"The bubble is bursting!"

I'm not shocked that somebody somewhere said the craft beer bubble is bursting ... it will be said over and over and over again until the polar caps melt.

What *is* surprising is that so many BAs have the energy to discuss this issue yet again.

 

Well it kinda is bursting now, or at least selling out. Anyone else scared about how many small to mid size breweries are being bought by bigger corps especially in bev. Every day there's a new thread about so and so bought so and so. "It's a partnership" they say. Kinda getting away from the "craft" part of craft beer

 

Craft beer is all about disposable income, so the craft beer industry is the tail and the economy is the dog. If people have the cash, the industry should continue to grow as education, awareness, and tastes improve. If the economy contracts, however, people will pay for several other essential things before craft beer enters the picture. Also, there will be corrections, pullbacks, and consolidations within the craft beer industry. It's happened with every other industry in history and this industry will be no different. If I see a problem, it's with inflation in the price of goods and utilities used to produce the beer. Breweries will have to pass these costs along to consumers and eventually there could be a breaking point in price.

 

It's interesting to see some of the rationales on this forum to justify the doom-and-gloom belief in the bubble bursting:

• "There's only so much shelf space" seems to ignore the fact that shelf space can expand. I know of several stores that have greatly increased the shelf space in the past few years as the number of craft breweries have expanded. And then there's he addition of new bottle shops to accommodate more breweries and more customers.
• "Mediocre breweries will fail." Yeah, remember when all those mediocre restaurants in your town failed because a world-class restaurant opened?
• "Small independents will disappear because of buyouts & dominance by big corporations." How well I remember the days when Mom & Pop pizza places dotted the landscape before Pizza Hut and Poppa John's muscled out all the competition.
• "Craft beer is a luxury and will be hurt by an economic downturn." Well, by almost all economic measures, the economy isn't all that healthy right now, so there's that. There will always be people with disposable income, even in bad economies. Plenty of breweries opened back up during the depths of the Great Depression as soon as the 21st amendment passed...

 

I think where you and I are going to disagree is that from a business perspective, beer is a manufactured product, much of which is not consumed in a brewery's taproom/brewpub. You're right that mediocre brewpubs which are a novel restaurant can stay in business forever, their margins can be epic and it's just a different type of restaurant concept. However, I can't think of a single brewery near me (Cincinnati area) that hasn't started packaging or gone into distribution. I assume that all of these breweries built a business plan based on some significant outside of taproom beer sales in stores or bars.

Here's the challenge, if you have a 50' cold box full of decent beer, every brewer's products have to be able to compete, whether it's great branding, great marketing, great liquid (or realistically, a combination of the three). So, if you're making mediocre beer with mediocre packaging and marketing on a shoestring budget but had planned on selling 5,000 bbl in stores to pay the bills, you're screwed. Now, if you were selling 5,000 bbl a year and you go out of business, another brewery is probably going to pick up that share, so it isn't that there's a bubble and suddenly people are just going to stop drinking beer, we've just reached a point of such saturation that breweries won't be able to move liquid fast enough to stay in business.

 

Water for the West Coast?

 

Is 12% right? That sounds high.

 

12% and incredibly fragmented. 4000 breweries to achieve 25% of what 4 breweries achieve

 

Well, you're right that we'll have to agree to disagree. But so far, we're seeing more breweries open than close.

Thing is, predicting a bubble bursting is like predicting the weather will change or the stock market will go down. Eventually there's a downturn and then the doom sayers all claim they knew it would happen, whether it happens in 5, 10 or 50 years.

 

4000 breweries to achieve what the breweries with 88% market share DON'T achieve with their products.

 

that means squat when we are talking about a saturated market that is growing in size faster than its collective share.

 

It's also true that quite a few homebrewers who went commercial really shouldn't have.
In any case, overall I don't think it's necessarily a bubble situation, but there will most certainly be another shakeout a lot like the last one. Only difference might be that this time around, the strong will survive and weaker of the new breweries are the ones that will fall mercifully by the wayside, largely unmourned (except perhaps by the people that sunk a lot of money into the venture).
In the past, some truly excellent small breweries undeservedly sank into history...in some cases because they were simply ahead of their time (which can actually be worse than being behind the times).

 

No argument that there are homebrewers blinded by the possibility of going pro, vs the reality of how good their Homebrew really is.

 

That's a really good thought. Perhaps some markets are saturated and opportunities are not so available. My son is one hell of a home brewer, and with a business plan and good location, he would do very well cranking out interesting beer.

 

There is plenty of room in many stores to expand shelf space for beer especially as macros become less popular.

 

This really is, to me, more indicative of the market being directed away from macro stuff. Sales are trending downward for macro all around and they are realizing that to stay relevant they have to do what craft is doing (or at least produce something that consumers would observe as "craft"). With larger craft breweries being absorbed by macro breweries, it seems to me that the culture of craft beer is becoming more mainstream... considering that somebody said that craft is only 12% of the market right now, it seems that it has plenty of room to grow.

 

So, if the "bubble bursts" does that mean everyone will just stop drinking craft beer, causing all the companies to go under?

It is much more likely that a lot of new breweries fail, due to the crowded nature. Failing companies are something that happens. You don't really see people saying that clothing boutiques are going to have their "bubble burst" despite thousands of them failing every year.

 

As more craft breweries and beer is being offered, distributors need to figure out a profitable/not too labor intensive method to provide lower quantity and more variety of beers to stores to ensure freshness and the fact vast majority of craft beer drinkers aren't loyal to only one beer like BMC drinkers but prefer a lot of variety. Replace all that square footage in the stores with cases and cases of "x" craft beer and have just a couple cases max. of any particular craft beer. Replenish frequently with low quantity.

 

It probably seems that way when you see a few cooler doors of bud light 12 packs and a single facing of a craft six pack, but like it or not, the BMC stuff moves more than 10x as fast as the most popular craft packages (in most of the country), if anything, I know a couple of retailers are cutting some craft space to fix out of stocks on BMC products.

 

That's my biggest fear.