Molson Coors Brewing Company

Big Beer's response to craft: If you can't beat 'em, join 'em

December 12, 2012: 11:36 AM ET

SABMiller executive chairman Graham Mackay explains why craft brewers are growing too fast for the Big Beer industry to ignore them, and how his company is responding.

SABMiller's Graham Mackay

SABMiller's Graham Mackay

Interview by Beth Kowitt, writer

FORTUNE -- There are countless advantages that come with being a massive, multinational enterprise. But sometimes, a big company needs to learn how to act small. Amid the rise of craft beer, this has never been more the case for big brewers.

As Denis Wilson noted on Fortune.com last month in "Big Beer dresses up in craft brewers' clothing," craft beer saw a 13% increase in volume in 2011, while overall U.S. beer sales were down by about 1.3% by volume during that same period. Despite the fact that craft is a very small segment of the market, large beer companies cannot ignore these growth figures.

Fortune recently spoke with Graham Mackay, the executive chairman of SABMiller, about how the world's second-largest brewer is trying to capitalize on the interest in craft beer. It's a movement marked by small, independent brewers -- two things that SABMiller is not. To grab a portion of the craft-drinking segment, MillerCoors (a joint venture of SABMiller and Molson Coors (TAP)) launched a separate division in 2010 called Tenth and Blake. This operation oversees brands like Blue Moon, Leinenkugels, and it acquired Crispin cider in February 2012. The following are edited excerpts of our conversation.

Fortune: What's your global outlook on craft? Is what's happening in the U.S. specific to this country or broader?

Graham Mackay: It's U.S.-specific in the sense that the U.S. had gone in a particular direction of large-scale consolidation, dominance by a relatively small number of big brands, and trends toward less and less flavor, more repeatability, less satiating, and the rise of light beers. The U.S. was not the only one moving in that direction, but it moved furthest in that direction.

What drove that?

The endless quest in the U.S. for repeatability. Obviously, every modern society has a bit of that. Also, the elimination of harsh and intense flavors has been the central sweet spot of the beer industry for decades, if not generations. If you go back 30 or 40 years and look at the formulations for the big brands that still exist, their bitterness levels in the U.S. are 7 to 9 [measured in International Bitterness Units].  Those brands, 30 or 40 year ago, were up at the 17, 18, 19 kind of level. European lagers are somewhere between 20 and 25.

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The consumer has gone back to saying, "Let's get a bit of interest, let's have a bit of difference." So, there's been the growth of craft beer. But it's also local, anti-marketing, anti-global, anti-big, and more focused on experience and knowing the brewer who produces it.

Anti-big, anti-international -- you are big and you are international. So how do you play off this trend?

We have our own craft brands. We also look selectively to acquire, or form partnerships with, or cozy up to people who have incubated good businesses. It's difficult for big companies to incubate small brands. That, at its heart, is the dilemma. To start a small brand in a credible, consistent, sticking-to-it kind of way is hard for big companies. That's what small entrepreneurs do best. More

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