PREPARING FOR THE DAY AFTER TOMORROW

Futurist Eric Garland says that solid planning for the future requires evaluating business and social trends well beyond the obvious ones

by Jack Curtin
AMERICAN BREWER
Summer 2008

[This story and sidebar were written in the spring of 2007 but have never been published for various editorial reasons (the rumor mill attributes this lapse to someone known as the "clueless editor.") Even given the lapse of time and intervening events--many of which bear out some of his broad predictions-- Eric Garland's insights remain worth our consideration. And Greg Koch's music analogies? Priceless. Not to mention timeless.]
I recently asked Greg Koch of Stone Brewing (see sidebar below) whether he could foresee major changes in the beer industry over the coming decade and he laughed. "I can assure that things will be a lot different ten years from now, if only because it's ten years from now," he chided me. "That's enough time for some pretty major changes in anything. And I speak as someone who has been in the beer industry for well, for ten years."

Properly put in my place, I sought out Eric Garland, a Washington-based professional futurist, who notes on page 22 of his new book, Future Inc., that "beer is a perfect subject for a study of the future," to see if I might formulate a better inquiry. Besides, he used the beer industry throughout his book to make his points and I wanted to ask why. "I use beer all the time in my workshops because it's something that everybody knows about and it grounds the discussion," he elucidated when I caught up with him in early April. "When people hear we're going to talk about the future, they immediately think of holographic video games, rocket packs and flying cars and all that stuff. They think of everybody walking around in silver tuxedos and wearing helmets or something like that. I tell them that's not what the future is about; it's about coal, old people and clean water. It's about the basics, and beer is pretty basic in most people's minds."

Garland has been a strategic advisor to businesses on long-term trends for (what else?) ten years. Future Inc. is his do-it-yourself guide to trying to figure which strategic trends are most important. My broad question for him was how a craft brewer looking to the future might interpret the favorable growth patterns and increased recognition of craft beers in recent years. Are we observing nothing more than a passing fad or the early indications of a seismic shift in the nature of the American beer industry, and how does a brewer determine what it all means?

In Future, Inc., his focus was on the Big Blands and his projections for the future were not wholly favorable. He painted several scenarios, including this less than rosy one, envisioning a new breed of college student a decade or so down the road:

Frat guys, 2021: Dude, it was so weird. My frat brother John had his wacky uncle Russ in town, and he came to our Alpha Alpha October bash. Old dude, in his 40s, but still likes to party. He actually brought an entire keg of beer to the party. Who was going to get through that? I think we all had one or two, but it doesn't mix well with vodka, so there was a ton left over. You know anybody who still drinks this stuff?
He sees the craft segment quite differently, however, feeling that craft brewers and their products are more in tune with the world that is coming. And, in keeping with his base theory that change results from broader forces that those immediately affecting any single market directly, he suggests that the reason for the emergence of a demand for higher quality and more distinctive products in beer, food and other areas is in large part due to the influence of the internet, of all things. He points out that, rather than the "global village" bonding of people and cultures envisioned by Marshall McCluhan and other early futurists back in the day, the net has opened the door for people expressing their individuality to a degree never seen before.

"Television and radio were mass-market technology because they were one-way technology," Garland contends. "They were conducive to the establishment of mass, national brands because people were hearing the same things over and over from a very few sources. Whoever could afford the most money got to sell their message. What has happened over the last decade or two is a backlash, an increasing rejection of the American monoculture, of the nationwide sameness in which we all watch the same television shows, eat at the same places, look and sound the same. The more that people are pressed into being part of a great amorphous whole, the more they tend to try and find something that defines them, who they are, where they are. They develop loyalty to those things which set them apart. The internet, which is two-way technology, supports and strengthens that attitude.

"One of the key factors about microbrews, for example, is that they are very sensitive to the region where they are produced. A beer made just down the street, by hand, by people you know, in a building you can visit, becomes something that is yours, a part of your identity. It is the same with things like the Slow Food movement, the 'buy local' trend among shoppers, even with languages. Minority languages, the ones you'd think would disappear, especially with the internet finally establishing the six or seven 'major' languages, are having a resurgence rather than hearing a death knell. Having all these additional media allows people to express their natural desire for a little tribalism. This is ours, this is local, we will speak our own words. I think that's the same thing that has happened in the craft beer segment."

Garland adds that the so-called virtual communities created by the internet are also "local" in some sense and have already begun to change the way that products outside the mass market can build a customer base well beyond their immediate geographic area. "Geography, being from some defined place rather than being just another item churned out by a big national machine, gives products such as craft beers their cachet, an appeal that often exists even before the consumer has taken his first sip. On websites such as beeradvocate.com and ratebeer.com, a demand can build up through word of mouth well in advance. Today you can market directly to the smaller segment, to the aficionados. It's the modern day version of guerilla marketing, it's often done by your customers for you, and it's essentially free. When you have serious beer consumers in California thinking 'oh, it's that great beer from New England I keeping hearing about and I want it' or vice-versa, that's a very powerful basis for going into a new market."

Most people reading this probably never considered internet technology as a key factor in the success of craft beers. I certainly didn't. But outside-the-box thinking such as that is just the tip of the proverbial iceberg in Garland's view. "The fact is, the best way to plan for the future is to look beyond the obvious trends in your particular industry and to focus on the larger trends which are affecting all businesses around the world," he says. "Unfortunately, while people would never base their cash flow projections, or their marketing, on gut instinct, they do that all the time with their assumptions about the future, and those assumptions are usually based upon a belief that the world in which they operate will remain essentially the same. But it won't. All business leaders need to recognize that growth and change are going to come from directions they're not even thinking about at present.

"The beer industry is one in which a lot of variables come into play and for which there are many scenarios about how the future will play out. The mainstream is currently stalled while the craft segment is growing, driven largely by a young demographic which is willing to spend its money on higher-end products. It is an industry which is artificially segmented and divided, one of the most regulated ones we have. All those factors have to be considered and evaluated, of course, but your vision needs to be wider than just that."

His book and classes uses an approach he calls S.T.E.E.P. (Society, Technology, Economy, Ecology, Politics). "These are the five issues which affect every business in some fashion. I try to teach people how to employ systemic thinking to analyze the experts' forecasts in all those areas and to provide them with a method for making sense of it. In effect, I show them how to use that data to create a story about the future, a scenario about the people who will live there, people who will have different values and assumptions than they do, so they can best determine where their businesses fit into that world.

"For example, do concerns about global warming and emerging Corporate Average Fuel Economy (CAFE) fuel emissions standards have any effect on the beer industry? Well, in a global market, they certainly do. You are no longer operating in a vacuum. It's not just a case of you get the grains, you get the hops, you make the beers, and it has nothing to do with cars. Grain prices are being affected by the increasing interest in ethanol, in the American grain belt, in Brazil, in Canada, everywhere. It may turn out to be more profitable for farmers to sell their wheat and barley crops to ethanol manufacturers than to the brewing industry. Candy manufacturers are already being hit with the rising cost of corn syrup as a result of ethanol's impact on the corn market.

"If the auto industry decides every fuel must involve 14-25 percent ethanol by next year and 50 percent by the year 2017, the demand for grains will be immense. Go to South Dakota. I was there recently there were E85 pumps all over the place (Ed. Note: E85 is a lower-polluting blend of 15 percent gasoline and 85 percent corn-based ethanol which is currently sold only at a handful of stations and meant for a relatively small number of cars and trucks known as flexible-fuel vehicles). Talk to the people out there and they'll tell you they want to be the Saudi Arabia of bio-fuels in another 30 years. That suggests that one of the things that brewers need to be thinking about is finding some way to not be so dependent on raw material fluctuations or, longer term, to begin developing some acceptable substitutes for their basic ingredients."

Concerns about health and an aging population are also factors which need to be considered, Garland suggests, referencing growing awareness of alcoholism as both a health and a social threat and the need for beer to keep pace with the steady drumbeat of "red wine is good for you" stories which flood the press with good news of its own. The development of Gluten-free beers is a good indicator of industry awareness in those directions, he feels. And he cites the growing evidence that brewpubs are often strong anchor businesses, helping to rescue older neighborhoods or create a sense of vitality in newer ones. "A reputation for being a solid contributor to the community is a wonderful cornerstone for the future of any business."

Perhaps as clearly as any other outside forces, he stresses, social and political trends will likely have a significant effect up the sales and marketing of craft beers over the coming years. The already evident movement of 'big box" retailers into the beer world and both legislative and economic pressures on the three-tier system and the distribution side of the industry have to be considered in any long-term planning. "What happens if everything loosens up, if many of the restrictions on how beer currently is sold are wiped out?" he wonders. And taking an even broader perspective, he notes that the fact that China will soon become the world's largest beer market, something that is already impacting the planning of the macrobrewers, probably means that major craft brewers probably be trying to figure out if and how they can play on the global scale.

As you'd probably expect, Garland strongly embraces the "white tablecloth" initiative aimed at making the public aware of the ideal matching of good beer with fine food, which has been strongly supported by the Brewers Association and embraced by craft brewers all over the country in recent years. He says that campaign, along with the increasing ties with the Slow Food folks, are indicators that craft brewers are on the right track for continued success on the day after tomorrow.

"It's a great long-term relationship which worked for wine and should be just as successful for good beer. Everyone eats food and there will always be interest in what we eat and how it is served, whether it is simple regional cuisine or fine dining. That's the real market. There are potentially millions of new customers for craft beers among out there who are just waiting to have their eyes-and their taste buds-opened to the experience. The dinner table is just the place to make that happen."


[SIDEBAR]

GREG KOCH HAS HEARD THIS SONG BEFORE
"Coming from music industry, I see a lot of parallels between what happened there with the rise of rock and roll and what's happening to craft beer," says the co-founder of California's Stone Brewing. "The new music was controversial and people in the old-line music industry wanted to believe that it was just a flash in the pan, that it would be a short-lived thing, nothing to it. And what do we have now? We have this big complex world of music of which rock and roll is just a part.

"I actually think that the analogies between music and craft beer are clearer than those between wine and craft beer. The timeless bands-The Grateful Dead, The Beatles, The Who, U2, even Metallica-listen to the classic works from each of those bands and you'll see that they were very true to themselves and were also at the top of their form right from the start. Those two elements in combination made them timeless. I think that's exactly the case with the craft breweries that are the backbone of our steady growth over the last few years. Carrying the music comparison even further, we even have our own Heavy Metal element, in the form of extreme beers, and our own grand old man, our Frank Sinatra, in the respected Anchor Brewing. They're not part of the cutting edge any longer, not doing the 'new kids' stuff, but most of what is now happening was informed by what they achieved way back in the day.

"I think the message is pretty basic. Do it right, concentrate on perfecting your craft, stick to it, and if you really are good and believe in yourself, success will come. One of my favorite magazine headlines ever was when Metallica made their Black Album and finally made it to the top of the charts. It read: Metallica didn't go to number one, number one came to them."

For what it's worth, futurist Eric Garland thinks Koch is onto something. "The parallels to between the two industries are really very strong," Garland agreed. "An even more recently example from music which might be pertinent is how the establishment didn't recognize the impact of the MP3 player. When they tried to think outside the box, all they considered were cable TV and video games; they never imagined that their own customers were going to be their competitors. They ended up suing 12-year-olds over downloading music, because they so badly misjudged the distribution side of their business.

"What the music business learned is that there is a younger generation who believes that all information and entertainment and news ought to be free. They cannot remember a time that wasn't the case. And it might not be very long now before a significant portion of the beer-buying public will not remember, or be able to imagine, a world in which all the variety and selection made possible by craft brewers is not available to them."

Copyright (c) 2008 Jack Curtin

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