Is craft beer the next big thing in wine? No — not if you’re asking if wineries are going to start putting in tanks for IPA (India Pale Ale) alongside their racks of expensive french oak barrels.

But yes — maybe — if you are thinking about things in terms of market spaces. The wine market space and that of craft beer are increasingly overlapping as craft beers infringe on wine’s turf (and low alcohol wines threaten to do the same for beer). And if the common battlefield isn’t huge at this point, it is certainly growing and warrants attention.

Anatomy of Craft Beer

A Craft beer producer, according to CraftBeer.com, the Brewers Association website, has three essential qualities:

• Small: Annual production of 6 million barrels of beer or less.
• Independent: Less than 25% of the craft brewery is owned or controlled (or equivalent economic interest) by an alcoholic beverage industry member who is not themselves a craft brewer.
• Traditional: A brewer who has either an all malt flagship (the beer which represents the greatest volume among that brewers brands) or has at least 50% of its volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor.

Although by definition craft beer producers are relatively small, the market category has made a lot of news recently because of its rapid growth, both in terms of number of retailers who carry craft beers and total sales. Rapid growth from a small base — sound familiar?

It’s the growth that gets your attention. Remember Moscato? It surged from a small market niche to become the next big thing and is according to one report is now the third best selling (by volume)  white wine varietal in the U.S. after Chardonnay and Pinot Grigio and ahead of Sauvignon Blanc. Is craft beer the next Moscato?

The Next Moscato?

I put the question this way because the particular beer that provoked this post was actually made with Muscat grapes. It was a 12 ounce  bottle of Midas Touch from Dogfish Head Brewery. that I bought for $3.50 at the Metropolitan Market up the street.

Although Midas Touch probably wasn’t made with wine drinkers strictly in mind, it is certainly being marketed to the wine space as the videos below will show you and I have to say that its complex aromas and flavors (plus wine-like 9% alcohol by volume) made it a beer that can stand up to many wines in a sip by sip comparison.

The brewery says that “This sweet yet dry beer is made with ingredients found in 2,700-year-old drinking vessels from the tomb of King Midas. Somewhere between wine and mead, Midas will please the chardonnay and beer drinker alike,” and I can’t really disagree. I found it very pleasing (and not overwhelmed by the addition of saffron as you might expect), although this is clearly a matter of taste. Sue was less impressed, saying that it didn’t taste like beer and wouldn’t be her choice over wine.

Midas Touch is not a typical craft beer, but it demonstrates pretty well what craft beer is capable of doing in competition with wine.  It is a complex and interesting beverage that pairs well with food — just like wine. It tells a story that draws in the consumer and deepens the attachment — just like wine.

New and Improved!

Innovation is a hot topic in the beverage business these days and craft beer presents more opportunities for innovation and product development than most wines if you are aiming at that market segment. Midas Touch, based on an ancient recipe using exotic ingredients — is an example of how far the innovations can go.

Interestingly, complexity comes at a lower relative price with craft beer than with wine, which is something to consider. The difference between the lowest and highest priced grocery store wines is huge — sometimes a factor of 50 or more — with $2-3 per bottle equivalent for a 5-liter Franzia box at the low end and $100 or more at the top is not unusual at an upscale supermarket.

By comparison, the exotic product premium for craft beers is relatively low. The Midas Touch was a bargain at $3.50 or about $7.00 per 750 ml bottle equivalent in the sense that it was not very much more expensive than basic beers and ales.  I have to admit that it was a lot more interesting to drink that a lot of $7 wines that I have tasted even if, like any particular wine, it is not necessarily to everyone’s taste.

And even the most exotic cult beers (like the locally fabled Pliny the Elder) can often be found for $10-$20. So the Screaming Eagle craft beer equivalent can be purchased for the price of a good but not exceptional bottle of wine. You can see how that might attract the attention of some wine drinkers, especially young ones. And I guess it has.

Wine’s Counterattack?

A lot of the attention has been focused on alcohol levels. Some craft beers are even more potent than the 9% abv Midas Touch, which puts the beer in ballpark of wine.  Certainly high octane beer should be treated like wine and sipped (wine glasses are often recommended) not gulped.

But not all craft beers are this boozy and in fact I think that their lower alcohol levels (compared with wine and spirits)  can be a competitive advantage when you look at the market that way.

The trend towards lower alcohol wine (like the 5.5% abv line of wines that Gallo recently launched in the British market)  might be seen as wine trying to capture some of the beer market through product innovation.

Craft beer drinkers often display the same sort of insane devotion and geeky attachment that we see in wine enthusiasts and there are even interesting beer tourist destinations like Bend, Oregon — an old mill town that is home to 14 craft breweries within easy walking (or stumbling) distance of each other along the Bend Ale Trail, which attracts some of my university students as a Spring Break destination.

Midas Touch

So craft beer has a lot in common with wine and maybe a couple of advantages. With these products more widely available and a growing customer base that is ready and willing to experiment, I think it is plausible and wine and craft beer will increasingly share market space and must take that competition into account.

Will some wineries take the next logical step and start brewing small lot beers? Well, it isn’t a crazy idea where regulations permit it. Compared to wine with its single annual harvest, beer is a Chateau Cash Flow business. Breweries can operate pretty much year round as one batch it bottled and another fills the tanks.

Cash Flow Ale? Maybe that’s how beer-drinking Midas got his golden touch!