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The End of the Craft Beer Revolution

Business of Beer Series, Part III

Welcome to 2016. Allow me to begin with two pieces of late 2015 beer news, coming from seemingly opposite directions:

The Empire Strikes Back to Back:
In October, AB InBev, an alphabet soup conglomeration of previous brewery conglomerations, was finally able to form a successful bid to acquire SABMiller. Their aim with this merger has been to really put the ‘mono’ in monolithic (although ). Then, just before Christmas, news broke that AB had swallowed up 3 craft breweries in one week, removing any doubt that the small fry were still on its radar.

The Rebel Alliance Grows Stronger:
In December, the Brewers Association announced that the US brewery count had reached a magic number. The record of 4131 US breweries, set in 1873, has finally been surpassed, and we now have more breweries in North America than at any time in history. Annual brewery openings in the US now exceed an average of two a day.

Here in BC, our share of that trend currently translates to about twenty brewery openings per year, as illustrated in Joe Wiebe’s handy chart.

How do these two opposing trends relate to the topic in this article’s title?

US-Brewers-1870---2015-02
Chart: S. Janish & D. Smith Data: Beer Institute, Brewers Association, American Brewing Industry [Shih & Shih, 1958]

Coming Full Circle

What it means to be a brewery is shifting, back towards an era when breweries were plentiful and local, like your neighborhood grocer. At its peak in the 1800s, the US brewing industry had thousands of members because refrigeration and transportation hadn’t yet advanced and become economical to the point that national distribution networks could develop. Beer was made and sold locally simply because it had to be. Eventually, the Industrial Revolution caught up and, via the ability to ship beer without spoiling, presented industry captains like Adolphus Busch the opportunity to conglomerate. Combined with the temperance movement and globalization, this created the 20th century trend that ultimately inspired the Movement you’re part of.

US Population Per Brewery: Scott Janish

 

Here’s another brilliant illustration, courtesy of Scott Janish, which inverts the above and shows how much of the US market the average brewery shared at the peak of the Dark Ages. The Craft Revolution has restored the number of breweries per capita back to the previously normal state.

There are organizations whose mission it is to represent this legion of small brewers in a world of gargantuan beverage companies.  In BC, we have the Craft Brewers Guild. Similar organizations exist in most US states, led broadly by a Brewers Association that lobbies at a federal level. Organizations like these endeavour to help their members peck away at their mortal enemy Big Beer, like a murder of crows harrying an eagle.

As the BA will tell you, the craft revolution is in full swing. The crows are in flight, ambushing the eagle’s territory and stealing a share of its prey. In reply, the eagle swats at them in frustration, and occasionally snags and swallows some of the juicier-looking crows. It’s murder out there, for sure.

Pity the eagle. As BA statistician Bart Watson points out, acquisitions by large brewers in recent years have been far outweighed by their ongoing losses in market share. He notes, “If you add up Blue Point, 10 Barrel and Elysian, ABI added about 150,000 bbls to its portfolio. Given recent market trends, that stems about 2 ½ weeks of share shift.”

The fastest growing segment in craft brewing today is at the tiny end of the scale. Even in recent years, small US brewers with local taprooms have typically sold ~75% of their product offsite, but pure-play tasting rooms like Vancouver’s Brassneck Brewing don’t have to do that. BA statistics suggest that there is less risk in opening this type of strictly local brewery; it’s a much more bulletproof model, offering total control and minimal exposure. [Ed. note: contrast this with the bottling-centric history of Tall Ship Ales in this issue, and reflect on how different things would have been for 1990s ‘First Wave’ brewers if legislation and market demand were the same as today].

130325ColoStateHopToSip03
Source: brookstonbeerbulletin.com

The Millennial Effect

Clearly the craft revolution represents a losing battle for macros, and the Big Beer industry has to adapt to change, much like the music and film industries have had to in the face of technology. As with those cases, a large part of the reason for the change is demographic. You’ll recall the Boom, Bust and Echo theory, and how it defines a bump in population representing to the children of Baby Boomers. As seen here, those children, commonly labelled Millennials, represent the present and future of the North American marketing demographic.

Their impact on the craft beer revolution can be deduced by any observer in a modern tasting room full of 29-year-olds with beards. Because these people have elected en masse to drink craft beer, the fate of Grandpa’s beer is sealed.

Here’s another brilliant illustration, courtesy of Scott Janish, which inverts the above and shows how much of the US market the average brewery shared at the peak of the Dark Ages. The Craft Revolution has restored the number of breweries per capita back to the previously normal state.

488a32d2a25da2f9dc4fc3a2bb6e834a
Source: brewersassociation.org

There are organizations whose mission it is to represent this legion of small brewers in a world of gargantuan beverage companies.  In BC, we have the Craft Brewers Guild. Similar organizations exist in most US states, led broadly by a Brewers Association that lobbies at a federal level. Organizations like these endeavour to help their members peck away at their mortal enemy Big Beer, like a murder of crows harrying an eagle.

The beers that Millennials like to drink reflect this craft reality, and are as far from Grandpa’s Bud as their music is from his Pat Boone. In 2015, IPA remains the top style sold by US craft brewers, and is growing faster than the overall craft category. Boston Beer released a Samuel Adams IPA and immediately captured a huge portion of US sales in the craft category for that style. This is indicative of the commoditization of what was once a shocking style to North American consumers.

One day, sooner than they’d like, these Millennials will be grandparents themselves. Their descendants will grow up in a world where West Coast IPA is their Grandpa’s beer.

When the Revolution Ends

For this future generation, the brewing landscape will have two clear tiers: the global food and beverage giants (for whom beer is just part of a changing category portfolio, alongside cigarettes, quick-service foods and soft drinks), as well as the local operators, who will supply the taproom experience on the ground in much the same way the ‘local’ pub has done for centuries in the UK. They’ll live side by side, just as McDonald’s and Superstore manage to exist somewhat peacefully in a world full of small restaurants and corner stores.

The Beer Renaissance was always inevitable. There never really was a way that the Western World would, simply in the name of efficiency and price, forever stand for junk food and junk beverages without the choice of something better. The backlash against mid-20th century values has manifested itself in the Slow Food Movement, the rise of “organic foods” and related lifestyle trends. What we’ve cherished as a Craft Movement won’t actually cause the end of Big Beer, but it has ensured the survival of small beer, and that’s all that was necessary.

I think that generations from now, beer enthusiasts will be aware of the current Craft Beer Renaissance and will look upon it with admiration. They’ll wish they were there, like young classic rock fans that missed the Sixties and didn’t get to witness Beatlemania and Woodstock firsthand. Our movement won’t matter anymore, except as a case study in how a group of thoughtful humans can do battle with other humans running greedy corporations. Those living to see it will know the day has arrived when people have stopped calling it “craft beer” and it just becomes “beer” again. That will be a great day.


 

Read the rest of the J. Thunderfoot Business of Beer series

Part I: Craft Beer is Big Business Now

Part II: Craft Brewing is an Ethos

Jeremiah Thunderfoot
  Issue:

Jeremiah Thunderfoot

Jeremiah Thunderfoot writes about the business of beer for What's Brewing.


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