The U.S. beer market is open, freely competitive, and driven by consumer choice. Brewers who capture the hearts of consumers are the most likely to succeed. Those who miss shifts in consumer identities, norms, attitudes, and tastes will suffer.
The success of small brewers making craft beers is proof of these points. Despite fears that small brewers can’t compete against the scale and reach of large, mass-market brewers, the opposite has proved to be true. The popularity of craft beers supplied by small brewers has exploded, rising on the strength of consumer demand. Ironically, small brewers’ ability to reach more drinkers has been enabled by the open U.S. beer-distribution system—a system that was once thought to lock out smaller players.
The economics of the U.S. beer business conveys significant advantages to those with scale. But, as it turns out, subscale small brewers are also (unexpectedly) the beneficiaries of the advantages afforded major domestic brewers. The reason: they can leverage an effective route-to-market distribution system that was built by distributors and larger brewers over the decades. This open distribution system enables small brewers to avoid significant, if not prohibitive, costs to entry, while also gaining deep access to large and small retailers.
Our findings have implications for all U.S. brewers. All brewers need to attract consumers, of course. Even incumbents with strong distribution networks are not insulated from the changing tastes and demands of consumers and retailers. Small brewers seeking to break into the market must recognize that they ultimately depend on consumer loyalty and that the distribution costs are not the impediment they seem to think they are. In fact, thanks to piggybacking on independent distribution networks supported largely by the economics of large domestic and import brewers, small brewers avoid much higher distribution costs. And regulators need not worry about the barriers to entry for market newcomers given their recent success and ability to leverage the industry distribution system.