Bursting the Hype of a Craft Beer Bubble

 

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When I hear the term “bubble,” it brings to mind the Tech or Dot Com Bubble that burst just after the Y2K Madness. It was here the term entered the lexicon of the American media, who effectively smashed us over the head with it when the Subprime Mortgage Crisis hit in 2008. Today, if there is too much of something, it’s now called a bubble. But that’s not really the definition.

This is especially true of the great fear and loathing that’s been spoken of in hushed tones about an impending “Craft Beer Bubble.” And before I continue, I have to thank our NYC Correspondent Zach who recently wrote a great article on this very topic. And while I agree with a significant part of his argument, I had to respond to this notion of a Bubble.

The Analogy is False

Just as every political scandal or lack thereof (i.e. Benghazi) since Watergate has a “-gate” suffix attached to it, so to any potentially looming economic crisis has this lovely bubble tag being applied. You can call it media hype or fear, but either way, it’s not an accurate correlation to what’s happening in craft beer.

 
Both the Dot Com Bubble and the Housing Bubble were born as specific stock market phenomena. The former happened as a result of internet companies booming then busting within 4 years, primarily due to overvalued IPO’s. The latter occurred as a result of failed regulatory oversight and overvalued, junk insurance bonds propping up the housing market.
 
With the exception of a few outliers, a handful of private equity firms and the largest brewers in the world, craft breweries aren’t publicly traded or directly impacted by daily stock fluctuations. So the idea that there is a bubble that’s inflating, soon to burst, thus causing the whole industry to collapse or retract is a misnomer.

Craft beer’s great strength has been its ability to sustain based on quality, not on false data or inflated value. If half the country’s brewers all simultaneously had quality or ingredient supply issues, then the bubble term could apply, yet it’s very improbable.

Growth-Small HR 2015-1Local vs. Macro 

Today a number of craft brewers (let’s say roughly 30) are large enough to be distributed nationally, can brew on both coasts and/or overseas, and have some serious skin in the game. But of the roughly 4,300 brewers in America, a vast majority of them don’t distribute beyond their region or their state’s borders.
 
Roughly, on average, 10-15% of craft beer sales are done on premises. With the state of California as an example, in 2015, taproom sales are grew at a faster rate than the industry itself, around 15-20%. 
 
So the largest brewers have shelf space and the smaller brewers have barstools filled, thus I completely agree with Zach that it’s the medium sized regional brewers, who rely more on distribution, that are in danger of hitting that wall of declining sales.
 

If There’s a Fear…

If you ask most economists what their greatest concerns are over the long term in relation to our economy as a whole, it’s a concern about supply meeting demand. As our planet’s population continues to grow, climate change is having an impact on crop growth and the total yield of all grains.
 
If brewers should be concerned about long term issues on the horizon, be concerned about hop production or grain yields being enough to meet demand, not whether the market will allow you enough space to sell your product. If you can take care of your local populace by crafting a quality product, can distribute locally and have decent marketing/social media, you should be fine.

Some Fads Never Die

In the 70’s and 80’s, the concept of a pizza parlor where youth sports teams could hang their hats after practices, play video games and stuff their faces while dads swilled cheap beer, were all the rage. Today many of those chains are gone, but there are still over 74,000 pizza joints in the US today, continuing to grow at a rate of 1,000 per year.

Since the Starbucks IPO in 1992, when they set the boutique coffee world aflame with their dark roasted delights, the number of coffee shops in the US has grown from roughly 37,000 in 1992 to 55,246 in 2015. During that span, only one year saw a retraction of growth (2009), but this segment has continued to grow steadily every year since.

 
Now the great concern and difference with craft beer has been, and will always be shelf space in the marketplace, especially as brewers begin to package their products (even more so as canning has grown).Yet the market continues to evolve and diversify. More brewers now have taprooms with food trucks/carts onsite or nearby, filling growlers/crowlers and selling bottles/cans onsite or at local bottle shops

Quite a few successful regional brewers have created small chains to spread their unique neighborhood experienceFor I believe it is the haven of the brewpub, an escape from our home technology caves and our connection with our neighbors that has helped compel this growth.

Until demand begins to ebb (which the numbers don’t indicate that happening), the international market will continue to increase, locals will continue to demand it and those who choose to buy it in the store will have an abundance of options.

 
Is a decline possible? Will there be closures? Sure, but I don’t see any levies breaking anytime soon. 
 

Beer Bubble photo courtesy of westender.com

 

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