WHERE WE STAND

For craft beer enthusiasts and brewing industry insiders, the past few years have been a chaotic whirlwind. At some point, craft finally reached its tipping point and spilled completely over into the mainstream. It’s now written about at length in prestigious newspapers and magazines and discussed on the evening news. High-end restaurants offer dozens of craft beers, beer bars are sprouting up everywhere, and breweries are proliferating at an insane pace.

No one wishes to return to the drab, desolate beer landscape of the 80’s (except for AB InBev and MillerCoors), but there’s also a distinct sense of anxiety today. It’s almost as if the wildest dreams of Alehead Nation have been realized…but perhaps we should have been a bit more careful about what we wished for. I wouldn’t say we’re living on Shakedown Street, but I can’t help but wonder if maybe we had too much too fast.

It’s not that I’m troubled by the myriad of new breweries, new offerings and new styles. Sure, there are some obvious quality control problems now (who hasn’t had a skunked sixer or a band-aid flavored can of craft beer in the past year?). And there are certainly a few breweries that have no business being IN business…but those kinds of issues arise in any growth industry. The bigger problem (to me at least) seems to be that, just like the recent dot-com and real estate booms, greed and avarice are starting to infiltrate an industry that was remarkably free of such vices.*

*Sure, there have always been craft beer folks more interested in making money than a quality product. We saw that with the flame-out of upstart, VC-backed craft breweries in the mid-90s. But overall, the craft world has been dominated by thoughtful, product-first visionaries who have become successful in SPITE of their business instincts, not because of them. Jim Koch notwithstanding, of course. That guy’s a helluva businessman.

Whenever an industry explodes, people wish to capitalize…it’s only human nature. But in this difficult economic climate, the incredible growth of craft has been like a siren song beckoning to those with some invesment capital. The Aleheads have spent (wasted?) however many thousands of words analyzing the involvement of Tenth and Blake (MillerCoors’ “craft” wing) in the all-malt realm, but it’s more than just the big boys swooping in to snatch up a piece of the craft pie.

Musical acts are developing proprietary beers with “celebrity” brewers. Contract breweries are creating private label offerings for chain stores like Costco, Whole Foods and 7-Eleven. Investment groups and banks are buying up chunks of craft breweries (or snapping them up outright). Hundreds of amateur homebrewers can smell the dollar signs and are scaling up to production levels whether or not they have the experience, business acumen, or quality recipes to do so…

All this growth is wonderful…welcome even. Who wouldn’t want hundreds more options on their package store shelves and tavern taps? But there are warning signs that must be heeded. We can’t simply sit back and hope it will all end well.

For one, the craft brewing industry doesn’t operate in a vacuum. It involves many other ancillary industries that dramatically affect how beer is produced and sold. One needs only to read about the hop shortages of the past few years to understand these concerns. The pace of craft brewing has greatly outstripped the pace of hop cultivation in the US, and seemingly every year, we read about a shortage or outright exhaustion of one or more hop varietals. Then there are water rights issues. Water is, of course, THE key ingredient in beer. And water resource management may be the biggest environmental story of the next century. Already breweries in California and Texas are feeling the pinch of water rights issues. And as climate change and the potential subsequent droughts start to affect the West, South, and Southeast, breweries in those regions (and beyond) will be devastated.

Then there are distribution issues. The three-tier system has dominated the brewing industry since Prohibition, and while there are those that speak eloquently in its defense, it could be argued that it has greatly restricted the industry’s growth and has given wholesalers far more political capital than manufacturers. In today’s craft beer world, distributors hold most of the power and can make or break a small brewery. We’ve read stories about distributors bribing retailers to carry bigger name products over smaller competitors. And we’ve read about distributors lobbying to restrict the growth of craft in certain states to make sure that those same bigger clients remain dominant. That flies in the face of true “capitalism”. If a manufacturer makes a superior product, but is crippled by a distribution system that puts the power in the hands of the middleman, isn’t that a serious problem?

On the retail side, there simply isn’t enough shelf space in package stores or tap handles available in bars to accommodate all the wonderful new craft beers being produced. One unnamed macrobrewery (OK, AB InBev) even suggested shelving craft beer with wine in the unchilled, light-flooded central aisles of package stores (which would be death for the delicate, subtle flavors in many craft offerings). Clearly that was a self-serving suggestion, but it does speak to the problems that retailers face in trying to stock all of their customers’ favorite craft options.

In short, the explosion of craft has also created a plethora of concerns that need to be addressed. With close to 2,000 production breweries and brewpubs in the US, many of whom are expanding their operations or even opening secondary brewing facilities, these problems will only continue to mount.

I’m not suggesting a course of action to solve these issues. I’m not even suggesting that anything really can or even SHOULD be done. I would MUCH rather have an overcrowded, messy, problematic craft beer market than the beer wasteland many of us grew up with. But I am suggesting that we…all of us…pay attention to the industry as a whole. Pay attention to hop shortages and water management issues. Pay attention to the breweries that are growing 10, 20, or 30% a year. Pay attention to the dozens of new breweries that open every month. Be informed.

Like everything else, craft beer WILL shake out. It happened with the savings and loan industry. It happened with dot-coms. It happened with a vengeance with real estate. It will happen with beer. I hope…I sincerely hope…that craft beer won’t self-destruct like all the rest. But when money, corporate interests, and human nature start wheedling their way into growth markets, the end results are seldom pretty.

So keep a weather eye on our beloved craft beer industry, Alehead Nation. You have the power to shape what’s to come, but you have to be diligent. You have to be aware. You have to be smart. We got what we wished for, but now craft beer is at a crossroads. It’s up to us to lead the way.

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18 comments

  1. Good article alehead. I too wonder about the growth of the industry in the longer term. 2000 craft brewers is really a crowded market place dominated by a few. In 18 months back in Australia I have seen the growth of US brewers here. Even ballastpoint hit the supermarket here. Which def means saturation in US market. Where will we be in 10 years?

  2. CZAR VLADIBEER S. BOOTIN' · · Reply

    to homebrewers wtih crappy recipies who don’t have the experience or ‘business acumen’ to start a brewery: ignore anybody who says you can’t. the state of craft beer is one of competition, you’re life may be poor, nasty brutish and short, but you’ll have a chance for greatness, or semi-greatness or at least a writeup in a local beer blog.

    1. I would never discourage anyone from getting in the craft beer game. Though I would certainly encourage all would-be brewers to consider what they’re bringing to the table before they jump in. Do you have something new to bring to your local market? Is your local market particularly sparse in terms of craft breweries? Do you simply think your takes on classic styles are better than what’s out there? Then go for it! Be bold!

      It’s when I see a half-dozen new breweries offering the same variations on a pale ale, brown ale and porter that I bristle a little. Competition is fierce these days…brewers need to be good AND smart.

  3. @bierfesten – we have a brewery per 200,000 people. Belgium, as an example of a *more* saturated market (i.e. not saturated enough for me) has one per about 75,000, which means we need about 3,000 MORE breweries to even be competitive so get to work starting breweries boys. My numbers-without-reality are based on (lifted from) an slightly less ridiculous beer-napkin-based calculation the guys at Hess Brewing did three years ago.
    http://hessbrewing.blogspot.com/2009/07/research-breweries-per-capita.html.

    Also Hess makes some of the best beer I’ve had so I am having Karl buy all their stock so no one else can have any.

    1. I would think that when it comes to the math, number of breweries would be meaningless, what would matter is the total volume of beer produced by those breweries relative to the population. If the majority of Belgium’s brewers make only tiny amounts, they can’t very well “saturate” the country.

  4. Just curious – how would sitting on a hot shelf in an air conditioned store effect the subtle flavors of craft beer? Have you ever been in a wholesalers warehouse? The beer cooks in those hot ass places – doesn’t make sense.

    1. It ain’t the heat…it’s the light. Most package store wine areas are saturated with fluorescents which would skunk even the sturdiest beers over time (and would absolutely destroy a light-bodied, hop-forward brew). Wholesalers may have warm warehouses (lots of breweries store their beer in relatively warm climes as well), but they’re generally careful not to expose their wares to too much light.

      Although, if you’re arguing that wholesalers needs to do a better job storing their beer in more hospitable conditions, I’m 100% in agreement. A significant percentage of skunked/spoiled beers is due to conditions that occur during distribution (though retailers certainly share a lot of blame).

  5. So do you think the potential problem is more of a danger with craft over-saturation on a national scale by a few (or many) mini-majors? If we really embrace “drink local” and head towards something akin to Portland (several breweries distributing locally and still being successful) would we still be in danger of a “craft bubble bursting?”

    1. Well, I think we’re still a looooong way from over-saturation. My current hometown only has three operational breweries, two of which are on a very small-scale. But I do think we’re heading to that point. The “good” thing about a craft bubble (if such a thing actually comes to pass) is that it won’t destroy the rest of the economy like the dot-com or real estate bubbles. It will hurt a lot of good people and will destroy a lot of small businesses, but the overall effect will be fairly contained.

      I don’t think every city can hope to achieve what Portland has. Beer has been embraced as a central part of the culture there AND the city has unique access to the raw ingredients that make beer (especially hops). Plus, Portland is as locally focused and environmentally conscious as any city on the planet. That said, there are SOME cities that may grow to rival Portland over the years. San Diego, San Francisco, Chicago, Asheville, Denver (and its neighboring cities like Boulder and Fort Collins) are well on their way. Boston, Philly, New York and DC all have thriving beer cultures if less actual breweries than Portland. And I could see other progressive cities like Austin and Madison embrace beer culture with gusto.

      For the rest of the country, I think the most likely scenario at a package store would be a handful of popular, local options, another dozen or so large, regional crafts (think Sierra and New Belgium), and of course, the macros (they’ll never die). Commodities will become more difficult to come by and transportation costs will continue to rise which means only those regional players who are growing intelligently, organically (and perhaps most important, growing NOW) will end up rising to the top. Distributors will continue to hold the industry in their hands and I could very easily see a day when bigger craft breweries like Boston Beer Company or Lagunitas begin to flex their muscles with wholesalers the way AB InBev and MillerCoors do now (actually, Sam Adams already does that to a degree).

      Of course, that scenario will still be light years better than what existed even 10 years ago. But it won’t be quite the same as today where you’ve got 100 breweries jockeying for shelf space at every package store and where seemingly everyone and their dog can launch a production-level brewery and find funding. We’re still in the “Wild West” as far as craft is concerned, but it will inevitably and inexorably start to shake out in the coming years.

      So let’s enjoy it while it lasts!

      1. I’ll drink to that! (Okay, that reply was a cheat compared to your response, but you hit it out of the park. The point that really drives it home is distribution. One of the biggest issues facing the growth of any product is distribution (I’m facing that right now in the comic book world where, in order to reach a national audience, you sadly only have ONE option. Diamond Distribution.) So while I can’t empathize with the finer points of alcohol distribution, I can definitely sympathize with the frustration. Hopefully, more of the finer craft breweries will embrace the “Portland model” and focus on the community rather than the overall marketshare. If the brewing frenzy contracts, a solid community base may be what saves them.)

  6. Jack Fate · · Reply

    Just a couple points , distribution in my state is so unfair , I’d wager not to many states have just ONE distributor in the whole state for almost all of the best craft!
    Second, shelf space is a real war zone. With no fix !
    My only advantage is I am close to 2 other states,

    And hey ! You forgot to mention Michigan , they are getting the big boost from craft. Considering they are rated dead last in job growth.
    Otherwise you stated the obvious very well
    Cheers

    1. Is “you stated the obvious very well” supposed to be a compliment?

      1. I think he was just stating the obvious.

      2. Jack Fate · · Reply

        Yes it was!
        Sorry but this dist system in my state sucks.
        Just had to vent

        No blood no foul right?

        1. No foul at all. Stating the obvious is just about all I’m good for.

          Sorry about your state distro system. I sincerely wish that all states would go to a self-distribution system. Imagine the boon it would give to small breweries if they could deliver their own wares.

  7. […] their favorite beverage. As members of a small minority (and it still is the minority, despite the wonderful world of craft beer we exist in today), we are proud of our taste and our hobby, and I find that most Aleheads have a […]

  8. […] Where We Stand (aleheads.com) […]

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