On Bubbles, Craft Brewers, the BA and Naysayers

On Facebook yesterday, I posted this link. Then all heck broke loose.

(In truth, it wasn’t that big a deal, hence all “heck” breaking loose, rather than all hell.)

Various people chimed in, some of whom mentioned to me privately that they had already taken Mr. Watson to task for what they viewed as, at minimum, a too rosy view of things, and at worst, a full-on effort at propagandizing. Me, I thought it was a pretty decent response to what I’ve been reading in the media of late and hearing from certain brewers for over a year now. (Remember that the BA’s main audience is the craft brewing community – the article actually appears in their “community” section –  and therefore it is reasonable to assume that those nay-saying brewers were at least high among their intended audience targets.)

Here’s why:

-        There have been plenty stories of late about the craft beer “bubble” and whether or not it shall shortly burst. The article is, to my mind, clearly intended to balance those stories, many of which have repeated what I would view as misplaced assumptions – more about those below – and I think did a reasonable job of it.

-        In terms of brewery numbers, what Mr. Watson states is true in that the United States is not even close to brewery saturation when compared to other markets, including Canada, the United Kingdom and Germany. In order for parity with those and other countries to occur, on a brewery per population basis, the U.S. would need to double the number of breweries it currently boasts.

-        The suggestion that the market for craft beer is not growing is false. Critics point to the relatively stagnant nature of the American beer market, but that misses the point. Major beer brands have been in free-fall for the past several years – Bud Light has experienced five years of declining sales! – which has freed up major amounts of market share for the craft brewers. (And even so, the U.S. beer market grew 1% last year, which amounts to an additional 2 million barrels of demand.)

-        New breweries regularly come to market with small amounts of brewing capacity, as little as a few hundred barrels. As such, the impact of the regularly reported 1,200+ planned – note, not work-in-progress, but planned – breweries will be minor. (1,200 x 500 barrels = 600,000 barrels, and that’s being extremely generous on the production numbers side.)

-        New outlets for craft beer sales are coming online on a very regular basis. As someone who has worked with hospitality companies numerous times over the past several years and annually speaks at conferences involving top hospitality executives, I have seen the interest develop and grow first hand. I noted last year that when the restaurant company Darden (Olive Garden, Red Lobster) bought the multi-tap chain Yard House, it represented a sea change in the market for craft beer. That Yard House has been Darden’s top performing brand over the last year only cements that observation.

-        To suggest that the graph Mr. Watson presents is comparing apples to oranges – ie: financial data to brewery numbers – is to miss the point. In my view, he is clearly observing that the shape of the dotcom bubble and the craft beer “bubble” are apparently quite different.

Of course, none of the above is to suggest that unrestrained growth in the craft beer sector is sustainable indefinitely – you’d need be an idiot to infer that. But the likening of the current times for craft brewing in the United States to a “bubble” connotes the idea that the “bubble” is about to burst, and I’ve seen nothing that suggests it will any time soon. Mr. Watson’s analysis might be the most cogent or thoughtfully presented, but its conclusion is, I believe, correct.

There will be failures in the craft brewing sector. There may even be a number of them within the next, say, five or seven years, but even a few hundred mostly small and off-the-radar breweries going out of business is not about to burst any “bubble.” Craft beer is on track to continue its growth – all market indicators suggest as much, including the travails the big brewers in North America are experiencing these days – and that means there will be market share to fill, as much as 2 million barrels this year and perhaps as much or even more in 2014.

It will require a lot of brewery expansion à la Sierra Nevada and New Belgium, plus a large number of new brewery arrivals to fill that capacity. The thirst is evident, and I see nothing to suggest it is even close to being fully quenched.

About these ads

9 Comments

Filed under beer & the web, beer blogs, beer industry, social commentary

9 responses to “On Bubbles, Craft Brewers, the BA and Naysayers

  1. The problem with all this “bubble” bubble is that it seems to take “craft beer” as one uniform market or segment when actually it should be taken as a more or less loose groups of business models: Gypsy brewers, brewpubs, distribution brewers, etc.

    An analyst should look at which of those models a new brewing co. has or will have and determine how vulnerable they will be when the market stops growing at such pace.

  2. This may be a good position on the near future of US good beer sales but it was horrible made. The dot com bubble is entirely irrelevant. They obviously determined at the PR committee to not graph the crash in craft in the 1990s. It would be a relevant example with an even more distinct arc. But no. Plus, given the rest of the piece and the firm conclusion of an Old Testament warning to retailers, the point of the column was not about the bubble but the shutting up of discourse.

  3. Russ Rasmussen

    The best argument is one of simple demographics. Young people have learned to like beer that has taste. And they gravitate towards local, quality beers. Young people drink the most beer per capita and their taste won’t change as they grow older. So as new generations start drinking quality beer, more of the beer sold will be of quality. I’m looking forward to the continued growth of tasty beer.

    • Young people MAY be drinking more “real” beer – but I don’t think this is true in all demographics… why are hipsters quaffing down crazy amounts of Pabst and Coors Banquet? It really doesn’t make sense, but it is happening!

  4. Today, very little (in my opinion) suggests any sort of economic “bubble” in the Craft beer market. Unlike in the technology world, where you likely purchase one tech companies product, and forgo the rest, that isn’t the general case for crafty beers. While we each may have a staple bottle that always has a home in our cellar, that rarely seems to preclude purchasing others. Heck, most people I’ve met with an excitement for new flavors are constantly on the look out for new ones to try.

    Mr. Watson’s article may have it’s detractors, yet fundamentally it calls out key differentiator’s that really shouldn’t be glossed over between the two markets. Beer isn’t Tech… Tech isn’t Beer. Any “bubble”, or over-saturation will take a very different form, not likely for some time.

    Just my two cents

  5. Gary Gillman

    I find Steve’s logic and arguments compelling but would like to offer another perspective: someone planning a new brewery may and I hope will be thinking, “I will make the best beer ever or maybe even invent a new style”. If people think like that and succeed or (more realistically) come close, there is always room for new entrants any time, any market. If your business plan is, have a micro image but make beers styled to a supposed mass taste (in free fall though as Steve said), the bubble scenario is more relevant to him: how long he can ride it out or should he even try? Ditto for those who make blandish but “true” craft beers or who can make a great beer but are let down by poor quality control or other deficiencies in their technical brewing approach.

    I always take Sierra Nevada Pale Ale as an example. While it had precedents, it ended up practically creating a new style of beer. Not just that, but it tastes excellent, similar enough to classic pale ale but with a decided twist based on the then-emerging new North West hops. Not just that, but it has always been brewed with a tech savvy approach, Ken Grossman was a machinist and welder (he had owned a bicycle repair business IIRC) before he was a biz mogul much less marketer. He knew how to build plant and always placed a strong focus on consistency and quality.

    Sam Adams came close on the lager side – certainly got the palm financially – although I never thought its basic beer was as good as SNPA, but they are an inspiration too particularly as they worked (for the mainstay Boston Lager) in an established mode, they didn’t try to create anything new.

    It is not as easy today but there is still plenty room for the new SN (or Anchor, Sam Adams, New Belgium, etc.). I’m not sure I see the contenders in the existing Ontario market, maybe one or two is there. But certainly the room is in the 90%+ market share that is ever up for grabs to producers of flavourful, traditional-style beer (which can take in new styles or spins on old ones). It is, “pace” those whose bubble prophecies are right, in the market share of brewers of indifferent or inconsistent beer: these will decline or even exit the market if the bubble proponents are right.

    Gary

  6. Pingback: MR | Fifth Edition, September 2013 | Drunken Speculation

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s