There is a major trend within the craft beer industry: diversifying into other craft beverages. We at MARKS Design and Metalworks have seen breweries move into other products for a while, and the trend is accelerating as the craft beer movement is reaching a certain level of maturity. Recent government shutdowns due to the global pandemic are only hastening this growing beverage industry trend.
In this article, you will learn:
- Why breweries across North America are diversifying
- What beverages they are adding to their product line
- How they are increasing efficiency and profitability
Plus, we’ve included links to exclusive interviews with our partner brewers that reveal real-world diversification strategies.
Craft beer industry growth trends during the Coronavirus/Covid-19 outbreak
But brewers are a tenacious bunch. And we don’t know one who would give up without a fight. Some breweries are starting to deliver beer to your door. While big names like Molson Coors Beverage Co., the maker of Coors beer, plans to produce hand sanitizer at its craft brewery locations in response to the coronavirus pandemic.
Although each brewery is different and requires a unique solution during these unprecedented times, the message is clear. No matter the size of the brewery, product diversification is keeping doors open.
Trends in the U.S. alcoholic beverage industry
Diversification in the beverage industry isn’t new. In fact, successful beverage companies have historically diversified.
Even before the outbreak, brewers were joining the growing trend in the U.S. alcoholic beverage industry to develop and bring to market new beverages.
Trends in alcoholic beverages, as reported by Beverage Dynamics, suggest that customers are interested in buying:
- Anything in cans (including wines and spirits)
- Specific spirits like bourbon, whiskey, and tequila
- Wine (particularly rosé)
- Craft beer
- Locally made beverages
- Low-ABV, “healthy” alcohol, ready-to-drink, and private label beverages
- Cannabis-infused drinks
Nielson reports that the “healthy” trend is rising with continued interest in wellness and alcohol-alternatives. Hard seltzer and kombucha crossover products are expected to increase considerably.
Alternatively, the Brewers Association reports that craft beer demand is slowing to single digits after years of double-digit growth. While craft beer is still among the most talked about by consumers, it significantly trails discussions about wine and distilled spirits.
With the U.S. likely headed for an economic recession, businesses trending toward premium alcoholic beverages with their higher price points may find themselves at odds with the consumer’s wallet.
Given all these forces, smart brewers are looking at diversifying their product lines to assure access to customers and new markets.
What is product diversification?
Diversification is the process of expanding into new product offerings, expanding sales to the same customers, or reaching out to new customers.
Diversification is useful when one area of the business experiences stagnation or declining sales. It allows for adding variety on more options for the craft beer product. Industry diversification can boost the original brand’s image and company profitability. Market diversification can be defensive, protecting the brewery from competitors (wineries or spirit companies diversifying into beer).
Business expansion can be considered related or unrelated diversification. In general, expansion through diversification falls into two categories:
- Vertical diversification
- Horizontal diversification
Vertical product diversification examples
Vertical diversification involves producing products that are similar. For example, a brewery may expand into other beer-alcohol based beverages such as low-ABV beers, low-calorie beers, or hard seltzer. Vertical diversification may have fewer risks as the beer brewing process is known, and the equipment is essentially the same. This type of diversification reaches customers who are looking for a beverage similar to beer.
Horizontal product diversification examples
Horizontal diversification involves producing products that are in the same broad category but may have different processes or customer groups. Fermented, distilled, or even non-alcoholic beverages are considered horizontal diversification for a beer brewery. Hard cider, kombucha, cold-brewed coffee, distilled spirits, ready-to-drink cocktails, and wine also count. Horizontal diversification requires breweries to purchase new equipment, cross-training staff, and learn new processes. As a result, there are more risks associated with this type of diversification. Yet, the rewards can be huge. With horizontal diversification, you can gain access to new markets and new customers. Plus, more people will be aware of your brand.
Opportunities through diversification
There are many paths a brewery can take to diversify. MARKS has helped a number of our partner customers successfully add multiple beverages to their product line including hard seltzer, wine, cold brew coffee, and hard cider.
Learn about some of our partner customers’ challenges and successes in these case studies:
Why product diversification is essential for today’s brewery
Clear trends emerged from our case studies. Our brewer friends told us that interest in diversification first came from the desire to try something new, the need to experiment. As one said, “If I can ferment it, I want to try it!” We see that successful forays into diversified alcoholic beverages start with a curiosity about new recipes and experimenting with new ingredients. Not surprising, as this is part of the ethos of the craft brewery movement.
Brewers also pointed to reaching new customers, increasing brewery efficiency, expanding into new markets, assuring business diversification as one product may slow, and meeting the changing tastes of drinkers as reasons to diversify.
Product development and diversification strategies for brewers
1. Assess your situation
What’s your facility’s capabilities? Do your staff have some of the skills to work with the new beverage, or will you need to hire an outside expert? Is there enough capacity in production? What are the licensing laws within your state? Can your new products share production space? Can you distribute the new beverage with beer?
Breweries often find laws governing beer and wine production to be quite different. Sometimes selling beer and wine together can be complicated. Thorough research before you diversify is critical.
2. Evaluate your facility and equipment
Some craft beverages can be made with beer production equipment. Cellar tanks (brites in beer production) can have multiple uses for storing many types of beverages. Clean in Place (CIP) systems are another synergistic brewery function.
Fermentation space can be shared with some beverages and the brewhouse/hot side can certainly be adapted for many categories. Wines fermented in stainless steel make clean, crisp wines that are perfect for earlier drinking or in cases where the optimal ferment is meant to stay cold. MARKS also makes stackable stainless steel totes that are a much better and more sanitary alternative to the common macro plastic bins often seen in wineries.
But there are drawbacks to multi-use facilities and equipment. Packaging equipment and process overlaps often lead to cross-contamination. So thinking through production schedules and equipment use is critical.
3. Plan production schedules
Proper planning will reduce your risk of cross-contamination. It can also boost your bottom line. Some of our breweries use the diversification of product to help fill in slow times in production. For example, your facility could brew one product such as seltzer in the winter to fill in for slower beer production.
4. Exploit ingredient and process synergies
Our partner breweries touted synergizing ingredients or processes when diversifying into new products. For example, breweries that expand into brewing cold coffee can also use the coffee for some of their beer recipes. Likewise, used barrels from the distillery process can be used for brewing beer.
Various brewers also spoke about diversification as a way to help retain staff and keep them busy in slow times. Several found it kept their staff motivated and expanded their skills.
Overall, all many breweries we interviewed found diversification increased their efficiency and profitability. This increase in profitability came mainly from reduced production downtime and expanded market opportunities.
How to keep up with beverage industry trends
Tastes are changing. Hardcore craft beer drinkers are a small percentage of overall drinkers. Pulling in other segments is important. Craft breweries have to compete with an endless variety of beverages out in the marketplace. Today, people favor “healthier” lifestyles and seek low or no calorie drinks. Specifically, the shift is to low-calorie beer, but with the craft beer taste or to hard seltzer.
In a diversified pub or tasting room, couples, where one is a craft beer drinker, can bring their partner who may prefer wine, hard seltzer, or a ready-to-drink cocktail and join in on the experience. And for some who brew in certain states or Canada, experimenting with infusing the craft beverage taste with the properties of CBD or cannabis will appeal to a growing number of consumers.
Given the slowing of growth in the craft beer market, the changing trends in the craft beverage market, and the need to improve efficiency and profitability for most breweries, the importance of product diversification for your brewery is certainly a trend to consider.
Ready to start your diversification journey? Contact MARKS to request a free consultation.
Already have your next big brewing idea in mind? Get a custom quote today.