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"We are in a time of irrational exuberance in craft brewing" - Greg Koch

Discussion in 'Beer News' started by Levitation, Nov 15, 2012.

  1. http://www.utsandiego.com/news/2012/nov/15/tp-craft-beer-at-a-crossroads/?page=1

    “We are in a time of irrational exuberance in craft brewing,” said Greg Koch, co-founder and CEO of Stone Brewing. “We are like a Third World bus, with all these people hanging on to the roof. Sooner or later, we are going to hit a bump in the road.”

    interesting. i'm forced to agree, but i'm surprised to hear someone in the industry say it, especially as they're leading the forefront of the expansion...
     
    19etz55, Mavajo, Jwale73 and 4 others like this.
  2. pwoody11

    pwoody11 Advocate (510) Delaware Nov 23, 2009

    I've been thinking the same thing for a while. The bubble has to pop eventually, right? Is it possible to over saturate a market like this? I've seen it happen with other products before, but is beer the same?
     
  3. Interesting article. Thanks for sharing.
     
    terrapinfan88 likes this.
  4. pwoody11

    pwoody11 Advocate (510) Delaware Nov 23, 2009

    ...and if it does pop, the Stone's of the industry will be the survivors and benefactors.
     
  5. Definitely a bubble.
    Look at the hype machine. Look at the trading forums. What percentage of beer that is traded is actually consumed vs. sitting in someone's basement accruing "value".

    We have growler shops in my state. Sell the same beer as the beer store up the street, but for more $$, and some make you use only their glass ( readily available for a small fee.)

    Opportunity begets opportunists.
     
    EJLinneman, KarlHungus and fredmugs like this.
  6. leedorham

    leedorham Champion (835) Washington Apr 27, 2006

    I can't really speak for SD county, but nationwide there is no bubble. We are working towards the way it should have been all along. Every city in the US (that isn't run by stone age thinkers) can easily support one brewery for every 30,000 people and some do even better (Bend). That means we could easily have something like 10,000 breweries and all of them could turn a nice healthy profit.

    There are also well over double the number of wineries in the US compared to breweries and almost none of them are going out of business.

    Edit: I'll also point out that all of this "irrational exuberance" is still happening during a recession.
     
    Brad007, Bernerdawg, sdoobs and 38 others like this.
  7. BeerKangaroo

    BeerKangaroo Initiate (0) Alaska May 30, 2011

    probably too many people who homebrewed and all of their neighbors hyped up their beers and their egos, and the next thing you know they're taking out loans from the banks who are trying to get the economy going again somehow since no one's buying houses or anything else.
     
  8. crusian

    crusian Advocate (620) Oregon May 14, 2010

    Been saying this about the Dallas market now for a few months. Every time I turn around I hear of another opening up. Last year at this time Dallas had 0 breweries. now we have ~15-20. That is too much too fast. not to mention that they are all mediocre. Dallas can't support this many IMO.
     
  9. Hanzo

    Hanzo Champion (955) Virginia Feb 27, 2012

    Isn't Koch one of the bus drivers in his analogy?
     
    Ungertaker, Mavajo, RyanMM and 13 others like this.
  10. leedorham

    leedorham Champion (835) Washington Apr 27, 2006

    The DFW metroplex is one of the largest in the US. They could probably support 15-20 VHS rental stores.
     
  11. Daktah

    Daktah Savant (300) Illinois Apr 13, 2011

    Exactly. Stone will survive and pick up some of the demand currently being served by breweries that do not reach/maintain viability. Same for the other major players. A bubble has definitely formed and the clearest sign for me is the number of new breweries. The local aspect is nice in a lot of ways, but as discussed elsewhere on this forum, the demand is not there for average/mediocre beer just because of proximity. It's reached the point where the novelty of the "local" beer seems to be more touted than the beer itself, which isn't sustainable if you're selling a product where differences in quality are readily apparent.
     
    BostonHops likes this.
  12. plaid75

    plaid75 Champion (750) New York Jan 13, 2005

    A
    The same sort of situation existed in the mid to late 90s where everyone and his brother had a beer label. That burst. I feel that there is a healthier demand for the product now, but on the other hand there are a lot more brewers too.
     
    Lukafer likes this.
  13. pwoody11

    pwoody11 Advocate (510) Delaware Nov 23, 2009

    Would that mean that all 10,000 would have to be of equal size? I mean, if my town of 60k has two breweries, but most of those people prefer one, the other will go out of business. I'll use myself as another example. I owned a Philly soft pretzel bakery. We were voted Best in Philly. Well, after two years or so, there were now 3 companies similar to mine. One, had deep pockets and eventually pretzel shops were everywhere. Slowly but surely, all the small guys began to shrivel up. People who were driving 10 miles to my store before, didn't have the need to.
     
  14. leedorham

    leedorham Champion (835) Washington Apr 27, 2006

    If the overall median brewery size remained the same, I believe the US could support that total number of breweries.

    Another way you could look at it - pre prohibition there were ~1700 breweries in the US, which at that time had a population of ~100 million. So project that out to today's population and you get about 5,000 breweries. Not quite the grand figure I presented in my first example, but still over twice the current number.
     
    cavedave likes this.
  15. I think it's telling that this thread is going on at the same time that there's a live stream of a Stone beer tasting on the homepage. What it's telling, I'm not sure. But it's telling something.
     
    rafa2298, Lukafer, YogiBeer and 5 others like this.
  16. crusian

    crusian Advocate (620) Oregon May 14, 2010

    Yes and no. remember the clientele, and also that a lot of breweries went out of business to the point where Dallas had zero. none. for many many years. There had to be a reason for that.
     
  17. leedorham

    leedorham Champion (835) Washington Apr 27, 2006

    To quote my favorite line from I love you Phillip Morris - "Fucking Texas."
     
    fmccormi likes this.
  18. Retsinis

    Retsinis Advocate (555) California Sep 25, 2009

    Yes and no for me. I agree as far as San Diego goes, that city is possibly at a tipping point in how many breweries it can or wants to support. Nationally, and I'm sure someone has the actual figures, I believe in just the last 10 years we've only recently exceeded the brewery numbers pre-prohibiton, and yet the national population went from about 106 million in 1920, to over 308 million in 2010. We can suppot what we have now, and probably a bit more imo.That's not to say many won't fail, they will, for a variety of reasons. There will also be expansion & consolidation. The crash part though, given the boom, despite the great recession, (nearly a depression) to me says otherwise. When the economy improves, sales may grow even more too imo.
     
  19. NiceFly

    NiceFly Savant (385) Tajikistan Dec 22, 2011

    I was thinking the same thing!
     
  20. Using the pre-Prohibition number of breweries/US population as a template for the potential number of breweries now kinda ignores the obvious fact that two companies, AB and MC, account for close to 90% of the beer brewed in the US.

    When AB, Pabst and Schlitz all hit the million barrel mark in the period 1890-1900, that was only about 2.5% (each) out of the total US production of around 40m bbl.

    It also ignores the fact that imports now make up 13% of the US beer market. Crown's (Corona) US market share today is about the same as Schlitz's was in the late '40's when they were the #1 brewer in the US.
     
    harrymel, hardy008, bergbrew and 4 others like this.
  21. As long as the product remains great, it should be quite a long time before the bubble bursts. Remember, a small percentage of the population drinks craft beer. Will nearly 50% of the population drink craft beer like they do Bud Light? Probably not, but there's a huge gap between 50% of the population, and the percentage that drink even a beer like Sam Adams.
     
    ichorNet likes this.
  22. JuniperJesus

    JuniperJesus Savant (430) Illinois Feb 26, 2011

    Mr. Koch is scared of the competition and he's trying to scare people off. If I was Mr. Koch, I'd be scared too - lots of excellent brews out there that are better than his brewery's tired formulas.
     
  23. zappafrank

    zappafrank Aficionado (170) Ohio Sep 9, 2012

    Booooo this man.
     
    isuee94, tronester, stevieaa and 6 others like this.
  24. I seriously doubt that.
     
  25. exuberance could refer to cultural openness as well as financial budget.

    people can afford a certain amount of beer before saturation - the question is whether interest will continue to grow or even maintain. flood the market with a bunch of shitty breweries and you'll scare people off even if they have the money to spend.

    i really don't think the 0.05% of the craft beer market represented on the trade forums is a leading indicator of the industry at large.
     
    mjryan and JimDH like this.
  26. stupac2

    stupac2 Initiate (0) California Feb 22, 2011

    How so? Isn't the market already mostly flooded with shitty product (ie BMC)?

    I find it odd that so many people automatically think "high growth rate = bubble". A bubble is when there's growth in something that the fundamentals don't support. I don't think there's any real argument that the fundamentals of the US can't support a large number of breweries, especially brewpubs. (They're basically restaurants, there's no real reason you can't have one in every town. Hell, Middletown, RI has had a brewpub for as long as I lived on the island, and that's a shitty podunk town if there ever was one.) So if someone wants to make a case that there's just NO WAY the US can support 3k breweries (or whatever we're up to now) then fine, but it seems far from obvious that that's true.

    Now, this doesn't mean that there will be 10% growth in craft forever and ever. That will slow down at some point. But it doesn't need to contract, it could easily end up slowing down and just keeping pace with population growth over the long term.
     
  27. Gonzoillini

    Gonzoillini Advocate (680) Illinois Oct 15, 2008

    I can't tell if this post was made sarcastically or not, but most banks aren't giving out loans for anything without massive collateral / verified income.

    I love the idea of a brewery like my old local in Urbana Champaign, the Blind Pig Brewery, that is using a 2 barrel system and has no desire to expand out of their brewpub.

    I absolutely believe most urban / suburban areas can support a few local brewpubs that produce good to excellent fresh beer at a great price. To me the bubble will come with retail focused breweries who are vying for limited retail shelf space and tap handles.

    Food for thought.

    Cheers!
     
  28. talking about the craft subset.

    i didn't use the word bubble, but i agree with the irrational exuberance idea.

    on the supply side, the industry needs a certain lead time (buildout of a brewing system, recipe dial-in). demand is much more liquid. a slowdown in demand now would probably impact the breweries starting 1-2 years from now, which are in the planning stages. that kind of contraction doesn't imply a bubble, but it's certainly a concern for anyone entering the industry now.
     
  29. stupac2

    stupac2 Initiate (0) California Feb 22, 2011

    But most consumers aren't sophisticated enough to know that Blue Moon isn't craft. I don't really think that the growth is coming from dudes like us, on this site, but rather from people like my mom who suddenly has a fridge full of Heavy Seas after not drinking anything but wine for my entire youth. There are just lots and lots more of them than there are of us. So I don't really know that those types would necessarily be turned off from the overall scene by bad craft, since I think they'd also be turned off by bad macro beer.
    Oh, I know, that was to the people who did.
    Yeah, I agree. I don't quite agree with Greg, mostly because I'm agnostic about this. I know 10% growth can't continue for forever, but I also don't see anyone presenting actual data saying we're slowing down. (Incidentally, something that I think would bode poorly for craft is an increase in whatever the term is for beer that gets sent back to distributors/breweries from stores/distributors. Because it seems to me like making more beer than people are buying is the sign that things are heading south.)
     
  30. crusian

    crusian Advocate (620) Oregon May 14, 2010

    My sentiments exactly.
     
  31. mychalg9

    mychalg9 Advocate (710) Illinois Apr 8, 2010

    Just wait until craft beer starts REALLY catching on.....
     
  32. Blueribbon666

    Blueribbon666 Advocate (550) Ohio Jul 4, 2008

    As I came of drinking age in the late 80's/early 90's I watched as the microbrew BOOM crashed to earth & in NE Ohio only the strong survived like Great Lakes, while Crooked River & Western Reserve faded away, not long after it became "craft". Honestly, the bubble bursting is how the mediocre, meek & mild get cleared out in favor of the solid brewers who've been doing it & doing it well for years. So let it be done.
     
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  33. abecall98

    abecall98 Advocate (540) California Aug 11, 2007

    Talking a friends and colleagues, I feel that the demand for solid craft is still on a very fast and uphill climb. Most of them talk about trying the new Blue Moon this, or Shock Top that, but slowly they are putting those beers aside and asking me if I have heard of this one brewery they just tried the other night. I notice more and more that those people who only drank the Faux Craft are starting to expand their craft choices. I see more and more available solid craft options at a lot of grocery stores in Sacramento, as a lot of them are having more craft exclusive aisles. These people are in craft beer limbo, and are on the verge of blowing into mostly craft beer strictly. I used to be in that group when I first started 5 years ago, and lasted there about a year. I know there are too many people who have not yet fully dedicated to craft beer, but are on the verge. I don't expect the craft beer steam to slow down anytime soon. Ask me again next year.
     
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  34. fredmugs

    fredmugs Champion (870) Indiana Aug 11, 2012

    Interesting numbers. I live in Bloomington, IN. Population 80K. We have Upland, Bloomington Brewing Co, and Cutters. There are at least two more in process going through the permit process. It is a college town and I'm pretty sure the student population (32K undergrads) is not included although a significant percentage is home grown.

    We also have multiple locations in town where I can get draft beer better than anything produced locally. Upland is doing well since they also have a restaurant catering to upscale diners. I have no idea how BBC is doing because their beers suck. Cutters only sells beer and the only one I like is way overpriced.

    I think the 30K ratio is a good benchmark.
     
  35. I honestly think we are going to have another hop shortage in the next couple of years. IPAs are seeming to gain ground with beer noobs, and with soooo many breweries buying hops I really think think it is going to hit again unless botanists can some how create really hearty versions of current hop varietals. So hops can grow and thrive in any enviorment.
     
    mattbk likes this.
  36. vurt

    vurt Advocate (555) Oregon Apr 11, 2004

    I'm more worried about the possibility of a serious barley shortage, which people like Tony McGee (Lagunitas) have been talking about over the past year.
     
    robbrandes likes this.
  37. pwoody11

    pwoody11 Advocate (510) Delaware Nov 23, 2009

    The other issue that would affect things, at least in the aspect of distribution, is shelf space. The key to making things work would be brewpubs, no? Never been, but I assume England operates this way. Lots of local breweries just serving their block and the few "extreme" enthusiasts willing to travel. The only problem is America can't seem to be content to remain small. There is this need to bottle and distribute and grow. Time will tell I guess. I long for the days of the butcher, delicatessen and fish monger.
     
  38. alanc

    alanc Aficionado (105) California Aug 13, 2009

    I live and drink within the San Diego market. The comsuption market here in town is far from bursting. You could argue more consumers now than ever are enjoying and seeking out a quality product. Breweries like Societe and Monkey Paw are proof there is room for new guys; if you make a quality product and offer a variety of styles. I think what Greg is getting at is of the 60 breweries in town there is less than 25% that are making beers that get you to seek them out again. It's a double edge sword. The better beer you get, the higher standards there are. A quality product will always have a place, no matter how many sources.
     
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  39. Heh... these days, that sentiment and the facts behind it won't get you very far on this site. In fact, some/many will say it's a good thing.

    But yeah... Greg is right. Maybe not for every national market, but he's sure as hell right about the MA market as well as his own. Slowed down a tiny bit lately, but seems there's still a new brewery popping up almost every week. Breweries that don't actually have a brewery, nor a flagship brew, nor any real business plan. Breweries that soley cater to people like the beer geeks on this site- a tiny microcosm of a tiny part of the beer market.

    Hence, not suprisingly, their bottles gather dust along with all the other ones crowding this market with $15+ bottles of the latest barrel aged sour double imperial whatever.

    You and I may like those beers and enjoy sampling them... but that's not a plan for success, nor is it indicative of the overall craft beer market, let alone the beer market as a whole.

    Jacks Abbey get lots of props around here and is enjoying a lot of success- likely in large part to having normal, accessible flagship beers at reasonable prices that are easily available in the local area.

    Final note... as much as he's right, Greg Koch is talking about "irrational exuberance"? FFS, he EXEMPLIFIES irrational exuberance.
     
  40. cosmicevan

    cosmicevan Champion (835) New York Dec 13, 2009

    Gotta agree with the irrational exuberance concept and I do think that there is a bubble too. The problem, as I see it, is all the mediocre beer. The passion in this hobby drives the desire for variety, but unless you are brewing something fantastic like heady topper, most people won't come back for a second taste. There is still oodles of room and market share to convert so will probably be a few years before the burst, but the beer industry right now feels a lot like the .com industry of the mid 90's.

    I see it in my local beer market. Lots of breweries popping up making decent beer, slowly converting the locals that there is more than BMC and opening eyes, but those open eyes are quickly discovering that there is way better than just supporting local. The trading/hoarding scene also is starting to show signs of a defined peak where people realize they have too much beer and start getting out of it (trading quantity for quality) in favor for more durable styles and old time traders bow out of the game for the most part. All the over the hill beer discoveries and whatnot play into it as well. Granted there are too many new faces right now for this effect to really take hold for a few more years, but people are getting wise that age rarely helps beer with the exception of some styles and even age has its limits on most things. All that mixed with the crazy expansion efforts to meet the in rush demand will certainly pop. Many breweries will survive and should continue expanding (founders, bells, RR, HF, etc), but lots of crappy breweries are expanding to meet demand that will not sustain.

    With all the options these days, you have to make a great first impression on a drinker to get a return taste and I just don't see it happening for the long run.
     
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