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Craft Breweries Emphasize Independence to Remain Distinctive

August 24, 2020

Small, craft-based businesses often position themselves in contrast to the values, processes and methods of large, incumbent competitors. When larger companies copy or acquire the products and services that made those smaller firms unique, what can members of the craft-based category do to remain distinctive? 

David Williams, associate professor of management and entrepreneurship at the University of Tennessee, Knoxville’s Haslam College of Business and co-researchers Blake D. Mathias (Kelley School of Business, Indiana University, Bloomington, and a 2014 graduate of the Strategy, Entrepreneurship and Organizations PhD program in Haslam’s department of management and entrepreneurship) and Annelore Huyghe (Cass Business School, University of London) considered this question in a recent study of the craft brewing industry.

Their paper, “Selling Your Soul to the Devil? The Importance of Independent Ownership to Identity Distinctiveness for Oppositional Categories,” published by the Strategic Management Journal in June 2020, examines what happens when large incumbent breweries acquire craft breweries or copy their beers and brewing techniques, causing confusion about what constitutes a true craft brewery.

The U.S. craft brewing scene has grown rapidly in recent years. The Brewers Association (BA)—the trade association of American craft brewers—found that the craft brewing category grew from roughly 4 percent of the market share in 2008 to nearly 13.2 percent in 2018. To protect their dwindling market share, some mass producers developed their own craft-like brands using the artisanal brewing techniques on which craft brewers pride themselves. When consumers perceived these efforts as inauthentic and the incumbents continued to face market erosion, large breweries began seeking to buy up craft breweries. AB InBev's 2011 purchase of Chicago's Goose Island set off a wave of craft breweries selling to mass producers, with some acquisitions costing as much as $1 billion.

Williams and Mathias both expressed surprise at the lengths to which larger breweries went to buy their way into the craft beer segment of the industry. 

“Time will tell if they overpaid or not and if consumers stay with those brands or move to independent brewers,” Williams said.

In their interviews with craft brewery owner/founders from around the country, the researchers found that those who remained independent perceived that the “sellouts” threatened the craft category by contradicting its core values of small size and traditional technique, leaving the industry without a clear sense of what constitutes a craft brewery. In response to this confusion, craft brewers started focusing on independent ownership as the feature that makes them distinct—a feature that the larger competitors cannot buy or duplicate.

To help independently owned craft breweries assert this aspect of their identity, the BA began to emphasize the companies’ ownership by referring to “independent craft brewers” rather than “craft breweries,” and developed a seal for them to place on their packaging, taproom signage, tap handles, menus and websites. The study reports that 85 percent of craft beer produced and 65 percent of craft breweries now display this seal, making it easier for beer drinkers to identify which breweries remain independent.

“Some of us like to support local small businesses,” Williams said. “If you care about local ownership and/or independence, you might be surprised to find that your favorite beers are now owned by the big brewers.”

Williams added that the study has interesting implications for business strategy and entrepreneurship. Anyone who develops a quality product or service, he said, should be prepared for industry incumbents to fight for their market share, either by copying those products and services or seeking a buyout.

“If exit-by-acquisition is a goal for the entrepreneur, this is good news,” he said. “If the entrepreneur instead wants to continue owning and growing their business, it means they will have their hands full dealing with the results of their success.”

“Selling Your Soul to the Devil? The Importance of Independent Ownership to Identity Distinctiveness for Oppositional Categories,” is available online.

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CONTACT:
Stacy Estep, business writer/publicist, sestep3@utk.edu