Breweries
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Industry Overview
The US brewery industry includes about 1,400 breweries with combined annual revenue of about $18 billion. Major companies are Anheuser-Busch InBev, MillerCoors, and Pabst. The industry is highly concentrated: the top two breweries account for 90 percent of revenue, and the top 50 for 98 percent. Most breweries are small, with a single location and fewer than five employees.
Competitive Landscape
The major driver of demand is consumer leisure activity. The profitability of individual companies depends on marketing, distribution, and operational efficiency. Large companies have advantages in marketing and sales, production economies of scale, and influence with distributors. Small companies can compete effectively by developing specialty products and serving a local or regional market. Average annual revenue per worker is $625,000, but is typically around $140,000 in small companies.
Competition among beers is with national, regional, and local brands, and imported brews. Competition also comes from other alcoholic beverages, especially lower-priced wine, and from non-alcoholic drinks.
Products, Operations & Technology
Major brewery products are malt beverages, primarily beer and ale, packaged in cans, bottles, barrels (31 US gallons), or kegs (half-barrels). Canned beer and ale case goods account for about 50 percent of industry revenue; bottled beer and ale case goods, for about 40 percent; and beer and ale in barrels and kegs, for 6 percent. Additional products include other malt beverages, such as porter, stout, and non-alcoholic beer, and brewing materials, such as brewers grains and malt extracts.
The brewing process takes two or three weeks, depending on the product. Breweries crack purchased malts by milling and then add water to form a mash, a mixture of hot water and crushed grain. The mash is heated and stirred in a mash tun, a large cask for liquids, to convert the mixture into fermentable sugars. The mixture is then strained and rinsed in a lauter tun to produce wort, a liquid with high levels of fermentable sugars. The wort flows from the wort receiver into a brew kettle that boils and concentrates the liquid. The resulting flavor of the wort depends on the hops additives, temperature, and length of brewing.
The next steps include straining, cooling, and storing in a fermentation cellar. Brewers add yeast to jumpstart fermentation, which converts sugars into alcohol and carbon dioxide, the source of carbonation. The fermented beer cools for about a week until it clarifies and develops the desired flavor. Filtration, if used, removes extra yeast, after which the brew is ready to package for delivery to distributors. Breweries package beverages in bottles or cans, typically in 6- or 12-packs, for delivery in cases for eventual retail sale, and in barrels or kegs for on-premise draft (draught) sales.
Large breweries strategically locate plants near major distribution centers to minimize shipping costs. The largest brewery has 12 production facilities and over 550 independent wholesalers. Most producers have a single brewery and from one to dozens of wholesalers. Breweries have contracts (equity agreements) with each wholesaler that specify the distributor’s rights and responsibilities, including geographical sales territory, brands they can sell, sales performance standards, and warehousing requirements that ensure freshness. Some breweries also have contracts to sell beer from international producers.
The key industry production metric is volume, measured in number of barrels a brewery produces per year. The largest US brewery ships over 100 million barrels a year domestically. Small breweries produce less than 2 million barrels annually. Regional breweries produce between 15,000 and 2 million barrels a year, whereas microbreweries produce less than 15,000. A brewpub is a restaurant-brewery that sells at least 25 percent of its beer onsite, sometimes directly from its storage tanks.
Craft breweries are small (under 2 million barrels annually); independent (less than 25 percent ownership or control by a big beer company); and traditional, which have a predominantly malt flagship (the brewer’s highest volume brand) and use additives to enhance, not lighten, flavor. Regional craft breweries are independents that meet the craft definitions of small and traditional.
Breweries obtain raw materials through contractual agreements and on the open (spot) market. Grain crops are subject to adverse weather, so companies have secondary sources as alternatives, especially for barley. In addition to barley, corn, and other grains, breweries buy malt and sweeteners, including dextrose, corn syrup, cane and beet sugar, and sugar substitutes. Packaging materials include paperboard, aluminum cans, bottles, barrels, and kegs. The cost of aluminum cansheet can be volatile. Long-term contracts and hedging help manage supply and costs. Larger breweries typically own or have an equity investment in multiple supplier companies.
The brewery business is highly automated. Advanced process equipment and filtration systems monitor each batch to flag quality control and mechanical problems. Environmental management systems control temperatures and minimize the amount of oxygen that enters the beer. Quality control labs are important: some brewers have over 125 tests, tastings, and evaluations per batch to ensure that each conforms to company standards. Breweries use automated bottling and keg lines. Radio frequency identification (RFID) and other electronic codes identify products and shipping pallets. Production data feeds into back-office systems for analysis and inventory management, order fulfillment, and to monitor distributor sales commitments. Companies also use electronic data exchange with suppliers and distributors, and electronic funds transfers to receive payments.