Draft magazine has an article this week that has generated a lot of beer chatter. It asks of America’s beer boom: “Will it fall?”
This is not an idle question. The industry’s first boom, in the early 1990s, hit the skids pretty hard in less than a decade, leaving lots of bankrupt brewers in the wreckage.
The craft industry remembers that massacre with the kind of horror that Germans retain for inflation after the post-World War I economic fiasco of the 1920s. They’re looking nervously at the numbers: there are about 2,400 breweries in operation in the U.S. today, an all-time record, and about 1,500 more are in some stage of planning, according to the trade group the Brewers Association.
At what point, people ask, is enough enough? Draft magazine put the question to some industry heavyweights, including some that survived the great crash of the ’90s.
In San Diego, Stone co-founder and CEO Greg Koch—with a fulsome beard adding an air of sagacity—has used a series of colorful metaphors to illustrate his concerns about a new wave of breweries. First there was the Third World bus, “with all of these people hanging on to the roof,” he told the San Diego Union-Tribune in November. “Sooner or later, we are going to hit a bump in the road.”
“In San Diego we have a lot of eucalyptus trees, all over,” Koch said more recently. “They grow so fast that their branches are not strong enough for the Santa Ana winds. … Sometimes when you grow too fast, the structure isn’t there, and some branches will break when the winds kick up.”
Right now, according to Koch, there are not many headwinds for craft beer. But how long can that last? “I do fear for some of the limbs,” he says. Not a very sunny view for someone from San Diego.
The industry types tell Draft that they worry not only about oversaturation of the market, but about fly-by-night brewers trying to cash in on a hot trend and producing lousy beer, a real problem in the last beer boom.
“What the industry is afraid of is low quality, and that will taint the quality of craft beer overall,” says Jeff Schrag, owner of Mother’s Brewing, a regional microbrewery that opened in 2011 in Springfield, Mo. “But I don’t know,” he adds, looking thoughtful. “There’s a lot of beer now that’s tainting the image of craft beer.”
So is the U.S. sitting on the edge of a Beer Bubble about to burst? Or is the explosion of craft brewing a permanent feature of the market.
Seems to me that there will inevitably be failures and bankruptcies, but that’s business. Unlike the last beer boom, the latest boom has forced mass market brewers such as Budweiser and Coors to embrace “craft” and put out specialized beer lines of their own. That suggests to me that they believe there has been a permanent shift in the public’s taste, or at least in a significant enough minority of the public to make craft-like products profitable. If nothing else, it implies that the current craft boom is more than a passing fad, though exactly how many small breweries the market will support once the boom begins to mature is an open question.
But let’s look at some other industries and see what happensed There was a day in coffee, for example, when Folgers and Maxwell House dominated the market just as surely as Bud, Coors, and Miller once ruled the beer landscape. Then along came Starbucks and an army of other artisan roasters. Today, Folgers and Maxwell House still dominate the industry, with sales of about $700 million annually combined. But one-time upstart Starbucks is now a solid third at about $180 million per year. And all the big companies have separate artisan-style labels: Folger’s Coffeehouse label adds $128 million per year to the bottom line while the Maxwell House Master Blend sells about $78 million per year.
And with all that there seems to be no shortage of room for smaller chains, such as Peet’s, and independent operators, such as the Holy Roast shop right across the street from our own Press Democrat office. There are hundreds of such coffee houses dotting the landscape around here, and thousands upon thousands nationwide. And yet nobody seems too worried about the impending implosion of the Coffee Bubble.
My guess is that the beer market will look very much like this in the future, with Bud, Miller, Coors, Heineken and other big boys, and possibly their craft-like affiliates such as Blue Moon, dominating the Top 10, but with lots and lots of room in the mid and low ends for independent operators. It wouldn’t be a huge surprise to see a couple of those Top 10 spots reserved for the more ambitious craft brewers, particularly Sam Adams, Sierra Nevada and our hometown standout, Lagunitas (Think Tony Magee would appreciate being called the Starbucks of the beer world? Maybe. Maybe not. But either way I bet he’d understand the business analogy).
Lots of brewers will stumble and fall, and more than a few of our beloved independent brands will get sold to the big boys, the way Goose Island sold to Anheuser-Busch, but my bet is that Craft Beer has plenty of room to grow and plenty of foundation to thrive as the market matures.
– Sean Scully