Business Differentiation and Value Chain Strategy in the Global Beer Industry: Innovation Trajectories in Comparative Perspectives

The global beer sector has undergone significant changes over the past decade. On the one hand, mergers and acquisitions have grown at an unprecedented pace thus further increasing market concentration and the similarity in business practices of large incumbents globally; on the other, the global diffusion of microbreweries has undermined the stability of a mature market and triggered new innovation trajectories. Microbreweries are today present in numerous countries and are rapidly eroding the market shares of established multinational corporations. Drawing largely on the US market, existing studies explain the rise of microbreweries through two main conceptual lenses: social movement theory (Rao et al. 2000) and resource partitioning (Carroll and Swaminathan 2000). Central in both theories is the idea that the microbrewery movement resulted from the increased concentration of the US market that took place between the 1960s and the 1980s and the related commoditization of domestic beer production. According to these theories, this created a vacuum in market peripheries that was later seized by small-scale producers.

Focusing exclusively on the US market, however, misses extensive cross-national variation in the market niches that new microbrewery entrants occupied. In addition, by focusing on social and market dynamics, existing studies provide scarce evidence of the innovation strategies of microbreweries. Finally, little is known about microbreweries’ global value chain organizations and how they are affected by the environments where microbreweries are located. Acknowledging these gaps, this study sheds light on the regional factors and mechanisms underlying microbreweries emergence and longer innovation trajectories in two major yet diverse poles for specialty beer production: California and Northeast Italy. California is the region where the microbrewery phenomenon first developed during the 1970s and is currently home to 550 small breweries (about 15% of the domestic population); Northeast Italy is emerging as one of the hotbeds for microbreweries in Europe, despite being a region long characterized by wine production. By drawing on two distinct geographical areas, and building on both industrial statistics and qualitative data, this study shows how microbreweries located in different regions tend to follow unique innovation trajectories, including global value chain organizations. In particular, we observed that while California breweries have been integrating downstream, those located in Northeast Italy have been moving upstream. The former established a direct presence in the final market to connect with a strategic source of innovation: the local sophisticated clientele; the latter started to grow raw materials such as hops, fruits, and herbs in order to further differentiate their products and adapted the existing brewing technology by cooperating with local machine tools suppliers. These divergent innovation trajectories originate from the distinct ways local microbreweries have been adapting a seemingly commodity asset (beer production) (Swaminathan, 1998) to the characteristics of different production locales and highlight that even with similar incumbents, the environment in which entrants emerge has longer-run implications for innovation. Hence, regional factors explain the variety of innovation models within an already innovative market niche, and how entrants have pushed forward the technological frontiers of the oldest biotech food production.