The Other Craft Beer Bubble

Eno Sarris, August 09, 2013

Any quickly-growing sector of the market gets close attention these days. After the penny stocks, internet and housing bubbles of recent years, that's healthy skepticism designed to keep the train from derailing. But when is growth just the natural result of increased demand? To many beer drinkers, the market isn't close to saturated: 'more, please' is a more common refrain than 'enough already,' and the sales numbers are fairly clear.

Look at beer subsector growth from 2009-2011 as cited from a March industry report by Craft Brewing Business:

  • Sub premium — 3.9 percent decrease
  • Premium — 2.3 percent decrease
  • Super Premium — 1 percent decrease
  • Imports — 2.8 percent gain
  • Craft — 13.9 percent gain

And look at the reported makeup of the craft beer growth:

  • Import beer 17 percent
  • Premium beer 14 percent
  • Super premium beer 6 percent
  • Below premium beer 5 percent
  • Current drinkers drinking more 30 percent
  • Wine 8 percent
  • Spirits 6 percent
  • New craft drinkers 11 percent

Don't these seem like healthy numbers to you?

Here's the problem. Craft beer has once before seen a bubble. And craft beer has once before fallen apart.

In the mid-nineties, the first wave hit. Remember Pete's Wicked? Harry Shuhmacher at All About Beer reminds us:

"The exuberance and electricity in the air were palpable. Craft beer was hitting the national radar, and rags-to-riches stories abounded. Since 1985, the craft beer segment had not experienced less than 20 percent growth per year. In fact, for most of the years between 1985 and 1997, volume was up 40 to 60 percent, and in 1987 it was up more than 100 percent. These were heady numbers, and everybody from disenchanted Wall Street financiers to burned-out engineers to young get-rich-quick swashbucklers was looking longingly at our little industry."

At the end of 2012, there were 2500+ craft breweries in operation. This year, there are plans for another 1400+ in the works right now. That sounds a lot like 1987.

Apparently part of the problem back in the day was that the boom begat poor quality beer. Too many cooks in the kitchen, quickly. Shuhmacher wrote that "Suddenly, beer of questionable taste and quality started backing up the supply chain until distributors and retailers said “no more.”"

A few things come to mind immediately. The growth in the craft beer industry these days has been steady in the low double-digits -- none of that crazy booming from the late eighties and early nineties. Craft beer is growing not only from increasing customer loyalty, but also from stealing customers from other types of drinks at the bar, too, so the growth is diverse.

There seems to be more upside in local markets. In the same Draft Magazine piece in which Joe Stange quotes Founders' CEO Mike Stevens as saying that he "wouldn’t want to be a startup brewery right now," we find out that craft beer sales made up 37% of all beer sales in Portland this year. That's based on many local brewpubs and craft breweries, and though that might be scary, not every community has this sort of saturation, and small leaps forward in other communities could easily fuel more growth in the industry.

Also, quality seems to be the feature of this new round of craft beers. The internet provides for quick critics, and consumers are better trained these days.

Another way of putting it: it is on us to find the best beers -- to track, catalogue, critique, and disseminate information about all the craft beers out there -- in order to best reward the highest quality craft brews (at your local craft beer bar). If craft customers buy the right beers, and in the right volume, they will supply the right demand, clean out the supply chains of the wrong beers, and keep the craft train on the tracks.

I know this author will relish the idea of adding "quality control" to "research" as reasons to try a new bottle of beer.