Is the craft beer bubble about to burst?

At the Meeting of the Malts last week, beer guys (from left) Sam Calagione, of Dogfish Head; Jim Koch, of Boston Beer; and Dick Yuengling, of D.G. Yuengling, took an optimistic stance on craft beer's future.
At the Meeting of the Malts last week, beer guys (from left) Sam Calagione, of Dogfish Head; Jim Koch, of Boston Beer; and Dick Yuengling, of D.G. Yuengling, took an optimistic stance on craft beer's future.
Posted: April 04, 2014

EVERYONE in the beer industry is talking about the damn bubble.

They're either worried that it's going to burst, or vowing that it will continue to grow.

Like the earlier dot-com and housing bubbles, the craft-beer bubble is the product of what pessimists say is unsustainable growth, with about eight new breweries opening nationwide every week.

The bubble can't help but explode, they say. Here are three reasons we're all gonna get soaked:

1. There are too many breweries

There are about 2,800 breweries nationwide, with as many as 1,000 more on the horizon.

Meanwhile, BudMillerCoors are glomming onto the sector, either with specialty brands ( Shock Top, Leinenkugel, Blue Moon) or acquisitions (Goose Island, Blue Point). Other established operations, including Stone, Victory, New Belgium, Sierra Nevada and Lagunitas, are in the midst of aggressive expansions that will increase capacity.

There are not enough slices of the pie to go around.

2. There are too many brands

Wholesalers gripe that there are too many SKUs, or stock-keeping units, the unique ID for every brand and packaging type. Consider: Most breweries produce at least 10 separate brands - that's nearly 30,000 separate SKUs, and that doesn't even count imports or the variety of 12-packs, 30-packs, bombers, cans, etc.

Even if stores could cram it all onto their shelves, wholesalers can't possibly devote sufficient sales effort to promote every one of those brands.

3. There aren't enough craft-beer drinkers

Craft beer's economic model is based on premium pricing, which by definition is affordable by only a small percentage of consumers. Craft beer accounts for barely 10 percent of all beer sales.

The portion won't grow unless craft brewers drop prices and begin advertising during the Super Bowl, and that's never going to happen.

Pop goes the bubble!

Well, as Donald Sutherland's Oddball character in "Kelly's Heroes" famously mused, "Why don't you knock it off with them negative waves?"

Optimists' corner

Indeed, I've heard plenty of righteous optimism from brewers lately.

At last week's standing-room-only Brewers of Pennsylvania's Meeting of the Malts, in Bethlehem, for example, a trio of beer industry luminaries - Dick Yuengling; Jim Koch, of Boston Beer; and Sam Calagione, of Dogfish Head - were wearing smiley faces.

Calagione said that craft brewing benefited from an enthusiastic base of proselytizing fans. The sector was headed to a 20 percent share, he told the audience, "because of you guys."

Koch credited home brewers, whom he called "the roots of craft brewing . . . and there are too many of them to stomp on."

Yuengling, known for his company's overly cautious growth, was beaming over the release of a new product line, Summer Wheat. (It's quite good, by the way.)

Meanwhile when I stopped in last weekend at the newly opened Conshohocken Brewery, head brewer Andrew Horne told me that he had no doubts about the future.

"I don't think the bubble is about to burst," Horne said. "If anything, we'll be taking an even bigger bite out of the big guys."

So, here are three reasons the bubble won't explode:

1. There are not enough

breweries

As the Brewers Association recently noted, if the U.S. had the same number of breweries per capita as Germany, we'd have at least 5,000.

Likewise, consider that there are 7,000 wineries in America - and who drinks all that juice?

Besides, most breweries are actually small brewpubs, a/k/a restaurants, and I've never heard anyone suggest that there is a restaurant bubble.

2. Brands don't matter

There no such thing as brand loyalty among craft-beer drinkers. A Troegs drinker is as likely to plunk down cash for Yards or Weyerbacher or Sly Fox.

Thus, unlike mega-brewers who compete against each other for market share, small brewers' growth is based on building the entire craft segment. As Koch said, "Our competition has always been ignorance and apathy."

3. Everyone is a craft beer drinker

Twenty years ago, few beer drinkers knew a pale ale from a bucket of Rolling Rocks. Walk into any bar today, and you'll hear dissertations on the vagaries of yeast strains and international bittering units - especially among young people.

For millennials, the likes of Founders, Victory and Allagash have always existed; they're not new or even special.

To them, "craft beer" is just "beer."

And if it's all just beer . . .

Well, in the words of Brewers Association president Charlie Papazian: "We are not in a bubble, we are knee-deep in foam and the foam is still rising."


"Joe Sixpack" is written by Don Russell. For more on the beer scene, sign up for his weekly email update at joesixpack.net. Email: joesixpack@phillynews.com.

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