Friday, 3 June 2016

Craft Beer - Profit Margins to Dictate Future Focus on SA Local Markets

Liquor - Craft Beer.   Lagging 10 – 15 years behind the US, microbrewers often look to the European and USA markets to predict growth paths of business sectors in South Africa – especially when assessing niche markets such as craft beer.   The current trend in overseas microbrewery markets has been branded -  “hyperlocal”.  In short, this refers to a renewed focus on one’s local market.   You would be right in asking why this is considered a “new” trend – wasn’t microbreweries conceived by enthusiastic brewers who wanted to share their unique brews with locals?   Well, craft beer’s life cycle is back where it began, this time driven by profit margins. 
How did this come about?   The rapid growth in the number of microbreweries (US = 2 new breweries per day!) has resulted in increased competition for shelf space.   The number of microbreweries in SA is set to double in the next two years.   Stores will be squeezing microbrewers for reduced profit margins.   Larger brewers will buy smaller breweries, making it more difficult for the latter to compete effectively.   The fight for space on the beer lists of local bars will intensify. (Contact us for more statistics)
How should SA microbrewers react?  Small to medium – sized microbrewers in South Africa have a choice to either follow the same gradual growth path or to “fast forward” and focus on becoming “hyperlocal”.   Hyperlocal simply means focusing on selling in-house.  Selling R35 beers in your own taproom will generate R1400  from a small keg for which a distributor or pub will pay you R800.  They should evaluate statistics such as that 52 percent of craft beer drinkers indicated that locality was an important consideration when buying (2015 Nielsen study).  Wineries have experienced this first hand and many have adapted smartly.    In the Stellenbosch region, for example,  one will often pay more for the same bottle of wine at the wine farm’s tasting room than in the local supermarket.  
Options?   The benefit of the growth of the craft beer market is that it will increase the options available to microbrewers.    One obvious, but capital intensive route,  is to establish a “franchise brewery” - giving each franchise a unique local flavour.  However, the idea of commercialising craft beer in this way may have many microbrewers “frothing”!   South Africans are an intrepid bunch and we have no doubt that we will yet see many new, unique and successful  business models arising from our turf.
Contact Us for specialist assistance to help amateur microbrewers to become licensed.   We share your passion!

(Article by The Licence Co for all South African microbrewers, adapted from an article in The Globe)

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