Perhaps I am being a little over dramatic, but for the last several months signs of the great US craft beer apocalypse keep reappearing. Today I will go out on a limb and say that in several states the crest of the latest cycle has been reached and market saturation will start to impact growth in a very real way. If you are a student of economics then you know paradigm shifts don’t happen overnight, but there are always signs that a market will correct. As I mentioned in the past market dynamics will impact some breweries more than others. Those relying on distribution for a majority of their net income might find the next few years difficult, especially if they are less competitive due to inadequacies with regard to marketing, distribution or product. Destination breweries and brewpubs are insulated to a large degree, but breweries seeking to sell most of their volume off premises will find the market competitive. in places like Texas there might be more opting to transition to a brewpub status. In places like New Mexico a microbrewery can distribute to as many as three offsite “tap rooms” which also makes them somewhat insulated and essentially provides them with access to a self contained market within a particular geography (something I hope guilds in places like Texas are working on). So here are some current signs of the coming beer apocalypse in my very subjective and jaded opinion:
- There are now more breweries operating in the US than at any time in history and the number continues to grow into uncharted territory (PS don’t listen to the cheerleaders that claim all is well – they are the Kevin Bacon character in Animal House that gets trampled at the end). How many people do you know working on opening their own brewery?
- Imports are also growing as new craft brewers startup overseas and established brands start to export to the US – where will all of these new brands go?
- Tap space is finite – go to any bar and ask if they are adding taps to accommodate all of the new breweries popping up…they aren’t
- Craft breweries in some regions are discounting kegs to remain competitive and keep their beers on at some accounts – beer at some level IS a commodity and this dynamic in particular is very telling
- Sales among establish craft breweries is slowing – look at Sam Adams which grew 3.6% last year (in part due to Angry Orchard and Twisted Tea products) after growing 17% from 2013 to 2014. Net sales for Craft Brew Alliance also grew about 4% last year with sales in Q4 reportedly flat as compared to growth of about 10.5% in 2014
- Breweries starting new brands or buying existing brands as a means to grow
- Breweries building new plants in other geographical areas as a means to grow – like Lagunitas, Sierra Nevada, Oskar Blues, New Belgium, BrewDog, Stone…
- Regional breweries are entering into out of state distribution deals – why give way margin if you can sell it locally? Remember stories like this – http://beerpulse.com/2011/04/avery-brewing-exits-eight-states-seven-partial-markets/? Now we have companies like Avery (with bigger plants) not only back in markets they once exited but eager to find new markets even if that means giving away more due to freight costs.
There are more signs foreshadowing the great US beer apocalypse, but it’s not all doom and gloom. Consumers should rejoice as the fallout should (in theory) weed out producers of subjectively “bad” beer, the only caveat to that being sometimes those with the most marketing dollars are the ones inexplicably left standing. Let’s make sure that doesn’t happen however by introducing your friends to good beer and teaching them about off-flavors – the future is in your hands.