Is Craft Brewing a Threat to the Sales of Mainstream Brands in South Africa

Is Craft Brewing a threat to the sales of mainstream brands in South Africa

Carmen Martin

Submitted in fulfilment/partial fulfilment of the requirements for the degree of Masters in Business Administration to be awarded at the Nelson Mandela University

April 2018

Supervisor: Dr Jessica Fraser DECLARATION BY CANDIDATE

NAME: ______Carmen Martin

STUDENT NUMBER: ______198180170

QUALIFICATION: ______Masters in Business Administration

TITLE OF PROJECT: ______Is Craft Brewing a threat to the sales of mainstream ______brands in South Africa ______

DECLARATION: In accordance with Rule G5.6.3, I hereby declare that the above-mentioned treatise/ dissertation/ thesis is my own work and that it has not previously been submitted for assessment to another University or for another qualification.

SIGNATURE: ______

DATE: ______9 March 2018

THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION

CARMEN ESTELLE MARTIN

Previous qualifications: 2003 BSc in Microbiology and Zoology University of Port Elizabeth 2005 BSc (Hons) in Microbiology University of Port Elizabeth 2014 BTech in Business Administration Nelson Mandela Metropolitan University

Thesis: Is craft brewing a threat to the sales of mainstream brands within South Africa

The study investigated the impact of craft brewing on the sales of mainstream brands in South Africa. The population included all craft brewers in South Africa within the Brewers Association. Due to the competitiveness within the alcohol market, the response rate was low within the study. The study unveiled though inconclusive that craft brewing is a contender within South African beer market and is a niche worthy of exploration.

Abstract The study aims to answer the question of whether craft brewing is a threat to the sales of mainstream brands in South Africa. This is done through a quantitative multiple case research study into craft breweries within South Africa. The justification of the research resides within the hype around the increase in craft breweries within South Africa.

The theoretical framework of the thesis consists of history of beer, the elements of beer, the supply of raw materials to manufacture beer and the definition of craft beer. The comparison is done between the United States Craft beer market and the South African Beer market.

The empirical part of the study is divided into six parts. It starts with an explanation of the method of the study, the questionnaire design as well as the data collection methods. Thereafter the topic is further justified, and validity, reliability, limitations and ethical issues will be considered.

The results and analysis and findings section there are 212 craft brewers appearing on the Brewers Association membership list, the purposive sampling method meant that the questionnaires were sent out to 192 craft brewers across South Africa. Of the total of 192 questionnaires distributed, only 22 responded to the study, effectively granting us a usable response rate of 11.5%.

Due to the closed niche of the alcohol market that craft brewing is competing in, as well as the low participation rate, it was concluded that within South Africa craft brewing though a contender does not impact mainstream brands.

Acknowledgement

This work would not have been possible without the support and participation of the craft brewers within South Africa. I would like to acknowledge my Supervisor, Dr Jessica Fraser for the continued guidance and motivation through conducting the study. I am grateful to friends and family who guided and motivated me during my study period. I wish to thank my mother for continually encouraging me to complete my studies. I wish to thank my loving and supportive husband, William, who provided me with unending inspiration.

Table of Contents Chapter 1 ...... 1 Introduction ...... 1 1.1 Research Background ...... 1 1.2 Problem statement ...... 1 What triggered the study? ...... 1 1.3 Research Objectives ...... 2 Purpose and Objectives of the study ...... 2 Research Hypothesis ...... 3 1.3 Research Methodology ...... 4 Research Design ...... 4 Sampling design and data collection ...... 4 Ethics protocol ...... 5 Data analysis ...... 5 1.5 Outline of the study ...... 6 Chapter 2 ...... 7 2.1 Literature reviewed and Theoretical framework ...... 7 2.1.1 History of Beer ...... 7 2.1.2 Essential Elements in Beer Brewing ...... 7 Raw materials supply ...... 9 2.2 Beer production ...... 9 2.2.1 Overview of Brewing Process ...... 9 2.2.2 Background of the Global beer market ...... 11 2.2.3 South African Beer Market ...... 13 2.2.4 The phenomena of Craft Brewing ...... 13 2.2.5 International Craft Beer Market ...... 16 2.2.6 South African Craft Beer Market ...... 19 2.2.7 Drivers to Growth of Craft Beer in the United States ...... 24 2.2.8 How to start your craft brewery in South Africa ...... 25 2.2.9 Categories of beer ...... 25 Chapter 3: Research Methodology ...... 28 3.1 Introduction ...... 28 3.2 Justification ...... 28 3.3 Methodology ...... 29 3.4 Data collection ...... 29 Method of study ...... 29

Multiple format of questionnaire questions ...... 29 3.5 Reporting or synthesis ...... 32 Chapter 4 Analysis of results and findings ...... 33 Introduction ...... 33 Category 1: General Information ...... 34 Table 4.1 The number of craft breweries per geographical area participated in the study ...... 35 Table 4.2 The geographical region and year when the craft brewery was established ...... 36 Category 2: Organisation ...... 39 Category 3 : Marketing ...... 41 Category 4: Operations ...... 49 Category 5: Packaging and Distribution ...... 58 Category 6: Supplier and Distributor Relationships ...... 61 Category 7: Relationships between different variables ...... 62 Table 4.3 Relationship between region, number of employees and Produced hectolitres ...... 62 Table 4.4 Relationship between region, produced hectolitres and festivals...... 63 Chapter 5: Discussion ...... 64 5.1 Research hypothesis ...... 64 5.2 The effect on the research objectives...... 64 5.3 Limitations of the study ...... 67 5.4 Suggestions for further research ...... 68 Chapter 6: Conclusion ...... 68 References ...... 71 Annexure 1 Covering Letter ...... 75 Annexure 2: Measuring Instruments ...... 76 Annexure 3: Ethics Clearance Form E ...... 80 Annexure 4: Turnitin Report ...... 83

Table of Figures

Figure 2.1: The Brewing Process (art and science of beer brewing) ...... 9 Figure 2.2: The growth in the subcategories of craft brewing in the United States (Wiles 2017) ...... 17 Figure 2.3: Historical count of breweries in the United States (Brewers Association 2016) ...... 18 Figure 2.4: Craft breweries in South Africa at 2016 ...... 20 Figure 2.5: The location of craft beer festivals in South Africa (Source:Rogerson & Collins 2015) ...... 23 Figure 2.6: Seasonality of craft beer festivals in South Africa (Source:Rogerson & Collins, 2015) ...... 23 Figure 4.1 The number of Craft Breweries within South Africa ...... 34 Figure 4.2 The categories within the craft brewery sector ...... 37 Figure 4.3 The annual produced volume in litres per region ...... 38 Figure 4.4 The number of permanent employees at the craft brewery ...... 39 Figure 4.5 The years of tenure of employees at the craft brewery ...... 40 Figure 4.6 Marketing strategies used by craft brewery ...... 41 Figure 4.7 Historical special events by craft brewery ...... 42 Figure 4.8 Prospective events planned by craft brewery ...... 43 Figure 4.9 The number of festivals attended by craft brewery ...... 44 Figure 4.10 The geographical locations where festivals are attended ...... 45 Figure 4.11 Indication of festivals attended per geographical location ...... 46 Figure 4.12 Popular products at festivals ...... 47 Figure 4.13 Forms of media as marketing opportunity ...... 48 Figure 4.14 Production and sale of other products ...... 49 Figure 4.15 Operation of license bar ...... 50 Figure 4.16 Operation of restaurant ...... 51 Figure 4.17 Products sold outside of South Africa ...... 52 Figure 4.18 Number of outlets where product is sold ...... 53 Figure 4.19 Distribution of outlets where product is sold ...... 54 Figure 4.20 Form of supply of Raw materials ...... 55 Figure 4.21 Products produced by craft brewer ...... 56 Figure 4.22 Products generating highest sales ...... 57 Figure 4.23 Packaging of product ...... 58 Figure 4.24 Self-distribution of product ...... 59 Figure 4.25 External providers to distribute products ...... 60 Figure 4.26 Flow diagram for supplier and distribution relationships...... 61

Chapter 1

Introduction

Research Background

Craft brewing has become quite a buzz word within social circles. Young and old are starting to explore the creativity in the brewing of varied flavors of beer. Within South Africa we have a few larger craft brewers who have been successful in the manufacture and distribution of their product. There is much to be learned from the challenges that these brewers have faced and to determine the factors that they attribute to their success. According to an article published in Engineering News, on the 13th of November 2015, the statement was made that the future for craft beer in South Africa looks bright since craft brewers are now producing more consistent quality products.

Problem statement

Craft Brewing in South Africa has been become a hot topic, questions have been posed on the sustainability of growth since it only occupies a fraction of the beer market. Statistics have shown that craft beers occupy only a small portion of the market, whilst other stats are confident that this niche market could be a major contender against the macro beer market. This research study will question whether the craft beer market is a threat to mainstream brands within South Africa.

What triggered the study?

The reason for exploring this study was due to the hype around this niche market and from an economic growth point of view the viability of investing into such a new and exciting opportunity. The growth comparison between the American craft market against the South African craft beer market has triggered questions regarding factors that influence the increase in market share of the segment. What are the constraints that microbrewers face and how are they assisted to ensure that the business is successful.

1.3 Research Objectives

Purpose and Objectives of the study

The primary objective of the study was to conduct a quantitative multiple case research study into craft breweries within South Africa. The goal of the study was to determine the impact of craft brewers on the sales of mainstream brands within the macro beer market.

The purpose of the study provided insight into whether there is an increase in the preferences of customers towards craft beers. The insights from the study provided the consumer profile as well as the impact of craft beer sales on the micro and macro- brewing front. In addition to answering the question of the impact on macro beer sales of craft beers, the study provided insight into potential marketing strategies for various beers. The study strived to provide new and meaningful insight into the impact of craft beer on the mainstream brands within the South Africa beer market.

This constituted the objectives as follows:

Primary objective:

To assess the impact, if any, of craft brewery on main stream beer sales.

Secondary Objectives:

To determine if it is viable to invest into such a new and exciting opportunity.

To compare the growth between the American craft b e e r market versus the South African craft beer market

To find out which factors play a role in the increase in market share of the segment.

To determine what constraints are microbrewers facing

To find out how they a r e assisted to ensure that the business is successful.

To determine what potential marketing strategies would be for various beer types.

To describe the impact of craft brewery in a more insightful and meaningful way

The process flow of this research project is numbered in sequential steps below:

Literature review

Quantitative questionnaire design

Sample Selection

Conducting of the empirical survey

Collection and coding of questionnaires

Data Analysis

Recording of the results

Interpretation of the results and drawing of conclusions

Research contribution and benefits of the study

The exploration of the impact of craft brewing onto the overall beer market can be beneficial to a struggling South African economy. Through the exploration of the effectiveness of this new niche market in South Africa, the potential of new employment opportunities through entrepreneurship, additional job opportunities during the growth stages of the entrepreneurial ventures, even the physical growth aspects of rental and space availability for craft brewers to produce and distribute their product can be further investigated

Additional economic spin-offs to aid a struggling economy would include the creative new opportunity to design brewing kits for craft brewers, while simultaneously increasing tourism through craft brewery and beer sampling tours for visitors

Research Hypothesis

The interest in craft brewing has been phenomenal of late therefore the research will explore that craft beers do not impact the sales of mainstream brands in South Africa.

H0: Craft brewing has no impact on the sales of mainstream beer brands in South Africa.

H1: Craft brewing does impact on the sales of mainstream beer brands in South Africa.

Research Methodology

Research Design

The research study was a quantitative research design utilising data collected from across- section in time with an electronically distributed questionnaire. The study was to determine whether craft brewing is a potential business threat due to its impact on the sales of mainstream brands in South Africa.

The research instrument employed was through the distribution of a questionnaire to various craft brewers irrespective of size within South Africa. The questionnaire content covered t h e geographical area and size of the craft brewer, marketing opportunities explored by the craft brewer and questioned the current or typical distribution p ra ct ices employed by the craft brewer to be successful.

Sampling design and data collection

The entire target population of respondents consist of 213 craft breweries within South Africa as registered on the Brewers Association. This membership list is available in the public domain from the Internet. The sample population of respondents was a portion of craft breweries within the target population. The type of sampling was purposive sampling due to the level of expertise within the field. The survey questionnaire is meant to support a case study research method where both nominal and metric measurements were used to distinguish applicable attributes. The survey questionnaire was distributed via e-mail to established craft breweries within South Africa. The questionnaire was used to empirically determine the geographical origin of the respondent craft brewery, their production volumes, employee numbers, marketing p r a c t i c e s and packaging and distribution methods used currently

Sampling

Non -probability sampling was used to estimate the sampling error. Purposive sampling was used, since the study surveys specific section within the alcohol market namely craft brewers within South Africa. The sample was purposively sought out as a section within the market.

Ethics protocol

The research introductory letter contained a clause of what the information will be utilised for at the completion of the research study. The researcher emphasized the need for the participant to sign a consent form to indicate that they were willingly and without any persuasion, participating voluntarily in the study.

Data analysis

Once the questionnaires were collected it was coded, processed and analysed in an electronic database summarizing all the findings. This simplified the way we could identify the variable that we wanted to analyse statistically.

1.5 Outline of the study

The report started with an introduction to the fundamental research project. The theoretical framework and background to the study are addressed within the section covering the elements of beer production, the general overview of beer production and the definitions of craft beer.

The subsequent section reviewed the international and South African overall, macro-economic view of the beer market. The craft beer market was also explored within the international and South African contexts.

The next chapter covered the empirical data collection, recording and analysis of data.

After the data collection was completed, the results were analysed and interpreted within the context of the constraints of the research study. In the final chapter, conclusions are drawn in line with the findings and recommendations for further research are suggested.

Chapter 2

2.1 Literature reviewed and Theoretical framework

The theoretical framework is divided into three elements: the history of beer, the essential elements of beer, (which includes the supply of raw materials to manufacture beer) and the definition of craft beer. These three elements explain the essential ingredients of beer and the phenomenon of craft brewing.

By using the same an analogy of a fermentation tank as a metaphor, this chapter includes ten sub-sections that sketch a flavourful concoction of literature all into one chapter. By delving into the rich history of beer, its production process and the context of beer in both an international and a South African background, it sets the foundations for the rest of the research project.

2.1.1 History of Beer

The brewing of beer is one of the most ancient arts and dates back to the year 8000 BC (Craft Beer, 2014). Heap (2010) indicated that beer has been brewed and enjoyed since ancient times in Africa. Traditional beer was an integral part of the African traditions long before European contact with people on the continent. These traditional beers were brewed for consumption at ceremonies and occasions such as funerals, weddings and other social gatherings.

2.1.2 Essential Elements in Beer Brewing

Beer is a fermented beverage with individual raw materials, various recipes and differs in appearance, odour and taste Jackson (1998). Beers are classified as bottom fermented lagers or top fermented lagers.

Beer is a fermented beverage based on starch and flavoured by hops. There are four essential ingredients in the manufacture of beer, barley, hops, yeast and water. Hops are essential ingredient to achieve the bitterness content of the beer De Keukeleire (2000). Beer usually contains 95% of water and historically the water quality determined the type of beer that could be produced. Malt provides the sugars which are degraded

by yeast to alcohol and carbon dioxide gas, Malt provides the nutrients that is utilised by the yeast but are also beneficial to the consumer. Malt provides a great deal of flavour to beer as well as the precursor to flavour formers as produced by the yeast De Keukeleire (2000).

Malt is produced by partially germinated seeds of the barley plant. Malt is mainly produced from barley, though other ingredients may alter the flavour and appearance of beer. In controlling some of the factors the colour and alcohol content can be modified. Through this modification various styles of beer can be produced Bamforth (2004).

Malt is mainly produced from barley, though other ingredients may alter the flavour and appearance of beer. In controlling some of the factors the colour and alcohol content can be modified. Through this modification various styles of beer can be produced. In producing the various styles of beer other cereals can be used such as rice and maize Bamforth (2004).

Hops are characterised as the “seasoning” of beer since it provides the bitterness to beer. Hops also provide the aroma to beer which comes from the oils found in the flowers of the plant. These aromatic characters can be known as spicy, floral, piney and citrus- like De Keukeleire (2000).

Yeast is the main ingredient for fermentation, without it beer, will contain no alcohol and little flavour. Clemons et al (2006) states that yeast breaks down the sugars into ethyl alcohol and carbon dioxide gas. There are various strains of yeast that can be utilised by brewers with each providing its own significant character to the beer. There are two main types of yeast, bottom fermenting yeast which predominantly produce lagers, whilst top fermenting yeast produce ales. Some brewers utilise speciality strains to provide unique flavours in the beer. Typical special ale yeasts give unique flavours such as a spicy clove like and banana-like characters to wheat beers Bamforth (2004).

Raw materials supply

The supply of raw materials for brewing is essential and is sourced locally and yeast is regenerated in the fermentation process. The bittering component of beer, hops is produced at a specific climate, hence is produced in specific countries around the world. The flavour of beer can be modified with these various types of hop products. Since hops are an essential ingredient in brewing, a brewer requires the capability to be able to source the raw material from the various countries (Laurea, 2014).

2.2 Beer production

2.2.1 Overview of Brewing Process

Beer brewing is a natural process and therefore brewers strive to maintain the characteristics of beer using natural raw materials. The first step in the brewing process is the milling of malt which exposes the starch for further processing within the mashing vessel.

Figure 2.1: The Brewing Process (art and science of beer brewing)

Milled grist is stored in a grist bin before being transferred to the mash mixer (mash tun or conversion vessel). In the mash tun the grist is mixed with warm water to start the hydrolysis process. The mashing process starts at temperatures as low as 450C to allow the temperature sensitive enzymes to react with the available starch. For the other enzymes to react with the starch to produce more fermentable sugars the temperature is increased for optimum enzyme activity. The final step in the mashing process is to stop the enzymatic reactions through increasing the temperature to 760C. The halting of enzymatic activity reduces viscosity and improves the fluidity of the mash.

The sugar solution is separated from spent grains through a lauter tun. The aim of the lautering process is to recover clear wort at a relatively high concentration. Wort flows from the lauter tun into the wort kettle Bamforth (2004)

Wort boiling occurs in the wort kettle and has multiple functions, the extraction of bitterness, the sterilisation of wort, concentration of wort and protein coagulation. In the whirlpool, the “hot trub” is removed from the wort Boulton (2001).

The wort is now ready for fermentation where yeast is added. When the yeast moves into the anaerobic state it converts the sugars provided from the malt into carbon dioxide

(CO2) and alcohol McNamara (2015).

Post the primary fermentation, beer is put through secondary fermentation and conditioning. During secondary fermentation, dry hopping can occur giving the beer a fresh hop aroma. During maturation, the beer is subjected to freezing temperatures to allow for clarity of the beer McNamara (2015).

The beer is filtered through diatomaceous earth to clarify the beer further. The resulting bright beer is now ready for packaging McNamara (2015).

Finally, the beer is filled into cans, bottles or kegs. During the packaging process oxygen gas is eliminated to avoid staling of beers. Once packaged the beer is stored in cool conditions and protected from light to keep it in good condition McNamara (2015).

2.2.2 Background of the Global beer market

Brewing has been ancient profession, dating back 8000 BC (Craft Beer, 2012). Beer is probably the oldest fermented beverage and is currently the most consumed alcoholic beverage in the world. (Kleban et al., 2012). The beer market has evolved over time and has remained competitive in a changing industry. Beer has been a favourite thirst quencher throughout the ages. This beverage composed of simple ingredients such as malt, hops and water increased in popularity (Kleban et al., 2012).

There are four major players in the beer market, Anheuser-Busch InBev, Heineken, SABMILLER and Carlsberg. These companies have increased their footing in the beer market through merging with smaller companies increasing growth and market share (Zhang et al., 2015). According to Souckova (2011) the world has seen many mergers and is motivated by economic reasons which assist in savings of logistics costs and utilisation of existing production facilities to promote their own brands.

With the constant change in the beer industry, businesses need to focus on the following to be successful:

 To be adaptable to a change in consumer preferences in flavours and categories  Establishing good relationships with distributors  Use of innovative strategies of marketing to market the brand  The ability of reducing manufacturing costs According to an article in the Brewers Association (2014) between the 1930s to 1980s the US market was characterized through the following:

 The dominance of lager style beers  A decrease in the number of brewing companies through slow destruction and mergers  The dominance of a small number of lager brands  Homogenous barley malt needs

However, the beer domain has changed dramatically since then:

 Increase in product diversity  Increase in brewing companies  Brand creation and innovation  Larger demand for raw materials (malt and adjunct)

The change in consumer taste has led to the interest in craft beer through books, magazines and internet sites. The driving forces to the change are the entrance of new brewers, mergers and joint ventures, consumer taste preferences, legislation around underage and drunk driving, consumer focus on healthy lifestyles, generation preferences, changes in technology, reduced natural resources and globalisation.

Micro brewing started in countries that historically had a strong background about beer and this phenomenon spread across the world. These countries were USA and Great Britain amongst the first to commence with micro brewing. These small sized breweries brought about a new dimension to the market one of creativity, innovation and quality. Small sized breweries had been in existence for years in Belgium and Germany. In Belgium, the Trappist monks are well known for brewing beer in their respective monasteries (Cabras et al., 2016).

Craft breweries are small, traditional and independent. They are traditional due to the brewing of full bodied beer made from recipes from German or English brewing origins (Kleban et al., 2012). In America craft beer was produced locally at home. With the industrialisation in the nineteenth century resulted in the advent of commercial brewing and by 1900 there were 1816 breweries in the United States. In 1978 there was a decline in the number of breweries due to the “merger-acquisition trend” as well as the economic downturn (Brewers Association, 2015).

In 1976 the New Albion Brewery marked the end of the downturn and the start of the craft beer revolution. Jack McAuliffe utilised recycled diary equipment and Pepsi-Cola syrup drums to start brewing. By 1995, craft breweries numbers increased significantly to 858, where craft breweries represented 98%. The brewing industry consists of macro and craft breweries (Brewers Association, 2015).

2.2.3 South African Beer Market

One of the challenges in South Africa is achieving sustainable economic growth. Upon review of the South African liquor industry as conducted by the first post-apartheid government in 1997 revealed that the industry was characterised by a few companies.

SABMILLER possesses a substantial market share within South Africa in manufacturing and distributing their brands such as Carling Black Label, Castle Lager, Hansa, Castle Milk Stout and Castle Lite. The main rival in South Africa is Brandhouse, which distribute Heineken, Amstel, Windhoek and Guinness. These two giants, SAB and Brand house make up 99% of the total beer market (Bamforth et al., 2016).

In South Africa, craft brewers range in size from brewers who produce for beer festivals to those who distribute in bottles and cans. The larger craft breweries include the Cape Brewing Company, Mitchells, Darling Brew, Jack Black, Boston and Soweto Gold. Though there has been an increase in the number of microbrewers, they still account for less than 1% in South Africa (Murray et al., 2012).

This led to a new draft of policy restructure by unyielding assets to create opportunities for the economic empowerment of the previously disadvantaged individuals. Licensing was introduced, and firms were prohibited from holding licences to operate in more than one value chain (Bamforth et al., 2016).

With these two giants monopolising the South African Market, these economies of scale can increase barriers of entry for smaller brewers. (Bamforth et al., 2016).

2.2.4 The phenomena of Craft Brewing

Craft brewing has become quite a buzz word within social circles. Young an old are starting to explore the creativity in the brewing of varied flavors of beer. Within South Africa we have a few larger craft brewers who have been successful in the manufacture and distribution of their product. The larger craft breweries include the Cape Brewing Company, Mitchells, Darling Brew, Jack Black, Boston and Soweto Gold. There is much to be learned from the challenges that these brewers have faced and what are the factors that they can attribute their success. According to an article published Engineering News, 13th of November 2015, the statement was made that the future for craft beer in

South Africa looks bright since craft brewers are now producing more consistent quality products.

Definition of Craft beer

The Brewer’s association defines a craft brewery as: (1) produces six million barrels of beer or less annually; (2) independently owned and (3) uses mostly “traditional or innovative” ingredients in its beer (Brewers Association, 2015).

Craft breweries can be defined as microbreweries, brewpubs, contract brewing companies and regional craft breweries. Another definition for craft brewery is a brewery producing smaller volumes where there is constant human interaction during the production process (Brewers Association, 2015).

Garavaglia (2017) indicates that there are numerous terms identifying breweries that just started brewing different types of beer styles such as “craft breweries”, “artisanal brewery”, “microbrewery”, independent brewery”, “specialty brewery” and “local brewery”.

Craft brewers are small brewers. The distinguishing factor for craft brewers is innovation. Craft brewers utilise historic and traditional styles with unique twists and develop new styles with no precedent.

Definition of Regional Breweries

The definition is based on the American Brewers Association and states that a regional brewery is classified as an independent brewery that produces more than 1.8 million litres per annum.

Definition of Contract Brewery

This is a regional brewery, microbrewery or brew pub that chooses to rent out the additional capacity that the brewery possesses.

Definition of Microbreweries

A microbrewery produces less than 1.8 million litres per annum and sales of product are off-site.

Definition of Brewpubs

A brewpub is a restaurant that sells less than 75% of its beers on the premises.

Craft beer has grown dramatically despite the economic recession and volatility of our world markets. The market competes at a higher pricing but still shows growth. There have been reasons contributed to this growth as stipulated within the book Brewing up a business, and states as follows:

 Consumers have been more demanding and differentiating on the product they purchase.  Craft beer is seen to be traditional, exclusive and placed as a unique product therefore created perception of value for money.  The concerned consumer creating support for local communities to create economic value within their own communities.  The advance of social media that creates and accelerates the consumers’ perception of authenticity of the product.

Zhang et al (2015) stated that the rise of craft beer in Scotland revolutionised and transformed the perception that small brewers produce dark beer, with overwhelming flavours and only available in old, gloomy pubs. Brewers has utilised their creativity in the marketing of their beers hence exposing the potential of craft brewing.

To maintain a competitive advantage within a volatile economic environment can be a threat to this niche market (Zhang et al 2015). Craft brewing competes with a market which is monopolised by 4 brewing giants: Heineken, SABMILLER, Anheuser Busch and Carlsberg. The craft market should contend with the impact of recession on consumers which influence their drinking habits (Zhang et al 2015).

Global Brewing giants’ strategies are driven by two key initiatives: to increase value of shares and to deliver dividends to shareholders. To be profitable these giants’ need to have an effective production and distribution network (Souckova, 2011). Mass market beer consists of production efficiency and marketing.

Craft brewers are unable to compete with mass market brewers; therefore, microbrewers compete based on the quality of product and marketing. Microbrewers’ strategy has

been to produce on a small scale and target premium customers. Mass market brewers market through use of mainstream media and sponsorships, whilst craft beer brewers utilise viral marketing and beer festivals.

In some of the “developed markets” the matured consumer is looking for variation in the product, which small craft brewers can provide. The success of the small brewer will be dependent on their ability to be innovative with taste and packaging (Souckova, 2011). The increase in craft brewers highlights the change in the Scottish beer market, which showed a growth of 79% in 2014 (Zhang et al 2015). The competitiveness within the beer industry is important for brewers irrespective of reputation, age, supply and size (Zhang et al 2015). As a brewer, you compete against rival beer companies on a local, national international scale but the competition extends to substitute products on offer within the market segment (Zhang et al 2015).

Within the craft industry competitive advantage is the “ability to produce beer and services of the right quality, at the right price, at the right time (Zhang et al, 2015).

2.2.5 International Craft Beer Market

Microbreweries and brewpubs have increased in the past thirty years and have flourished across the United States as per the (Brewers Association 2013). The growth of microbreweries reflects a change in taste in the consumer. Most microbreweries brand focus is on darker ales and increased hoppiness.

The dawn of microbreweries leads us to the term of “neolocalism”. The term describes the interest in preserving and promoting the identity of a community and aspects that makes the community unique. Microbreweries have catered to the desires of society to preserve their culture and identity.

According to Schnell & Reese (2016) microbreweries and brewpubs numbers increased and as a result are becoming increasingly mainstream. They are being noted by politicians and local officials as a local economic force. Some craft brewers have an extensive network of craft brewing associations for support and guidance. The first brewpub in Italy was first established in 1988 and in 1980 in Australia (Garavaglia 2017).

Figure 2.2: The growth in the subcategories of craft brewing in the United States (Wiles 2017)

The graph above from Wiles (2017) portrays the growth within the craft brewing industry within the various segments of craft brewing. With this rapid growth within the segment it has undoubtedly affected the economic growth of the States. In 2015, it was shown that ninety percent of American breweries are craft breweries and account for a retail value of approximately $22.3 billion. The growth within the industry resulted in an increase of 6000 jobs in 2015 Wiles (2017).

According to Flack (1997) in 1982 there were only 82 brewing firms of all sizes in the entire United States. A decade later, there are 258 microbreweries. According to the Brewers Association 2013 there are 2300 establishments which brew beer locally. The increase in craft brewing within the United States presented an opportunity for warehouses and retail spaces for the production and distribution of craft brewers’ products (US Research 2015).

Figure 2.3: Historical count of breweries in the United States (Brewers Association 2016)

The Economic Development Journal (2015) stated that in 1981 the American Craft beer industry there were only eight craft breweries in the United States of America (USA) against 3400 craft breweries as at 2015. Kleban and Nickerson (2012) stated that the US showed fast growth in 2008 and sold a combined volume of 8.5 million barrels of beer and 9 million barrels in 2009.

The latest data as per Brewers Association (2014) stated that craft brewers reached double-digit growth (11%) volume share of the market place. The craft brewers produced 26 million hectolitres in 2014 and a 22% increase in retail dollar value. The steady growth portrays that craft brewing is part of a shift in American beer culture, assisting craft brewers’ goal of achieving 20% market share in 2020. With the total beer increase in market of 0.5% in 2014 are essential in keeping the overall industry innovative and growing.

The ANZ estimates that New Zealand craft beers are up by 35% by value in the last year. The increase in sales by craft breweries supports the shift towards full flavoured beers and away from mainstream beers. In the last three years since 2013 the proportion of beer sales has increased from 9% to 15%. The number of craft breweries increased to 168 New Zealand craft brewers.

According to US research report 2015, the craft beer industry is divided into three sections: microbreweries, brewpubs and regional craft breweries. Within 2013 to 2014, the number of craft breweries in the States increased by 19.4%.

The evolution of craft breweries and the growth observed as per the US Research report in 2015 sparked the interest of non-craft breweries. This resulted in the acquisition and mergers of non-craft breweries with craft breweries. Though the impact on mainstream brands is minimal, there is a clear indication that the consumers taste has changed.

With the increase in craft breweries within the States, it can be a threat to the sales of mainstream brands from non-craft breweries. The 2015 Craft Beer Industry report however predicted a flattening of this market share, due to acquisitions and mergers by commercial brewers. The report also states that craft beer industry will continue to grow in market share because of the keen interest of the consumer base.

According to a report from Beer Market in India (2014) beer makers are marketing their brands through association with sporting and musical events. Brew pubs are assisting in promoting beer cultures with the availability of more types of beer styles, temperature and food pairing.

2.2.6 South African Craft Beer Market

In an article from the Brewmistress dated 15 November 2015, it states that people have been talking about the “craft beer revolution” in South Africa for a few years now. Craft brewing started with the humble beginnings with the odd Jack Black on tap and a bottle of Darling Slow Beer there. These days the options of a variety of craft beers are available in restaurants and pubs (Laurea., 2014).

According to article in CraftBru (November 2017) the number of craft breweries in 2013 were at 30 and has increased to 212 in 2017. A few South African craft beer statistics drawn showed the following by province: Western Cape (101), Gauteng (43), Kwazulu Natal (20), Eastern Cape (20), North West (8), Mpumalanga (5), Free State (8), Limpopo (2) and Northern Cape (3).

Figure 2.4: Craft breweries in South Africa at 2016

Jones & Corne (2015) indicated that there are 120 commercial craft breweries across the country. The number of pubs has been distributing craft beers in their pubs. There are many importers that supply raw materials into the country supplying craft breweries as well as home brewers.

In the article by Jones & Corne (2015) mentioned some of the famous craft breweries within South Africa, these are Devil’s Peak Brewing Company, Copper Lake Breweries, Brew hogs and Cape Brewing Company. These craft breweries started from humble beginnings at 25hl brew lengths. Devil’s Peak starting in 2012 have reached its maximum capacity in 2015 since the brewery is located on the second floor of a building. Devil’s Peak produce approximately 15 to 20 times the volumes from their starting volumes (Jones & Corne 2015).

In an article featured in Traveller 24 March 2016 indicated that craft beer boomed in South Africa though not at the same rate as the American craft beer market. The article indicates the increase in capacity of stainless steel tanks of around 90 hectolitres producing approximately 3000 bottles of beer.

The question remains is it a sustainable market or will it reach saturation point in South Africa. In the USA, the craft market accounts for 20% of the market whilst a prediction from a Standard Bank study forecasted that the craft market will share 2.1% of the South African Beer Market (Oosthuizen 2015).

An article written by Oosthuizen (2015) stated that in America there are around 3000 craft brewers while in South Africa around 50 commercial craft breweries exists. The statistics shows that there is still room for growth. Craft brewers tapped into a unique market within the brewing industry.

As per the Euromonitor (2016), the premium craft beer is a small market in South Africa. The study also shows the growth potential within this niche market. The study shows that the growth is driven by uniqueness and creativity with innovation of the product.

According to Makuyana (2015) indicated that craft beer increased beyond expectations within the South African context. Since the 2000s the beer tourism has increased in South Africa with the establishment of over one hundred microbreweries producing a variety of beers (Collins (2014). According to Strydom (2014) the interest in craft beer increased due to the lack of variety amongst the main stream beers produced through mass production. The growth of craft beer in South Africa can be attributed to the increased number of beer festivals held for local and prospective brewers (Corne & Reyneke 2013).

According to an article in Beeradvocate (2014) the microbrewery industry in South Africa increased in the shadow of SABMILLER. With the Clarens Festival over 50 microbrewers from South Africa and Namibia pour their beers.

Craft beers have been gaining market share from the large national and international beer breweries. The attention has been on micro-breweries and brew pubs. According to Barajas et al (2017) the demand for craft beer increased at a remarkable rate however the trend is not observed across all demographic groups. Tremblay and Tremblay (2011) indicated that craft beer drinkers have a higher income than other beer consumers, because on average a craft beer is priced at premium.

According to Collins & Rogerson (2015) the production of standardised lagers and light beers by SABMILLER led to the interest of South African consumers in “older” beer styles such as pale ales, stouts and bitters. In this regard, the development and growth

of South African microbrewing and craft beer industry is not the same as that experienced in the UK and USA in the 1970s and 1980s. The noticeable difference was the rate of formation of craft breweries within South Africa and the UK and USA (Corne & Reyneke 2013).

In 1983 many local beer consumers turned towards more traditional craft beer products which is produced locally. According to Scnell & Reese microbrewers make use of local names, indicative of historical events or figures, local legends, landmarks, wildlife and even climatic events to name their brands. The naming of the brands in this manner provides regional identity. The brewers go to the extreme to create local themes and images that distinguishes their beer labels from others.

The growth of microbreweries was slow during the 1980s. Strydom (2014) attributed the lack in growth of craft breweries within the 1990 and 2000s to the uncertainty around South Africa’s transition to democracy. In 2000 there were eight craft breweries. During 2000 new craft breweries developed around Cape Town and KwaZulu-Natal but not in Gauteng area (Strydom 2014).

The challenges that craft brewers face are marketing and consumer awareness for their respective products. The challenge is exaggerated in markets where the consumer is accustomed to the perception of beer as a cheap and low-quality product. It has been stated that advertising, promotions, beer festivals and tastings have been utilised to effectively market their product to new prospective consumers (Aginsky Consulting Group 2010).

In 2003 there was a dramatic increase in new microbreweries in various geographical areas within South Africa, including Gauteng. Rogerson & Collins (2015) states that in 2008 the number of breweries increased to 22 operations. Craft brewery development turning point was in 2011 which showed an extraordinary increase in numbers. Strydom (2014) indicated that 74 percent of craft breweries were founded between 2011 and 2014. The statistics in 2014, South Africa had a total of 105 microbreweries (Rogerson & Collins 2015). The increase in the network of craft breweries initiated the formation of beer tourism in South Africa. The growth of craft breweries resulted in the popularity of brew pubs and restaurants. The increase in popularity resulted in craft beer festivals, beer tours and routes within the South African beer tourism.

Figure 2.5: The location of craft beer festivals in South Africa (Source:Rogerson & Collins 2015)

Figure 2.6: Seasonality of craft beer festivals in South Africa (Source:Rogerson & Collins, 2015) Corne & Jones (2015) stated that six years ago there were no craft beer festivals in South Africa, whilst lately you can expect a festival every weekend. Some of these festivals are the well-known Cape Town Festival of Beer and the Clarens Craft Beer

Festival. Beer blogs were an unknown six years ago, now more than half a dozen regularly update their blogs with details of beers and food pairings.

In 2014, it was stated that there is a total of 54 craft beer festivals within South Africa. According to Rogerson & Collins (2015) the occurrence of craft festivals take place during the winter and spring months (July to October) with the Munich’s beer Octoberfest. Most of craft beer festivals are in Cape Town (16), Johannesburg (7) and Durban (5). Stellenbosch is known for its wine industry and therefore has been highlighted as an important destination for craft breweries. There is a number smaller festival within Knysna, Hermanus, Robertson and Clarens (Rogerson & Collins 2015).

2.2.7 Drivers to Growth of Craft Beer in the United States

It has been shown that the start and growth of craft beer was influenced by various factors such as supply, demand, the spread of information and developing capital and technology markets. There are three factors that are important in the growth of craft beer, (1) increasing demand for beer styles, (2) increase in income of consumers and (3) the availability of beers for consumers determined to experience variety (Garavaglia 2017).

 Demand for variety

Craft brewers started entering the market through innovation by producing new and innovative beers (Garavaglia 2017).

 Increased income

It is well documented that craft beers are more expensive than standard lager beer and therefore high-income consumers are more likely to purchase craft beer (Elzinga 2015). Bentzen and Smith (2017) indicated that the craft beer market expanded as incomes increased in industrialised countries in the decades after World War II.

 Technology

The growth was also attributed to the availability of technical equipment and capital allowing brewing on a small-scale. The early craft brewers utilised equipment from other industries such as diary and modified the equipment for use. Nowadays there is an increase in the development of craft brewing equipment. Banks started investing in craft brewers and provided start-up capital (Garavaglia 2017).

 Motivation from Traditional Brewers

Some of the craft brewers were inspired through contact with foreign countries with a strong, traditional heritage typically of Belgian history. The first Dutch craft breweries were focussed on Belgian style ales, while later craft brewers produced American-style ales (Bentzen and Smith 2017).

2.2.8 How to start your craft brewery in South Africa

In South Africa there are specific steps to be followed to start your own craft brewery.  A Micro Manufacture On and Off License for brewing as well as for consumer to consume on premises  Applicant to be over age of 18 years  Be a resident in South Africa  A complete business description, floor and site plans for the premises  Written motivation for liquor license application  Zoning certificate from municipality  Proof of payment of application fees

In terms of legislation a potential craft brewer needs to familiarise themselves with the National Liquor Act (NLA) which came into effect 13 August 2004 , the act provides defined regulations on sizing of your brewery as well as guidelines on selling and distribution of liquor Department of Trade and Industry (2017).

2.2.9 Categories of beer

Beer can be divided into various categories and sub-categories, within a certain price point. Manufacturers base pricing within these categories. Competition of brands exist within these categories based on price and brand profile Ascher (2011). The theory of economics forecast that a consumer’s demand for beer is a purpose of the price of beer, availability of substitutes, consumer income, the quality of product as well as unique characteristics (Tremblay and Tremblay 2011).

Beers are categorised within the following, sub-premium, premium and super-premium. There are also additional categories such as imports and craft beers (Ascher 2011).

Beers can also be segmented by style; pilsner, wheat beer, brown ale, pale ale, porter and stout. Lane (2011) indicates that the differentiation in taste and quality are the main characteristics behind the choice of craft beer from consumers.

2.2.10 Craft beer consumer profile

Consumers have various reasons why they consume alcohol as depicted in Figure 5 Fowles (2013).

Figure 2.7: Reasons for drinking alcohol 2013

The South African Beer Consumer Report 2015 states that the social interaction determines the choice in beer from consumers. The report states that the occasions are linked to the consumer feeling relaxed and sociable. The choice of brand is linked to status, friends, advertising and beer brand events as per the South African Beer Consumer Report (2015). The consumption of craft beer is done at dinner and in some cases, are chosen above wine (Lane 2011).

According to McClellan (2014) the consumer wants to be in sync with their brand, emotional connection, a dialogue with their favourite brand and transparency.

The Brewers Guardian (2011) states that the typical craft consumers are males and account for 70% of craft beer sales. The higher the disposable income, the more likely the consumer will spend on craft beers. Craft beers are priced higher than domestic 26

beers. According to the Brewers Guardian (2011) the typical craft beer drinker is most likely Caucasian and account for 90% of sales. The American Craft drinker is categorised as a white male between the ages of 25-54. Craft beer drinkers’ choice of beer is depicted through their preference of beer and the unique lifestyle that they embrace (Lane 2011). Millennials represent 47% of the craft beer market (Lane 2011). Consumers perceive drinking beers produced from small and local breweries to be authentic and adds to the identity of the beers (Thurnell-Read 2016).

The popular belief has been to create a beer that people love and can enjoy, however these days are gone of brand loyalty since the consumer now chooses a brand based on the occasion Brooks (2011). This created a niche for craft brewers, where they can provide consumers with a unique brand for their occasion. Brooks (2011) stated that there are a variety of different beers available produced from unique raw materials and brewing processes. Lane (2011) states that craft beer consumers experiment with various styles of beers across different breweries against the mainstream brands offered by mass-produced brewers.

According to a report from Beer in India (2014) young urban consumers explore with international brands, exhibiting trending as they socialise in pubs. The trend is escalated through the availability of customised brews, beer on tap and festivals.

The craft beer segment accounts for a very small part of the beer market, it has defied all odds and continuously innovates and improves beer brands (Brooks 2011). This chapter has provided a comprehensive explanation of both the beer market and its niche market of craft brewing. It has contrasted the South African context with international context and discussed some drivers of success in order to grow the craft brewery market. By highlighting which categories of beer are in existence and advising South Africans on how to start a craft brewery, the next chapter explains the methodology section of this research study in order to commence contrasting the respondents’ real-life answers on concerns identified by this literature review above.

Chapter 3: Research Methodology

3.1 Introduction

The study was a quantitative study since it will answer questions on the correlations with measurable variables which will allow us to predict and control the phenomena (Leedy 1993). Leedy (1993) states that quantitative research starts with data collection from a hypothetical study which is followed with the application of descriptive or inferential statistics.

A correctional study explores the differences of variables of two or more entities. The correlation is observed trough the impact of one variable increases as the other decreases (Kumar 2005).

3.2 Justification

The justification of this work was based on Craft Brewing in South Africa on the sustainability of its growth since it only occupies a fraction of the beer market. Statistics have shown that craft beers occupy only a small portion of the market, whilst other stats are confident that this niche market has the capability to be a major contender against the macro beer market. According to Makuyana (2015) indicated that craft beer increased beyond expectations within the South African context. Since the 2000s the beer tourism has increased in South Africa with the establishment of over one hundred microbreweries producing a variety of beers Collins (2014). According to Strydom (2014) the interest in craft beer increased due to the lack of variety amongst the main stream beers produced through mass production. The growth of craft beer in South Africa can be attributed to the increased number of beer festivals held for local and prospective brewers (Corne & Reyneke 2013).

3.3 Methodology

The research was conducted as a quantitative multiple case research study utilising empirical survey data collected from a cross-section of the population with a questionnaire. The study was to establish whether respondents perceive craft brewing as a threat to the sales of mainstream brands in South Africa.

The research instrument employed was t h e distribution of a questionnaire to various craft brewers, irrespective of t h e history of the brewery, within South Africa. The questionnaire covered geographical area and size of the craft brewer, marketing opportunities explored by the craft brewer, concluding with the typical distribution patte rn s employed by craft brewer to be successful.

Sampling

3.4 Data collection

Non –probability, purposive sampling wa s used, since the study surveyed a specific s u b section within the alcoholic beverages market namely craft brewers within South Africa. The sample was deliberately sought out as a sub section within the market.

Method of study

Multiple format of questionnaire questions The survey questionnaire was distributed via email to established craft breweries within South Africa. The questionnaire determined the geographical origin of craft

brewery, production volumes, employee numbers, marketing and packaging and distribution. The target population wa 213 craft breweries within South Africa as registered on the Brewers Association’s membership list. The sample population was a portion of craft breweries within the target population. The type of sampling was purposive sampling due to the level of expertise within the field. The survey questionnaire is part of a multiple case study research method and nominal and metric measurements will be used to distinguish applicable attributes.

Research questions

Does geographical location of craft brewery impact on its sales?

Does geographical location of festivals affect the marketability of craft beers?

Does geographical location influence the availability and sourcing of raw materials for the craft brewer?

What is the importance of supplier relationships and the effect it has on the distribution of craft beer.

Do beer festivals influence beers’ brand marketing?

Sub-questions Questions addressing How to analyse? subsection General Information Where is the Craft Brewery Draw up the map when you Geographical location situated? find the answers. Production Volumes Draw a graph Employee numbers Annual hectolitres produced Continuous data= another How many permanent graph employees at your craft brewery? Marketing How does the firm conduct Descriptive and summary marketing? stats

Sub-questions Questions addressing How to analyse? subsection How many festivals does your microbrewery attend within a year? Indicate the geographical location where festivals are attended? Which of the following products are the most popular at festivals? Which of the following media provide you with the best marketing ability? Operations Do you produce or sell any Descriptive and summary other alcoholic beverages stats (cider, liquor, wine, etc) Indicate the typical products where your product is sold How does your brewery obtain their raw materials for production? What type of beers do you produce? Which of these products are your major seller?

Sub-questions Questions addressing How to analyse? subsection Packaging and distribution Do you operate a Descriptive and summary restaurant? stats Do you sell any product outside South Africa? In how many outlets do you distribute your products? Indicate the typical products where your product is sold How is the beer packaged? Do you directly distribute any product yourself? Do you hire others to transport your products?

3.5 Reporting or synthesis

The findings were reported using the market share of craft beer within the overall beer market. Craft breweries across South Africa were the participants within the study. Craft brewers provided details on the effectiveness of the production and distribution of their products. The findings were reported as a collective and summary of the discussions in order to potentially highlight the differences within the different regions within South Africa. The findings highlighted the challenges experienced currently through competing within the micro and macro beer market. The findings showed the obstacles within the value chain of craft brewers in South Africa. The findings could lead to recommendations for future research.

Chapter 4 Analysis of results and findings

Introduction

The questionnaire was divided into various categories: General, Organisation, Marketing, Operations and Packaging and Distribution. Although there are 212 craft brewers appearing on the Brewers Association membership list, the purposive sampling method meant that the questionnaires were sent out to 192 craft brewers across South Africa. Of the total of 192 questionnaires distributed, only 22 responded to the study, effectively granting us a usable response rate of 11.5%.

Within the study there were 22 respondents ranging from 7 brewpubs producing 20 to 100 hectolitres per annum to 15 microbreweries producing 100 hectolitres to 1800 hectolitres per annum. The study included all the craft breweries within South Africa irrespective of size. The spread of craft breweries within the study was as follows, 85 in Western Cape, 48 in Gauteng, 20 in Eastern Cape, 19 in Kwazulu-Natal, 3 in Northern Cape, 7 in North West and 2 in Limpopo. The respondents were as follows by geographical region, 1 in Eastern Cape, 12 from Western Cape, 4 in Gauteng, 1 in Northern Cape and 4 from Kwazulu-Natal.

Since craft brewing is competing within a highly monopolised niche against macro brewers such as AB Inbev and Heineken, it was not surprising that the response to the questionnaire was so low. The reasons for the low response could be due to the competitiveness, the high level of confidentiality that craft brewers want to maintain and that larger brewers buy out craft brewers as observed with Stellenbrau in the Cape and Soweto Gold in Gauteng both owned by Heineken.

Due to the time constraints of this research study and the ethical freedom of choice allowed to the respondent sample, the questionnaire was distributed only once. Due to the sensitive nature of competitive intelligence in the craft brewery market, the reasons for the non-response were also not followed up after the expiry date for the submission of the completed questionnaires. It is also important to note that the craft brewers registered as a distinguishable separate segment within the total alcoholic beverages market.

Category 1: General Information

Question1: Where is the Craft Brewery situated?

The geographical location of the craft brewery is important to determine where most of craft brewers are established. It cannot be presumed that the province with the highest population would necessarily have the greatest number of craft brewers, since there is no evidence from literature to justify the assumption. This question hoped to provide greater insight into t h e faster growing physical locations of the breweries in terms of this niche market of craft beer. The map is illustrated below.

Figure 4.1 The number of Craft Breweries within South Africa

Figure 4.1 illustrates the current craft breweries within South Africa across various geographical locations. There are 192 craft breweries within South Africa with 85 located within the Western Cape, 48 in Gauteng, 20 in Eastern Cape, 19 in Kwazulu-Natal and Limpopo recording 2. These craft breweries formed part of the population for the study.

Most of new craft breweries were established within the Western Cape from participants in the study. Strydom (2014) indicated there was a greater increase in craft breweries which is observed within this study. Based on the study geographical location had an impact on production and sale volume of the craft brewery. The Western Cape craft breweries produced the largest volumes in the study with Kwazulu- Natal being the second largest producer in the study. The participants within the Kwazulu- Natal geographical area included a large microbrewery which produced 146 hectolitres per annum. Therefore, the result could be skewed in that it increased the actual produced volume greater than the other locations. The Gauteng region produced the third largest sales volume with only 4 participants in the study, which is indicative that the Gauteng region is a growing location for establishing craft breweries. Strydom (2014) indicated that there was a slow increase in craft breweries within the Gauteng region, whilst in this study it is observed that there is a growing interest in establishing a craft brewery.

Table 4.1 The number of craft breweries per geographical area participated in the study

Geographical Region Number of craft breweries Eastern Cape 1 Western Cape 12 Gauteng 4 Northern Cape 1 Kwazulu-Natal 4 Limpopo 0

The craft brewing industry is a very closed niche within the overall alcoholic beverages market. It is characteristically a highly competitive market; therefore, it presents possible reasons for the participation in the study being so low. It is normal human nature to be competitive and it is to be anticipated in such a hostile, competitive niche that the respondents would feel threatened if the questionnaire’s information can be used against them.

Most respondents were from the Western Cape as depicted in Table 4.1 which co- insides with the fact that there are 85 craft breweries within the Western Cape. The low respondents of 4 from Gauteng can be attributed to the fact that the successful craft a brewery within the area has been bought out by the larger brewers, Heineken bought Soweto Gold. Although the same number (4) came from KwaZulu- Natal, the reasons for the number were not clarified by merely responding to this question. The Limpopo region and North West had no respondents. The Eastern Cape had only 1 respondent out of a potential of 20 craft breweries.

Question 2: Which year was the brewery established

The question was posed to determine which of the craft brewers have stood the test of time. The other reason was to determine whether craft brewers are on the rise and if there is an opportunity for entrepreneurs within this sector.

Table 4.2 The geographical region and year when the craft brewery was established

Geographical Region Year established Eastern Cape 2016 Western Cape 2008 2013 2015 (x3) 2016 (x6) 2017 Gauteng 2000 2015 2016 2017 Northern Cape 2016 Kwazulu-Natal 1996 2006 2015 2015 Limpopo

The oldest craft brewery within the pool of respondents was started in 1996 in the Northern Cape and has been in existence for a decade as per Table 4.2. The oldest brewery within the Western Cape with the highest number of respondents is 2008 and co-incidentally also showed the highest number of new craft breweries being started in 2016.

The oldest brewery in Gauteng based on respondents was established in 2000. The number of new craft breweries seems to be increasing on a yearly basis as per the data collected since there is a brewery established every year since 2015 until 2017. Questionnaires were sent out to all the provinces except for Free State, Limpopo who has two established craft breweries, however there was no response from them.

The data is non-conclusive sine the number of respondents were so low.

Question 3: Does your craft brewery operate as a Regional, Microbrewery, Contract brewery or Brewpub?

The question is to determine the size of the brewery and indicative of the hectolitres as well as capacity that the brewery can produce. It also provides the indicator of which of the 4 segments grow at a faster rate.

Brewpub (25% or more production consumed on premises)

Contract brewer (all product produced exclusively by others)

Microbrewery (10000 to 180000 litres of beer/year)

Regional Brewery

0 2 4 6 8 10 12 14 16

Figure 4.2 The categories within the craft brewery sector

Most of the respondents fall within the microbrewery segment as per figure 4.2. The second largest segment is brewpub since this is where all craft breweries start their journey as brewers. A smaller segment brew beer for a larger brewer as contract brewers. There are 3 regional brewers within the respondents who are starting to increase in size and capacity. Within the study the microbreweries continue brewing for their brew pubs in marketing their products. In figure 4.15 it indicates that most of the microbreweries operate licensed bars (brew pubs) in distributing their product.

Question 4: Indicate the annual hectolitres produced as well as revenue attributed annually

The question was to determine the capacity of production as well as revenue produced. The question was not well answered since the details on revenue generation was omitted. The reason for this could be attributed to the fact that the question was t vague or due to the highly competitive environment the respondents found that disclosing their revenue per annum to be confidential information.

Figure 4.3 The annual produced volume in litres per region

The Western Cape craft breweries indicated the largest volume of litres produced exceeding 16000 litres per year as per Figure 4.3. It can also be observed that Kwazulu-Natal exceeds 14000 hectolitres per year. The Gauteng region showed 8000 litres per annum. The Northern Cape and Eastern Cape volumes based on respondents were below 2000 litres per annum.

The significance to the litres of beer produced by the craft breweries is due to the definition provided for a craft brewer, if exceeded a craft brewer moves into the macro brewery market. The second significance to volume produced by craft brewers are that we can establish where the larger craft brewer market is within South Africa.

Category 2: Organisation

Question 1: How many permanent employees at your craft brewery?

With a struggling economy the question was posed to determine if starting a craft brewery could address the high unemployment rate within South Africa. It also provides information on whether the increase in volume justifies employing more individuals.

0 1 to 5 6 to 9 10 to 29 29 to 50

Figure 4.4 The number of permanent employees at the craft brewery

Figure 4.4 portrays that most of the respondents employ between 1 and 5 permanent employees. The trend can be attributed to the fact that most of respondents in the study were newly established breweries as per Table 4.2

Question 2: Indicate the years of tenure of employees in the brewery?

The tenure is important due to determining whether craft brewing could address the high unemployment rate in South Africa. The tenure also can be used as an indicator of whether there is an increase in craft breweries, since the lower the tenure of employees the more likely the craft brewery was started recently.

0 < 6 months 9 months 1 year 5 years > 10 years

Figure 4.5 The years of tenure of employees at the craft brewery

The highest number of tenure of employees is less than 6 months as depicted in figure 4.5. The high number of tenure correlates with high number of newly established craft breweries as observed in Table 4.2.

Category 3 : Marketing

Question 1: How does the firm conduct marketing?

The question determines the type of marketing strategies that craft breweries utilise to promote their respective products.

Festivals

Newspapers

Social media

Website

0 5 10 15 20 25

Figure 4.6 Marketing strategies used by craft brewery

The most utilised form of marketing used by respondents within the study was websites, social media and festivals. Newspaper are the least utilised for marketing purposes as observed in figure 4.6.

Question 2: Have you conducted any special event over the past twelve months?

The beer industry is a highly competitive industry; therefore, craft brewers need to consistently create awareness of their products as well as prospective products. The question was asked to establish whether craft brewers set up special events

Yes No

Figure 4.7 Historical special events by craft brewery

Figure 4.7 indicates that most of the respondents have utilised special events to promote their products.

Question 3: Do you plan to conduct any special events in the upcoming twelve months?

Yes No

Figure 4.8 Prospective events planned by craft brewery

All respondents within the study indicated that they will be participating in a special event to promote their respective brands.

Question 4: How many festivals does your microbrewery attend within a year?

The previous question established whether craft breweries within the study participate in special events to promote their products. This question addresses how many events the respective respondents participate in.

Other

>10

3 to 5

1 to 2

0 2 4 6 8 10 12

Figure 4.9 The number of festivals attended by craft brewery

The respondents indicated that they participate in 3 to 5 festivals to promote products. 5 of the respondents indicated that they do not participate in festivals and 4 craft brewers participates in more than 10 festivals per annum as per figure 4.9.

Question 5: Indicate the geographical location where festivals are attended?

The questions follow on the participation or non-participation in attendance of festivals. The question allows us to determine the geographical region where most of festivals are held.

0 Eastern Cape Western Cape Gauteng Northern Cape Free State Kwazulu-Natal Limpopo

Figure 4.10 The geographical locations where festivals are attended

Figure 4.10 indicates that the respondents attended 10 festivals in the Western Cape, 7 in Gauteng, 4 in Free State, 6 in Kwazulu-Natal and 1 in the Eastern Cape. The attendance of festivals can be correlated to number of participants in the study as per Table 4.2.

The highest numbers of festivals were held in the Western Cape, closely followed by Gauteng and Kwazulu-Natal. Within the study the highest number of festivals coincided with the large volumes produced by craft brewers within the Western Cape. The question arose whether marketing beers at festivals increase the awareness of the various craft beers. The research question within the study was posed whether the geographical location of festivals affect the marketability of craft beers, therefore the more festivals you attend within the Western Cape, Gauteng and Kwazulu-Natal the higher the chance of marketability of your brand.

Question 6: Indicate how many festivals are attended within the geographical region by your microbrewery?

The question addresses the geographical locations where craft breweries attend festivals. The geographical location of festivals provides insight into where the most concentrated population of craft brewers are found.

Figure 4.11 Indication of festivals attended per geographical location

Figure 4.11 indicates that the highest number of festivals attended is in the Eastern Cape. Though the participants in the study was low, one could analyse this result in that the Eastern Cape has the lowest number of craft breweries comparative to the Western Cape, Gauteng and Kwazulu-Natal and therefore creates a marketing opportunity for craft brewers to promote their products.

The lowest number of festivals attended at 0 in Limpopo is indicative that the two craft brewers in the area as depicted in figure 4.1 monopolise the area. The Western Cape has the second largest festival attendance by craft brewers which emphasise that they were the largest participants in the study as per Table 4.1. The study indicated that festivals influence craft beer brand marketing. The higher the number of festivals within the geographical region, the larger the volumes produced from the location. Now the

Western Cape is leading at the number of festivals as well as the produced volumes by the individual craft breweries.

Question 7: Which of the following products are the most popular at festivals?

To attract and sustain the effectiveness of festivals, the craft brewer needs to be aware of which of their products are popular to ensure sufficient supply at the festivals, but it also provides insight into what the consumer prefers. It allows the craft brewer to build a consumer profile to their respective brands.

Lagers Ales Ciders Spirits

Figure 4.12 Popular products at festivals

Craft brewers produce various products such as lagers, ales, ciders and spirits. Figure 4.12 depicts that most consumers that attend the festivals prefer ales with lagers closely followed. There is also an opportunity for craft brewers to increase the market in ciders as shown in figure 4.12.

Question 8: Which of the following media provide you with the best marketing opportunity?

As a craft brewer competing at a macro level in the overall alcohol market. With marketing strategies which are quite expensive, it is pertinent that to promote your products you can do it in a cost-effective manner. The question addresses which of the various strategies are the most effective.

0 Social media (Twitter, Website Newspaper Festivals facebook etc)

Figure 4.13 Forms of media as marketing opportunity

The various forms of marketing employed by craft brewers are social media, website, newspaper and festivals. The respondents within the study indicated as per figure 4.13 indicates that social media, Facebook and twitter provides the best marketing opportunity for products. It is utilised by a larger audience; hence promotion of products is easily achieved. It is also the most cost effective and requires the least amount of effort from the craft brewer.

Category 4: Operations

Question 1: Do you produce or sell any other alcoholic beverages (ciders, liquor, wine etc)

The question was posed to determine if the craft brewer manufactures other products to increase their capacity.

Yes No

Figure 4.14 Production and sale of other products

The production and sale of alternative products is a good indication of the diversity of the craft brewer as well as being able to utilise other products to increase revenue. The respondents as indicated in figure 4.14 indicated that most of the craft brewers produce and sell other products such as ciders as shown in figure 4.21.

Question 2: Do you operate a license bar?

The economic downturn in South Africa has left many South African without employment. The reason for the question was to determine that if a craft brewer starts their brewery they would require a manufacturing site as well as a distribution site. This will assist the retail industry with an opportunity to provide rental space or a property sale which generates income for South Africans. It also provides an opportunity for employment in the craft brewery as well as the local restaurant or pub.

Another location

Onsite

If yes

0 2 4 6 8 10 12

Figure 4.15 Operation of license bar

The data above shows that not all the craft brewers operate a licensed bar and those that do operate a bar onsite as per figure 4.15. One of the participants in the study operates their licensed bar at a different location.

Question 3: Do you operate a restaurant?

The pairing of food and beer has become quite the buzz so as a craft brewer, the restaurant can generate more revenue for the business. It can also add value to reducing unemployment through employing waiters, barman and cleaning staff.

Yes No

Figure 4.16 Operation of restaurant

The respondents in the study as per figure 4.16 indicate that they run a restaurant to increase revenue of their craft brewery.

Question 4: Do you sell any products outside of South Africa?

International expansion of brands is a positive economic outlook for any business. It is positive in the sense that local brands are competing at a global level.

0 Yes No

Figure 4.17 Products sold outside of South Africa

Many respondents as per figure 4.17 shows that brands compete locally and only one of the craft brewers compete at an international level.

Question 5: In how many outlets do you distribute your products?

The distribution of products is critical to the profitability of craft brewers. Craft brewers require shelf space to compete against mainstream brands. The question was to establish how many outlets do the craft brewer distribute in.

0 1 >3 >5 >7

Figure 4.18 Number of outlets where product is sold

The respondents indicated in figure 4.18 that most of the craft breweries distribute to greater than 7 outlets. The respondents indicated that the craft breweries distribute within more than 1 outlet.

Question 6: Indicate the typical outlets where your product is sold?

The question follows on the distribution of product to which outlets do craft breweries distribute in to obtain shelf space.

Local pub and grub

Local restaurants

Small liquor stores

Large outlets

0 5 10 15 20 25

Figure 4.19 Distribution of outlets where product is sold

The respondents in the study, figure 4.19, portrays that most of the participants distribute within local restaurants and smaller liquor stores. The correlation with the age of the craft brewery as per Table 4.1 emphasise that due to their size they would distribute in local pubs and smaller liquor stores.

Question 7: How does your microbrewery obtain their raw materials?

The reliable supply of raw materials is critical to the sustainability of the craft brewer. The supply is one factor but also the distance of where the raw materials can be obtained will determine the success of the craft brewery. The question was posed to determine where craft brewers obtain their raw materials.

0 Local suppliers Local brewery

Figure 4.20 Form of supply of Raw materials

The respondents indicated as seen in figure 4.20 that many of the craft brewers obtained their raw materials from the local suppliers and one of the craft brewers obtained it from the local brewery.

The research question on whether geographical location influence the availability and sourcing of raw materials in the study is inconclusive since most of the craft brewers obtained their raw materials from local suppliers. The extend of constraints experienced in sourcing of raw materials were not explored. The supplier relationships are critical for the craft brewer since most are brewing for local consumption. As previously stated craft brewers obtained their raw materials from local suppliers.

Question 8: What type of beers do you produce?

It was established previously that ales and lagers are the favourable beers at festivals. The question was posed to determine whether craft brewers produce based on their consumer demand.

0 Lagers Ales Ciders Spirits

Figure 4.21 Products produced by craft brewer

The respondents indicated, figure 4.21, that ales are the product that gets produced the most. Lagers are the second largest beer type produced. The production and favourability at festivals as per figure 4.12 indicating that ales are the beer type of choice at festivals.

Question 9: Which of these products are your major sellers?

The supply and demand within a competitive nice market becomes critical to ensure sustainability of the craft brewer. The demand at festivals were established to be ales.

0 Lagers Ales Ciders Spirits

Figure 4.22 Products generating highest sales

Figure 4.22 indicates that lagers and ales are the major cash cows in terms of respondents in the study. The craft brewers as per the respondents correlates with the demand at festivals.

Category 5: Packaging and Distribution

Question 1: How is the beer packaged?

The packaging of beer has become exceptionally important in the drive to sustainable development. As a craft brewer you are not exempted to do your bit for the environment. The packaging of product is important and will also determine the ease of transport of your product as well as losses that could be incurred due to inappropriate packaging.

0 Bulk Draft Bottle Can Other

Figure 4.23 Packaging of product

In terms of packaging most of the respondents packaged their beer in bottles and draft. Bottles and draft are easier to package as well as distribute. The reasons for using bottles and draft can be attributed to the fact that most of the respondents sell their products in brewpubs as well as distribute to outlets.

Question 2: Do you directly distribute any product yourself?

The question was posed to establish if the craft brewer utilises their own transport to distribute to their products which is an additional cost to the manufacture of their product.

Yes

0 5 10 15 20 25

Figure 4.24 Self-distribution of product

The respondents as per figure 4.24 indicates that most distribute their products themselves. The reason that can be attributed to distributing their product themselves can be substantiated through figure 4.19 in that most of the respondents distribute to local pub and grub (17), local restaurants (21) and the smaller portion of respondents distribute to larger outlets (12). The distribution of their respective products is done by the craft brewer themselves to the various outlets, small or large. Most of the craft brewers distribute within a 100-km radius of their facility

Craft brewers distribute their products in bottles and draft since most of the participants in the study were newly established craft breweries. Most of the brewers in study operate their own brewpub and distribute their product locally. The distribution of product themselves would incur less additional costing to the manufacturing cost of craft beer. As a newly established craft brewer, to incur more costs through distribution of product could lead to less profitability.

Question 3: Do you hire others to transport your products?

The question was posed to establish which of the craft brewers outsource their distribution or potentially use alternatives such as a local brewery to assist in distribution of their product.

Figure 4.25 External providers to distribute products

In figure 4.25, 10 of the respondents indicated that they utilise others to distribute their products whilst the remaining 12 respondents distribute the product themselves to various outlets.

Category 6: Supplier and Distributor Relationships

Figure 4.26 Flow diagram for supplier and distribution relationships

The supply and demand within any industry is critical, therefore the craft brewer industry is no different. Figure 4.26 is a flow diagram of the supply of raw materials and the distribution of product of craft brewers.

The flow diagram indicates that craft brewers obtain their raw materials from local suppliers as indicated in figure 4.20. The diagram also indicates that raw materials can be obtained from a local distributor as well.

In the study the question was posed if craft brewers distribute local and internationally. Most of the respondents within the study indicated to distribute locally. One of the respondents distribute internationally,

Within the study most of the respondents distribute their products with their own transportation locally. The other respondents utilise an appointed distributor to distribute to outlets.

The study also reviewed which of the respondents sell onsite or offsite. Most of the respondents operated a local bar and restaurant on site to sell their product.

Category 7: Relationships between different variables

Table 4.3 Relationship between region, number of employees and Produced hectolitres Region No of employees Produced litres per annum Eastern Cape 0-5 70 Western Cape 0-5 16622 Gauteng 0-10 8088 Northern Cape 0-5 100 Free State 0 Kwazulu-Natal 0-30 14580 Limpopo North West

In table 4.3 the comparison of geographical region vs produced hectolitres. Based on the limited data due to the low number of respondents, the comparison cannot be generalised across all craft brewers. Within the number of respondents, the largest production volume is from the Western Cape (16622 hectolitres per annum) and the lowest the Northern Cape (100 hectolitres).

The interest for the study into craft breweries was to establish is there is an opportunity to grow our economic climate and increase employment opportunities. Table 4.3 data is inconclusive in that the annual produced hectolitres is independent of the number of permanent employees. The Kwazulu- Natal craft breweries seemingly support the notion that increased produced hectolitres could lead to job opportunities.

Table 4.4 Relationship between region, produced hectolitres and festivals Region Produced annual volume Number of festivals (l) attended Eastern Cape 70 1 Western Cape 16622 10 Gauteng 8088 7 Northern Cape 100 0 Free State 0 4 Kwazulu-Natal 14580 6 Limpopo 0 0 North West 0 1

The low number of respondents affected the correlation that could be drawn on whether the attendance of festivals influence the volumes produced by region. Table 4.4 depicts that the region with the highest number of festivals, produced the highest production volume in hectolitres per annum. The Western Cape within the study had the highest number of participants (12), produced the highest volume (16622) and the highest number of festivals (10).

The Gauteng region produced 8088 hectolitres with 7 festivals. Kwazulu-Natal produced 14580 hectolitres with 6 festivals. The correlation between festivals and region would be stronger if participation was higher within the study.

Chapter 5: Discussion

The study was conducted within a closed niche, craft brewers competing within the overall alcoholic beverages market. The null hypothesis within the study was to explore whether to accept or reject the null hypothesis.

5.1 Research hypothesis The interest in craft brewing has been phenomenal of late therefore the research investigated whether craft beers do not impact the sales of mainstream brands in South Africa.

H0: Craft brewery has no impact on the sales of mainstream beer brands in South Africa.

H1: Craft brewery does impact on the sales of mainstream beer brands in South Africa. Within the study we cannot disprove the null hypothesis that craft brewing has no impact on the sales of mainstream beer brands in South Africa. However, the number of participants within the study was low, therefore impact could not fully be explored.

5.2 The effect on the research objectives 5.2.1 Primary objective: To assess the impact, if any, of craft brewing on main stream beer sales.

Craft brewing has shown to impact on 1% of the beer sales in South Africa. There have been numerous reports on forecasting that craft brewing can be a strong contender within the alcohol market, but this remains to be seen.

5.2.2 Secondary Objectives

 To determine if it is viable to invest into such a new and exciting opportunity

South Africa is plagued with high numbers of unemployment; therefore, entrepreneurs would pursue opportunities of new niches. Entrepreneurs normally have limited funding and do not always have all the funds to conduct proper research when venturing into a new opportunity. The initial on cost for brewing kit on a larger scale is quite substantial, therefore start up craft brewers will start with home brewing and then a brew pub.

The study determined that the market has changed that the consumer with viable income is looking for creativity and exclusivity within their experience of craft beer. Various articles and blogs indicate that the craft beer market in South Africa is booming. Craft brewers such as Redrock, Cape Brewing Company, Mitchell and Darling have proven that they compete within the overall alcohol market and increase their market share.

 To compare the growth between the American craft beer market versus the South African craft beer market

The awareness of consumers with respect to the range of flavours and styles of craft beer it is expected to increase in market share of craft beer. In the US the government is promoting the production of craft beer due to the positive contribution to the overall economy as per report from Craft Beer Market share and trends (2017).

The American Craft beer market has been in existence for more than thirty years whilst the South African craft industry sits with only a few years. The American industry has grown through the recession of 2008 and South African craft industry is currently growing amidst our economic volatility.

The study showed that ales closely followed by lagers is the favourite at South African festivals. Within the South African beer market, consumers are inclined to consume flavoured alcoholic beverages. The question arises will lagers stand the test of time, how will the craft brewer modify their lagers to remain competitive.

 What factors play a role in the increase in market share of the segment

Competition is rife within the beer industry, hence survival of the adaptable is an understatement. The craft brewer who understands their consumer and provide them with the experience of exclusivity and quality will be sustainable. As a craft brewer you need to be social savvy, young and old are using mobile devices, therefore you need to create awareness of your product at these platforms. Events marketing your brands needs to be blasted on social media to create hype and interest around products.

Consistent quality of raw materials remains a challenge whether you are a micro or macro brewer. Climate change has a fundamental effect on the quality and availability of raw material. The quality and availability of raw material would affect the quality of craft beer as well as the pricing of the raw material to produce a great beer. Water

shortages results in the availability of hops and barley for brewers as well alter the properties of the grain.

Therefore, the criticality of obtaining the right raw material to produce your high-quality beer is dependent on supplier relationships. Supplier partnering with local suppliers are essential to ensure that as a craft brewer they understand your requirements and pricing for raw materials can be negotiated so that as a craft brewer you can be sustainable.

 To determine what constraints microbrewers are facing

Macro brewers are aware of the change in consumer preferences with regards to obtaining exclusivity versus the normal mainstream brands. Throughout the years, macro brewers have taken over various craft breweries to compete within this niche market. Soweto Gold is the latest craft brewery being taken over by Heineken. Macro brewers have the funding to do proper research in consumer research whilst craft brewer relies on trial and error.

A macro brewer has the market in shelf space, supply and distribution. This can be a constraint for a craft brewer in where and how to distribute their product. Within this study most of the craft brewers distribute their own products to avoid incurring additional transport costs.

The marketing of alcohol has come under fire for years, and ensuring that all labelling includes not for consumption for under 18 years of age. Craft brewers rely on festivals in marketing their beers. An article in World News, September 2017 reported that a festival was scrapped due to an Islamist party protesting the event not to continue. The question arise will banning of festivals be a reality?

 What type of assistance provided to ensure that craft brewery is successful

The investment into a microbrewery is substantial and to date there are no funding from government to start up a brewery. An aspiring craft brewer would need to obtain their own investors. It has shown to be a draw card in the Western Cape with beer tours within the tourism industry. There are even beer routes being offered as an activity for tourists. There is a benefit for government to invest in craft breweries since it can help with building the economy at various levels, including tourism

 To determine the potential marketing strategies for the various beer types

Within the study festivals and social media were the highest form of marketing that craft brewers utilise. Social media has become a critical part of our daily lives. Consumers will tweet whether they are interested in a brand or completely hate it. This could completely damage your brand or place it amongst the best in its class.

Events such as festivals are marketed on social media which help with attendance and hence as a craft brewer promotes your brand. The festivals become an instant hit amongst followers through tweets of attendees and potential attendees.

 Impact of craft brewery in a more insightful and meaningful way

Craft brewing with its emphasis on creativity and community identity brings a different dimension to alcohol consumption. Alcoholism has been associated with violence but as a craft brewer you can change this perception in the production of low alcohol beers. Craft brewing has a strong association with the community in that the breweries are named after political connotations, sporting heroes and important events within the town or city. The strong association with the community makes craft brewing more accepting to stereotypes of “drinking and driving”.

5.3 Limitations of the study

The effectiveness of this study was limited due to the number of respondents due to the competitiveness within the market. The number of respondents could have been increased if researchers were able to attend a few festivals to conduct the survey with various craft brewers individually. I believe through conducting the survey in person I would have been able to increase the number of respondents as well as re-assure the participants that this is an academic study with no ulterior motives.

The question regarding revenue of their produced volumes could have been phrased better to avoid confusion. In conducting the survey in person, it would have allowed the participant to pose questions for clarity.

The questionnaire could have been modified as a quantitative and qualitative study to allow craft brewers to convey more details on the constraints that they face to be profitable. 67

5.4 Suggestions for further research

Due to the hype around craft breweries and their creativity, further research can be conducted within the economic contribution of craft brewers to South African economy. The study can be explored further on whether traditional township economies would possibly formalize the age-old tradition of brewing traditional beer production activities.

This study can be extended beyond the borders of South Africa into the markets of neighbouring countries. The linkages with sports events and other types of festivals can be investigated from a marketing perspective to determine if craft brewery can grow within other integrated business activities.

The findings of this research study have been synthesized to integrate previous research with current craft brewery practices in the South African context. This brings us the final chapter which concludes the entire study as follows in chapter six.

Chapter 6: Conclusion

Craft beer has been quite the buzz for the past few years in South Africa. Craft brewers are known to produce a range of interesting beers different from mainstream beers. The availability of variety from the norm provides craft brewers with a niche. The focus of mainstream brewers is on volume of sales, efficiency of production and profit. The craft brewer focuses on creativity and customer experience whilst producing product at a small profit.

Craft beer is less than 1% of total beer sales, therefore limited competition for mainstream sales. The beer culture movement has grown greatly with the increase in the number of craft brewers entering the market thereby assisting mainstream with beer sales through awareness of product. The increase in beer festivals creating awareness of craft beer has positively influence the awareness of beers.

Within this study, 192 craft brewers were approached to participate in the study. These craft brewers produced from 20hl to 1800hl per annum. Most of the craft brewers sell locally. There were some larger players within the study producing volumes at 1800 hl or higher. Most of these have brewpubs on site but also sell regionally and occasionally on international front.

The Western Cape is the leader in producing and marketing of craft within South Africa. It is apparent in the literature review that craft breweries such as Darling, Jack Black, Cape Brewing Company, Boston and Woodstock are the major players with their own pubs on site.

The primary objective of the study was to determine whether craft brewing is a contender to the sales of mainstream beer sales. The study as previously mentioned had a low participation rate, therefore it is inconclusive on whether craft brewing can impact mainstream beer sales in South Africa. The secondary objectives were to determine whether there is an increase in customer preferences towards craft beer. The study does show that there is an increase in new craft breweries being established within Gauteng and Western Cape on a yearly basis. The take overs of craft breweries, Stellenbrau and Soweto Gold by macro brewers such as Heineken is an indication that craft brewing is a niche that cannot be ignored.

The study also indicated that there is an increase in festivals where craft brewers market their brands and establish which of their brands are the favourites amongst consumers. This not only provides insight into consumer profiling but also increases marketing of brands. The study indirectly provided insight into which types of beers are the cash cows at festivals with most of craft brewers indicating that ales and lagers are the beer types of choice

The consumer of today, is tech savvy therefore it is no surprise that the marketing strategy of choice of craft brewers is social media, Facebook, twitter and festivals. The consumer easily tweets regarding their likes and dislikes of brands, this provides a perfect platform for marketing opportunity. The study showed the most cost-effective way of marketing for craft brewers through social media, Facebook, twitter etc.

The study explored the benefits of the craft brewing industry, whether it could assist with the downturn of the South African economy. The study explored whether craft brewing could address unemployment within South Africa through establishment of a 69

craft brewery which within the study employed on average 1 to 5 individuals. Most of the craft brewers run a brew pub which could provide an opportunity for more jobs, waiters and barman. The larger craft breweries employed greater than 10 people, therefore if the craft brewery is successful it could address unemployment in South Africa.

The craft brewing industry is in its infancy in South Africa and this niche market can be explored and expanded to address the economic shortfall within the country. Craft brewing in South Africa can emulate the United States model of success through the positive contribution the industry makes to the US economy.

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Annexure 1 Covering Letter

Confidentiality Agreement Letter for Participation in Questionnaire Title of the study: The impact of craft brewing on mainstream sales of beer Dear participant I invite you to participate in a research study entitled the impact of craft brewing on mainstream sales of beer. I am currently enrolled in the Masters in Business Administration (MBA) at the Nelson Mandela University (NMU) and I am in the process of doing my treatise. The purpose of the research is to determine the impact of craft brewers on the sales of mainstream brands. The research will also determine the constraints that craft brewers experience in competing within the alcohol market of South Africa. Your participation in this research project is completely voluntary. There are no known risks to participation and information supplied is confidential. Your responses will remain confidential and anonymous. Data from this research will not be distributed without permission from participants. If you agree to participate in this project, please answer the questions on the questionnaire as best you can. Thank you for your assistance in this important endeavour. Sincerely yours Carmen Martin

Annexure 2: Measuring Instruments

Craft Brewers Questionnaire General Information 1. Where is the Craft Brewery situated? o Eastern Cape o Western Cape o Gauteng o Northern Cape o Free State o KwaZulu-Natal o Limpopo o North West 2. Year established 3. Does your firm operate as a (please check all that apply)? o Regional Brewery o Microbrewery (10 000 to 180 000 litres of beer/year) o Contract brewer (all product produced exclusively by others) o Brewpub (25% or more production consumed on premises)

Annual Revenue Current year (Rands) Previous year Next year (projected) 4. Annual hectolitres produced Current state of operations # hectolitres sold Revenue attributed to hectolitre Produced by you under your own label (s) Produced by others for you Produced by you for others Total

Organisation 1. How many permanent employees at your craft brewery? o 1 to 5 o 6 to 9 o 10 to 29 o 30 to 49 2. Indicate the years of tenure of employees in brewery? o < 6 months o 9 months o 1 year o 5 years o > 10 years Marketing 1. How does the firm conduct marketing? o Website o Social media o Newspapers o Festivals 2. How many festivals does your microbrewery attend within a year? o 0 o 1 to 2 o 3 to 5 o >10 o Other ______3. Which of the following media provide you with the best marketing ability? o Social media (facebook) o Website o Newspaper o Festivals

Operations 1. Do you produce or sell any other alcoholic beverages (cider, liquor, wine, etc) Yes indicate which ______No 2. Do you operate a license bar (do not include tasting rooms) If yes o Onsite o Another location If No 3. Do you operate a restaurant? o Yes

o No 4. Do you sell any product outside South Africa? o Yes o No 5. In how many outlets do you distribute your products? o 1 o >3 o >5 o >7 6. Indicate the typical products where your product is sold o Large outlets o Small liquor stores o Local restaurants o Local pub and grub

7. How does your brewery obtain their raw materials for production? o Local suppliers o Local brewery 8. What type of beers do you produce? o Lagers o Ales o Ciders o Spirits 9. Which of these products are your major seller? o Lagers o Ales o Ciders o Spirits Policies and Procedures 1. Are all employees or volunteers that serve beer, on and off premises, fully trained in Responsible Beverage Service? o Yes o No 2. Do you batch code all of your beer? o Yes o No 3. Do you have a written product recall program in place? o 3 Yes o No 4. Have you conducted any special events over the past twelve months? o Yes o No 5. Do you plan on conducting any special events in the upcoming twelve months? o Yes

o No 6. Please indicate the period it took to obtain license for craft brewing? o 3 months o 6 months o 9 months o 1 year o > 1 year

Packaging and Transporting Exposures 1. How is the beer packaged? o Bulk o Draft o Bottle o Can o Other 2. Do you directly distribute any product yourself? o Yes (if yes specify the following) Distance ______Number of vehicles ______o No 3. Do you hire others to transport your products? o Yes o No

THANK YOU FOR TAKING PART IN THIS RESEARCH PROJECT.

Annexure 3: Ethics Clearance Form E

Annexure 4: Turnitin Report