Some call it the beer renaissance. Others
say it is part of a wider change in consumer taste and a shift
toward the “premiumization” in consumer goods. Whatever the
explanation, the fact is that Americans are increasingly
captivated by craft beers. The present article will discuss
recent trends in the craft brewing industry and present the
R&D tax credit opportunity available to support innovative
The Research &
Development Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
New or improved products,
processes, or software
Technological in nature
Elimination of uncertainty
Process of experimentation
Eligible costs include
employee wages, cost of supplies, cost of testing, contract
research expenses, and costs associated with developing a
patent. On December 18, 2015 President Obama signed the bill
making the R&D Tax Credit permanent. Beginning in
2016, the R&D credit can be used to offset Alternative
Minimum tax and startup businesses can utilize the credit
against $250,000 per year in payroll taxes.
The Brewers Association, a Boulder,
Colorado-based organization that gathers more than 2,500
members, defines craft brewers using the following three
adjectives: small, independent, and traditional.
In practical terms, this
means that craft brewers have an annual production of 6
million barrels or less. Less than 25 percent of their
businesses is owned or controlled by an alcoholic beverage
industry member that is not itself a craft brewer. And the
majority of their products derive from traditional or
innovative brewing ingredients and their fermentation.
The craft beer market
includes the following different segments:
Microbreweries, which produce less than 15,000 barrels
(17,600 hectoliters) of beer per year with 75 percent or
more of their beer sold off-site.
II. Brewpubs, restaurant-breweries that
sell 25 percent or more of their beer on site.
III. Regional Craft Breweries, independent
regional breweries with a majority of volume in
“traditional” or “innovative” beer(s).
The U.S. Craft Beer
Increasing demand for high-quality,
full-flavored beers have made craft breweries a vibrant and
flourishing economic force. In 2012, small and independent
craft brewers contributed $33.9 billion to the U.S. economy
and provided more than 360,000 jobs.
Data from the Brewers
Association shows that sales of craft beers registered a 17.6
percent increase in 2014, in comparison to only 0.5 percent
increase for the overall beer market. Overseas exports of
craft beer have also escalated, up 36 percent from 2013
In fact, the world’s
thirst for U.S. craft beers has never been higher. American
brewers now export to countries whose beer styles they once
tried to emulate. In a recent contribution to the Financial
Times, Bob Pease, President of the Brewers Association,
pointed out that “Thirty years ago, US beer in terms of flavor
was pretty much considered a joke – an industrial lager.
[European] countries did not take American beer seriously.
American craft brewers have changed that.”
The following table,
based on data from the Brewers Association, shows the
evolution in the number of breweries in the U.S.:
This recent growth in
craft brewing can be largely explained by a change in
consumers’ taste. Beer drinkers seem to have woken up “to the
pleasures of subtle, carefully crafted flavors.”
Craft breweries are
present all over the country. In 2012, the top five states in
craft beer output were:
California with $4.7 billion;
Texas with $2.3 billion;
New York with $2.2 billion;
Pennsylvania with $2 billion;
Colorado with $1.6 billion.
The unprecedented growth of the craft beer
industry comes hand-in-hand with its own set of challenges.
Among the most prominent obstacles is competition, both at the
national and international levels.
As a tsunami of new
players enter the market, it is increasingly difficult to
differentiate one’s product and to create a loyal client base.
Faced with so many options, craft beer lovers fail to commit
to a particular brand. They rather try the latest than go back
to what they already know.
In addition to the
growing number of craft breweries, there is competition from
traditional companies who have invested in their own versions
of “craft-like” beers, such as MillerCoors’ Blue Moon and
Anheuser-Busch’ Shock Top.
In this highly
competitive scenario, success stories are often outnumbered by
companies that are unable to see a profit. Breweries must
often face a suite of operational challenges, including
distribution, limited shelf-space and taps, along with varying
The consolidation of a
national presence is also a major challenge to craft brewers.
Unable to expand operations, many breweries are doomed to
share their restricted, local markets with a growing number of
Finally, despite the
positive context surrounding craft brewers, the lack of
education about how approachable, food-friendly, and tasteful
their products are remains an obstacle to a more widespread
New craft breweries
should engage an R&D tax credit service provider with a
fee deferred start-up program.
With regards to the many challenges facing
craft brewers, Bryan Simpson, PR director for Colorado-based
New Belgium Brewing Company, states that “the biggest way to
stay relevant is by pushing yourself to innovate.”
In fact, long-term success in the craft beer market seems to
be directly related to the capacity of keeping up with the
fast-paced creativity and innovation that are at the very
essence of this industry.
Two areas stand out when
it comes to craft brewing innovation trends:
I. Beer Styles and Product Innovation
With a pronounced and
unique flavor profile, India Pale Ale (IPA) is the fastest
growing craft beer style. The bitter, hoppy IPA currently
accounts for 21 percent of all craft beer sales by volume and
experts believe it will experience continued
This positive prospect
has encouraged innovation within the category, which includes
the development of Session IPAs. Consisting of low-alcohol
versions of traditional IPAs, Session IPAs can be seen as an
effort to compete with the light lager category, which gather
the top four beers in the country - Bud Light, Coors Light,
Budweiser, and Miller Lite.
Among the biggest U.S.
craft brewers, at least five already produce year-round
Session IPAs, namely, Boston Beer Co., Lagunitas, Duvel
Mortgaat, and Stone. An increasing number of brewers are
offering seasonal editions.
Another important trend
in craft beer styles is the expansion of sour beers, which
feature intentionally acidic or tart taste. Similar to wines,
this category of beer is extremely food-friendly and has
therefore attracted a growing number of consumers. For many,
the distinct nature of sour beers represents a change in
perspective of what beers can actually be.
Sour beers can vary
considerably in flavor profiles, both through the strain of
souring bacteria present and the way they are introduced.
Fruits and other additives contribute to an even wider range
of possibilities, opening the way for virtually endless
Gluten-free is yet
another promising area for craft beer innovation. According to
the National Foundation for Celiac Awareness, approximately 1
percent of Americans have celiac disease. Market
research firm Mintel estimates that annual sales of
gluten-free products increased 63 percent between 2012 and
2014, reaching $8.8 billion.
Traditional beer is
listed among the top beverages to be avoided by those
suffering from gluten allergy or intolerance due to the
presence of certain ingredients, such as barley and wheat.
However, innovative gluten-free beers are multiplying, made by
either a chemical process that reduces the level of gluten in
barley malt, or with alternative ingredients, such as millet,
rice, sorghum, buckwheat, and corn.
Craft brewers are well
equipped to tap into the growing gluten-free market. Their
challenge is to encounter the best formula, capable of
satisfying the thirst of celiac consumers while attracting the
attention of curious ones. Milton, Delaware-based craft brewer
Dogfish Head entered the gluten-free market in 2011. The
company’s Tweasonale beer is based on a mix of sorghum,
buckwheat honey, and pureed strawberries. According to
Brewmaster Sam Calagione their product has been so successful
that “many of the ale’s purchasers don’t follow a gluten-free
diet and simply try it out when they see it at a store or
Craft brewers willing to
enter the gluten-free segment must adapt their production
processes and facilities. Attention to the risk of
contamination and compliance with labeling regulations are key
to navigating this promising market.
Product innovation is at
the heart of the craft beer industry.
II. Packaging and Labeling
In a market where
customer loyalty is scarce, producers cannot rely on quality
to be the sole differentiator. Breweries must catch consumers’
eyes, make them notice their beers. To this end, various
companies are redesigning their packaging. Examples include
California’s Firestone Walker, Ballast Point, and Green Flash;
Utah’s Uinta; Pennsylvania’s Weyerbacher; Minnesota’s Summit;
Indiana’s Upland; and North Carolina’s Lonerider and Natty
In an effort to stand
apart, New Belgium, U.S. fourth largest craft brewer, has also
resorted to changes in packaging. Unveiled in 2014, the
innovative design re-imagines the company’s iconic and playful
watercolor imagery, presenting a colorful and contemporary
Innovative labeling is
an important tool in obtaining new drinkers. In the words of
New Belgium’s PR Director, “New labels provide people with a
reason to give a beer a second look and perhaps try something
they’ve walked past for years.”
labeling, an important trend in craft beer packaging is
canning. The craft can revolution began in 2002 when Longmont,
Colorado-based Oskar Blues Brewery started offering its
flagship Dale’s Pale Ale in 12-ounces cans. Over thirteen
years later, there are currently 2,486 canned beers of 96
different styles produced by 512 breweries all over the U.S.,
according to the website, craftcans.com.
This packaging option,
though unorthodox for beers, offers various advantages,
including ease-of-use in outdoor spaces, protection against
light damage, and reduction of shipping costs due to lower
Important advances have
been necessary to help overcome the perception that cans
affect the taste of beers or that cans are simply not where
you find high-quality beers. Now that acceptance is higher,
craft brewers are turning towards canning innovation. This is
the case for the pioneer Oskar Blues, which introduced cans
with re-sealable caps and were the first U.S. brewery to sell
nitrogenated beer in cans. Also based in Colorado, Hall
Brewing not only sells canned beer, but also offers canned mix
packs, which have been warmly welcomed by consumers who want
to try different craft beers.
In a groundbreaking
effort to take advantage of canning technology, Boulder,
Colorado-based Upslope Brewing Company has created the Barrel
Aged Brown Ale. Available in 19.2 ounce cans, the beer is
designed to be stored and enjoyed months or even years after
its production, as it matures and gains character. It is a
canned beer you can age.
One-way kegs are also
gaining increased attention among craft brewers. They can be
blow-molded and filled for a single use, therefore replacing
expensive and heavy stainless steel kegs, which have long been
the standard for the industry. Like other pieces of
equipment in the brew house, metal kegs constitute an
investment and therefore generate responsibilities concerning
maintenance, storage, etc. One-way kegs alleviate these
responsibilities and help save time and reduce overall
expenses, particularly when there are long distances between
the brewery and the bars.
Kentucky-based Against the Grain Brewery has implemented
one-way kegs to meet part of its shipping needs. In addition
to lowering up-front costs, from $60-$100 for a 30 liter steel
keg to $24 for the one-way ones, the change has reduced both
the time and money spent in waiting for kegs to be returned.
The company is also saving the chemical, labor, water, and
energy previously used for cleaning steel kegs before filling.
One-way kegs are also an
interesting solution for those willing to tap into the
overseas market, particularly in a scenario of growing
international interest in U.S. craft beer.
The most prominent
one-way keg producers are headquartered in Europe, including
the Dutch KeyKeg, which has offices in Chicago, Illinois and
is the supplier for Against the Grain. The success of these
companies sheds light on an interesting opportunity for
brewing-related innovation in the U.S.
These are very exciting times for American
craft brewers. Unprecedented demand promises to reward those
investing in innovation as a means to stand out in an
increasingly competitive market. Federal and state tax credits
are available to support innovative efforts in the craft beer