Is trouble brewing for craft beer brands?

Craft beer is, quite frankly, booming.  The last few years have seen a huge rise in the number of breweries on both sides of the Atlantic – over 24% more in the US over the last year1 and 65% more in the UK over the past five years2.  And there’s no sign of a slowdown any time soon.  We’re also seeing the rise of craft beers in new markets, for example in China where the wider beer market is stagnating.

With drinkers willing to pay a premium for luxury and artisan products and the increasing importance of food and drink provenance, the insatiable thirst for craft beer looks set to continue.  Which means there are exciting opportunities for all involved: for start-up brewers there’s never been a better time to give up the day job and take the plunge, existing craft brewers have a real chance to grow their business and perhaps exit in a lucrative buy-out, while big breweries can’t wait to take their slice of this increasingly profitable sector, especially as some of their more traditional brands are forced to take a back seat through changing consumer habits.

But what does all of this mean from a branding perspective?  How will the ever-increasing number of breweries manage to carve out a space for their brands?  What does a successful exit look like and how can a coherent brand protection strategy help breweries to achieve this?  What risks, opportunities and challenges are there?  And where is the industry heading more generally?  This article tries to answer some of these key questions as it looks at some of the growing trends in the sector.

A rose by any other name would smell as sweet…or would it?

A great product is always key, but a good name is equally critical to success.  But in a market that’s getting more and more crowded, it’s likewise getting harder and harder to find new names that don’t conflict with existing brands.

Yet being forced to change the name of your beer down the line because it turns out you’re infringing someone else’s rights can have serious implications not just financially but also in terms of management time, reputation and consumer brand awareness.  This kind of third party conflict can also devalue or even totally derail a craft brewery’s exit if, during due diligence, the would-be purchaser starts looking at how to develop an existing successful brand, only to find the name is not available in a key new market because someone else has got there first.

So how do you minimise this risk?  In short, by running clearance checks and searches early on (ideally before committing to a new brand).  Some checks you can run yourself but ideally you should also consider getting professional advice.   An obvious place to start is by looking at beer rating sites such as www.ratebeer.com, www.untappd.com and www.beeradvocate.com, but that will only get you so far, since:

  1. Many brewers are simply unaware that not just identical brands can block a new name but also similar brands.
  1. Not only earlier beer brands but also wine/spirit or even soft drink brands could kibosh your new name – they might feel to you like totally different products, but from a legal perspective there is still a risk of confusion considering the numerous bottled drinks that sit together behind a busy and noisy bar, and the number of companies which increasingly sell a whole range of drinks across different categories (from large companies like Constellation Brands to smaller microbreweries selling both craft beer and craft spirits).
  1. It’s not just names that are in use that you need to worry about – a name which has been registered as a trade mark (even if there’s no corresponding product on the market yet) can also cause serious problems.

Running the right checks early on can therefore be key to the success or otherwise of a brand and business – and although making this kind of investment in “clearance” may be painful at the time, it can really save you money (and a huge headache) in the long run.

But we’re all friends aren’t we?

The craft beer sector has always been known for its friendliness, collaborative approach and respect for a gentleman’s agreement; disputes would be settled amicably and without lawyers (probably over a beer or two).  But all of this is changing as money and power enters the industry, with big breweries buying up or taking stakes in smaller breweries and blurring the previously clear line between “them” and “us”.  Some craft breweries are themselves also growing at a staggering rate (see for example BrewDog’s launch of a $50m crowd-funding round in the US to “turbo-charge” its US expansion).

Craft beer brands are increasingly valuable commodities worth protecting, as witnessed by SABMiller’s £120m purchase of craft brewer Meantime in 2015.  And the beers themselves can also be eye-wateringly expensive, with some selling at $50-$100 or more per 750ml (eg SAMUEL ADAMS’ UTOPIAS, BREWDOG’S SINK THE BISMARCK beers).  Hence a growing number of disputes and indeed “less friendly” disputes (especially if multiple wealthy stakeholders and not just individual brewers are involved).  And the stakes will only get higher.

The surge in exports has added a further level of risk.  Even if a home-grown craft brewer may still (initially at least) be offered an olive branch in the event of a dispute, the same is much less likely to apply abroad, where an infringing foreign interloper will be treated much less charitably.  Brewers therefore need to be alert not just to the risks abroad as they sell in to new markets, but also to the risks at home, as new competitors enter their space.  For example, American craft brewers alone increased their exports by 16.3% in 2016, with growth of 33.4% in exports to Western Europe and over 100 small and independent craft brewers now getting in on the international game3.

In short, the rules of engagement are changing and craft breweries will need to adapt accordingly if they are to compete with both the big boys and their fellow craft competitors.

But can’t we do a deal?

Clearly an amicable resolution will always be the ideal outcome, since it gives both parties certainty and avoids an expensive court room battle.  It also cuts against the dangerous narrative of a David v Goliath battle, which the media love but which can cause serious PR damage for those involved.  It can even sometimes lead to new commercial opportunities, for example new distribution agreements.

But any coexistence agreement should be given very careful consideration, to avoid storing up problems which could harm future investment or exit plans.  For example, an agreement to coexist by carving up the market by region or country could seriously impact your plans for expansion down the line, while having two products of the same or very similar names on the market is likely to dilute your brand and confuse consumers, thereby devaluing your brand and business over time.

What’s the point of trade mark registration?

Once you’re sure you’re safe to use your new name, the next step is to lock down your rights by registering the name as a trade mark in key markets.  Registration is crucial to the protection of your brand and to building longer term value in your business, and in the UK can take as little as 4 months.

Failure to register means that you could struggle to protect your brand and stop someone copying you, because you’ll have to rely instead on unregistered (ie use-based) rights.  These are far less clear-cut than registered trade marks and hence harder and more expensive to enforce.  The fact that craft beers will often be sold only locally or seasonally only adds to the problem, since goodwill could well be very localised or limited in time.

Registering brand names can also be valuable when it comes to securing investment and/or looking for an exit (eg purchase by a bigger brewery – see SABMiller/Meantime).  Ultimately, it’s the brand that keeps customers coming back for more, so protecting the value and goodwill you’ve worked so hard to create will de-risk the deal for investors and would-be purchasers.  After all, you wouldn’t buy a house without seeing the deeds to prove that the seller actually owned the property.  Conversely, failure to register your names can lead to big problems during due diligence, with a lower valuation of your company or even a total breakdown of the sale.

So what are the top takeaway tips to growing a successful craft beer brand?

  1. Choose a good name – it has to be not just catchy but also sufficiently different from any existing registered or unregistered brands (not just for beer but also wider alcoholic and soft drinks).
  1. Search properly and early on – you can do a certain amount online yourself, but consider also getting professional advice. Investing now could save you a huge rebranding headache down the line.
  1. Be pragmatic and creative when it comes to disputes – the B2B approach may well be best at least at first, but know what your end game is and try to be practical. It will rarely be worth going to Court and it helps if the parties are flexible eg offering a reasonable run-off period.
  1. Register your beer names as trade marks – they’ll be easier to enforce if the need ever arises and you’ll be making yourself more attractive to would-be investors and buyers.
  1. Think ahead – if foreign markets are key to your future success (especially the US or Far East), get professional advice early on about an appropriate clearance and registration strategy, taking in to account budget, priorities, size of market, risk of copycats and squatters etc.
  1. Check you own the rights to your logos, labels and packaging designs – in the UK, if an agency or someone else has designed these for you, they will own the copyright unless there’s a contract in place that stipulates otherwise or unless they’ve actively assigned the rights to you.
  1. Develop a sensible brand protection strategy (dealing with all of the above) with the help of a brand protection expert ie a trade mark attorney – many craft brewers have limited budgets and getting professional advice will help you maximise whatever funds are available. Brand protection doesn’t have to cost the earth and doing something is always better than doing nothing.

If you would like to discuss any of the issues raised in this article, then please contact Rowena Price, Partner via rowena.price@gje.com.

References

Information from US Brewers Association – 26.07.2016 (https://www.brewersassociation.org/press-releases/brewers-association-mid-year-metrics-show-continued-growth-craft/)

Information from UHY Hacker Young research – 03.10.2016 (http://www.uhy-uk.com/news-events/news/number-of-uk-breweries-rises-8-in-just-a-year-as-popularity-of-craft-beer-continues-to-soar/)

US “Brewers’ Association” report – 29.03.2016