This week the Brewers Association reported on the growth of the craft beer industry in 2016. Not surprisingly, growth continues in every measurable form: production, sales, number of breweries, jobs and so on. Still, I have heard rumblings from people who fear that last year’s relatively slow growth is a sign that troubled times are on the horizon for the craft beer industry. I have a different take.
The Brewers Association is the national organization that represents America’s small and independent breweries. As we’ve explained in the past, the Brewers Association’s definition of craft brewery is not perfect, but it’s the closest thing we have to an “official” definition.
The report shows that craft beer continues to enjoy steady overall growth in volume share, accounting for an increasing portion of overall beer production in America. Volume share and dollar sales are different, but if you think about it, breweries produce beer for sale, so if you want to talk about growth, you just gotta pick one metric and go with it.
At the end of 2016, craft beer accounted for 12.7 percent of all beer produced in the USA, a modest increase from 12.6 the year before. The biggest leap happened between 2013 and 2014, when craft beer production rose from 7.8 percent to 11 percent. That kind of growth was not realistically sustainable. At least we never should have expected that kind of exuberant growth to continue for long.
Since then, production has continued to grow steadily, albeit slowly. Last year there was growth, but some consider it practically immeasurable. Still, unless the BA fudged the numbers, it was growth.
Any Growth is Good Growth
Sure, growth wasn’t as vigorous as it has been in some previous years, but it is still growth, and growth is something that the big beer companies haven’t seen in years. The overall beer industry has lost ground to wine, spirits, and flavored malt beverages in recent year. All the while, craft beer has continued to grow, even if only slightly last year. Right now, Anheuser-Busch would welcome news of any growth at all.
In terms of retail dollar value, craft beer enjoyed a 10 percent increase in 2016 when compared to the previous year, with craft beer sales for 2016 totaling over $23 billion. That’s a good thing.
In terms of jobs, the craft beer industry continues to be a jobs creation machine. The Brewers Association says that last year’s industry growth created nearly 7,000 new jobs. That’s a good thing.
Openings and Closings
In 2016, a total of 826 craft breweries opened in America. Only 97 breweries closed last year. That’s more breweries than closed in the previous year, but I don’t think it is something to worry about. Not yet, anyway. Approximately one brewery closed for every nine breweries that opened. Don’t discount the fact that there are over 5,000 craft breweries that didn’t close last year.
Why do breweries close? I can only speak to what I know. For example, I know a local brewery that closed because one of the owners got seriously ill and needed to focus her energy and financial resources on beating a life-threatening disease. Another closed because of unfortunate, insurmountable circumstances with a landlord. That brewery hopes to reopen soon in a new location, but they are counted as one of the breweries that closed last year. I know of another that made a couple of questionable business decisions, took a couple of risks, and over-extended itself, which put the business at the end of a very shaky branch. These are all circumstances that could cause a business in any industry to close.
I only know of one brewery that closed because of what it called increased competition and a more crowded market place. Truth is, that brewery always faced certain challenges unrelated to those considerations and I think the owners just got tired of the battle.
One thing is for sure, the craft beer industry is maturing and changing. Craft brewing is no longer a cute little cottage industry, but I know some breweries that act like it is. The industry used to live by a “rising tide lifts all boats” philosophy, an “all for one and one for all” spirit of comradery. That’s probably an antiquated and somewhat naive way of looking at the modern beer biz. The new business reality is something more akin to survival of the fittest, with no room for amateurs and those who are not good at running a business. That does not mean that the craft beer industry is about to start imploding or feeding on itself.
When we talk about breweries closing, another thing to think about is quality. Beer drinkers are getting more and more discerning. In my humble opinion, and in my little corner of the world, I think the herd could use to be thinned. I think it would be good for the industry, bringing up the average quality of the beer on the market. No doubt it is sad that it would cost people their jobs and their businesses, but nobody said it was going to be easy. If you are not making good beer, and don’t really have a commitment to doing so, perhaps you are in the wrong business.
We are the 99 Percent
At year’s end, their were 5,301 breweries in America. Of those, 5,234 were craft breweries. Meaning, only 67 breweries in America failed to meet the Brewers Association’s definition of craft brewery. Putting it another way, less than one percent of all breweries in America are something other than craft breweries.
Putting it all together, think of it this way. Craft breweries account for over 99 percent of all breweries in America, yet they produced less than 13 percent of the beer. Less than one percent of the breweries in America account for 87 percent of the beer produced. So when people wonder if there is room for more growth in the craft beer industry, think about that.
Will the Beer Bubble Burst?
What will it look like when craft beer accounts for 20 or 25 percent of beer production? How many more breweries can we support if (when) that happens? The obvious trend in the booze biz is that people now embrace the idea of more, smaller producers instead of just a few large producers. Thus far, it seems that every time Big Beer loses another one percent of the market share, 500 more craft breweries open. (Admittedly, I haven’t done the math.)
In the past, people tended to drink a particular brand. Big beer companies have always relied on brand loyalty. My dad, for instance, was a self-described “Rainier Beer man.” That was the only beer you ever found in his fridge. These days, more and more people are less likely to be loyal to a particular brewery but are often loyal to a particular style. My brother is a self-described “IPA guy.” This kind of shift in America’s overall beer buying habits bodes well for the future of craft beer because people like my brother are always looking for new IPAs to try.
The new-world beer drinker seeks out new experiences and gets excited about things like new brewery openings and new beer releases. We embrace the concept of drinking local beer. We travel to other parts of the country to drink their local beer. Again, this bodes well for the craft beer industry.
Another thing to consider, if you think you know what the craft beer landscape will look like ten years from now, you are a couple pints over your limit. This is a dynamic thing, where the unprecedented and the unexpected continues to be the norm. The Brewers Association has a mantra: “20 by ’20.” The goal is to reach 20 percent market share by the year 2020. That may or may not be realistic, but at the same time it is not an unimaginable goal. Unless things start to backslide, there is hope.
Some people claim that this report is not good news and that the slowed, modest growth is a foreshadowing of rocky times ahead. They think the increased number of brewery closing in 2016 is going to become a trend. Those people may or may not be correct. I do not know. I do not pretend to know what’s going to happen next. I’ve been around too long for such proud certainty.
As a blogger and a journalist, I do know this. You will get very little attention if you write a story that proclaims that The New England Patriots Will Dominate Again This Year. However, you’ll probably get a lot of attention if your write a story with a headline that reads The New England Patriots Will Suck This Year. If I had given this story a different headline, one that suggested that the craft beer industry was doomed, it would have gotten a lot more attention.
You can read more about the Brewers Association’s annual report here.
Here’s the complete infographic from the Brewers Association.
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