Thursday, July 19, 2012

Asymmetric warfare

Oh no, here's me responding to Boak&Bailey again. Their "Try Jumping on This Bandwagon" piece attracted some interesting comments.

 One commenter suggested that the looming entry of bigger producers (corporates) into a sector of the market that the smaller producers (indies) might have thought they had more-or-less to themselves ("craft", non-brown, non-crap-lager) wasn't anything to be worried about, since this was essentially the same as the competitive situation that applied in the brown beer sector. The conclusion drawn being that since the indies had been able to compete against the corporates in brown beer, they'd be perfectly able to hold off the corporates in the non-brown market.

This isn't a good description of what happened, or what might happen. Firstly, we start in different places. It's a simplification, but we might start off by saying that corporates had the "brown" market to themselves, and the "non-brown" market pretty much didn't exist. What happened then was that a quantity (let's call it n hl - so many hectolitres), of brown beer market (and hence, production) was lost by the established corporates to the indies who were starting at square one.

Meanwhile (again a simplification), indies were developing a (pretty much) completely new market for non-brown products in a way the corporates were slow to recognise. Now they have spotted it, and here they come. Maybe.

A moments reflection will reveal these apparently complementary cases to be strongly asymmetric. We know that the corporates enjoy economies of scale, marketing and distribution resources, as well as access to market, which the indies didn't (and still don't) have.

Consider one simple measure - the number of people employed by the two kinds of producer: Small brewers generate about one job per 500hl annual production compared to maybe one per 3,000hl in the industry overall. So, by the way of a thought-experiment, let's go back in time to a point when indies (small) won 100,000 hl of sales from corporates (big). That might have created 200 jobs in the indies at a cost of 33 jobs in the corporate workforce. A net gain of 167 jobs. That's a fair few micro-breweries completely staffed right there. More choice for the drinker. More jobs. Brilliant.

Turn it around though, and it's not so rosy. I can't see that the corporate toy breweries will be as efficient as the rest of their operations, but suppose (remembering they get to share a lot of the facilities of their parent operations) that they are only three times as "efficient" (labour-wise) as the real micros.  100,000 hl of sales won here (by the corporates, from the indies) will wipe out 200 jobs in  the indies (that's at least a couple of dozen micros wiped out) while creating only 67 jobs for the corporates.  A net loss of 133 jobs.  Less choice. Less jobs. Not good.

[supplemental] I suppose my main issue with the "it'll be alright" argument is that simply because the corporates didn't entirely succeed in  making use of their (anti-) competitive advantages then, it doesn't follow that they won't do so going forward.

[supplemental] A bigger brewery writes: "We are a regional brewery with a national reputation which means we can be innovative and individual like a craft brewer, have the passion and adaptability of a micro-brewery, but also have the large scale infrastructure to provide quantity and consistency." [my emph.]  See?

There's a whole lot of ways that these situations aren't symmetrical, which I won't bore you with.  I suppose the interesting questions are: Is it fair?  Is it desirable? Is it likely?


Unknown said...

You know, I've spent about an hour reading this, the linked post at B&B and then some other stuff about Belgian beer being cheaper and then something else Tandy wrote which I commented on, along with all the other comments that followed.

My conclusion is we should stop spending so much time worrying and concentrate on making our own businesses work.

StringersBeer said...

I'm not worried. You should spend less time reading this crap.