Stroll through the beer aisle at some West Michigan grocery supercenters and you might notice a bit of gold tucked between the red, white and blue cases of Budweiser and MillerCoors brands.
The conveniently positioned packages of Solid Gold from Founders Brewing Co. seemingly are placed to lure fans of macro-brewed American lagers to try a locally-made, craftbrewed alternative.
And at an ongoing sale price of $17.99 for a 24-pack — a new package size for the Grand Rapids-based brewer and the equivalent cost of $4.50 for a six-pack — companies like Founders are making moves to compete more directly with some of the world’s largest brewers.
According to Rich O’Keefe, senior beer buyer at Meijer Inc., “it’s too early to tell” how well consumers will take to buying craft beer in 24-packs, noting that some breweries have struggled with package sizes larger than 15-packs.
“What I can tell you is that it’s off to a great start,” O’Keefe said during a panel discussion at the 2018 Craft Brewers Conference (CBC) in Nashville this month.
For executives at some of the country’s largest craft breweries, the move downmarket to compete with macro brewers is anathema to the premium pricing strategy they’ve pushed since the advent of craft beer.
While Founders has a suggested price of $18.99 for the case of 24 cans of Solid Gold, the average price for a case of craft beer last year was $35.35, according to data from the Brewers Association.
Without specifically mentioning Founders, some industry watchers and brewery executives questioned the sustainability of a low-price strategy.
“If you’re going to try to fight on package, if you’re going to try to fight on price, you’re going to try to fight a losing battle with a big brewer,” Jeff Nowicki, chief strategy officer at Connecticut based Bump Williams Consulting, said during a panel discussion at CBC. “Having 36 years in this industry, I know that we never won anything on price. We can tell you a lot of people who used those tactics and they’re not attending many of these functions anymore. It just doesn’t work.”
To Laura Bell, the former CEO of Comstock, Mich.-based Bell’s Brewery Inc. who stepped away this month from her executive role at the 16th largest brewery in the country, craft beer appears to be headed into an era of price segmentation.
“There’s a sub-premium category of craft developing,” Bell said during a panel discussion at CBC. “That’s the low-cost 15- and 18-packs that are competing with the light lager market. As you look at what a lot of pundits have said, Anheuser-Busch and MillerCoors are very, very good at operating in that space. If we as craft want to drive down there, we need to execute, we need to be better at it than they are, and I will be surprised if we can find a brewery that can do that, when you look at the scale of things.”
David Walker, co-founder of Paso Robles, Calif.-based Firestone Walker Brewing Co., agreed with Bell’s assessment of the market.
“I think it’s very hard to go toe-to-toe with the big brewers on price. More for less has always been their strategy, and it works — we all know this,” Walker said during a panel discussion at CBC.
However, it’s up to individual craft brewers to build a business model that works for them and execute on it, according to Walker. Although some craft breweries will chose to compete on price, “it doesn’t mean that you necessarily have to play in it,” he said. “You can actually build a model that doesn’t play in it.”
While moving craft beer to compete with lower price points has its share of risks, so does consistently pricing beer at the top end of the spectrum. That’s what Constellation Brands found last year with Ballast Point Brewing Co., which it acquired for $1 billion in 2015. The company priced its flagship IPAs at around $15 per six-pack, but experienced a 7.8-percent decline in 2017, according to data from research firm IRI cited by the Chicago Tribune in a report this month. The company later reduced the price to $12.99.
The report noted that Founders Brewing was about the same size as Ballast Point at the time of its deal with Constellation “but could end up shipping twice as much beer to wholesalers this year.”
Founders CEO Mike Stevens said in the report that Ballast Point’s high pricing likely contributed to the company’s declining sales.
“They were obviously just screaming to the top of the peak, riding that price point,” Stevens told the Tribune. “… Right when that (deal) went down, we kind of all knew that they were going to have to fix the price points because the consumers were going to lose interest.”
Brewery executives suggest the answer to the pricing dilemma lies in the business model for each individual company.
New York-based The Brooklyn Brewery Corp. CEO Eric Ottaway said Founders’ track record of success with its package and pricing strategy for brands like All Day IPA suggests that it is executing on a plan that works for the company and its scale.
“Founders has the size and scale. They’ve found a model and they’re executing very well,” Ottaway said during CBC. “That’s part of the growing up that a lot of us need to do.”