Saturday, December 14, 2013

A Craft Beer Bubble?

A really nice piece by Noah Davis in Business insider magazine.  Here is a great little taste:
Stone, it must be said, is one of the few beer-making outfits that has successfully made the transition from local to national. Seventeen years after it was founded, it's now the 10th-largest craft brewery in the country. But even Koch is feeling the squeeze from all the new, local breweries popping up across the country.

"I just got back from a short trip to Minnesota," he recalls. "A couple of the beer bars that have our beer on tap pretty regularly, just happened to not have our beer on tap. Why? Because their taps were filled with the new guys. It's not that they don't like Stone. It's not that they aren't going to be putting Stone back on tap. But when you have just so many physical tap handles — and now you have this rush of new stuff and everybody is in a shiny-new-object mode — it creates competition. You can't sell beer if it's not available."

The flooded market has bred a generation of beer fans with no allegiance to a particular brand but an unquenchable thirst for the latest and greatest. As a result, many beer bars regularly rotate kegs, meaning that breweries need to constantly innovate to maintain sales. "We usually won't keep the same beer around for a long time," says Joey Pepper, the lead bartender at Brooklyn's Torst. "We'll do one initial purchase of it and then maybe come back to it later."
Of course, it is particularly good because he quotes me.  Though when he quotes me as saying "We're starting to see some closings. As a cold-hearted economist, that's a good thing — it increases the pressure to be exceptional," either he or I made a mistake.  I meant to say that I expect we will start to see some closings not that we already have.  I thought this is what I did say but I am probably wrong about that, anyway the point is the same.  I do expect some bloodletting even as the overall market grows.

4 comments:

Pivní Filosof said...

It's interesting. So far, the official line seems to have always been that macro brewers, specially with their "crafty" brands, were a threat to craft beer. It's a lie, of course, those start up breweries in Minnesota have more to fear from the likes of Stone than from ABIB, and vice-versa.

For some time I've been wondering when craft breweries will start consolidating.

Brian Yaeger said...

Ha. I'd logged un specifically to comment on your comment that we've seen some closings. As someone who's wrapping up a guidebook to Oregon Breweries--all 170 of them--I know that Oregon has seen all of four breweries shutter in 2013, and not a one of them was a scrappy young talented brewer who just couldn't get a foothold in a tight market. By contrast, the beaver state welcomed 30 new breweries and I expect most (not all) will survive for some time.

Maybe 8 will close next year. But I already know of another 45 planning to open!

Patrick Emerson said...

Pivní:

That was the essence of the conversation I had with Noah. That and my usual drumbeat of the inevitable effect of economies of scale, which I believe, like you, will lead to consolidation.

It ill be interesting to see whether the consolidation takes the form of active breweries acquiring other active breweries or if it will be failing breweries leading to the expansion of nearby competitors.

P.S. We are waiting for your Oregon beer tour!

Patrick Emerson said...

Brian,

Yes, I'm sure I said expect to see, but we had to talk on my drive to Corvallis and the clarity was not great. But you are right, we are not there yet.

And my point in all of this is to say the craft beer market can still be expanding at a healthy pace but equilibrium is not 200 small breweries. Eventually consolidation will happen even in an expanding market. That's my prediction at least.

I think I'll make this point in a post as well.