Craft Brewing and Malt Suppliers

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Craft Brewing and Malt Suppliers

The rise in the number and popularity of craft beer producers has placed additional demands on malt producers. Craft beer producers are increasingly looking to malt suppliers to provide them with a more distinct flavor. The scale of craft operations means that they cannot buy malt in bulk, limiting their options further. The preference for the industry to adopt custom contracts in respect of the malt supply is also causing ongoing difficulties for small organizations. At the same time, craft beer producers are leading the way in recognizing and implementing strategies around two of the most significant current trends, low ABV and sour beer.

INSIGHTS NEEDS AND DEMANDS FROM MALT SUPPLIERS

Flavor

  • One of the issues raised by craft brewers in the US relates to flavor, with a number of brewers identifying the malts being produced as being flavor neutral and lacking a distinct flavor. There is an increasing demand from the brewers for the malt suppliers to address this issue.
  • With consumers increasingly looking for a distinct beer flavor, the brewers are turning to their malt suppliers to pick up the challenge and deliver a more flavorsome malt. There is currently a poor understanding among malt suppliers as to how to produce a more flavorsome malt.
  • The importance of flavor to brewers has seen at least three researchers look into flavor in malt, with Colorado State University, Oregon State University, USDA, all currently researching this area.
  • The research is mainly instigated by the craft brewers who are looking to overcome supply gaps in their brewing processes, with many brewers strongly of the view that the malt is an overwhelming contributor to the flavor of the beer. There is an increasing need to develop flavors of malt that are suited to the brewing completed in craft breweries.
  • The range of malts and the flavors offered continues to grow, as craft brewers demand this variation from the suppliers of malts.

Scale

  • One of the difficulties facing craft beer producers in the malt industry in the US is exceptionally consolidated, and there is a relatively small number of malt producers. Unfortunately, the downside of this is that the range and variety of available malts are limited and are currently not meeting the demands of the brewers.
  • The malting industry was developed when the supply was predominantly to large scale beer manufacturers. It has failed to adapt to the number of smaller craft beer producers that have flooded into the industry in recent times.
  • Many of the craft brewers do not have the capacity to store or use malt in bulk, and many of the manufacturers do not offer bagging options for their malt. 94% of companies producing over 8,000 barrels a year use bulk silage for their malt. However, only 4% of the companies producing less than 1,000 barrels annually have the facilities for bulk silage. Approximately 75% of beer producers are looking to buy malt by the bag, and the options required are not available to them.
  • The Brewing Association is anticipating growth in the number of malting operations and the geographic locations they operate in. There has been an increase in the number of malt producers already, and several major new facilities are currently in the pipeline to address these issues.

Custom Contracting

  • Traditionally, the malt supply business has operated using a custom contracting model of business. This has grown mainly from necessity, with beer brewers consuming 98% of the hops grown. Given hops are a very small industrialized crop, growers are reluctant to grow the crop until they have a fully executed contract with a beer brewer. This is because there is no real market outside of this group for the crop. The majority of the US market is based on custom contracts for this very reason.
  • The barley market has similar characteristics. Although initially, it serviced a more extensive customer base, in recent years, the amount of US-produced barley has declined, and the customer base is increasingly becoming focused on beer brewers.
  • Larger US beer producers can access malt consistently through custom contractors, but many of the smaller craft brewers are forced to buy malt by the bag based on market forces. This has resulted in less supply surety, less assurance of critical malt "performance parameters, which are typically enumerated in contract terms and, importantly, far less control over price fluctuations. In this sense, many breweries remain relatively vulnerable to the vagaries of Mother Nature and global demand for barley malt with less access to many of the tools their larger brethren employ to manage risk."
  • There is an increasing need among the smaller craft beer producers to have access to the benefits a custom contract provides. It is fundamental if they are to maintain their market position and remain competitive.

TRENDS IN CRAFT BEER

Low Alcohol By Volume (ABV) Beer

  • The trend toward a healthy lifestyle is impacting not only on the craft beer community but the alcohol industry in general. Craft beer producers are increasingly responding to this increasing demand by increasing the number of Low ABV beers available to the market.
  • Two distinct styles of low ABV beers have developed. The first sees a lower than normal ABV, while the second is non-alcoholic beer (where the ABV is less than 5%). Consumers are increasingly looking to moderate their intake of alcohol, while still enjoying the taste and flavor beer offers.
  • The trend originates from Europe, where low ABV beer is relatively commonplace. In Spain, 33% of consumers drink low ABV beers, while in Germany, 23% of consumers favor them. The trend has seen major beer manufacturers, like Heineken, buy into it and develop their own brands of low ABV beer.
  • Fueling the trend is the desire of a new generation of beer drinker who still wants to have a drink with friends, or visit the local bar, but does not want the side effects of consuming alcohol, especially during the work week. The busy lifestyles of consumers have also contributed, with people increasingly looking to socialize during the week due to ongoing weekend commitments. Low ABV beer presents the ideal option for these consumers.
  • The trend is being led by the Millennial generation who have a less rigid attitude to drinking alcohol than generations before them. They prefer healthy alcohol free options, drinking alcohol only when the mood takes them.

Insights From Experts on Low ABV Beer

  • Sufferfest Founder Caitlin Landesberg discussed the Low ABV trend saying. "Alcoholic beverages are following the natural progression we’ve seen in the "Better for You" food movement at grocery. As today’s Millennial generation takes on the buying power at grocery, today’s shoppers are looking for food and beverage products that provide additional benefits, but without settling on taste or quality."
  • She goes on to say "This is all to say that today’s shoppers are healthier, more informed and more demanding than ever, and this trend continues to produce alcohol beverage options designed to fit specific health-conscious occasions."
  • Athletic Brewing Founder, Bill Shufelt described the Low ABV trend saying, "No-ABV is no longer just for the "sober" and "penalty box. 50% of U.S. adults have 0.1 drinks or less per week, and people are seeking flavor and quality above mind-altering effects. There have just never been good options for people in this category. There were no new brands introduced between 1992 and 2017, when taste and diet preferences had totally evolved."
  • AB InBev, the world’s biggest brewer says it has "set a goal of 20% of global beer volumes to come from non- and low-alcohol products by the year 2025," to meet the growing demand.

Sour Beer

  • Over the last year, a number of beer drinkers across the US have gone crazy for one of the latest trends in craft beer — sour beer." Sour beer marks a return to traditional brewing processes; processes that existed before the standardization and industrialization of the industry. Sour beer is beer made intentionally acidic, tart, or sour in taste
  • This trend has seen craft beer makers experiment with the fermenting process exposing the brew to either wild yeasts and bacteria strains that make the brew "turn." In a number of instances, the brew is then "punched up" with fruity flavors that help to emphasize the sourness or tart taste of the beer. The process of producing sour beer is more akin to that of producing wine, where natural elements like soil, minerality, and other environmental factors can be used to manipulate the flavor of the beer.
  • Part of the reason why this trend will continue to gain momentum is it presents brewers with a range of exciting options, beyond the ordinary. The trend is tailor-made for American brewers, who have jumped at the opportunity to showcase their ingenuity and push the boundaries of traditional styles.
  • Contributing to the trend toward sour beer is the style of hops grown in the US, with those particularly in the North East lending themselves to this craft beer trend. It is the attraction to the strong bitter flavors beer offers that see drinkers also attracted to sour flavors.
  • Sour beer offers a taste that is particularly appealing to consumers.

Insights From Experts on Sour Beer

  • Dogfish Head's Brewmaster, Mark Safarik has said, "Sour beers will continue to outperform other styles in growth on a percentage basis, but not in absolute volume of styles like IPA."
  • He went on to say "Sour styles like Gose and Berliner Weiss meet the increasing desire among consumers for products that are flavorful, yet low in alcohol/calories/carbs. Sours also have crossover appeal among wine and cocktail drinkers who have yet to discover this part of the beer spectrum."
  • When discussing the sour beer trend Natalie Gershon, VP of marketing for Boulevard Brewing Co. said "I think this speaks more to the explorative palates of consumers. Recent studies show that two-thirds of Millennials are drinking three-plus types of alcohol regularly vs. half of the Boomer population that drink one type. The crossover between wine, beer, spirits, ciders and seltzers are creating adventurous consumers, who want a variety of flavor profiles at their convenience. Low-ABV, session sours are a great example of that and personally, I am in on this trend."
  • Karl Kolbe, head brewer at Pressure Drop Brewing, predicts, "More of all the things — more haze, more fruit, more sweet stouts, and more sours. I especially see sours on the rise, from simple kettle sours to barrel-aged. It's a movement that just keeps picking up."

Research Strategy

To identify trends in the craft beer industry, we reviewed a range of industry publications, market reports, expert opinions, and market data. By doing this, we were able to identify two key trends. The determination of if something was a trend is based on the level of discussion it is generating, the number of articles written about it, expert opinion, and the industry take up.
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