centred on offering diversity, which enables the brewer and its brand to be appreciated across a wider audience (by catering to different palates).
In addition, innovation must contribute to operational efficiency, an aspect I feel should be prioritised by all craft brewers because of margin-tightening. Tightening margins for the sector have been worsened by the biggest short- and medium-term challenge of available, sufficient and stable electricity supply.
In response, a few larger and craft brewers have invested in alternative energy solutions, including hybrid solar and backup diesel generation systems. These investments have, however, raised production costs and exerted more pressure on margins. At present the investment is necessary as it overcomes the risk of brewing interruptions which in the end could compromise and condemn brew batches.
SOME OF THE COMMISSIONED BIOGAS PLANTS AT THE BREWERIES HAVE BEEN REPORTED TO RETURN TWO-TO-THREE-YEAR INVESTMENT PAYBACK PERIODS
From an energy perspective, another angle that could be explored (depending on the size of the plant — the larger the brewing plant, the better), is converting waste (spent grain) into biogas and using it to produce energy for the plant.
However, this is a particularly complex and capital-intensive process with brewers investing in biogas plants only when the waste generated is sizeable enough to warrant it. However, it is encouraging to note that some of the commissioned biogas plants at the breweries have been reported to return two-to-three-year investment payback periods — suggesting that over time such an investment for the sector could be worthwhile.
Another innovation brewers can consider is co-brewing: for example, a craft brewer with its sole production plant in the Western Cape could partner with a craft brewer in Gauteng or the Eastern Cape to either co-produce a brew and/or produce each other’s brews within the different territories on each other’s behalf.
Though some of these joint venture agreements can be cumbersome (from an agency and accountability standpoint), such partnerships could deliver positive returns. These include sizeable reductions in distribution costs and through each other’s networks the scope to increase visibility, raise awareness and increase access for each brand’s beers.
However, because of agency risks, implementing such an innovation successfully requires full trust, loyalty and commitment from each of the partners — which in most cases is hard to find.
Something else worth considering is proactive business development. This is more a business process innovation than anything else but is focused around building loyal “bulk purchasing tribes” for the brewer that will sustain demand over the long term.
SA corporates (large and small) are key contributors to retail purchases, including alcohol. Events and other functions hosted by these entities over the course of the year are key opportunities for small- and medium-sized businesses including craft brewers.
I may be speaking to the converted but continual engagement with the procurement teams of these corporates, including the sharing of new and limited-edition offerings, could be a few of the tactics that keep craft brewers as top-of-mind beer companies that these entities could approach for sizeable and regular beer purchases. Such relationships could also create opportunities such as collaborating with this type of client to produce an exclusive and limited-edition brew, adding to potential earnings over time.
Business, process, and innovation are key factors that will be critical for craft brewers to implement over the next few years. Overcoming sector challenges through innovation will not only create new customer opportunities but support these enterprises to become more sustainable, manage their costs better, and increase longer-term profitability.
THE AUTHOR: JAMES MAPOSA, is MD at strategic research and advisory consultancy Birguid.
