Craft Beer: Can the market handle the growth?

In the late 19th century the beer industry 2,011 breweries, this had been the most in the industrialized age. As we know a few years later prohibition brought that number to zero, or virtually zero. Today we have 2,538 breweries, and the growth looks to have no reason to be slowing down. Yes, this is a story we’ve all seen numerous times since the 2nd craft beer revolution over the past 10 years or so.

But now we are getting to the point, where I am starting to question if the market can carry the load of the number of breweries we have today, not to mention the number of breweries in the planning stages for the next few years.

A recent Gallup report was released that told the story that people are drinking less beer, while distilled spirits have seen significant gains. Now beer, wine, and liquor are virtually equal. This may sound like the answer to this weeks pondering would be a definite no. However, once again, the reason beer sales are down, is because the larger macro brewers have failed to sustain their market share, and have given up even more to the craft brewers. In 2012 craft beer revenue increased 17 percent over 2011. An impressive increase for sure. Craft brewers now account for 10 percent of overall beer sales, which may sound insignificant, but it is huge considering they only had 1 percent of total sales just a few years ago.

So everything sounds like the future is bright, right? For the most part I would say that’s true. They still have the remaining 90 percent of the beer market that marco brands still hold. But there are some challenges.

The sales numbers represented might be a little misleading. The 10 percent of beer sales that they own is in retail dollars. And as most craft beer lovers know, the cost of a six-pack of a great craft brew is 2x-3x the cost of a macro brew. This cost disparity limits the market that is available to them. Some beer drinkers are not going to push the limits of their palate at twice the cost of a reliable product they’ve known for years. Many are in communities where the local stores aren’t even going to put craft beers on the shelves.

Product dilution is another challenge. This is a challenge that the wine industry has dealt with for years. When a consumer walks into many stores and looks at the wine section, they are often confronted with rows and rows of wine that dominates the floor space of the store. Generally wine stores group wine by region and style.

Beer, on the other hand, usually groups product by brand. Which as more and more beer brands become available this could hurt smaller brands from getting a chance. When I am looking for beer I am sometimes looking for a particular brand, but more often than not I am looking for a style. Saison, IPA, and Barleywine are all styles that I often have a particular craving for.

But sometimes I am in the mood for a good Kolsh, but really don’t have the energy for sift through the many brands to figure out who even makes one. The wall of brands can also be oft-putting to craft beer novices. They are likely to either gravitate towards known brands or grab something that is at eye level and hope it’s good.

Knowledge is another challenge that is becoming more apparent. My local store has no one that I would consider to be knowledgable about beer. For many years that was okay. There were a handful of domestic brewers all making about the same beer, and a handful of imports that no one felt was enough to bother being educated about.

As I touched on last week, the Cicerone program is helping better retailers be able to solve this challenge. Some of the larger retailers, like Total Wine, have many of their employees get at least the Cicerone Certified Beer Server certification, which is a wise move, because navigating their vast beer selection can be daunting even to a seasoned craft beer fan like myself.

Lastly, market saturation. This might be their smallest challenge, since year after year they grab significant market share from the macro brewers. But some craft brewers might want to revise their goals slightly. Not long ago, Delaware’s Dogfish Head announced that they were pulling out of a few states. While this isn’t exactly a hardship for them, the reason they pulled out, is because they had enough demand in their local market that other markets were just draining local markets of product.

So they did the responsible thing and pulled out of remote markets so that they could better satisfy their local markets. This isn’t a good example of market saturation since it is really showing the opposite. But what it does show, is that brewers shouldn’t be concerned with broad distribution, and that their local markets might be enough for them to be very successful. The last time we had more than 2,000 breweries, in the 19th century, the breweries offered beer that was tailored to the taste of their local market.

This is where I see craft brewing heading today. The west coast seems to have evolved more in this sense, and has a lot more brewpubs and small brewers. But we are getting there too. In Maryland brewers like DuClaw, Union, Full Tilt, Monocacy, Frey’s, Burley Oak, Milkhouse, and more are all examples of small brewers with little distribution outside of Maryland.

While the future of craft brewing continues to be bright, it is certainly not without challenges. There are going to be a lot of breweries that don’t make it, just like any other industry. But with the help of industry groups like the Brewer’s Association, and local groups like The Brewer’s Association of Maryland here, any brewery with good product should be able to do well.

John Thompson

John Thompson is a beer enthusiast who began evangelizing craft beer a few years ago on his blog thehoplocal.com. John has been homebrewing sporadically for almost 20 years, and also is a Cicerone Certified Beer Server. When not enjoying a cold malty beverage you will find John spending time with his spouse and two young children or working his day job in Financial Services Technology. Make sure to find John on Facebook, and follow him on Twitter @TheHopLocal and Untapped. at : http://untappd.com/user/thehoplocal

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