December 20th, 2017 | By Lou Trope
It cannot be denied – the craft movement that is upon us is setting up some uncomfortable conversations, as both craft and national brands battle over placements on menus, back bars, tap handles and national programs. Over the past years, there has been a mix of frustration and jubilation as national brands have found themselves getting bumped out for the new “hot” regional spirit or craft beer. On the bright side, it has brought a sense of excitement and innovation to the industry that has helped spur interest in creating a high quality beverage program.
The craft movement has been great for the industry, sparking a renewed energy in seeking out quality products, refining technique and understanding the unique nuances of different spirits and beers. The American Craft Spirits Association (ACSA) in their 2017 Craft Spirits Data Project states that the craft spirit segment grew by 18.5 percent in 2016 with over $3 billion in sales. Now these are impressive numbers for any emerging segment but it is equally important to recognize that this growth still only represents 2.6 percent in market share. However, with approximately 1,580 active distillers, this is a growing segment of the industry that will continue to carve out their share.
In contrast, according to The Brewers Association’s 2017 mid-year report, the craft beer segment is approaching market stabilization with 5 percent growth in 2017. However, with over 5,560 active breweries and another 2,700+ in different stages of development, the beer segment will continue to be highly competitive for the foreseeable future. Unlike the distillers, who see most of their growth coming from distillery and tasting room sales, the craft beer segment has benefited greatly from on-premise placements.
So what is an operator to do with all these choices flooding the market?
First and foremost, it starts and ends with the concept and understanding the target customer. A strong and successful concept should always be the true north for any decision regarding the operation, from back bar selection to music play list. Running blindly after the latest craft distiller or regional microbrewery is not a wise strategy. It is if your strategy is to fill up the storeroom with unwanted product that doesn’t move. This approach does not work for anyone. Everyone from supplier to server wants to sell more and keep selling. It is imperative to always align the restaurant or bar concept with the beverage program so they enhance each other toward the overall memorable guest experience.
In addition, a firm understanding of the guest demographics and psychographics will lead to the right decision. It would be expected that a very trendy bar with a strong local following and a dynamic mixology program would have a carefully curated selection of spirits behind the bar, aligning with the concept and style. While in this concept, the mix may be heavier in craft distillers and premium national brands, it goes without saying that in order to execute a program at such a high technical skill level, the craftsmen behind the bar would take it upon themselves to be well informed experts on all products within their mixology arsenal.
On the other hand, hotel groups or large restaurant brands with deep guest loyalty may engage in a decision-making process that can be quite different. Consumer loyalty to “their” spirit brand is a very interesting phenomenon. Just as people will have a strong emotional connection to the brand of car they drive, the same holds true for the spirit they choose. This is not something to be taken lightly as the wrong selections can have a negative impact on reputation and business. So in these cases, there must be a balance in determining how the national brands and craft suppliers integrate to meet their target market’s expectations and brand positioning. In these cases there may be more of an allegiance to national brands with a sampling of regional or craft selections for the more adventurous guest.
There is no doubt that it is important to keep your beverage offerings fresh and on trend in any market. However, just by putting the latest craft Gin or Whiskey on the back bar or coolest micro-regional double IPA on draft isn’t going to make sales happen by some omnipresent force.
Just like with any consumer product, guests must be guided through the five phases of the purchase decision. First, they come into your establishment because they would like a drink – this is Phase 1, recognition of a need. Second, they look to see what you are offering – this is Phase 2, gathering information. Now, in Phase 3 they are evaluating their options. This is where training and interaction with the guest come into play. Unless the bartender or server is fully trained on the regional or craft products, they may or may not be able to “sell” that guest on giving up their preferred brand to try a new unknown product. Without consistent and effective training of bar staff, the likelihood of the guest trying a new brand without some influence is low. At this point hopefully the training has paid off, the guests have made it successfully to Phase 4 and they have purchased the newly recommended item over their usual brand. Congrats! You made the sale! But the real test is in Phase 5, which is the post purchase behavior. Did the guest reluctantly fight through that double IPA and then order a light beer? Or did they thank the server for such a great recommendation? The follow up is crucial to determine if the products chosen are the right fit for the concept and are they being prepared in the best possible manner.
As you can see, training is critical and cannot be overlooked. The more product brought into the establishment, the more training that is required. This is where the national brands have a distinct advantage over the craft suppliers. In many cases, the large national brands are equipped with certified trainers, have online training capabilities and can build training programs to meet the operation’s needs. Their craft counterparts are typically working on a much smaller scale and may not have the resources to provide such a level of training, although in some instances they may have local resources available. Regardless of your concept’s direction, it is a fruitless effort to bring any product into a beverage program without properly training the service team.
There is a constant tension between the craft and national brand worlds. The craft segment will always be known for pushing innovation, although many of the national brands are quite innovative as well. There will always be critics of the national brands, regardless of quality. However, it is critical for an operator to build relationships with both craft and national brands. It is never a wise idea to turn your back on a relationship because they are not the “cool kid” on the block anymore. National brands have deep resources to assist in training, menu development and educational activities, which can be very beneficial to any operation. Craft suppliers can be more nimble to provide regional access to events and experiences. It should be very clear that both are valuable relationships to be nurtured and valued. You never know – that little craft distiller you are working with today may end up being the next big brand to take the market by storm.
In the end, it comes down to what is in the bottle. With over 1,580 active distillers and 5,560 active breweries, it is not all going to be amazing quality. The same goes for national brands. It should always come down to quality – don’t get romanced by a pretty bottle, an expensive dinner meeting or a celebrity brand ambassador. When making choices for any beverage program, quality should always be the lead influencer. Bring the team in to do a blind tastings with like brands; this quickly separates the good from the bad. Second, once the best in quality has been agreed upon, take into consideration brand equity, reputation, target market and price. In the end, it needs to be profitable and within a competitive price point or, again, it is just filling the back bar with pretty bottles.
Before making any radical decisions, it’s best to look at the numbers. Try this simple test. Write down your top five selling beer brands. Now look at the latest sales report. Odds are they don’t match. Most operators underestimate the value and volume that national brands generate. Likewise, they are shocked at how little share some of their darling craft products produce. By having a clear understanding of the menu abstracts, one can thoughtfully build a balanced beverage program that takes into account national brand strength and craft interest. Training efforts can also be refocused to get the desired results that support the concept direction. The numbers cannot be overlooked.
If the goal is to project a specific narrative that aligns with the concept direction, pay special attention to the brands – either craft or national – that are being used in signature cocktails. This also can help drive customer purchase patterns. Any beverage program will be lost without a strong and consistent training program. Placing the “cool” bottle on the back shelf is useless unless the server or bartender can persuade the guest to “take a chance” on something new. Developing a beverage program in a vacuum that does not take into consideration the right balance, based on sales, concept, training needs and target market, can easily leave thousands of dollars on the table.
The battle between craft and national brands should not be a battle at all. It should be a strategic collaboration among operators, suppliers and distributors that builds balanced programs to enhance the restaurant or bar concept. Such balanced programs will meet the expectations of the guests and provide the operation a competitive advantage, while delivering strong bottom line results. Yes, it is a very competitive business but it is also an invigorating time to be in the restaurant business. Innovation and change are happening all around – this is why it is more important than ever to make smart business decisions and utilize all the resources available.
There are great products coming from local startups and long established brands. Let yourself be open to the possibilities.
Lou Trope is President of LJ Trope & Co. LLC, an independent consultant working with the hotel industry to provide innovative restaurant concepts, operational assessments and b2b beverage strategies.