An exploratory study of the challenges and opportunities facing the craft beer industry in central South Africa SP van der Merwe orcid.org 0000-0002-5144-0861 Mini-dissertation accepted in partial fulfilment of the requirements for the degree Master of Business Administration at the North-West University Supervisor: Prof TE du Plessis Graduation: May 2020 Student number: 20405847 ABSTRACT Craft beer has become popular across the world, and in America have grown to over 20% of the total beer sales. However, the craft beer industry of South Africa is still in its infancy with an estimated market share of around two per cent of the total beer market. Even though the craft beer industry in South Africa is growing, there are only limited academic research on craft beer breweries in South Africa. The primary objective of the study is to explore and describe the challenged and opportunities facing the craft beer breweries in central South Africa. The four secondary objectives help to achieve the primary objectives. The literature review of Chapter 2 provided the necessary background on the craft beer industry needed for the conduction of the empirical study. This study follows a qualitative research method with a descriptive research approach. Semi-structured interviews were used to collect data from eight participants. These eight participants are owners of craft beer breweries in North West, Free State and Gauteng provinces. Thematic analysis was used as the data analysis technique. Through the qualitative interview, a total of ten themes were identified, seven of which were challenges and three opportunities. The participants described several sub-themes and categories. The study concluded with recommendations on how craft beer breweries can overcome some of the major challenges and exploit opportunities. The key recommendation is a business model for a craft beer brewery that address several of the main challenges. The study also made some recommendations for future studies, which can build on this study. Keywords: Craft beer, craft beer brewery, challenges, opportunities, thematic analysis, qualitative research. i ACKNOWLEDGEMENTS Firstly, I want to thank God for putting the opportunity to do my MBA on my life path. Although this was one of the most challenging projects of my life, it was also unbelievably rewarding. Secondly, I want to thank the members of my group with special thanks to Jaco, Rina, and Handre. Without these group members, this process would have been significantly more challenging. I want to thank them for the multiple hours of phone calls discussing assignments, exams, and the challenges of the dissertation. I also want to thank my dad, Stephan for advice and guidance with my studies. I want to thank Francois Watson for his help and guidance with qualitative research. His guidance on coding and analysing the data were extremely helpful and significantly improved the quality of the study. Also special thanks to all of the participants of the study. All of the participants were friendly and accommodating. Without their time, this study would not have been possible. Last but not the least I want to thank my supervisor Prof Tommy Du Plessis. His guidance and time spent reviewing the dissertation are much appreciated. ii TABLE OF CONTENTS ABSTRACT ................................................................................................................. i ACKNOWLEDGEMENTS ...........................................................................................ii TABLE OF CONTENTS ............................................................................................. iii LIST OF FIGURES .................................................................................................... vii LIST OF TABLES ..................................................................................................... viii LIST OF ABBREVIATIONS ........................................................................................ix CHAPTER 1: NATURE AND SCOPE OF THE STUDY ......................................... 1 INTRODUCTION ........................................................................................... 1 DEFINITIONS ............................................................................................... 2 1.2.1 Craft beer brewery .................................................................................. 2 1.2.2 Types of craft beer breweries ................................................................. 3 1.2.3 Commercial brewery ............................................................................... 3 PROBLEM STATEMENT .............................................................................. 4 RESEARCH OBJECTIVES ........................................................................... 5 1.4.1 Primary objective .................................................................................... 5 1.4.2 Secondary objective ............................................................................... 5 THE SCOPE OF THE STUDY ...................................................................... 5 1.5.1 Field of study .......................................................................................... 5 1.5.2 Industry ................................................................................................... 6 1.5.3 Geographical demarcation ...................................................................... 6 RESEARCH METHODOLOGY ..................................................................... 6 1.6.1 Literature review ..................................................................................... 7 1.6.2 Empirical study ....................................................................................... 8 LIMITATIONS OF THE STUDY .................................................................. 11 THE LAYOUT OF THE STUDY .................................................................. 11 CHAPTER 2: LITERATURE REVIEW .................................................................. 13 iii A HISTORICAL OVERVIEW OF BEER ...................................................... 13 2.1.1 The origin of beer ................................................................................. 13 2.1.2 The battle between beer and wine ........................................................ 13 2.1.3 Monastery breweries ............................................................................ 14 2.1.4 The discovery of hops........................................................................... 15 2.1.5 Taverns, the first commercial breweries ............................................... 15 2.1.6 Early regulation and taxation ................................................................ 16 2.1.7 The discovery of yeast .......................................................................... 16 2.1.8 Innovations leading to the commercialisation of beer ........................... 17 2.1.9 The rise of lagers .................................................................................. 17 2.1.10 The shift to american pale lagers ...................................................... 18 THE RISE OF THE CRAFT BEER INDUSTRY ........................................... 19 2.2.1 Introduction ........................................................................................... 19 2.2.2 Craft beer in america ............................................................................ 20 2.2.3 Craft beer in europe .............................................................................. 21 2.2.4 Craft beer in south africa ...................................................................... 23 2.2.5 Growth phases of the craft beer industry .............................................. 24 CHALLENGES OF THE CRAFT BEER BREWERIES ................................ 25 2.3.1 Introduction ........................................................................................... 25 2.3.2 Supply chain management ................................................................... 26 2.3.3 Quality Control ...................................................................................... 29 2.3.4 Marketing .............................................................................................. 30 2.3.5 Regulation and taxation ........................................................................ 34 2.3.6 Competition .......................................................................................... 36 2.3.7 Summary .............................................................................................. 38 OPPORTUNITIES IN THE CRAFT BEER INDUSTRY ............................... 39 2.4.1 Introduction ........................................................................................... 39 iv 2.4.2 Craft beer tourism ................................................................................. 39 2.4.3 Cooperation among craft beer breweries.............................................. 41 2.4.4 Wineification of beer ............................................................................. 43 2.4.5 Summary .............................................................................................. 43 CHAPTER 3: RESEARCH METHODOLOGY ...................................................... 44 INTRODUCTION ......................................................................................... 44 RESEARCH APPROACH ........................................................................... 44 DATA COLLECTION