Is Craft Beer Running Out of Flavors?

On Monday, April 5, 2021

Has Craft Beer Flavor Innovation Played Itself Out?

A Conversation With Tomme Arthur

Co-founder and COO, The Lost Abbey

Source: https://craftingastrategy.com/blog/has-craft-beer-flavor-innovation-played-itself-out

In late November 2019, Tomme Arthur reached out to Sam Holloway at Crafting A Strategy and asked a few questions about innovation in craft beer, hard seltzer, and strategies for small and independent craft breweries in 2020 and beyond. Tomme was preparing for a speech to kick off Brewbound Live in December 2019, and if you haven’t had a chance to watch that speech, he absolutely nailed it. We found working with Tomme to be extremely helpful in our own thinking, and we asked Tomme if we could create this blog so other people could benefit from the process we went through to decide how craft breweries should view innovation in 2020 and beyond.

This blog will take you through the thought process Sam Holloway, Mark Meckler (CAS V.P. of Strategy & Curriculum) and CAS Member Expert, Jeff Althouse (Oakshire Brewing, Eugene, OR) used to craft a response to Tomme’s innovation questions. We think it will be useful to any craft brewery owner, brewer, or beer industry stakeholder who is worried about innovation and wondering if we’ve reached the limits of innovation when it comes to beer flavors. Here were Tomme’s initial questions (sent via email, below):

Role of Innovation in beer flavors:

1. I have this sense that true innovation of flavors may no longer be the driver in a crowded marketplace as it would appear right now that almost every flavor permutation under the sun has been attempted. In this way, it feels that brewers might not be in a position to create differentiation needed to set their business apart. So in a sea of imitation, what are the expectations (both for the consumer and producer)?

Strategic threat from hard seltzer:

2. Do you see hard seltzer as a true disruptor/radical innovation?

3. If seltzer isn’t a disruptor, is it more like a 4^th category (wine, beer, spirits + seltzer)

In short, our answers were:

1. Yes. If you only innovate within the standard beer product parameters, yes we are reaching the limits of innovation. However, only focusing on product innovations and ignoring component innovation and architectural innovation is limiting your breweries ability to survive.

2. No. Hard seltzer is not a true disruptor, it is an architectural innovation

3. Yes, hard seltzer is more like a 4^th category. And, somewhat concerning to us, seltzer is more scalable because it can be a component of other innovations (like when you add gin to tonic, champagne to orange juice, or vodka to tomato juice and tabasco)… Craft beers and their dominant flavor profiles have always hindered their ability to be combined with other components where wine and spirits have found ways around this limitation.

What follows is a look at innovation theory (Henderson and Clark 1990) to support our answers to Tomme’s questions. We use pictures and tables to define, develop, and apply the different types of innovation to the craft beer industry of today and the future of innovation. If you have additional questions, send us an email or visit our website. We also offer a free newsletter each week that discusses how to run a better beer business. If you like what you see, you can join hundreds of craft brewing entrepreneurs in 19 countries who belong to our online community. At only $99/year, we feel it is the best value available in craft beer business education.

Four Main Types of Innovation

Adapted from Henderson and Clark (1990)

There are four main types of innovation and they vary based on whether you are changing the components of a product or process (new/different equipment or processes) or whether you are changing the way your existing processes "talk to each other". At Crafting A Strategy, we believe strongly that most craft brewers only innovate in one fashion - incremental product innovations. If craft brewers want to continue to benefit from innovation, they need to think more broadly about their whole production process, and not simply the hops/yeast/barley or incremental input changes.

General Model For Types of Innovation Adapted from Henderson and Clark (1990)
Impact on Core Technologies and Core Components	Changed	Modular Innovation	Radical Innovation
	Reinforced	Incremental Innovation	Architectural Innovation
		Reinforced	Changed
		Impact on Architectural Concept: The Way the Components Interact With Each Other

General Model For Types of Innovation Adapted from Henderson and Clark (1990)
Impact on Core Technologies and Core Components	Changed	Modular Innovation Occurs when a new core technology, embodied in a component, is “plugged into” a fundamentally unchanged product architecture	Radical Innovation Involves changes along both dimensions (changes in core technologies and in the way components interact with each other)
	Reinforced	Incremental Innovation Any change that builds on a firm’s component technology and that occurs within established product architecture	Architectural Innovation Leaves the core technological concepts of the components intact, but changes the way they are designed to work together
		Reinforced	Changed
		Impact on Architectural Concept: The Way the Components Interact With Each Other

General Model Applied to Craft Beer Product Innovations Adapted from Henderson and Clark (1990)
Impact on Core Technologies (Production Equip, Fermentation Process, etc.)	Changed	Modular Innovation Barrel fermented sours, Barrel aging, Decoction mashing, Traditional dealcoholizing via reverse osmosis Belgian lambics, Bourbon barrel aged stouts, Heineken 0.0	Radical Innovation Genetically modifying yeast to ferment without producing alcohol & tunnel pasteurization instead of flash (in-line) pasteurization Playground IPA (0.0 ABV)
	Reinforced	Incremental Innovation Changing hops, yeast, or other input without changing component technologies IPAs, Brut IPAs, Hazy IPAs, Pale Ales, Stouts, Lagers, etc. Craft Brewers Are Reaching The Limits of Value to This Type of Innovation – Assuming we are solely talking about the technical utility of the beer product itself	Architectural Innovation Lactobacillus reaction & pH drop in conical fermenter instead of in kettle to scale up sour beer production beyond the volumetric constraint of the brewhouse kettle, boiling after pH drop to produce sour beer Lost Abbey additional port midway up the sidewall on a brite tank in order to circulate the beer prior to bottling allowing for more homogeneous mixture of priming sugar Eliminating the brewhouse, utilize fermentation and packaging equipment only, starting to produce hard seltzer
		Reinforced	Changed
		Impact on Architectural Concept: The Way the Components Interact With Each Other

General Model Applied to Craft Beer Product Innovations Adapted from Henderson and Clark (1990)
Impact on Core Technologies (Production Equip, Fermentation Process, etc.)	Changed	Modular Innovation Modular innovations mostly rely upon access to deep pockets. Breweries seeking dramatic modular innovations should cozy up to strategic buyers, private equity, or merge with each other to drive down average costs & free up cash	Radical Innovation Radical innovations require the high intellectual capital and ingenuity of architectural innovations, coupled with luck, timing, and the financial resources to fail often while seeking truly dramatic shifts in production processes and product architectures simultaneously
	Reinforced	Incremental Innovation Homebrewers that went pro are reaching the limits of the value derived from incremental product innovations. A talented homebrewer running a craft brewery will innovate in this space until it loses its value and they become stuck. You must grow your talents in the other three quadrants to overcome the limitations of incremental innovation	Architectural Innovation Architectural innovations require ingenuity (think MacGyver). Recombining existing assets in ways not previously done. The key investment here is intellectual investment and human talent. Acquire the talent (business and brewing talent) you don’t have or develop it within yourself. Attend conferences, ask questions, listen, learn.
		Reinforced	Changed
		Impact on Architectural Concept: The Way the Components Interact With Each Other