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Recently we discussed the growing popularity of the idea that a craft beer "bubble" is imminent. If you missed my thoughts on the subject, they can be found here. To recap, I'm a bit of a contrarian as I do not believe a bubble is coming anytime soon. That is if by “bubble” you mean a huge correction where we find 20% of craft breweries closing in the next 6 to 9 months. It’s just not going to happen.

But something big is happening in craft beer and we are living through it right now. Call it what you will - restructuring, reorganizing or adjusting to new market dynamics. No matter what you call it, The Times They Are A-Changin''. Here is a small selection of stories from the past year:

Stone Restructures; Lays Off Employees,

Summit Brewing Lays Off 10%; Withdraws from 6 States,

AB Lays off 90% of High End Saleforce,

Green Flash cuts workforce 15% and stops distributing to 32 States.

Just damn! What is going on here?

I'll tell you what is going on. There are now over 6,000 independent breweries in the US and hundreds more preparing to open in 2018. And more and more people are supporting their local breweries. That's an awesome thing. But it's having some unintended consequences for the larger regional, craft breweries. To understand why, let's do a quick review of the craft brewing industry over the past couple of decades. It will be easier for me to explain if I use my personal experience, so bear with me.

For those that are not aware, I got my start in craft beer in 1995. Yeah, I've really been involved in the beer industry for that long. In the late 1990's, my former business partner Spike and I came up with the idea for Terrapin Beer Company in Athens, GA. Our original intention was to start a brewery that was draft only, would grow to no more than 5,000 bbls, and was primarily available in the local market. I'm willing to bet this was the extent of the vision of most of the brewery founders in the 1980's and 1990's.

But a funny thing happened on the way to realizing our dream. When Terrapin started, it was one of only a handful of breweries in the Southeast. Because there was a growing demand for more breweries than were available at the time, people from other places started asking for our beer. We rapidly expanded to Asheville, Birmingham, Jacksonville, Nashville, etc. And each of those cities considered Terrapin to be local because we were from the same region of the country. This same process was happening at the same time to many other craft breweries that had opened by the early 2000's. If you made great beer, there was a demand for your product in other cities and other states in your region. So quality breweries like Highland, Sweetwater, Terrapin, and many others expanded to meet that demand.

This demand caused the older existing craft breweries to rapidly add new territories. It was also the impetus for new startups in many medium sized and smaller cities that did not have their own brewery. This was and still is a development that a majority of existing breweries supported. A rising tide lifts all boats. Craft beer was growing and it was taking share away from the large domestic brewers. We were winning! But then a funny thing happened. The definition of local changed.

Southeastern breweries like Highland, Sweetwater, and Terrapin used to be considered local in Birmingham. And Jacksonville. And Knoxville. But as more breweries opened in those cities, the circle that defined local began to shrink. For a while, state lines became the defining point for what was local. But more and more new breweries continued to open. We reached a point where just being in the same state was not local enough. For at least a couple of years now, a brewery from Charlotte has not been considered local to Asheville. And vice versa. Even so, more and more new breweries continue to open. Which has taken us to the point of hyper-local.

Hyper-local is defined by your neighborhood. There are now multiple breweries in many small and medium size cities. Is that brewery from the next small town over? It may only 15 be miles away but it's not really local. This is the changing market dynamic that is happening right now in craft beer. This is why the larger regional breweries are having difficulty and are cutting back on their distribution area. The key to success in today's craft beer world is to figure out how to be "local" in each market. It may not be produced there, but can you be relevant in a particular market? If not, it's time to pull out of the market as evidenced by the news stories linked above.

Are today's beer buyers drinking mediocre beer just because it was brewed down the street? Are they missing out on excellent beer because it comes from several states away? I'd love to hear your thoughts.

Cheers, John

P.S. Speaking of hyper-local, would you like to sample all the local breweries in Asheville in one day and in one place? Check out the 2018 Asheville Beer Expo on February 24th.


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