Fairness and Accessibility.  These are probably not the first words that come to mind when you think of craft beer and yet they were two words that kept coming up during our interviews with founders and master brewers from some of the top craft breweries in the world.

The craft beer industry in the US is booming.  While annual beer revenues in the US continue to decline, craft beer revenues are increasing at an annualised rate of approximately 20%.  So, what is generating this growth and how can a new entrant in an increasingly competitive industry best set itself up for success?

Our task, for our month-long Global Consulting Project as part of the MBA programme at the Cambridge Judge Business School, was to consider these questions and advise Eastern Market Brewing Co., a start-up community-based craft brewery in Detroit, on its optimal business model, and pricing and expansion strategies.

Our project started with primary market research, which involved visiting over 20 breweries on the East Coast (Boston, Vermont, and Maine) and Mid-West (Michigan and Illinois) to interview founders and brew masters to learn about what had led to their success and to gain other useful insights for our client.

We were amazed by the collaborative nature of this industry and the willingness of the owners of successful craft breweries to take time to talk to a potential competitor and provide useful insights.

Unsurprisingly, the single most important factor for craft breweries was the quality of their beer.  The most successful craft breweries made sure to source the highest quality ingredients even though this increased their costs and reduced their margins.  Many stated access to quality ingredients as being the single greatest barrier for new entrants, as competition for quality raw ingredients is high and the suppliers are likely to provide their best ingredients to existing breweries with whom they have developed relationships.

Some of the craft breweries we met had developed cult followings.  Demand for their beers well and truly exceeded supply.  Often the breweries were capacity restrained and therefore they could not produce sufficient beer to meet the demand.  Customers would drive from miles away and wait in line for hours to ensure that they could get their hands on some of the beer before it sold out (which it always did).

With so much excess demand, you would expect the craft breweries to increase their prices.  However, they do not.  Why was this the case?

A significant factor, which we were not taught at business school, was the importance of business philosophy to the success of so many of the craft breweries we visited.  Many successful craft breweries seemed to make their key decisions with the primary focus on their customers, not profit-optimisation.  At the heart of this was the philosophy for many breweries that their beer should be accessible to all and that the price should be set according to what is fair for the average customer not according to what some customers are willing to pay.

During our brewery visits we have seen different business philosophies which have resulted in highly successful businesses.  Some have managed to be incredibly successful by keeping a limited supply of their beer and creating a culture of luxury and exclusivity by charging high prices and making it difficult to get hold of the beer.  However, the breweries that we have been most impressed with have, at their heart, been driven by what is fair and what makes their beer accessible to all.

So, what would be our top three tips for a start-up craft brewery?  First, ensure that you are producing the highest quality beer possible.  Second, understand your business philosophy and what you stand for as a craft brewery.  Third, ensure authenticity by making sure that your business model matches your business philosophy and that you can effectively communicate your brewery’s story to your target market.