Growth, growth, growth, growth, growthity growth! So much growth already. Craft beer is looking like the Dot Coms of the late 90’s early 2000’s. Oooh…That can’t be good. Or is it? Truth is we just don’t know. The craft beer industry continued its blistering pace of growth in 2010, during a down economy blah, blah, blah.
Yeah, the economy still sucks, gas prices are creeping through the roof, still record foreclosures and a more than sluggish real estate market, and now inflation. Most retail sectors are forecasting close to double digit price increases, and through it all, like Arnold Schwartzenegger in a Terminator movie, Craft Beer is surviving and thriving…
The numbers don’t lie. And the Brewers Association has done a great job putting together all the data here. And it is compelling. Craft beer is up 11% in 2010, and that is on top of an 8% increase in 2009. That is retail volume. Retail sales in the craft market have again cut into sales in the Mega Brewery market as well. This year being 4.9% of total US beer sales and claiming 7.9% of beer sale revenue. Production has increased by a million barrels up from 8.9 million in 2009 to 9.9 million in 2010. And finally the number of breweries is at an all time high above pre-prohibition levels. What is more there are over 600 new breweries in various stages of planning.
So this all sounds really good, right? Well my father always told me if something seems too good to be true, it probably is. I’m not disputing that craft beer is going through some sort of renaissance here, but how sustainable is it, and are we headed for the dreaded “market correction” that will blast a bunch of breweries in the face? It is hard to know, but I now have a bit more appreciation for the apprehensiveness that many regional breweries feel about large scale expansion at this point.
Before everything went to hell in a hand basket in our economy, we went through 10 years of unprecedented expansion. We’ve all lived it, and are coping with its impacts! Could it be that brewers are actually trying to learn from the past and not over build and borrow a lot of money and go into massive amounts of debt, just so they can sell product 1500 miles away?
I have been one of the most vocal critics of breweries not expanding to meet their market demand, but is that so wrong? I’m beginning to change my tune a bit. While I still don’t like breweries pulling out of existing markets or contraction, I can definitely see why some are refusing to grow by massive proportions, even though in the short run they could probably sustain such an investment.
It isn’t today, or tomorrow or even a year or two from now that brewers need to be wary of, but 5 or 10 years from now. This wave of increase in craft beer consumption probably isn’t going to come to an abrupt end like it did during prohibition, but it will probably slow, and just like the new homes market, a slowing market can have a major effect on overall health and stability of that industry.
So, I’m no economist, but I do know the news is good, however it is beginning to be a little too good for my comfort. Not that things will collapse, but we may reach a stabilizing point where things will change, for the better and worse as the craft beer movement keeps rolling along.
-Don
Beer & Whiskey Brothers 
Good news is good news, but I think these stats say that the future of the industry is hard to predict. You can’t plan on this rapid growth to go on forever, so as a brewer, you must figure out what the hell to do next. Expand and overextend? Dangerous. Do nothing? You risk being eclipsed. Do something? Yes, but what?
My answer? Have a beer.
Yes. Have a beer and relax. It seems craft brewers generally practice slow growth, diversification (in the form of brewpubs, special releases, etc.), and expand slowly. It takes forever to get some breweries to expand to your state despite all these profits. That suggests they are playing it cool and that the bubble will not burst.
That was what I felt while writing this…what do they do next? Hell if I know, but having a beer is always a good start!
I don’t know, I like the ability to only get beer in certain areas. I love taking trips to the VT, MA, NH, and ME and get beers that you can only get there and bringing it back with me. I am buddies with the head brewer at New Albanian Brewing Company here in Kentuckiana and their view of DF pulling out was this, “Good, more room on the shelves for Indiana microbrews”.
This is something craft beer has on other sectors. People will travel, trade, or mail order their product. Our state doesn’t get Three Floyds, Stone (yet), Dogfish Head, or Allagash (among others), but I somehow have beers from each of those breweries in my cellar.
It is easier for people in major metros to have this type of attitude. When you are out in the hinterlands like I am, we are the first to feel the impact of contraction, and it is very difficult to find great replacement brews. We have good stuff to choose from, don’t get me wrong, but we don’t have 10 great things to choose from, and I crave that variety.
I suspect the craft beer market will level off eventually, but I doubt the bubble will burst. Craft brewers have been careful growing their business and provide an affordable luxury. I often tell people we can’t afford the best wines in the world, but we can afford the best beers. For this reason, craft beer will always be in reach, making for sustainable growth and profits. While I’ll concede that beer prices will go up and some beers might become less available, I doubt craft beer is going anywhere.
I keep hearing about the affordable luxury angle and how it has fueled the growth of craft beer, despite hard times. What happens when the economy recovers and more people can afford more expensive items? Hopefully they’re hooked on craft beer and don’t move on to something else.
That’s probably when the growth will go through the roof…Of course, you’re assuming the economy will turn around. I’m not convinced it will, but that’s another debate for another thread.
Now who’s being like Eeore? Let’s all hope this miserable crappy economy turns around! What a mess!
I was trying not to be too much of a downer. 😉 But yeah, not a lot of evidence pointing toward a recovery right now.
Yes, they will move on to Whiskey! And we will be come the Whiskey and Beer Brothers!
It’ll be a great sign for the economy (and a horrible one for my liver) when I can start commenting knowledgeably on your premium whiskey posts, Don!
I agree Zac, it isn’t going to faulter like things have in the past, but it will level off, and perhaps contract some as some brewers will undoubtedly over extend during the good times.
Finally some good news! 🙂
I’m glad something is going right, at least for now.
Finally, we’ve surpassed 1900 levels of craft brewers. Suck it, turn of the century beer drinkers!
I’m pretty stupid when it comes to these matters, but did the DotCom thing last this long? Looking at the graph, it would seem to me that the craft beer thing has experienced pretty steady growth for two decades now, which doesn’t strike me as a market flaw. It seems like more of a reasonably steady… trend, I guess? I hesitate to use trend because that implies something a bit steadier, but two decades is a lot of sustained growth.
Agreed, John. The question is how to service the growth in demand without over building so there isn’t a contraction later. This might be much adieu about nothing, but it does seem that things are changing in the industry, and my Eeore nature says the other shoe will fall eventually.
I imagine that stronger appeals to be environmentally-friendly (from consumers as much as the government) are going to eventually take a bite out of some of these companies. There’s been such a huge push from consumers for that over the last few years. And unlike the late 80’s and early 90’s, it seems to be genuine, lasting, and not lip service this time around.
I don’t mean to say that it’s a bad thing, by any stretch. But additional costs associated with those requests, and meeting those requests, could easily re-shape industries in very subtle ways.
Here come the cans!
I appreciate that Arnold received a tag in this thread.
Don, last time when I made my Vanilla Bourbon barrel Imperial Stout I used my Four Roses Oak Chips and soaked them in Makers 46….any suggestions for my upcoming batch…same Four Roses Oak Chips.
Where do you get Four Roses oak chips?! I have oak planks I’ve been soaking in Four Roses for about two months that I’ll be dropping in my Imperial Stout soon, but you make it sound like there’s a Four Roses Oak Chip Emporium out there. Tell me it’s true!
A friend of mine owns Kelvins Cooperage here intown, he goes to my gym and we had a deal, he gave me a 4 Roses Barrels, a big bag of chips, and red wine staves from France…and I gave him the beer I produced. I am procuring another barrel (I turned my last one into a table because I can’t make 70 gallons of beer) for my wedding in April and plan to try to get some people together to brew a beer for it. I’ll try to get some more oak chips as well. The perks of living in Bourbon Country.
I only soaked mine for a week (granted they had already been holding 4 Roses and were charred) and then threw them ni the secondary and kept them in there for a month.
Can’t go wrong with either the Four Roses Small Batch or the Single Barrel! Both are great. The single Barrel will give you a bit more bite and kick, and the Small batch will be very flavorful and add a sweetness. Depends on what you are going for, but either way it’s hard to go wrong!
The problem with the .com bubble and even the housing bubble is that they were both built on unrealistic expectations and speculation. In the case of the .com boom, there really wasn’t any plan to, you know, make money. The hype was driven by a flush economy and crazy IPOs/stock prices. That isn’t really happening in the beer industry. I do have to say that the 600 new breweries in production seems to be a bit excessive, even if most of them only plan to be a local competitor, but beer has a pretty solid base to work off of.
It’s a tough challenge for the middling breweries though. They can’t expand too much, too quickly, but they also can’t let their distribution stagnate. Smaller breweries probably have rougher times ahead, but more because of consolidation and competition than because of lessening demand. I just can’t imagine that we can support so many new breweries in such a short amount of time. Perhaps for the next couple years, but not in the long term.
Yes, Mark, you picked up on the most scary of statistics that was in the article. Not that we can’t maintain what is happening now, but that if you throw 600 new competitors into the mix how sustainable will it be? That type of expansion may lead to instability.
The sales and volume growth doesn’t scare me so much. I still think there are an awful lot of macro beer and wine drinkers out there that have the potential to be converted to quality craft beer. And craft beer still hasn’t become a obiquitous beverage choice like wine. So I still think there is room for growth. Will it be double digits every year. Likely not. But I think growth is still ahead.
The 600 breweries in the works makes me nervous, though. Are those 600 breweries dedicated to the craft? Or are they fronted by investors looking to make a buck in a frothy market? I’d hate to see the craft in craft beer get diluted by breweries that have their intentions skewed. If the craft gets lost, that’s bad for the industry as a whole.
Having said that, there’s also a trend toward local food and drink. If these new breweries can tap into that in states where there’s not enough breweries providing it. There could be room there. I don’t know. Still seems like an awful lot of new breweries.
Locally, new upstart Payette Brewing has been waiting for it’s brewing equipment for about 6 months—experiencing delay after delay because the supplier can’t meet demand. (I think the equipment just showed up today actually.) I’m not sure how quickly all of these new breweries can even get going if equipment constraints are similar with other providers.
I do like the good news though. Hope it keeps going. It certainly will be interesting to see how it all pans out.
I tend to agree with @beerpoet here. The movement toward local and craft products is a trend that will carry the craft beer industry to further heights. Also, with the rapidly increasing speed at which ideas are spread through social media, more and more craft breweries will have the opportunity to reach more people faster than they ever have before. The appreciation of craft beer is still well within the growth side of the curve. There are years to go before there is a plateau. As for the 600 new breweries – it’s like any other industry, the majority of these start-ups will fail, many will stay hyper-local and only the best will survive to become part of the nationwide craft beer mix. There are 600,000 companies started per year in the US. 600 new breweries a year is a lot, but not a number that the industry and growing consumer-base in America can’t handle.
On another note, I am even more excited for the growth of the craft whiskey market.
Wow, Somebody’s got his Beer Goggles on! I hope you are right, because i would live to ride this wave of beery goodness as long as possible. On your other thought, Jim and I love the artizan spirits movement, and hope it is a long and fruitful trend.