It is a fascinating time in the beer business, a time like no other. There are more breweries making more beer in this country than at any time ever, much of the growth spurred by the beer revolution known as craft brewing. According to the Brewers Association, the adjunct macro lagers, via slick advertising, had mostly monopolized the beer industry in the US. By the mid to late 70s we were down to 44 functioning breweries in the country. One of them, Anchor, under the leadership of Fritz Maytag since 1969, was the first cog in what became the craft beer revolution.
From those humble beginnings, one craft brewery, the craft beer movement began, Albion in 1976, Sierra Nevada in 1981, Widmer in 1984, Sam Adams in 1984, Harpoon in 1986… and the race was on. Forty-four breweries in the 70s became 100 craft breweries by 1988, with the majority being brewpubs, then 500 in 1994 and 1000 by 1996. Despite a small crash in the late nineties and early 2000s, we have hit 2000 craft breweries active in the US as of April 30, 2012, and 2051 breweries overall.
A part of what makes this interesting to me is the history and relativity. In 1873, the year Coors Brewing Company began making beer, there were a record 4131 active breweries in the United States – the most ever and since. With only 37 states in the Union and a population less than 5% of today’s, these breweries combined to make approximately 9 million barrels of beer. Now, we have nearly 2100 breweries producing many times that amount of beer (>200 million barrels) for many times the population (> 310 million). Of course, with modern technology it is possible to produce more beer, faster and more consistently than it was 140 years ago.
This scenario begs a number of questions, however.
- How many breweries can the US support? We had a small crash in the late nineties, so
- When will the next one be?
- What will be the impact of the next crash? The craft beer drinking crowd is growing exponentially, as is the number of breweries.
- How long can this pace sustain itself? It seems almost inevitable there will be a burst.
- Where will that burst occur? Will it be nationwide? Sporadic? Localized?We have seen an increase of 2000 breweries in the last 35-40 years, the vast majority of which are craft, micro or nano breweries. Fortunately, thus far, supply and demand (breweries and consumers) have grown on nearly parallel courses.
What will cause what I consider to be an inevitable contraction of this growing bubble of beer? There are a number of factors that can play in. First, of course, is the accelerating pace at which new breweries are opening. The simple math seems the prime culprit in the crash at the end of the 90s. The number of breweries and their output exceeded the consumer demand. At a deeper level, I think we had a lot of breweries that concentrated more on marketing and less on quality, looking for gimmickry to drive consumer interest. As predictably happens consumer interest did not continue to grow, the market contracted and a number of breweries closed. It took a few years for momentum to reverse and growth to be noticeable but since then, it has been a rocket.
Fortunately, in the craft beer business now, it is really hard to find bad beer. There are some better than others, some styles people prefer over others, but the level of quality is impressive. People are flocking to craft beer, sections everywhere are growing, there are more beer tastings, classes, events and beer dinners than ever before educating consumers and growing and developing passion. It is, however, still possible that the number of breweries opening will begin to produce more quality beer than the public will demand.
The second factor I see as being significant is a shortage of supplies and materials. Growth is so fast right now companies like Microstar can’t keep up with demand for new kegs. We are also still struggling with a hops shortage. This is caused by multiple factors, as well. Outside the US there have been some poor crops, an overabundance of hops in the 90s caused a crash in price which put some farmers out of business and reduced the acreage planted with hops significantly. Lastly, and perhaps most significantly for the long term outlook, while the last several years has seen increases in the hops production in the US, the demand for craft beer has increased at least as fast. Sam Adams is actually, for the second time, selling its excess hops to small breweries that are struggling to source their hops. I cannot swear to it, but I suspect there are a few breweries which were able to stay in business because of this hops infusion.
The third factor I see leading potentially to a collapse is a decline in quality, like was experienced in the late 90s, causing another bubble burst. Fortunately, I do not see this as a likely scenario. There may be a few now and then not making high enough quality, but they will either market to the macro crowd or fail because they are not meeting the demands of the craft crowd. I do not, however, see this as a significant growing trend or more than a blip on the radar.
So, ultimately, the most likely scenario for a burst of this growing craft bubble is either brewery openings and production increases at a rate that can’t be sustained by the consumer base or a severe shortage of raw materials.
Stay tuned for the ongoing adventures of the Craft Beer Whisperer as I use a continuous supply of libations to lubricate the investigative process.