Price increases. Is this the bubble buster?

Great article about whether there is or isn't a bubble.

"Underlying such squabbling is a growing sense that a shakeout is on the horizon. "There's still the ethos that we all get along and that we all help each other out," Laffler says, "but our competition isn't Anheuser-Busch. It's not Coors. It's Bell's. It's New Belgium. It's Deschutes. It's these regional breweries that are having less growth in their home markets so they have to expand to foreign territory.""

 

Some breweries will get washed out as competition starts squeezing out subpar brewers. That inevitably happens in any market.

What few people seem to recognize is that the craft beer market (like virtually all craft markets) is really two different markets. One market includes people who regularly purchase big beers and big bottles. The other market includes people who are looking for something more flavorful than BMC but reasonably available and reasonably priced. There is obviously some overlap but generally people who are just looking for a good six pack to keep in the fridge are not taking off work to drive around hunting for the newest BBA release. Nor are the people hunting for the newest BBA release hording cases of many brewers' core line up. Certainly there is also overlap in distributing into each market by many breweries. Just look at how many brewers are selling one-off BBA and sour options (at various levels of quality).

So long as the market for reasonable beers at reasonable prices continues to outsell the big beer market there will continue to be lots of room for new brewers to jump into both markets. Most people don't need the top IPA in the region available at the local happy hour spot. They just want something reasonably tasty. The general demand for craft beer that floats on top of the larger craft market helps in turn to support the bigger beers and big bottle releases. There is still a lot of room, at least nationally, for brewers to come in and make decent or better beers that serve their local market. The willingness and ability for people to come in and buy a bomber of some jackass beer for $40 may not be broad and the ability to spend that kind of money on beer is definitely a luxury purchase subject to the overall economy. In a rough economy, can The Bruery still sell $40 bottles? Maybe in Orange County but maybe not in other parts of the country. However, the local brewpub is probably still going to get people coming in for a $3 pint of pale ale or IPA.

 

Ha, beat me to it! People talking about Market Saturation and a product that only 7% share and high prices for products that immediately sell out after being offered sale. Not a lot of Economists.

 

The problem with the "bubble" question and price increases is that it mixes local beer consumption and national beer consumption as the same thing. And no, I'm not an economist either. But in a lot of metropolitan markets, these prices increases are a drop in the bucket, though they have more of an impact on rural markets. And for market saturation, that also assumes that every new craft brewer expands to every available market. You can start a brewery in your region and be very successful on a local level and continue to be profitable without expanding your distribution. If a lot of craft brewers stay relatively local, they never really overlap with each other -- so the "national total" number of breweries doesn't really matter. As long as there are under-served markets in terms of local craft beer (and there are still plenty), there's opportunity to grow.

 

This is a great and very refreshing comment, especially in the context that you've been purchasing craft beer for 5 months. Cheers!

 

Not surprised that "market saturation" is the leading choice right now...

 

there was a great discussion on the good beer hunting podcast last week about market saturation. gigantic brewing's van havig was a ph. d candidate in economics and talks about how saturation is basically a myth that's holding back the craft beer market from further maturation. definitely worth a listen for those who are interested (presumably people reading this thread).

 

I am unsure if the craft segment is in for a bubble, but I don't know if the amount of breweries is really sustainable.

Sierra Nevada, New Belgium, Lagunitas are all expanding to have second breweries. For people looking just for good beer, these brands can be found in most places across the United States and the products are consistently good. Personally, I do enjoy some of their beers, esp Lagunitas. On the other side, is the idea to support local brewers.

What is hard for me(where I live) sometimes is that I just don't really love some of the products that the local ones produce, at least not to an extent over other options.

Each state(or lower) distribution is a battle for the craft beer dollar, and at times some of the newer or smaller breweries will have trouble with sales if they are nothing more than a local option. That only gets so far. The sales "winners" of each of these local battles will survive in the long run.

And to me, I'm okay with that. I can only drink so much beer, and choose to drink what I prefer, regardless of where it is brewed. FWIW, I kind of want to hang at one of the bigger stores in the area for a Saturday and see what goes out the door, just to learn what sells.

 

I am going to add a question if anyone cares to answer, a corollary of the question in OP.

In such a dynamic market segment as ours, craft beer up double digits annually for last 5 years, while the beer market in general is down...

...what will drive the success of "craft beer" businesses that prosper in the next 5 years? Price? Marketing? Innovation? Consolidation?

 

I read somewhere back in this thread a nice statement from a guy in OK, and I'll paraphrase by saying local guys are trying to sell good product on a small scale and not shoot for the moon. I feel the whole scene will hit stasis in this manner, the breweries who are trying to hit all the markets with their products will either fail and have to pull back, or they will do well and up production. There are a ton of great local options who have been around for years who recently moved from brewpub to bottling (b&b I'm looking at you). Only time will tell with these breweries. Second, I see a lot of sub par shit being forced into my local market now, and it drives me to those local gems even more. Why support some shitty brewery from new york when I can keep someone gainfully employed in my state? Lastly, as for market saturation, craft drinkers make up about 12% of the market in colorado, but I can assure you that craft beer makes up a lot more than %12 of door and shelf space.

 

Local brand loyalty.

 

Another old timer thank God

 

Consistent quality (whether they're making a dry-hopped jasmine-infused sherry barrel-aged saison, or a pale ale)

 

If you don't think there is at least a small saturation issue, look at all of the threads/comments about "old" IPA's still on shelves.

 

Q for you @cavedave : how many of your local breweries do you see actively taking this approach (i.e., focusing primarily on guaranteeing freshness, limiting distribution exclusively to local markets, marketing themselves as "[Your area's] beer") in the way places like New Glarus in WI and Olde Mecklenburg in NC do?

I see most if not all in my area still primarily taking the "we're 'craft' -- and not the big, bad BMC bogeyman -- so we *must be good, right?" approach to marketing.

 

The Market Saturation that many speak of including myself is almost entirely driven by the IPA market. This thread got me thinking..I'm going to rattle off what the general selection of IPAs are that are relatively fresh and in stock at an avegage beer store looks like.
60 Min x 8(cases in PA we buy by the case)
90 Min x3
Perpetual x8
Sculpin x 5
Two hearted x4
DirtWolf x8
Jai Ali x4
Hopped on the High seas x4
Union Jack x3
Double Jack x1
Limbo x3
Otter creek IPAs x4
Racer 5 x2
Brew free or die IPA x4
Stone IPA x2
Ruination x2
Hop ottin x2
Two brothers IPA x 2
Lets not forget seasonals
Hopslam while it doesn't sit is a player at this time
Nugget Nectar x a Palate per store(may not be an IPA but people who drink IPA drink Nectar)
Soon to be Chill wave and Double trouble are about to hit shelves here

And with this said there are easily a dozen or so IPAs that take up shelf space that I can't name off the top but they exist and take up space on da shelves..

So with that said The IPA market is saturated in Pennsylvania, This is a fact. One cannot sell all these(~70) cases of IPA in a reasonable window of freshness. I'm not crying or mad about it but it must be said we have reached a point of no return when it comes to IPAs and really desirable hoppy beers in general.

And I left out every IPA available by Bomber

 

Interesting. The strong locals here take the view "we brew what we think is good and hope you enjoy it too" approach and they are growing stronger each year. Good examples are Victory and Troeg's with Victory opening a new breweing location for their basic flagship beers and with Troeg's having moved into new facilities and beginning the addition of some new, interesting brews to their line up which are based in the successful beers of their scratch series.

 

Unfortunately the strong locals haven't made it to my immediate area yet. We have had a couple new breweries open and some new regional ones enter the market before gaining local support in their hometown, however.

EDIT: What view are the not-so-strong locals in your area taking?

 

I think a problem here is that people are misusing market saturation. What we are running into isn't market saturation but rather SKU saturation. And I think it is only going to get worse as more and more of the "breweries in planning" become reality and add to the glut.