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August
2017 08

Have We Hit Peak [Craft] Beer?

Nowadays, if you walk around any good-sized city long enough, it seems like you’ll inevitably stumble upon a familiar scene: large metal vats sitting in a large warehouse, usually being worked on by white dudes in baseball hats. We’re talking, of course, of craft breweries. The ubiquitous nature of this scene speaks clearly of the resurgence of small-scale American brewing that has come about over the past decade. Indeed, whether it’s experimenting with open-air yeasts or incorporating natural island flavors, there’s no shortage of entrepreneurial innovators doing new things with one of humanities oldest beverages.

But the ubiquitous nature of that scene also begs an important question. Namely, with craft breweries springing up every other block, the market has to be nearing a saturation point, right? Right?

Well, maybe not.

A few quick hops over to the website of the Brewer’s Association does in fact reveal an exponential explosion of microbreweries and brewpubs in recent years. In 2006, there were only 1,409 small-scale brewers in the U.S. A decade later, and that number jumped +271.5 percent to 5,234. Likewise, according to the Bureau of Labor Statistics, industry employment more than doubled over the same period. Bear in mind that total U.S. employment only increased +4.0 percent in the same time period.

So yes, the craft beer industry has been booming, and both common sense and economic theory dictate that such rapid growth is unsustainable in the long run. With that said, we’re still probably a few years away from “peak beer.” How do we know this? Well, in addition to providing a total count of establishments, the Brewer’s Association also provides fairly detailed statistics on the number of openings and closings every year. The story these figures tell is not of an industry that has overextended itself. First, while the addition of new establishments has slowed from the 2014 peak, the industry has still exhibited double digit growth over the past several years. Second, the ratio of new openings to business failures has remained mostly near 10:1 for the past half-decade or so. That ratio would be much closer to 1 in a market nearing saturation.      

At least part of the meteoric success of craft brewing as an industry is the fact that they’re not necessarily reliant on new demand. Instead, they’ve been able to siphon a massive existing demand from one type of product to another. A quick Google search of Budweiser sales reveals a business, though while not dying, has certainly seen better days; lower sales, missed earnings, and shrinking profits have been the talk of the town for several years running.

But we’d be remiss if we didn’t point out that our view is not universally held, and we can’t ignore the storm clouds gathering on the craft brewing horizon. InBev is fighting back, gobbling up prominent craft brewers to stay competitive with America’s shifting palette, and this comes on top of a growing preference for wine and spirits in general. These trends will undoubtedly change how the craft beer game is played. Fewer and fewer craft brewers will be able to score lucrative wide-scale distribution contracts and make it rich.

That does not mean, however, that there is no room at the inn for new craft breweries. Moving forward, these establishments will still be able to find modest success with the tasting room/brewpub/local distribution model. In other words, they’ll be perfect engines for local, entrepreneur-driven, brand-building economic development.


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