Industry evolution, resilience and regional embeddedness: the case of the Danish microbrewing industry

ABSTRACT

Excess capacity and increased competition in the Danish microbrewing industry have created a burgeoning shakeout, which has been accelerated by the Covid-19 crisis. We discuss which types of firms are likely to survive this, specifically, to what extent such firms use regional embeddedness as a survival strategy. Using three different types of data, we demonstrate that firms’ regional and local embeddedness is widely used to shelter them from competition pressures. Moreover, the passion among owners and investors for the sector (and its products) alters the purely economic rationality that generally, according to theoretical predictions, determines whether firms survive industry shakeout.

KEYWORDS:

• industry evolution
• shakeout
• beer industry
• regional resources
• regional embeddedness

JEL:

• D22
• L6
• L66
• R12

DISCLOSURE STATEMENT

The authors declare no potential conflicts of interest concerning the research, authorship and/or publication of this article. Ethics and consent of information were respected when working with informants.

Notes

1. The Danish Breweries Association conducted two surveys with its members and found that every second brewery experienced a 60% reduction in sales during the second quarter of 2020. One in four respondents said they were at risk of closing shortly (Bryggeriforeningen (Danish Brewers’ Association), 2020). In a survey in June 2022, half the respondents were still experiencing the aftermath of the Covid crisis, reporting that they were still at risk of closing. Similar surveys in other countries, such as the United States, confirm this picture.

2. This study is relevant beyond Denmark. According to an April 2020 survey among 525 companies conducted by the US craft beer industry trade group, the Brewers Association, 60% of small US breweries believe that upholding social distancing measures would force them to close by mid-July. A total of 14% said they were either planning to close or would not survive more than four weeks. Another 45.8% responded that they would survive between one and three months.

3. Some of the respondents were EBCU members, but they make up a small part of the overall sample.

4. ‘Microbrewing’ often denotes a cap on brewery size and/or ownership. However, the term is also used to characterize the mode of brewing where microbrewers often define and market themselves in opposition to large breweries (Verhaal et al., 2015). Specifically, their identity relates to their creativity, originality, heterogeneous products, ingredients and flavours (Verhaal et al., 2015; Mathias et al., 2018; Pozner et al., 2022). Even if the term also covers brewing other beverages, in our case, we limit our focus to beer production.

5. See https://beerticker.dk/.

6. Our final industry register has several advantages over other existing data sources. For example, we combine, as a criterion for being an active firm, not only the company register number but also that the firm has launched a beer on the market and has obtained operational approval as a producer of goods for consumption.

7. This number grew to 242 in 2021. The data for 2021 do not have the same level of detail as in previous years.

8. The Danish Breweries Association and Beerticker.dk estimate that the Covid crisis caused a drop in the number of new beers on the market.

9. See https://beerticker.dk/.

10. The interviews with the breweries were all conducted pre-Covid; hence, the statements we received do not necessarily contradict the survey results obtained in the Breweries Association surveys mentioned above in note 1.

11. Examples include Hvidovre Bryghus, Birkerød Bryghus and Lyngbeer.

12. Thisted Brewery has 3000 attendants, all owning at least one share, in their annual general assembly, primarily locals. The town of Thisted has 14,000 inhabitants. Amager Bryghus sells its products in 10 countries.