We deal with hundreds of clients every year that are planning to start a new business. One of the major headaches most of our clients face is the lack of reliable, up-to-date, and available market research into the industry and market they wish to enter. Fortunately, an integral part of JTB Consulting’s Solution is the provision of detailed market research.
Over the next few months, we will be focusing on providing some Industry Insight into various industries. Our ‘insight’ is based on actual market research projects we completed for some of our past clients. To kick-start this process, this month we will focus on the Craft Brewery Industry.
The South African Spirits market is expected to grow at a CAGR of 2.8% during 2015-2020. The Whiskey category is forecast to register the fastest volume growth during 2015-2020. Consumers are opting for value for money products in the South African Spirits market. The Whiskey category is the largest value category in the South African Spirits market. The Spirits market in South Africa accounts for around one-fifth of the overall Wine and Spirits retail sales in the country. The Irish Whisky segment is expected to gain maximum share growth within the Whiskey category.
In South Africa, there is now a resolute and growing band of craft or artisanal distillers responding to this need for unique specialist spirits. Eau-de-vie, pot still brandy, cask aged whisky, gin, vodka, grappa, agave spirit and absinthe can now be found, all made in small quantities to exacting standards. Craft distillation is about quality, choice and individuality. Artisanal distillers are hands-on specialists who transcend the gap between art and alchemy to create unique spirits for individuals. They are also so proud of their handiwork they will find a way to deliver directly to you, if you don’t beat a path to their door first.
The global beer market is expected to garner $688.4 billion by 2020, registering a CAGR of 6% during the forecast period 2015-2020. A significant increase in the consumption volume is believed to fuel the market growth across developing regions.
Breweries are categorised into macro-breweries and micro-breweries based on the production volume or size. The official war between them is on, with craft brew companies continuously increasing their production capability. Macro-breweries are offering quality and quantity across greater distances. At the same time, micro-breweries are benefiting too. Likewise, the emergence of breweries in less saturated locales across the global avenues is another welcome news.
Recent changes in drinking preferences have considerably increased the demand for micro-breweries, which is anticipated to register a CAGR of 9.3% during the period of 2015‐2020. Larger number of discerning consumers are now shifting towards the craft beer, owing to its distinct taste and quality. So, with varieties of flavour, micro-breweries are relentlessly expanding because of the growing demand for craft beer.
Growing sales of premium, and super premium beers have shrugged off all doubts about the dip in the consumption volume. Consumers are increasingly opting to experiment with locally produced premium and international beer varieties. Most brewers now recognize that the premium brews industry would stay the most attractive segment.
The premium beer segment is anticipated to register a CAGR of 6.4% during the period of 2015‐2020, when compared to the super premium and normal beer segment. Besides this, the super-premium beers are witnessing a rapid growth in the business and would grow threefold. The grocery outlets today make up a major part of alcohol sales in terms of value. This presents a greater opportunity for the super-premium beers to grow via channelised expansion.
Craft Beer as an Industry has Exploded:
Craft beer is the beer produced traditionally, production of craft beer is limited as it is a part of microbrewery industry. Microbrewery industry is the industry which produces brewery in very small quantity compared to large-scale corporate breweries. Craft beer is very expensive, the reason for its expensiveness is that it is produced by very old traditional brewing methods and the cost to manufacture it is very high. Chief craft beer establishments are owned by individual as it is tallied under small-scale industry sector. Craft beer industry is one of hoariest industry of its kind. Craft beer market is witnessing robust development due to the increasing interest of people to drink traditionally prepared drink and interest to spend money on it.
The global craft beer market is expected to reach $502.9 billion by 2025, according to a new report by Grand View Research, Inc. The market is expected to witness substantial growth over the forecast period on account of the rising demand for low alcohol by volume (ABV) and flavored beer.
The government in countries including Australia, New Zealand, Belgium, Mexico, China, and the UK are promoting the production of craft beer and incorporation of new breweries on account of the positive contribution of the industry towards economic development and employment generation coupled with the willingness of the consumer to pay extra for better tasting brews.
Australia, Belgium, Germany, U.S. and New Zealand are the major craft beer producing countries with over 65% of the overall production in terms of value as well as volume. Belgium is the most preferred beer among the major craft beer consuming countries owing to the premium quality, clean taste and rich flavor and aroma of the brews.
The South African Picture:
The South African beer market continues to edge upwards primarily driven by population growth. Mainstream brands dominated the market volume in 2015 and accounted for 76% of the total volume. The South African beer market remains oriented towards out of home consumption showing around 64% of consumption through the on-trade. Low alcohol beers have struggled to develop and account for less than 1% of the market volume but the growing momentum of light beers could provide a boost to the sole brand currently classified in the low alcohol segment Windhoek Light. Key findings include:
- Steady growth in population has helped the beer market to edge upwards in South Africa for the year.
- Beer recorded a 1% growth rate while sorghum beer continued developing strongly and increased volumes by 4%.
- Carling Black Label (SABMiller) continues to enjoy strong sales and a popular reputation amongst South African consumers accounting for 29% of overall market volume.
- Total beer imports volumes roughly doubled those of exports in 2015 showing up increase by 6% compared to the previous year.
We now have breweries in every province, with the bulk still found in the Western Cape (72). In the past two years, we have seen immense growth nationwide – around 50% from 2014 to 2015 and again from 2015 to 2016. There are 22 contract breweries across the country, and there is fairly rapid growth in the contract brewing sector.
Kevin Wood, owner of Darling Brew in Cape Town, said he was also expecting local craft beer output to more than double in the year ahead. Darling Brew last year spent R52 million on building a brewery so that it could meet growing local demand for craft beer, he added. There was massive scope for growth in craft beer because the footprint for the production was “tiny”, said Wood. There was a lot of investment being made in the sector to meet growing craft beer demand, he added.
On the other hand, Standard Bank is forecasting that the local craft beer market will grow by 35% this year (2017), on top of 30% last year. Craft breweries could produce as much as 18 million litres by 2017, to give it a 2.1% share of the total premium and lite market of about 790 million litres – from just 0.3% in 2011.
In the US, craft beer makes up 14% of the beer market and has experienced a 20% growth rate since 2012, according to Standard Bank. Brendan Grundlingh, an executive from Standard Bank’s consumer sector team, said: “The industry is still so new, so it is yet to gain traction. We have too many brands and there is not enough scale efficiency.”
Brendan Watcham, the owner of Copper Lake Breweries, said when he started his craft brewery in Lanseria near Johannesburg in 2010 there were between five and 10 microbreweries in South Africa, but that had now grown to more than 150.
Craft Beer Trends:
With craft breweries being on the rise and increasing in their popularity amongst main stream consumers in South Africa, there are many trends that are shaping the industry – much of which can be seen in the global industry trends.
- Growlers: Whilst the trend of growlers in the US is nothing new, they are certainly taking off as a trend in South Africa. First developed in 1986, the modern growler was developed at the Idaho’s Otto Brother’s Brewing Company resembling a moonshine jug, though the term and concept has been around since the 19th century when fresh beer was carried home from local pubs in galvanized pails. Recently inaugurated in South Africa is the Growler Station, offering a selection of craft beers fresh from the tap to consume at home. In 2016, Jack Black launched the Growler Experience which offers branded collectable growlers encouraging beer drinkers to refill at the Jack Black brewery in Cape Town. The Brew Mistress, Lucy Corne recently put together a blog of where to fill up a growler in South Africa.
- Sustainability: Sustainability is certainly one of 2017’s buzz words, and for good reason. With realities like global warming, climate change and a world-wide waste problem; people around the world are recognising the need for more responsible and sustainable methods of production. And so, we have begun to see the rise of the eco-friendly beer, or brewery. New Belgium Brewing Co. is one of the thought leaders in this regard. The company is widely recognised for its progressive management, is owned entirely by its employees through a stock-ownership plan and produces 19% of its electricity on site. In 2016 Heineken unveiled the world’s first carbon neutral brewery in Austria, while Cowbell Brewing Company became the first carbon neutral brewery in North America. In South Africa, Darling Brew release Africa’s first carbon neutral beer, the Blood Serpent. This is a trend that will only continue on a massive growth trajectory into the future.
- Brewpubs and Local Markets: With the rise of the brewpub, local has taken on a new meaning. Local no longer means within a country, within a province or even a city. Beer drinkers are now looking for new experiences within their neighbourhoods. Instead of talking about beers made in Cape Town or Johannesburg, people are talking about the beer made in the local Hout Bay micro-brewery, for example. This means that craft breweries will have to consider providing their beers on a national level within a more retail orientated space or look to satisfying the local market on a far smaller scale.
- Unique Label Design: The craft beer has long been associated with packaging that is aesthetically pleasing and unique. As the industry continues to grow, so do we see the increase of label designs bordering on full-on artwork fit for a pop-art gallery. In the Feb/March issue of VISI, a magazine dedicated to all things design and décor, an article was published on some of the current craft beer designs that are stirring up the market. Their commentary on the effect of great label design? That we eat (and drink) with our eyes. Included in the mix was Darling Brew, Mad Giant, Jack Black and Sxollie.
- Quality is Everything: Vast numbers of seasonal beers are being introduced across all brands and new beers being introduced regularly in order to add variety, change things up and keep consumers happy. But craft beer drinkers in South Africa are becoming all the more discerning. This means that quality (not variety) will be the ultimate decider on which breweries thrive. Craft beer drinkers are quick to lose their loyalty to a brand if the quality of one beer type is not up to their standards. This also means that, not just quality – but consistent quality is becoming increasingly important if any brewery wishes to stand out from the crowd.