Beer bubble? (Turn the boot!)

John C. here. I'm going to start by going off topic and admitting I have a problem. I just can't seem to delete old emails. I try. I really do. But a glance at my gmail inbox as I'm writing this shows I have 4,474 unread emails out of a total of 16,703. Like I said, it's a problem.

However this collection of old emails does lead to some gems. I was scrolling through a few the other day in a mostly futile attempt at deleting them and I ran across this classic from 1/4/2012 that I sent to Spike and Dustin at Terrapin Beer. The subject was "FYI - Shakeout is Coming." What did the email say?

"USA: Number of actual and breweries in planning skyrocketing – unofficial estimate

 

At the end of November (2011), there were 1,927 US breweries and brewpubs, including over 50 that opened in just the last 2 months, Beer Marketer’s Insights report.

 

The official Brewers Association statistics are that there are now 858 breweries in planning in the USA. Not all of those will come to fruition. But that number has skyrocketed...... at mid-year 2010, there were 389 in planning."

 

I look back at this now and laugh. Did I really believe the bubble was going to burst when there were ONLY 2,000 breweries? Who was I kidding? Today we have more than 6,000 breweries in the US and more opening every day. Actually 2.5 opening every day! As you can imagine the growth in craft breweries in the last 5 years has led to multiple questions and an ongoing conversation about when the craft beer bubble will burst. You see it mentioned in articles ranging from NPR to the New York Times to my personal favorite - a response from WLOS to the Wall Street Journal. I'm here to tell you unequivocally that it will not happen!

That's right. No bubble is going to burst - 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.

The best explanation I've seen yet comes from Joe at brewmuseum.com. In a post from October 2017, he puts up this chart:

He then goes on to point out the difference in the 1880's and today.

 

Historically, we have seen the number of breweries rise rapidly and fall dramatically. Through the middle of the 19th century, the number of breweries grew as immigrants.....opened neighborhood breweries. In 1873, the number of breweries in the U.S. reached a peak at over 4,000 (Brewers Association), at a time when the population of the U.S. was about 45 million people. That works out to 1 brewery for every 11,000 people. If we had a proportional number today, we would have over 29,000 breweries.....

 

What about the fall that followed? The....decline in the number of breweries that begin in the late 19th century saw a move from neighborhood breweries to large-scale factory production. Railroads and refrigerator railcars made national distribution possible. Cost efficiencies of large scale production made local breweries less competitive.....

 

The reasons for the previous contraction in the number of breweries would not seem to apply today.... we are in a long-term consumer trend favoring local, craft, and artisanal products.....Big Beer continues to lose market share at a rate of about 2% per year...... the drop in the Big Beer share of the market and that of nationally distributed craft beers can both be seen as signs of the prevailing trend toward local beer, moving us closer to the state of affairs in the 1870s, when every neighborhood had its own brewery.

 

I have to agree. If Joe's numbers are correct, we are nowhere near having the number of breweries per capita that we had in the late 1800's. That's one sign there is still room to grow. Another sign of potential continued growth is the fact that craft beer is currently around 12% of the overall beer market. I can not recall the source but I read somewhere that other food industries (coffee, bread, etc.,) tend to have the "craft" segment grow to around 25% to 30% of the overall market. And there's a third sign that craft beer will likely continue to grow. That is the focus today on local, or hyper local as some are calling it. This has led to a huge increase in beer being sold in brewery tap rooms.

 

Now you know. I personally do not believe the "craft beer bubble" will burst. But I do believe we are going through a rapidly changing market for craft beer. That focus on hyper local is hitting some established craft breweries really hard. And it will hit other breweries extremely hard in the near future. I'll touch on that in more detail next time.

Please comment below and let me know you thoughts. Is the craft beer bubble coming? Have we jumped the shark? (Extra points if you get that reference. The Fonz was my hero growing up.)

Cheers, John

 

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