A new study on Ontario’s craft beer industry takes a systems-wide approach to dealing with the sustainable growth challenge, and how we can deliver shared prosperity — with important insights for brewers and industry stakeholders everywhere.
The brewing industry appears to be going all out for sustainability. This is good news: Brewing is a global industry generating a huge ecological footprint — ripe for serious improvement. There is much work to be done at all levels.
A new study — 20 by 25: Crafting the Future — explores sustainability in craft brewing and finds that, while the industry is in its ascendancy, there are significant risks to growth on the horizon. The solutions are already available, yet the real opportunity requires us to go beyond simple sustainability and efficiency initiatives, and develop a system-wide approach to industry change.
A great prize
The main focus is on Ontario, where growth has been rapid and craft beer is a major success story. Having developed an enviable reputation for producing great-tasting craft beers, Ontario now boasts more than 234 independent craft breweries, spread across more than 110 communities. The industry already accounts for a six percent share of the total market for beer, and rising — contributing roughly $1 billion towards the economy each year; and there’s more to come, with over 100 new breweries in the pipeline.
Outwardly, there’s no sign of things slowing down anytime soon: According to Goldman Sachs, the Craft Beer segment is predicted to comprise around 20 percent of total beer volume globally in the next five years. This could see the industry in Ontario more than triple by 2025, generating an extra 25,000 direct and indirect jobs, while yielding an overall annual economic impact in excess of $3 billion for the Province.
This represents an opportunity ripe for the taking — although expanding craft beer production by 300 percent is not without its challenges; there are a number of important risks and constraints that will need to be addressed: Rapid growth can lead to the market overheating, impacting resource availability and price. These effects can be further exacerbated by climate change events — which are increasing in frequency and intensity around the world — causing major problems with the yield and quality of crop harvests (ex: the 2015 drought caused market prices for hops and barley to increase by 35 to 50 percent). Can craft brewers cope with such resource shortages in the future — and will they be able to pass any associated cost increases on to their customers?
This level of growth also means that craft brewery operational footprints will increase the load on local infrastructure, communities and the environment. This can affect the industry’s license to operate, as well as the bottom line.
While the business landscape is challenging — with issues familiar to many industries — none of the key risks are insurmountable. There is also a good platform to build on; Ontario’s craft brewers tend to have sustainability and a local community benefit mindset built into their DNA. Key strengths include high-quality products, a diverse range of income streams, investment in new technologies, and reduced water consumption. In many cases, leading craft brewers are already amongst the most sustainable breweries in the world.
Ontario craft brewers will, no doubt, continue this great work — but, further innovation is vital. Sustainable brewing needs to go way beyond water, energy, carbon and other efficiency measures; they will need to enhance all dimensions of business performance to deliver continued and sustainable growth, while delivering the best impact for their communities and the wider economy. A new model is needed.
New model — smarter growth
BLOOM and Earthshine developed the 20 by 25 model, based on an objective yet practical vision for Ontario’s craft beer industry to ride the global craft beer wave and achieve a sustainable 20 percent market share by the year 2025. The new model includes a range of strategies that address the interests of individual craft brewers, and the need for system-wide change — focused on three key dimensions:
- Selling the most sustainable craft beer in the world
- Produced by the most sustainable craft brewers in the world, and
- Enabled by a supportive ecosystem and policy landscape.
The pathway to expanding sustainable production is based on craft breweries operating within their local environmental, community and resource limits. This involves sustainable sourcing, as well as closed-loop operations powered by renewable energies, proactive watershed stewardship and responsible by-product management. All good stuff.
Generating responsible growth in sales is all about differentiation strategies — with sustainable craft brewers standing out from the crowd — diversified business models, and harnessing the opportunity for sustainable craft beer tourism, akin to the ‘Sonoma Valley’ of craft beer.
But there is another vital ingredient for real industry change: At the heart of the 20 by 25 model is an approach that brings together key stakeholders, and leverages all available resources, as part of a coordinated strategy to achieve a new way of doing business in this industry.
A beating heart
Sustainable craft breweries, quite literally, provide a beating heart at the centre of resilient local communities — creating jobs and shared prosperity, but also helping to rejuvenate community development, delivering genuine two-way synergies and benefits.
And, while there are many benefits to be gained through enhancing the capabilities of individual breweries, the real power comes through developing and nurturing the entire craft beer economic ecosystem — the interconnected organizations that build community impact, shared prosperity and long-term resilience for the benefit of all.
Time to get radical
There’s clearly an opportunity for the mainstream brewers to get much more radical, so it’s great to see commitments from multinational brewers towards their definition of a more sustainable future: Carlsberg is developing ‘Together Towards Zero’ — working towards zero emissions, zero waste, zero accidents and zero irresponsible drinking; Heineken is ‘Brewing a Better World’ by prioritizing resource stewardship, responsible consumption, health and safety, and improving communities; SAB Miller is using the Sustainable Development Goals as a framework to help its customers, producers and all stakeholders ‘Prosper’; and AB InBev is dreaming of a ‘Better World,’ one that is safer — because all people drink responsibly — cleaner and more sustainable.
While these initiatives are commendable, the current agenda simply scratches the surface. Incremental efficiency improvements are necessary, but they are not sufficient. There are two key strategic sustainability challenges that are often overlooked:
- First, growth has to be sustainable; not just for the sake of the planet, but so that we can generate economic value into the future. This means brewers need to deliver absolute decoupling between growth and their operational loading on local infrastructure, communities and the environment. They need to do the math.
- Second, we must ensure that the economic value generated is more equitably distributed. Growing levels of inequality cannot be ignored. Income disparities have become so pronounced that America’s top 10 percent now average nearly nine times as much income as the entire bottom 90 percent. Warren Buffett summed it up nicely: “The tsunami of wealth didn’t trickle down. It surged upward.”
Brewers of all shades will need to go much further if they are to deliver continued and sustainable growth while delivering the best impact for their communities and the wider economy.
While Anheuser Busch also recently launched its Elevate initiative — designed to take its 11 acquired craft beer brands to the ‘next level’ — its commitment towards better communities is little more than mild philanthropy. Ultimately, ownership is still concentrated in the hands of remote shareholders — still not great for sustainable and shared local prosperity.
A new collaborative conversation
The industry is now at an important crossroads: Carry on with incremental improvements and hope that everything works out fine — or maximise the opportunity and explore new models for sustainable growth. The business case for change is certainly compelling — with continued growth and prosperity at stake.
Of course, industry change requires much heavy lifting — and genuine collaboration.
20 by 25: Crafting the Future is just the start of an ongoing conversation. The next step is to bring together all industry stakeholders, and leverage all available resources, as part of a coordinated strategy to achieve a new direction for this industry.
An industry summit to bring key stakeholders together is in the offing for early 2018. It will be fascinating to see what happens next. Stay tuned. Stay engaged.