Costly 12-Packs and Long Lines Don't Help Craft Beer

PORTLAND, Ore. (TheStreet) -- Limited-release beer is the crown jewel of craft beer, but it's weighing heavily on smaller brewers in recent months.

This year, Chico, Calif.-based Sierra Nevada assembled its Beer Camp Across America mixed pack by going around the country and collaborating with a dozen different brewers to create 12-pack of beers to celebrate the opening of their new brewery in Mills River, N.C., in August. Sierra Nevada is on a seven-city tour to promote both the brewery and the 12-pack, which got some help from Colorado/North Carolina-based Oskar Blues, Pennsylvania's Victory, Wisconsin's New Glarus, Oregon's Ninkasi, Maine's Allagash, Michigan's Bell's, Indiana's 3 Floyds, Florida's Cigar City and California's Russian River, Ballast Point and Firestone Walker. The cost? About $25 to $30, according to both Sierra Nevada and our own experience at local bottle shops.

Considering that Sierra Nevada Pale Ale 12 Packs and the brewery's 4 Way IPA Variety 12-Pack typically sell for between $13 and $14 a pop, Sierra Nevada's Band Camp Across America pack nearly doubles that price. Given the logistics of working with these various brewers, bottling and canning each beer separately, making enough to sell without diminishing overall production capacity and assembling a six pack that includes two cans from Cigar City and Oskar Blues (with spacers), there's a lot more work behind that price than the simple 12-pack box lets on.

Read More: What You're Really Paying For That Beer

It's something that beer geeks will jump at -- and something they'll spend $65 in admissions fees to get their hands on during Sierra Nevada-sponsored festivals in Philadelphia and Mills River this weekend -- but it's also a lot of overhead and effort aimed at a small audience during a time when Sierra Nevada is only getting bigger. The brewery produced 985,000 barrels last year and may top 1 million this year -- joining only Samuel Adams producer Boston Beer Company (at more than 3 million barrels) and Pottsville, Pa.-based D.G. Yuengling & Sons as the only U.S.-based brewers to cross that threshold.

While it's tough to argue with Sierra Nevada and craft beer's recent success, there's suddenly something counterintuitive about producing the high-priced, high-margin, limited-quantity special releases that once served as craft beer's best world-of-mouth advertising.

Read More: Glass Half Empty? The Great Craft Beer Selloff

The Brewers Association craft beer industry group reported earlier this week that craft beer production volume grew 18% during the first six months of 2014 from the same period last year. While the Brewers Association changed its definition of a craft brewer during that time and let brewers including Yuengling and August Schell into the fold, the group also retroactively added those brewers' numbers to the mid-year 2013 total to get that growth figure.

That 10.6 million barrels produced by craft brewers is already well more than half of the 17.3 million produced in all of 2013, which was roughly 8% of all beer sold in the U.S. by volume and roughly 14% of all beer sales by dollar amount.

While that huge financial share is worth boasting about, the discrepancy between it and craft beer's volume should be somewhat of a concern to small brewers as the economy recovers. The Beer Institute, a beer industry organization based in Washington, points out that craft's gains came at the cost of overall industry losses. Total beer production dropped nearly 2% in 2013, the fourth such drop in five years.

Brewers including Anheuser-Busch InBev (BUD) and MolsonCoors/SABMiller joint venture MillerCoors have watched sales of lower-priced flagship brands including Budweiser, Bud Light and Miller Lite plummet as middle- and working-class drinkers began cutting back. The Beer Institute compared unemployment rates to average monthly beer shipments during the same period and found that overall shipments began decreasing steadily in 2009 and continued through 2012 in direct correspondence with job numbers, even as sale of higher-priced craft beers and imports rose.

That's led to a slight shift in strategy for the big brewers as both craft beer and imports from Heineken USA and Constellation Brands' Corona and Modelo gain ground. A-B not only bought the rights to Grupo Modelo products outside the U.S. last year, but has spent recent years buying up craft breweries including Chicago-based Goose Island and Patchogue, N.Y.-based Blue Point. As A-B has also begun pushing its Shock Top line of wheat beers, MillerCoors has placed increasing emphasis on its Blue Moon and Jacob Leinenkugel brands.

The Brewers Association has gone to great lengths to label those big-brewer-owned brands "crafty," but they have significant implications for craft beer as a whole. The folks at Moody's consider Leinenkugel, Blue Moon and Goose Island part of the overall craft beer market. In fact, in that bigger picture, MillerCoors and A-B brands accounted for 18% of craft beer brands overall in 2012. That's bigger than the 16% share than the largest craft brewer, D.G. Yuengling, held that year and puts MillerCoors' 13% share equal to that of Boston Beer Company and its Samuel Adams brand. A-B InBev's 5% share, meanwhile, is equal to that of Sierra Nevada.

That matters in the eyes of consumers, who see the brands side-by-side each day on barroom taps and in beer aisles, but it should also matter to small brewers themselves. As Boston Beer founder and President Jim Koch said to MillerCoors craft segment leader Tom Cardella during a panel discussion last year, there's a lot of money riding on that "craft" distinction.

This goes to the continued existence of craft brewing. We craft brewers have created a category that is able to command a price premium based on our points of difference from the mass domestic brewers. And that has created a lot of profitability in the category and a lot of growth. But at the end of the day, let's be real. Tom, you guys make great beer, you have great brewers, you have access to ingredients, raw materials etc. that is better than anybody else and you do it at significantly lower cost. And the big brewers have distributor clout and retailer clout that craft brewers will never have. So if we don't have a point of difference that's meaningful to consumers, we probably in the long run can't survive.

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The Brewers Association clings so tightly to that belief that, to this day, it still excludes both the Craft Beer Alliance (makers of Widmer Brothers, Redhook and Kona beers) and Fordham & Dominion Brewing (makers of Dominion and Fordham beers) for selling minority stakes to A-B and MillerCoors, respectively. The Widmer brothers, among others, have criticized that stance as narrow-minded, but that's the least of its offenses. The big problem is that it, in no way, defends small brewers against the broader beer landscape that lies ahead.

A year after Anheuser-Busch InBev purchased Goose Island, that brewery was able to double the size of its barrel house. Goose Island's finite number of barrels and lengthy aging process had kept Goose Island's Bourbon County Stout a limited offering that beer lovers in the Chicagoland area would line up to purchase. In the very near future, that beer will be offered year-round.

It's a sacrilege to those who consider waiting in long lines to pay a premium for that beer a cornerstone of their social calendar, but making high-quality, high-potency beers year-round is an idea that's catching on. For every Portsmouth Brewing Kate The Great, 3 Floyds Dark Lord and Deschutes Abyss Russian Imperial Stout that draws crowds and cameras, there's an Oskar Blues Ten Fidy, Bell's Expedition Stout or New Holland Dragon's Milk Russian Imperial Stout that's available for much of the year. For every Imperial IPA like Pliny The Younger from Russian River or Heady Topper from The Alchemist, there's a Ballast Point Sculpin or Boneyard Beer Company's Hop Venom.

While beer scarcity may play well in Vermont, Indiana and in Santa Rosa, Calif., when Pliny The Younger is being poured, having enough of a good beer around is becoming an increasingly sound strategy. The number of small breweries in this country has jumped from 1,625 in June of 2010 to 3,040 after the first six months of this year. If there's a huge line at a brewery or its beers aren't on shelves, it's increasingly likely that there's a brewer just up the road or beer aisle that's brewing something of similar quality that a buyer won't have to wait for.

Read More: Is It Still A Craft Beer After The Brewery Sells?

As fun as it is to rent a hotel room for Dark Lord day or spend three quarters of a weekend in Vermont waiting for Heady Topper, Lawson's Double Sunshine IPA or anything from Hill Farmstead, actually drinking a beer and enjoying it in comfort is eminently more enjoyable. One-offs like Sierra Nevada's are inevitable, but craft beer is reaching the point where engineered scarcity is no longer a sound strategy.

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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