The Session #67: Getting a Little Ahead of Ourselves, Are We?

For this month’s Session, I’ve asked everyone to predict how many US breweries will exist in 2017.

When it comes to beer in America, there’s no question the good guys are winning.  The popularity of so called craft beer from small scale regional breweries shows no signs of saturation, and considering it constitutes only about 9% of the country’s beer consumption, the upside potential of craft beer appears enormous.

But I see storm clouds on the horizon causing choppy waters on the wide open seas of brewing.  Often in industry bubbles, the central product remains in high demand, but the structure of the industry is unsustainable or the market becomes saturated with too much product, causing prices to plummet and firms to struggle to remain profitable.  While I don’t think a bubble is going to hit the American brewing industry, many breweries are going to see a lot tougher business climate, and I think it’s a fairly good bet we’re going to see some sort of correction.  The current growth rate of breweries five years from now is going to slow down considerably.

There are two things that point to this.

1.)   Earlier this year Beer Business Daily cited that between 2009 to 2011 the number of breweries in the US increased by 22%, with the number of package breweries increasing by 25%. Meanwhile, shelf space increased by only 3.6%.   I couldn’t find any similar statements on bar and restaurant sales, my guess is that the situation is similar.   And while a over 50 different taps or a store shelf full of beers of all possible description are a thrill for beer geeks, for most consumers it is confusion.  At the current rate of growth, at some point too many breweries are going to be pursuing too little shelf space and too few tap handles, if we haven’t reached that point already.

2.) A whole bunch of brewing capacity is about to go online.  Already, Sierra Nevada, Lagunitas, New Belgium, Oskar Blues, and probably a couple others I forgot about are opening up a second brewery.  Plenty of other breweries have announced major expansion plans and lots more have probably gone unannounced.  While craft beer is growing in popularity, it is a slow steady growth and there seems to be a real risk the craft brewing industry may end up producing way more beer than it can profitably sell.  There are plenty of economies of scales in the brewing industry and the larger players are in positioning themselves to exploit them, the smaller players in less of a position to make the necessary investments do so.

That said, I don’t think there will be a craft beer bubble where large numbers of breweries become powerless to avoid failure.   I look around and see mostly well run firms producing a quality product that’s in demand.  It defies belief to think someone like Boston Beer, New Belgium or Sierra Nevada is going to all of a sudden turn predatory and start buying up a lot of competitors or try to force them out of business.  But the growth of new breweries and the capacity of the industry looks to be outpacing demand which is going to make for tougher times for new breweries starting out of the gate, and the weaker ones are more likely to fail.    It also looks like craft beer is going to get a little top heavy, with a handful of large national players, and a bunch of smaller regional breweries focusing on their niche’ markets.

My prediction:  2,697

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ramblingsofabeerrunner

Writing about beer from the California's Silicon Valley.

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