by Daniel Bradford

Following is a transcript of the speech given by Daniel Bradford, president of the BAA, at the opening session of the conference. He can be contacted at 919-530-8140.

Just over a year ago our country experienced the worse attack since Pearl Harbor. Many of us were gathered at another industry event when the terrible acts of terrorism occurred. Finding our way home, we all discovered what it means to be part of this industry and of this country. Strangers helped each other. Voices were never raised. Generosity was extended. And a lot of us saw quite a bit of our country at eye level.

Since that obscene morning much of our world has changed. Toys 'R Us no longer carries toy guns and dozens of armed guards greet the airline traveler. Now, a nation that appeared without focus faces one of its longer prolonged economic slumps, stands at the brink of a war without parallel and the Senate, House and Executive branches are under the control of one party for the first time in too many years to count. Indeed these are challenging times for us as a nation, as individuals and as an industry. Our industry has probably never been this strong. Last year we added a million barrels in sales and pricing held strong. Surplus capacity has shrunk and over half of the House of Representatives felt we should have our federal excise taxes cut in half. The first enthusiastically positive piece on small breweries to appear in a national magazine in half a decade came out in Business Week. Over half a million reprints of an article outlining the healthful benefits of beer flooded the newsrooms, bars, restaurants and statehouses. August Busch III must have felt good enough about the climate to take his anticipated retirement, bringing onto the stage the talented and charismatic August Busch IV.

However, for every rose there are thorns and the beer industry is not without its thorns. Malternatives exploded on the market sucking up marketing dollars; much needed glass, and disrupting both shelf sets and the publics' perception of the distinction between beer and spirits. State budgets went into the trashcan. More states than I want to enumerate looked to beer to bail out their spending exuberance of the past ten years. Meanwhile, back in Washington DC, Mothers Against Drunk Driving, Center for Science in the Public Interest, and dozens of other agencies appear to be escalating their withering attacks on our livelihood.Into this heady atmosphere the small brewing industry faces two enduring myths.

Myth #1. The shakeout of 1997 signaled the end of the small brewing industry. About five years ago one of the worse things to have happened to our industry occurred. A leading newspaper published a front-page story announcing the "shakeout" of the small brewing industry. The direct consequence of this article was the misperception, still found inside and outside of the beer industry that the supposed "fad" of craft beer was over, gone the way of wine coolers, Mohawk haircuts and hula-hoops.

Without debating the merits of the use of the word shakeout, I would question the prevalent interpretation that resulted. Everyone with us today can easily remember the bubble of enthusiasm of the late 1990's. We can all as easily remember the closings that quickly followed that explosion of interest.

What we don't all know is exactly who came and went. Without having sat down and researched every single failure, I would posit a broad characterization. Any industry that experiences such rapid growth should expect many, who lack qualifications, to fail in the face of stiff competition and complex business models. In other words, these operators, and not the specialty beer market or the small brewing industry, were the problem. By the way, I would also guess that to a large extent those who failed were all in our business less than five years, if not less than three years.

What the press, our industry colleagues and many consumers are only now starting to realize is our segment of the industry has continued to post substantial annual growth year in and year out for the past quarter of a century. Absent the top three producers, this segment grew in double digits the entire "shakeout period." Those three producers were subject to entirely different set of dynamics.

We are doing well, have always been doing well and will continue to do well, because our customers love our work as much as we do.

Myth #2. Small brewers trained customers to like full flavored beer paying a higher price for it, and these customers, subsequently, abandoned small brewers for imported beer.

It was convenient for all concerned to link the mythological shakeout with imports getting "on fire." Virtually every credible industry source, including many of the leaders of our segment sitting in this room, attribute imports' rapid growth to the success and then failure of the small brewing category.

Small brewers, according to this myth, trained consumers to appreciate full flavored and high priced beers then lost their customers' loyalty when the customer's encountered inconsistencies in domestically made beers. These disaffected consumers shifted over to the high priced imported beers.

This model has a certain convenience making it terribly attractive for the industry cognoscenti and the press. However, it is woefully insufficient to explain some of the sales figures we have seen and that, as a rationale, it disguises major shifts in the domestic beer market.

When articles talk about imports being on fire, the list of imported beers is almost completely light lagers, with Guinness being the notable exception. It is farfetched to imagine a specialty beer drinker switching to a light lager because they had a less than satisfactory experience with a single specialty beer. Remember, during this time period of supposed abandonment of the category for imports, most small brewers continued to grow at significant rates with excellent margins accruing to both wholesalers and retailers.

The second point is even more telling. Not five years ago, importers sat in front of this conference in Boulder, Colorado and described how they had figured out how to sell beer in the United States. They took pages from small brewers' playbooks and applied them with vigor unseen in that category. In addition to a shift in tactics, these brands saw a massive ratcheting up of their marketing budgets. Let's give these companies and their marketing executives the credit that they deserve. They won their share. Small brewers didn't give it to them.

It does raise a question of where that share came from. Take a look at the sales of the major domestic light lagers, or premiums as the category is so often called. While light beers continue to post gains, many of leading brands are stagnant and even slipping. It is possible that domestic light lager drinkers are splitting into those wanting the added flavor or cachet of an imported light lager or those wanting the lighter flavor of the light beers.

Small brewers' challenge
Both of these myths support the thesis that we are a vulnerable part of the industry, easily disrupted by forces beyond our control. I would take issue with that false image. We have more than twenty-five years of solid growth and when we come together as an industry, we have a mission; we have a role to play. The Brewers' Association of America has developed over the past three years an aggressive marketing and public relations campaign designed to transform both the industry and the media's misperception of the state and background of the small brewing industry. Speeches, constant travel, press releases, special events are all transforming the perception of the small brewer. This year we have started to see the investment begin to pay off as the press, association executives, wholesalers, retailers have begun changing their image of who we are and our role in the industry.

New paradigm
I believe we are shifting into a bimodal industry. Gone is the middle of our industry; yesterday's second tier brewers - the Strohs, Heilemans and Schlitzs of days gone by. At one end are the big three or big seven or big ten, depending on how wide you cast your net. Domestics and imports no longer are relevant distinctions for this group of breweries. Like the famous red triangle of Bass of centuries ago, these brands now have international recognition of staggering proportions. These are the international light lager brewers who are creating a new industry that better reflects their needs of scale and efficiencies.

At the other end are the small brewers with a distinctly different set of circumstances and conditions. Making full flavored beer with higher than average price points, these domestic small brewers share more with fellow small brewers in London, Alsace and Munich than with their light lager colleagues in Milwaukee, St. Louis and Golden. Hi touch, talk-ability, hand selling, local, the strengths of this scale are also stretching the industry in directions better suited to success for small breweries.

The irony of the emergence of this bimodal industry is that it comes at a time when all segments of the industry are as united as they have ever been in seventy years. Across the distinctions of categories, breweries face common threats, common foes. What this process of separation could have accomplished is the recognition of two different, complimentary, sets of assets. This extensive and intensive collaboration reflects deep-seated understanding of the distinction between the two groups and the values each has to offer. Small brewers have grass roots, personal identification, cutting edge, buzz and community ties at every level of their business. Big brewers have strength, power, access, information, reach. United, exploiting our strengths, we can be the masters of our own fate.

We, as the small brewing industry, can only assume our rightful place in the beer industry pantheon if we move beyond the myths of our birth and adolescence, and take our place at the table as part of a united industry committed to the overall success of the beer industry. With our collaboration with the National Beer Wholesalers Association, the Beer Institute and State Wholesale Associations we now have access to discussions before decisions are made for the whole industry. With our seat at the industry table we are gaining strength and credibility all the time.

The Board of Directors and the administration of the Brewers' Association of America are dedicated to helping small brewers thrive. Come join us.