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Here comes the bubble.

Discussion in 'Beer Talk' started by Daemose, Jun 7, 2013.

  1. Daemose

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    Pretty soon you won't have to complain about IPA freshness anymore guys!

    GuestMetrics report questions ‘sustainability of economics’ with increasing craft brewers

    (Leesburg, VA) – According to GuestMetrics, the pace of expansion in the number of craft brewers is outpacing the growth of the craft beer segment, calling into question the sustainability of the craft expansion and the likelihood of consolidation ahead.

    “The number of craft brewers in on-premise grew by nearly 17% in 2012 compared to 2011, and continued to grow at that clip during the first quarter of 2013 versus year ago,” said Bill Pecoriello, CEO of GuestMetrics LLC. “Similarly, the number of craft beer brands sold in on-premise grew about 22% in 2012, and continued at that growth pace during 1Q13 compared to the prior year. Given craft beers sold in on-premise grew high single digits during 2012 and mid-single digits during the first quarter of this year, the expansion of the number of craft brewers and brands significantly outpaced the underlying volume growth of the segment. While we don’t necessarily see a shake-out in the near term, looking out at the next 3-5 years, the question will be the sustainability of the economics of a lot of the new entrants given the declining volume per available brand. We will likely see consolidation within the segment”

    “To put these figures into perspective, we calculated the average number of units sold per craft brewer across the overall system of craft brewers, and indexed that against 1Q11,” said Peter Reidhead, VP of Strategy and Insights at GuestMetrics. “While by definition the index was 100 during 1Q11, the overall index for 2011 was 95, then decreased to 88 in 2012, and during first quarter of 2013, the average number of craft beers sold per craft brewer declined to an index of just 82, implying that the overall attractiveness of the economics for the average craft brewer has diminished fairly significantly over the course of just two years.”

    “We also evaluated the average number of brands being sold per craft brewer,” said Brian Barrett, President of GuestMetrics. “In 2011, each craft brewer sold on average almost 3.6 brands, and by 2012, that had increased about 4% to around 3.75 brands. Looking at the 22% expansion in craft brands being sold in on-premise, approximately ¾ of that is due to a larger number of craft brewers, and about ¼ due to a larger number of brands being sold per craft brewer, which is also putting pressure on the sustainability, particularly for the newer entrants in the segment.”. Please call or email GuestMetrics for more details on our craft segment studies.

    About GuestMetrics LLC
    GuestMetrics, LLC is revolutionizing how the hospitality industry operates. Despite the dawn of the Digital Age having begun more than three decades ago, the hospitality industry essentially functions the same way it did centuries before. GuestMetrics has cracked the code by collecting billion dollars in sales from tens of thousands of restaurants, and turning billions of raw transactions into intelligible data that is fundamentally transforming the business operations of everyone from the independently-owned bar/restaurant on the corner, to multi-national chains, to the food & beverage companies that supply them. Please visit http://www.GuestMetrics.com for more information and to arrange for a free demonstration.

    ###
     
  2. DJButters

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    dont know why... but I immediately thought of beerfest
     
  3. herrburgess

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    The article is calling for consolidation more than a "bubble" bursting, or, as they put it, a "shake out" occurring. I can see the former happening. Lots of VCs seemed to have been getting in the game recently.
     
  4. Jnorton00

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    There are way too many new breweries putting out mediocre and expensive product lately.
     
  5. beesy

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    Being on the consumer end I personally see this as a good thing. The competition for dollars is going to, in some degree, force breweries making mediocre product to step up or get pushed out of the market.
     
    acevenom, MrDave, jdmandel and 14 others like this.
  6. pvllbum

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    I don't see a bubble bursting but I see a slow down and decrease followed by another boom. I think too many new places are just trying to make crazy releases instead of a solid foundation of main stays and they shoot themselves in the foot. A special release from say Founders doesn't seem as special anymore because there are 10 smaller places doing nothing but special release beers to get business which in my opinion is a bad way to start because you're setting yourself up for failure....but that's just my opinion
     
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  7. Daemose

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    Yeah. I don't have a problem with it.
     
  8. drtth

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    I don't think they've given proper weight to the effect of having the new breweries on developing new markets and increaseing market penetration. There will be a time lag of 6 mos to a year between the number of breweries opening and their impact on the numbers reflecting growth of market share, particularly if the breweries are opening up new markets. So I don't think it’s the oft forecast bubble yet.
     
    bennetj17 and stupac2 like this.
  9. cavedave

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    I think this needs to be looked at regionally. Many areas of country lag. If eventual share of market for craft is 10%, that leaves quite a bit of room. Sounds like a good time to choose wisely where to open, and to really hone the recipes and techniques.
     
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  10. Topher78

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    It used to be that a new brewery would open with a handful of core beers(IPA, APA, Stout, Porter and a Wheat) and as they got settled they would start releasing bigger beers and maybe a barrel aged beer or 2. Now they jump to barrel aging/sours/big beers(IIPA's, Barley Wines, Imperial Stouts) right from the start. But I blame myself and other like minded BA's for that. People like us are craving the bigger and bolder beers and that seems to be who a lot of the start-ups are focusing on, when instead they should be building a foundation of solid core beers that will sell well the masses so that they will be sustainable in the long run...well that's just my opinion. I wish all of them good luck.
     
    Rihup likes this.
  11. Can_has_beer

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    I agree that there may be breweries opening that are not getting a solid foundation of beers down first. I feel like a couple new breweries here in Houston were started because Joe Schmo's idiot friends said his homebrew was good, and so he starts a brewery with a very mediocre product and no business model. Morons...
     
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  12. otispdriftwood

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    Some economist probably said it but Darwin said it best [paraphrasing]: Only the strong will survive.
     
  13. Daemose

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    No label and 8th wonder? Lol
     
  14. Sourkehd

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    Once people figure out that you can brew awesome things at home and occasionally splurge on a lambic its game over.
     
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  15. LMT

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    I was thinking along the similar lines, except with new distro for existing breweries (although, new brewers in "underserved" areas would fill the same niche).

    The companies that are in best financial shape now and can absorb decreased revenue over the next 5 years may be looking at severly decreased competition soon. So maybe companies like Bell's, Lagunitas, Founders, and Victory aren't the the "latest new thing," but they're all solid brewers (beer-wise, and I'm guessing, financially). Maybe breweries like these and evern more so, Sierra Nevada and Boston Beer Company, will be the "consolidators."

    With all of the beer that sits on shelves, most of the breweries around now can't take much more of this...can they?
     
  16. sacrelicio

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    eh, most people don't want to homebrew. that's like saying people won't go to restaurants because they can cook everything at home.
     
  17. OddNotion

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    This is pretty much what I do... and I am working on my sour brewing recently too. Beer store spending is way down since I started liking my homebrew!
     
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  18. pvllbum

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    I know how to homebrew and have made some phenomenal beers but for most people, myself included, there's no time to do everything involved in homebrewing...especially if you're doing all grain. I don't get disillusioned homebrewers that feel they need to interject all the time by saying,"I can make that and it will taste better." It's like people who have to say the book is better than the movie.
     
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  19. JrGtr

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    Same here. At the moment, I am under no illusions of my homebrew. Admittedly the ratio of good beers to not-so-good ones is going in the right direction, but as of right now, money notwithstanding, I don't have a big enough repertiore of commercial level beers that I could use to start a label. I don't have the consistancy I would need to be sucessful.
    If I was the one that won the 600 million powerball a couple weeks ago, I'd think hard about it. It would take a good year of brewing at home, constantly, to get a few more recipes, and to be able to brew them the same way all the time. Time and money for space, build out, licensing, hiring help, etc.
    I homebrew, but I also buy plenty of commercial brews.
     
  20. loafinaround

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    I will say that home brewing simply isn't an option for some of us.... even if we're kinda interested in the concept.
    1) no space
    or
    2) no time

    then comes skill. So I think there will always be a very robust market. That being said, there are definitely too many mediocre breweries... and as always, survival of the fittest.... only.
     
  21. TheRealDBCooper

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    I've started doing the opposite. Brewing my sours at home and buying my other beer. Much better ROI.
     
    teal likes this.
  22. Sarlacc83

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    As cavedave said, there are a lot of areas which haven't experienced the craft 'boom' as of yet, and so those untapped markets won't have a bubble.

    However, there's also an incredible growth of competition in the established cities. I know San Diego is seeing a lot of craft brewery openings, and here at home, Oregon is seeing an increase in breweries as well. Which means, in Portland, there are becoming more and more options in an already crowded market, including numerous beers from Bend - which is now a city that exists solely to support the beer industry :) - and I can't make it to the various releases around time to try out these new places/beers so I have to go to only the ones that are generating the most buzz. So what I see coming is a contraction of multiple 'older' breweries which can no longer cut it or which never did in the first place.
     
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  23. herrburgess

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    Well, a lot of these older places (including my "local" brewpub) -- while not necessarily making beer that appeals to the modern beer geek -- remain popular and, in may cases, are well-capitalized. These places may then be able to buy out and/or consolidate with some of the under-capitalized newer places.
     
  24. Sarlacc83

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    Don't get me wrong, I'm not saying that there won't still be a mix, but when I walk into a place like Coalition Brewing on 4:30 on a Friday (before my dinner reservations at a restaurant nearby because I don't usually go there), and there are 4 other people having drinks, those are the kinds of places that are going to be the first to go. In the same way, let's say local brewpub was the only game in town, and they only brew mediocre beer. Some places exist because there's no other choice. (I can think of a couple places in Portland that might qualify on this list, though in this case, it's the drink super local option.)
     
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  25. GreenCoffee

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    Gotta happen sooner or later. There's always that worry that one of my favorites will go down but I have faith that good beer will win out in the end.
     
  26. Crusader

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    Maybe if they sell for scraps, but I have a hard time seeing brewpubs getting into the game of acquisitions. It's not just about buying but about getting profits out of what you buy. Small guys buying other, perhaps struggling small guys doesn't make much sense. The way I see it acquisitions will be left to the big guys among the craft breweries (apart from venture capital of course as you mentioned), perhaps at a time when their own brands aren't hitting the same growth rates as they used to but they still have alot of cash on hand and can afford a bank loan.
     
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  27. herrburgess

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    Well, my "local" has been looking to expand, so I could see him purchasing equipment, recipes, and other assets from a place that is undercapitalized, new, and may have failed to distinguish itself from the pack in its offerings. Still, I, too, see a lot more consolidation from the VCs getting in the game and the big boys.
     
    Crusader likes this.
  28. Horbar

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    So true! Unfortunately, the percentage of new breweries that produce a quality product is very low. Out of 20 new breweries, it seems only one is good and the rest are shitty.
     
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  29. Dope

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    Yup. We're both from MA and I believe MA is one of the best states as far as the number of breweries that distribute to us. There are mountains of astoundingly good beer to buy. However, there's a new brewery popping up every week and 90% of them are meh at best. Lots of them like to charge $10 for a bomber/750ml too. In 5 years I think we will see a lot of breweries dying if they don't improve their product or decrease their cost (or both). Some will have a niche market for crazy things (like Night Shift) but the rest will be hurting.

    Exactly. I see it as a good thing, myself. I've spent way too much money on middling brews in the last few years. Of course, I realize I am contributing to the problem... but it won't last forever.

    Having said all of that, my wife has been getting into wine. I would say at least 2/3rd of the wines she tries are garbage. Doesn't seem to matter when it comes to price either, whether it's $5 or $50 it seems completely random. Yet there's still a billion wineries out there and most are getting insane money for their product so who knows.

    Dope
     
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  30. Lledd

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    I think we're going to see an increase in small batch, limited release beers (even more so than now). The beers I want are the ones I can't have. That sales technique might make more room for small breweries. Look at Hill Farmstead and the Alchemist. I know their beers are superior, but imagine how much their demand/production ratio would go down if their distro matched Oskar Blues'.

    But they are sustainable on very small sales numbers. Since they can only please a very few of us, they leave room for other nano breweries :)
     
  31. mtbeer3649

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    what if budweiser buys up all these failing breweries and opens up suedo micro/nano breweries all over the country. it'd be like the mcdonalds of beer.
     
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  32. PatriotsRule

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    I think this puts added pressure on brewers to up their number of available brews distributed and also opens the door for awesome craft collabs. Gotta support a good thing by working for the right projects , putting our money where our mouths are, and exchanging said money for brewskis to then pour into our mouths, thusly drenching our money in craft beer. I can do this.
     
  33. Gtreid

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    I homebrew, and I think I make some pretty damn good beer. I would love to open a brewery, but, I am not delusional. Too many people, myself included, don't have the first clue on how to run a brewery as a business. Sure they pick up Sam Caligone's book, maybe they have a degree in business, but they have absolutely no experience in a professional brewery setting. Just because your homebrew is good doesn't mean it will translate to a successful business. All this being said, I truly believe this article. The economics just don't add up. But just like every thing else, it will work itself out. The brewers with a sub par product will be weeded out, and the good ones will take the market share.
     
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  34. 46and2

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    This is why I opened the thread in the first place.
     
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  35. regularjohn

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    DAS BOOT!!!!!!
     
  36. Lledd

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    This is probably the most likely scenario, sans some very local, very nano breweries.
     
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  37. beerme411

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    It's not the worst beer that will die out it will be the worst businessmen/women. My friend was in a local band for fun a few years back. They were not the best in their area but they got more gigs then those guys, because they knew how to market and work the system. Hopefully though the smart businessmen/women hire the good brewers who's brewery gets shut down, but the beer was great.
     
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  38. sharpski

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    I don't see consolidation happening in the craft segment like it has with Pabst, Olympia, etc. There's too much value placed on authenticity/sense of place for that to happen. And if it's not brands getting bought, why would Sierra Nevada et al. Be interested in buying other breweries? If there's a contraction, it would be a shake-out rather than a consolidation process.
     
  39. GreenCoffee

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    I'd also expect that the best beers will likely keep their brewers afloat so we aren't in as much danger of losing those. And if something truly awesome is lost from the market I expect that brewers will either take their recipes with them under new names or someone will say "Remember that awesome IPA that used to be brewed by *defunct brewery?* I bet we can make something in that ballpark." The community might have to get used to some Rogue-esque name hopping but hopefully things even out eventually.
     
  40. TastyIsBeer

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    I wonder if the distributors and larger liquor store chains will prove to be the damper, at least for anything other than brewpub stuff. More SKUs is more headache in any business, particularly if they are from different suppliers. That said, at least unique or semi-unique SKUs have a chance of standing out: if you already had a pile of IPAs on your shelves that were selling well, would you rather add another IPA (which likely would just cannibalize sales one of the existing brews you have) or would you prefer to add a wacky sour, particularly if it had better margins? It makes sense for a brewpub to build out a stable of basic styles since you'll need some of those to go well with food, but a straight up brewery probably ought to identify a niche.
     
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