Will the growth of craft breweries continue? Or, will the bubble burst?
Bubble? What Bubble? Take a look at this chart:
According to the Brewers Association, the number of breweries at the end of 2013 reached over 2,700, the highest level since the 1870s. Despite the growth, American craft brewers account for only 9% of the beer category in the US. But, Craft beer production was up 9.6% in 2013 while overall beer production fell 1.4% according to CNBC as reported by Buffalo Trace Newsletter.
What’s a craft beer?
According to the Brewer’s Association — “An American craft brewer is small, independent and traditional.” They go on to describe some concepts related to craft brewers such as: small brewers, emphasis on innovation, made from traditional ingredients, among other things.
I’ve got a better definition — craft beers are more flavorful, with more unique styles and brands and just taste better than mainstream beers.
Even the big boys see the “beer handwriting on the wall” and have been getting into that segment with what can only be called “crafty” beers, according to a recent article in Time. Check out these brands and who owns them: Blue Point, Goose Island, Shock Top and Red Hood (AB-Inbev) Blue Moon, Leinenkugel and Killian’s Irish Red (Miller Coors).
Among the definitions of a craft beer, mentioned above, is size. And in this case, size matters — a brewer must be independent, which means that less than 25%of the craft brewery is owned or controlled by an alcohol industry member who is not themselves a craft brewer. In other words a wolf in sheep’s clothing can’t be a craft brewer member of the Brewers Association. But, it can be crafty.
What are the market segments of craft breweries?
Here’s where it gets interesting. Half (50%) of the craft breweries in the US are Microbreweries and another 44% are Brewpubs. (Here are some precise definitions.) So, in effect, and by definition, the vast majority of craft brewers are small businesses perhaps akin to Mom and Pop operations.
But, they are much more than that. They are entrepreneurs with a passion for making quality, flavorful beer without the restrictions that large organizations impose. They understand how to meet the needs of changing taste preferences among consumers. In fact, a recent article in Beer Business Daily had this as a headline in their Nov 13, 2013 edition — “Wine and Craft Beer now in Direct Competition.” It’s based on a report by a consulting firm that compares craft beer to wine.
What about that bubble?
The study reported by Beer Business Daily suggests continued growth for craft beers based on: “shifting demographics (the rise of the Millennials), consumers’ desire for quality, diversity and authenticity as well as unprecedented innovation in brewing, marketing and packaging.” They further predict that the craft beer market will double since it is still early days in the “premiumization” of beer.
Hey, what about all those brewpubs that comprise the craft beer market, won’t many of them fail? I suppose many will but I also suppose that there will be others to take their place. According to Business Insider the majority of New York restaurant startups fail in five years. Does that mean that the restaurant “bubble” will burst?
Finally, Bart Watson, Economist at the Brewers Association, has an interesting article that gets at the heart of the so-called bubble issue. His central argument, in my view, is that craft beers at roughly 10% of beer consumption have a long way to go. That is, of course, so long as consumers continue to favor full flavored beers over light lagers. I don’t know about you, but I’m on board for the long run.
Second, remember that earlier I mentioned the inroads into craft by the big multi-national brewers? Here is what Bart has to say on the subject: “The fact that global players are diversifying into their own full-flavored product lines and investing in or buying up regional brewers proves the solidity of the consumer base on which craft sits.”
So far as I can tell, the only bubble in craft beer is in the glass.
(Many thanks to the Brewers Association for allowing the use of the chart and to Bart Watson for his insights.)