Are We Headed Towards A Craft Beer Bubble?

There are more than 5,000 breweries in the U.S. – 5,301 to be exact according to the Brewers Association. This is a shocking number considering there were only about 2,000 in 2011. Needless to say there is a huge amount of growth in the beer making industry; specifically in the craft beer segment. But with all this growth; are we headed for a craft beer bubble? Are we at risk of too many breweries? Is too much beer an actual thing?

The craft beer growth has started to slow down and many believe the market is nearing its capacity. The numbers that the Brewers Association provided are very telling and I think there will be changes ahead for the craft beer community.

Craft Beer Statistics

Of the 5,301 breweries in the U.S., 5,234 are craft. In 2016, 826 new breweries opened and 97 closed. Craft breweries represented almost 25 million barrels of beer last year which was up 6% from 2015. While sales represented $23.5 billion which was up 10% and moved them to 21.9% share of the market by dollar. Which is a considerably favorable position considering craft beer only represents 12.3% of the market by volume.

What does all of this mean? There was a higher increase in new breweries than beer production. This tells us that the new breweries are small and the large breweries are not growing like they did in past years.

Craft beer is holding its retail value as there was more growth there than in production. Craft beer is not an inexpensive hobby but we already know that.

Is The Craft Beer Bubble Real?

Some say we are headed for a craft beer bubble but I disagree. Every industry has it’s limits and beer is no different but there is still plenty of room for craft beer to take market share from the macro breweries. Craft beer has momentum but nearly 88% of the beer consumed is made by the macro brands. So there is plenty of room to grow. Saying we are headed towards a bubble means there would a crash of some sort. I don’t see that happening.

What I do think we will witness is a battle for market share among all breweries. Small breweries will take market share from the larger established local brands. These local brands will take market from the regional breweries as they expand distribution. The large craft breweries as well as the macro brands will be where the battle will rage the most. Sam Adams, Sierra Nevada, Budweiser, etc are the companies that will have the hardest time growing through the continued craft beer boom.

Hundreds or maybe thousands of new breweries can be opened without causing a collapse in the beer industry. Yes, the breweries at the top will feel a pinch but that is natural as an industry reshapes. There is still a high demand for he neighborhood brewery right now. This is where the growth will be the fastest as people opt for ultra local brews over national or regional brands.

In my area, Cincinnati, there are nearly 40 breweries which is an impressive number for our size city. But I believe we can support many more; maybe even twice as many. But these will not be large breweries but instead small brewery/taprooms that serve their local community. They will sell nearly all of their beer directly to customers and only package special release beers.

Future Growth Concerns

There should be some attention paid to the future growth of craft beer. Most breweries will want to grow but the goal of becoming a regionally distributed beer may not be a viable option as that space is quite crowded. And it may not be the best fit for craft beer either.

New craft breweries are focusing on selling the majority of their beer through their taproom instead of relying on distribution. They do this with onsite sales as well as packaged beer sales. This is a more sustainable business model for many as they enjoy higher margins and maintain more control. Through community engagement, special beer releases and other functions; a brewery can continue to grow. Many will distribute their brews but it is not their primary goal or focus.

Another business plan that we will see take off is having multiple small breweries in different cities. So instead of a brewery expanding production and distributing from one central facility, breweries will opt to open a new small brewery in every market that they expand. Platform Beer Co. in Ohio is a perfect example of this. Beginning in Cleveland, Ohio, just last year they opened their second taproom AND brewery in Columbus, Ohio. This is just a few hours south of the original location. They self-distribute into the area near their brewery and use proximity to build strong relationships with the local community. They believe in being entrenched in the local economy and there is only one way to do that; become part of it.

So growth is possible; it just may not look the same as it did years ago where a large facility and wide distribution was the ultimate goal.

Final Thoughts

I do not think we are headed for a craft beer bubble. There will be consistent growth in new breweries and overall production to keep the industry healthy. There will be a shift in market share and brewers will need to think about how they grow and remain viable in this new craft beer world. For small to medium sized breweries, they will need to invest locally and be cautious about expanding beyond a single or multi state presence. But none of this means the craft beer bubble will burst and cause a collapse of the industry.

Many cities and states have room for many more breweries to open and meet the demand for quality craft beer. How many breweries is too many? That’s hard to predict but we can easily add hundreds of new breweries per year. Who knows, maybe there will be a time when there are 10,000 breweries in the US.

What I do know is the industry will continually change but as long as breweries are integrated into the community, there will be room for growth.

Do you think we are nearing a craft beer bubble?

*Infographics were sourced from the Brewers Association