Craft Beer
& ITS PLACE IN A FLAT WORLD
The “Flat Earth Hypothesis” is a perspective promulgated by Thomas Friedman in his book “The World is Flat” [Friedman], in which Friedman posits that the forces of globalization and technological change have led to a new world order which is a level playing field for international trade. In Friedman’s brave new world, there are no local producers or protected markets: All businesses have to compete in the same global marketplace. Given the vast economies of scale enjoyed by large NMCs, how then should local businessmen and entrepreneurs cope?
In the same book, Friedman recommends a general strategy for local businesses, namely to offer a unique value proposition (product differentiation) based on an emphasis on product quality. This is the same general strategy espoused in standard marketing textbooks [Onkvisit], particularly so in the F&B industry [Murray]. In these standard texts, the economic mechanism of product differentiation can briefly be explained as follows: By differentiating their products from that of their competitors, local firms can avoid direct price competition with global NMCs, which are usually more cost-efficient, instead competing on non-price competition on the basis of other factors such as design and workmanship [Rios], in which local firms can have a comparative advantage.
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Of course, in practice, such a strategy is difficult to implement due to numerous practical considerations. In this project, we seek to understand how to implement product differentiation via an emphasis on product quality in real-life businesses. This is achieved using the craft beer industry in Singapore as a case study. The craft beer industry was chosen as a case study in this regard for two reasons. Firstly, the craft beer industry is a hotbed of entrepreneurship: There is no industry in which home production has led to more commercial start-ups than took place in craft beer [Elzinga]. Secondly, the craft beer scene is a culturally significant part of artisan culture, particularly so in metropolitan cities like Geneva and New York, where they play an important role in defining the cultural milieu of their surroundings. Hence, given the Singapore government’s recent focus on promoting local entrepreneurship and the local artisan scene, it is hoped that the insights gained from this case study on the craft beer scene in Singapore would provide inspiration for like-minded entrepreneurs and SME owners in Singapore who are struggling with the commercial viability of their products.
The Craft beer movement:
A story of Freedom and Independence
Before starting our report proper, we begin with a short introduction to craft beer. The emergence of craft beer as a global phenomenon can be traced out in the following infographic [Source].
A case study in Globalization:
The craft beer movement
The World is Flat.
Sensory
Market research in the US has shown that flavour is a key reason for choosing craft beers over commercial beers - craft beers possess novel flavours otherwise unavailable on the market. According to consumer studies, craft beer has a flavour “rich, intense, composite, and characterized by unusual notes” [Aquilani]. Indeed craft beer around the world tries to differentiate itself from commercial beers based on so-called “superior” sensory qualities, and to a large extent this has been successful.
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Craft beer drinkers in the US are generally able to recognize different flavour profiles in craft beers. It is acknowledged that some consumers prefer “spicy” flavours, while other consumers may prefer “fruity” flavours [Clemons]. This results in a horizontally differentiated product, with different levels of alcohol content that aim to satisfy a particular cohort of drinkers. In addition, craft beer is seen as a normal good with higher demand in a high-income country like the US, which allows for the emergence of a more discerning millennial consumer (a prime market for the beer industry in the US), who is able to afford and consciously choose a favourite beer from a variety of quality brews [Reid]. For greater insight, watch the following documentary by Visit San Diego:
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Similarly, in Singapore, craft breweries try to stand out from the crowd with novel flavour concepts. Brewerkz, a major player in the local craft beer industry, offers beers in a diversity. For example, the “Oktoberfest”, is a Märzenbier which is a variety not easily available in Singapore. Another major craft beer distributor, Thirsty Beer Shop, also offers a large diversity of beers from around the world, including unique flavours like Jasmine IPA and Kellerweis. Going beyond this, many breweries also offer heavy descriptions of their beer flavours, in order to modify the perceptions and interpretations of consumers and thus “value-add” to the sensory experience [Lee]:
Beers and menu at Brewerkz, Singapore. The menu is heavy on description, offering an analysis of the flavour of each beer, its awards, alcohol content, and more.
Both establishments also offer heavy descriptions of their beer flavours. For example, for Brewerkz, the Galaxy Pale Ale is beautifully described:
Similarly, for Thirsty Beer, Brewlander Hope is described as:
However, taste perception of beers can influenced by environmental factors [Allen], meaning that Singaporeans may not be able to perceive the differences between two similar beers if they are not exposed to beer frequently enough. Based on a survey we conducted, we found that craft beers face a challenging landscape where alcohol consumption is rather low (see below). As such, it is relevant to ask whether product differentiation of craft beer has been successful in Singapore.
Survey Results for "On average, how regularly do you consume beer?". Beer consumption was observed to be relatively low, with 14.1% of 85 respondents claiming that they "do not drink beer", and 36.5% only drinking it "less than once a month".
In order to investigate if flavour is a valid basis for differentiation of craft beers, we conducted a blind taste test with 25 members of USP in order to verify if Singaporeans can actually taste the difference between commercial and craft beers. We selected two light beers (that are relatively similar in taste) for our test: “Hope”, a craft summer ale from Brewlander; and “The Premium Malts”, a commercial pilsner beer from Suntory.
We found that it is possible for craft beers to differentiate themselves based on flavour amongst our panelists, and most likely in the larger Singaporean market. Based on the spider diagrams collated using taste descriptors from our panelists, the two beers are perceptibly different. In this case, while the commercial beer of choice was perceived to be more malty/ sour, the craft beer was floral with more complex notes such as hay, peach, lemon, and grass.
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Craft beer is perceived to taste different and can be differentiated
Spider diagrams. Flavours between the craft and commercial beers are evidently different based on the shape of both diagrams. Identification of fewer different flavours, largely “malty” or “sour”, is observed in the craft beer. The main flavour identified by panelists for craft beer is “floral”, hence it is already perceived to be very different. More notes are observed by panelists in the craft beer compared to the commercial one, e.g. “peach”, “lemon” and “hay”, probably indicating that they have noticed a more complex flavour as well.
Furthermore, Singaporeans have some assumptions to what craft beers taste like, and are largely able to identify them. From our survey, 64% of panelists were able to correctly identify the craft beer of the two they tried. Additionally, some of the panelists voiced that they have the expectation of a “complex” or “unique” flavour in craft beers, largely corresponding to the flavour spider diagram. However, while it may seem that craft beers in Singapore can potentially differentiate themselves from commercial beers based on flavours arising from careful microbrewing, this is not necessarily the case.
Identification study. From our survey, 64% of panelists were able to correctly identify the craft beer of the two (B), and only 16% wrongly identified the commercial beer as the craft beer (A), or thought that both beers were craft beers (C). 4 %, or one panelists, had no opinion.
A Worrying Phenomena: Differentiation does not create a consumer-preferred product
Although craft beer has successfully differentiated itself by flavour, this does not meant that it better appeals to consumers. While flavour differences may be perceived by consumers, it is possible that a flavour difference *simply does not matter* due to complex individual- and cultural-level mechanisms [Allen], To test this hypothesis, we conducted a preference test as part of the taste testing process, The preference study found that despite all the aforementioned perceived differences, there is actually no significant preference for either craft beer or commercial beer (p=0.278>0.05, see figure), which may thus undermine the efforts placed into creating a unique-tasting product.
Preference study. Although the craft beer option we selected performed slightly better than the commercial beer (ranking of 4.68 compared to 4.40), we find that both beers do not score significantly different results (p=0.278>0.05). This means that It is important to note that this conclusion can be largely skewed based on our beer choices, however, it does overthrow the idea that difference equates to preference, a concept that the craft beer industry has been banking on for survival.
Most people hate the taste of beer to begin with. It is, however, a prejudice.
-Winston Churchill
Resource-partitioning theory suggests that while commercial breweries capitalize on economies of scale to produce a homogenous product liked by a sizable majority of consumers, the same consumers are often unable to taste the difference between such beers [Allison]. From our case study, US consumers are increasingly dissatisfied with industrial brews and so the industry has evolved towards more differentiated and higher quality beer [Clemons], but this is not necessarily the case in Singapore. As beer is not a fundamental need, purchases are motivated primarily by consumer desire. In the US many consumers develop strong feelings and exclusivity to their favourite craft beer [Clemons​], hence craft breweries can align their business to the variety of taste palettes in the population, and increase their chance of success in the market. However, if Singaporeans do not have a flavour preference when it comes to most beers, forging one's own space in the market by catering to taste alone is an uphill task.
Sensory Differentiation in the US
Sensory Differentiation in Singapore
Who we are
Aileen Pua
Food Science & Tech
As a food science student, Aileen enjoys brewing beer and tasting wine while pretending that it is all just part of the coursework. Thankfully by Year 4, previous experiences have also taught her about the importance of editing all submissions sober.
Daniel Tay
Physics
Daniel is an alien from outer space who inadvertently crash-landed on earth en route to Alpha Centauri. While waiting for his rescue ship to arrive, Daniel enjoys a nice, cold beer from his favorite craft brewery: red dot brewery.
Melvin Soh
NUS-UNC Joint Degree (Biology)
Like any other college student in America, Melvin frequently drinks past the pint of no return as he deals with his studies. Consequently, he wonders if doctors are all secretly alcoholics, as they clearly understand that life and beer have a key similarity - they need to be chilled for best result.
University Scholars Programme
USR4002A: Intellectual Responsibility in a Complex World
Find out more about this module: Click here
We are a group of students from the University Scholars Programme
CRAFT BEER
sensory
experience
To help focus our study, we break down the process of product differentiation in the craft beer industry in terms of two ​broad categories: Sensory, which refers to the direct qualities of the craft beer product, and Experience, which refers to the related services and environment for the enjoyment of the product. Scroll down to find out more!
Product Differentiation
He was a wise man who invented beer.
-Plato
A microbrewery or craft brewery is a brewery that produces small amounts of beer and is independently owned. Craft breweries are generally characterized by their emphasis on quality, flavour and brewing technique.
Experience
Everybody has to believe in something.
I believe I will have another beer. ​
-W.C Fields
When we compare this to our successful case study (the US), such an impression is not surprising. In general, beer is not very expensive in the US. In fact, the real price of beer declined by 20% between 1975 and 1990 [Chaloupka]. Aside from being affordable, craft beer has sought to associate itself with other positive labels. Researchers have argued that craft breweries have attempted to use naming and labeling to create a connection with local communities and economies and inculcate brand loyalty [Schnell]. Consequently, drinking craft beer in these communities could be seen as a way to satisfy the working class desire to reestablish connection with local culture. In the US, craft beer is also actively marketed as a fun and sustainable experience as beer tourism in the form of beer festivals, beer shows, and beer tasting takes hold in communities [Murray].
On the other hand, craft beer is associated with "sophisticat[ion]", "exotic[ism]", and "hiptser[s]" amongst our respondents, indicating a less down-to-earth relatability (refer to word recall). The price is also a key distancing factor (see responses below). The lack of relatability is likely to be due to the premium branding of craft beers in Singapore, and is further exacerbated by the general high price tag of alcohol in Singapore.
Craft beer is a main service in certain areas of the US. For example, in the state of Oregon, craft breweries have largely supplanted commercial breweries. Portland, in particular, is home to more breweries than any other city in the world [Cartright]. This could be due to the many “distinctive local tastes” that have been satisfied by daring entrepreneurs, as well as a prevalent hop-growing industry [Cartright]. Anecdotal evidence shows that it is possible to walk into any convenience or grocery store and find rows upon rows of craft beer. It is also possible to order a craft beer at virtually any hangout or restaurant. In Portland, there is little scope for more differentiation, as the service offerings at most locations is already more than sufficiently diverse for all consumers.
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However, as previously illustrated, Singaporeans do not have a significant taste preference for craft beer. As such, breweries here take a different service approach by emphasizing on tailored services and recommendations, differentiating themselves from other commercial beer places. For example, Brewerkz offers complimentary beer degustation tests by trained wait staff who are able to explain and recommend different beers to consumers. This is novel as it offers a tailored service along with the taste, and helps consumers interpret the taste of the beer, potentially building not just rapport but preference based on a brand-led interpretation of the product. We noticed that Thirsty Beer Shop offers a similar approach in their online portal, through the availability of reviews, related products, and menus that recommend selections based on “styles”, alcohol content, country of origin, and more.
One thing that is definitely true about the US: craft beer is easily accessible. The map below shows the distribution of microbreweries and brewpubs in the US. They are increasingly found not just in densely populated cities, but also in suburbs and rural areas [Maclaughlin].
On the other hand, craft beer in Singapore may be considered a comparatively "unattainable" service
We have previously established that beer consumption is not a frequent activity in the lives of most Singaporeans, and this makes a craft beer service arguably less relatable to your average consumer here. However, this gap is further exacerbated by preconceived notions that Singaporeans may have about craft beer.
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We asked our survey respondents to tell us three words that they associate with craft beer, and while quality traits definitely emerged, a recurring trend is also the concern of a high price tag and association with upper class activity:
Word recall. The general impression of craft beer is “pretentious”, “hoity-toity”, “atas” to name a few words. As such, respondents may view craft beer as unattainable or snobbish, and thus may not relate well to the current image of craft beer. Some positive aspects of craft beer listed were “quality”, “unique”, “interesting”, a good “taste” or “flavour”, hence it is likely that craft beer has successfully projected the notion of a quality artisanal product.​
Responses to the question "To what extent do craft breweries or retailers in Singapore satisfy these needs for you?". Respondents are usually only “somewhat satisfied” or “not satisfied” with the price of craft beer
Thus far, we have observed limited efforts by craft breweries to be more relate-able. While we are unable to comment on the efficacy of such a strategy, an interesting example that attempts to combine relate-ability with premium branding would be the pricing model adopted by Brewerkz. Brewerkz's craft beers are arguably higher than the market average, and hence possess the veneer of exclusivity. However, Brewekz moderates its brand image by offering a "Happy Hour" scheme that has been well received by reviewers (read reviews here, here, and here), and could potentially bring craft beer closer to the masses. However, as a whole, the industry in Singapore can do more to become more relate-able.
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Another aspect to consider would be the services and atmosphere of the location. Many microbreweries and brewpubs tend to be family-friendly establishments in the US [Morrison]. They offer craft soda, kid menus, toys, and coloring books [Morrison]. In some places, breweries renovate old industrial buildings and warehouses, promoting new life in a declining neighbourhood [Feeney]. They preserve stories and culture, history and architecture, so the atmosphere of such pubs are generally very much welcomed by consumers [Feeney].
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In Singapore, the atmosphere of craft breweries appears to be similarly well received (see responses above, where responses range mainly in "somewhat satisfied" to "very satisfied"). Based on our visit to Brewerkz, while we found the atmosphere to be highly similar to other watering holes in the Clarke Quay area it is located in (décor-wise), there is also an overt emphasis on the fact that all beers are brewed in-house. As such, craftsmanship appears to be treated as a marketing leverage, rather than as genuine attempt to make customers feel welcome.
Distribution of microbreweries and brewpubs in the US. States with significantly fewer microbreweries and brewpubs such as Alabama and Mississippi had, until very recently, laws banning possession and consumption of drinks with alcohol content greater than a certain percentage [Maclaughlin].
Is there sufficient outreach?
On the other hand, many of our survey respondents in Singapore find craft beer hard to access, adding to the notion of exclusivity, but perhaps also detracting from relatability. Some responses on their experience with craft beers included:
“Hard to get to. Quality and taste might not always be the same.”
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“Difficult to find/source?”
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"I rather stick to my off-the-shelf beer. Its just easier to get from a nearby supermarket / convenience store in SG”
“Not widely available, every place has different ones.”
These concerns are indeed valid when we mapped the major craft breweries/ pubs in Singapore, only to find that they are largely concentrated downtown or on the far ends of Singapore: certainly not accessible to all (see map below). As such, perhaps we can say that the craft beer scene is not thoroughly mature enough in Singapore for it to be a norm - it is not drunk frequently enough to be widespread, neither is it widespread enough for regular tippling.
Distribution of microbreweries and brewpubs in the Singapore. They tend to be located around the city centre of Singapore, or at far ends. In all, very few breweries are near residential areas. Here is how we created the map.
Field Study. (Left image): Satisfied Customer enjoying a beer in Brewerkz. (right image): An illustration of how craft beer retailers like the Thirsty Beer Shop offer a selection of beer, while providing a multitude of descriptions (almost like a recommendation service) for consumers to find their favourite beer.
Unexpectedly, when we reviewed our surveys, we found that such services may not achieve its intended outcome for majority of respondents. Majority of respondents found "Knowledge of Staff" and "Tasting Services" to be "not relevant" to their needs, and hence, this added service is unlikely to value-add to their craft beer experience and entice them to become repeat customers.
Responses to the question "To what extent do craft breweries or retailers in Singapore satisfy these needs for you?". Respondents mostly find staff knowledge and tasting services to be "not relevant" to their needs, but to those who find it significant, they tend to be "somewhat satisfied", probably indicating that these services are decent but only to a select population.
While these services probably cater to a population of Singaporeans, they do not seem to bridge a vital gap, which we feel to be the "attainability" of craft beer.
Field Study: Atmosphere of Brewerkz. Note the quaint decor which provides a welcoming environment for beer drinkers, as well as the multiple references to the brewing process like "empty[ing one's] tank" and "mashing".
Field Study: Atmosphere of the Thirsty Beer Shop. Note that high-quality furnishings are used for the floor tiles and cupboard, thus evoking the perception of class and prestige. Apart from this, a clear display of the wide selection of craft beers, as well as details of their country of origin and beer type on the shelf labels, creates a more "specialty" feel compared to the traditional alcohol shop.
Service Differentiation in the US
Conclusion
Beer is proof that God wants us to be happy. ​
-Ben Franklin
Globalization is here to stay, and local producers have to differentiate their products in order to survive amidst tough global competition. The craft beer industry in Singapore provides an excellent case study on the challenges and pitfalls of embarking on differentiation.
In particular, we have found that it is insufficient for a product to be perceived as different based on taste and other direct sensory qualities: It is also neccesary for firms to provide an ecosystem of related services and experiences to promote the enjoyment of the product. Only then can the product be successfully differentiated and hence able to compete in Friedman's flat world.
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We hope that other entrepreneurs and SME owners would be able to draw lessons from this case study and adopt similar ideas to their industry.
Moving forward, how can the craft beer industry in Singapore then foster a preference based on this flavour difference?
Just as in the U.S., consumers in Singapore may choose alternative beers “to express their preference for taste and individuality”. In Singapore, the trend for bespoke services has been on the rise, and craft beer businesses have evidently been trying to fill this gap, not just through products but also via services - which we will evaluate through customer experience.