Price increases. Is this the bubble buster?

Craft beer saturation cannot be defined within the context of the overall beer market. It HAS to be defined within the context of people who actually are interested in craft beer. Defining craft beer saturation within the context of the total beer market is analogous to defining beer saturation within the context of the total alcoholic beverage market.

EDIT: in response to everyone getting a big chuckle about the answer "market saturation" by suggesting that there aren't many economists on BA, I would like to share some knowledge from this non-economist BA who does happen to have an MBA with a marketing focus.

The definition of market saturation is when a given product is diffused within the market. This is true. But the trick they teach you in business school that maybe isn't common knowledge is that there are markets within markets, and they must be defined for the terms to make sense. Just look at my example above regarding how the Craft Beer market is a subset of the Beer market, which is a subset of the Alcoholic Beverage market. If you use the overall beer market to define when craft beer will hit saturation, then it will NEVER hit saturation. At least not by that definition. But functionally, it will reach a point where all the producers who fill the craft beer supply market will produce enough craft beer for every consumer within the craft beer demand market to have their desired allocation. At which point, you would have saturation within the craft beer market.

 

Jeezus @cavedave that's a harder question to answer than the OP's.

Personally, the first one I'd rule out is price. Relative to other beer consumers, I think the craft beer market is fairly price insensitive. I think the majority of craft beer consumers will continue to buy their favorite beers so long as the price increases stay more or less in line with inflation over the long haul.

Marketing and innovation could potentially be grouped into one category, because if you get outside the pure advertising side of marketing, a lot of successful marketing is about putting consumers in touch with products and innovations that they want. And it's a two-way street: sometimes, you find what consumers want and innovate that into your product, but other times, you innovate a new idea that maybe the consumers didn't even know about before, and explain to them why it's so awesome.

And as someone who thinks the best products come from organic creation and growth, rather than purchase and consolidation, I'm reluctant to choose that option. I think some brewers will find success that way, but I think if we're talking the overall market, most companies will succeed through a combination of marketing and innovation.

 

The bubble wont burst until new breweries start skipping the natural progression of a brewery, that is to start small and slowly expand to meet rising demand. I have seen a few new breweries open up at huge capacities with millions of dollars of investment (Societe is the biggest example of this), but this path is extremely rare. When the average business investor that has brewed a few batches of homebrew starts opening massive brewhouses, the bubble is near.

 

Great response. I think this point coupled with the post about IPAs above clearly illustrates craft beer market saturation is occurring or damn near occuring within small subsets of the market such as IPA craft beer drinkers. Not every brewery can be known as a great IPA brewery but that still seems to be the driving force behind many breweries nation wide. As a consumer it gets frustrating seeing the craft shelves dominated by IPAs. Nearly every seasonal release out there is an IPA (i'm looking at you SN) and every brewery with shelf space has at least one IPA offering if not more. Again SN is a prime example. It's not uncommon for me to see SN's shelf space entirely IPAs with sometimes 4 IPA/PAs at once: SNPA, Torpedo, Celebration holdovers, and Ruthless. For me at least I am IPA'd out. The release I'm most looking forward to in 2014 is actually a lager coming out in March.

 

Other: none.

 

I picked market saturation more because within the 10% or so overall market, in Mass, which has a surprisingly good selection of "craft beers" there are many times that I won't buy standard offerings, and within that saturation , there is a drive for new, excited and better. I think the local market will be interesting to watch, but some of the established brewers that I currently don't drink will probably still not get my business. But again, I am not sure who is buying their beer now. Just so many choices and so many limited releases, that I drink seasonally in a weird way.

 

Another way to look at it as well is the local vs. national craft beer bubble. Some of the local breweries in my area are taking market share from the Stones, FW, Lagunitas, Bells, SN's of the world. But even within craft beer in my opinion there are giants and then little locals. Its a tough question when you try and boil it down.

 

I voted other as I believe the threat is a combo of pricing, market saturation, buyouts/takeovers, and in fighting

 

I went with other...

1) Beer is a luxury good...those that buy it either spend a relatively small percentage of their income on it or love it so much that they are willing to splurge. As a luxury good, it will also likely never be more than a niche market compared with the BMCs

2) A part of me thinks over saturation will be a part of it, but I'm going to take a different road. As someone who has a physical intolerance for hops, I'm frustrated by my lack of choices compared to the hopheads. By saturating the market with IPAs, the beer industry forgets a large segment of the market. In fact, most of the beer lovers I know just plain don't like hoppy beers.

3) I also think many who pass the newbie stage get fed up with whales. I will only chase a beer or buy a bomber if it's bourbon barreled, and even with that, with the increase in bourbon demand, it's only a matter of time before we have a good selection of those available year round. I believe whales are a bubble in and of themselves...how many whales get scooped up only to be socked away in a cellar until they go bad. Once people start to realize how much money they piss away to never enjoy, the whales will crash.

4) The biggest thing that is going to burst the bubble is a fickle consumer base. It happened with bourbon before and many say it is happening again. At some point, people will move to wine or rum or maybe even back to vodka. The one thing beer has going for it is there isn't much competition. I can't see many in the beer crowd switching to wine, and spirits are a whole nother beast. Though I can easily see all those breweries focused on IPAs get filtered out as people get bored of hops and move to malts.

5) In an argument against a bubble, craft beer has still not really left the US and a few select other countries. Even if US tastes move away from craft beer, there will be plenty of room for expansion overseas.

 

My area may not be representative of many areas, as it is a region that is now actively trying to encourage becoming a beer destination.

Peekskill is not representative, but they take it one step further. No bottling. Kegs sent out to select accounts. No growler fills except at the brewery.

Mill House cannot keep up with demand and already in first year has filled the space they left for expansion and are double batching everything, with no distribution at all.

Rushing Duck signed with a local distro, Remarkable, and makes it throughout the Albany to NYC area.

Captain Lawrence does the widest ditribution of the local brewries, making it out of state.

Every one of these breweries is top notch, and there are quite a few just a step down from that quality that are exclusively local. My fave of the new guys is Bacchus in New Paltz.

 

I would have to say sub-par beer. The saturation is just going to give us better beers. The sub-par beers will just turn others away from drinking new beers. I feel ingredients could be a big factor. As the consumer choices the dominant ingredients other breweries with start wanting those ingredients. This could also turn in to higher prices since they may have to compete for the prices of "imperial" ingredients. I am not really sure about the availability but I am sure they are limited since we have seasonal beers.

 

Probably tickers like me. There are hundreds of beers that I've only bought once.

 

While that is true, you are omitting the elasticity of the sub-markets, and the trends are well documented and quite extreme. Consider that craft grew by approximately 11% in 2011, and 15% in 2012. Meanwhile BCM saw stagnant sales, and in some cases losses. That is a dramatic shift in the sub-markets.

SKU saturation is an interesting point. Usually corrected by the natural elimination of sub-par products, it becomes much more complex when the "shelf influence" of BMC is factored in. Essentially using the ShockTops of the beer world as sacrificial pawns, keeping others off the shelf.

 

Not omitting them--at least not intentionally--just didn't bring that up specifically. I wasn't attempting to suggest that we are necessarily near a saturation point so much as I was trying to point out that contextualizing saturation within the overall beer market doesn't provide any illustrative value.

A smaller-sized market (like a sub-market) is going to be more elastic than a larger market by it's nature. It's easier to change by a degree of 11% of 100 than it is to change by 11% of 100,000.

Personally, I think SKU saturation is slightly different than market saturation (or sub-market, if you prefer), for the exact reason you mention, because Brewer A can always switch up their product line if there are too many IPAs, for example. Whereas saturation within the craft (sub)market suggests that there are too many breweries to sustain operational revenue because there aren't enough people buying their products. The creation and elimination of SKUs is far more fluid than the opening and closure of producers.

 

I totally agree. That the incomparibly larger sub-market has shown even a slight loss in sales (0.1% I believe, last year), provides the smaller sub-market with room for tremendous growth. If the BCM's continue to even just loose a minuscule market share craft producers will continue to grow at a rapid pace.

 

When I think back to the early 90's when the first bubble "popped", I think of restaurant owners that thought adding a brew system to their business would make them easy money, and I think of marketing types that thought putting a cute or funny label on a contract brewed light lager was going to turn them into the next Augustus Busch. The ones that survived made good beer and had realistic business plans.

The first bubble didn't mark a reduction in sales. It was a reduction of growth.

 

Jim Koch claims the way to grow craft is to get the people who drink craft 1or 2 times a month to drink it once a week. Price and marketing might do that. Innovation and consolidation won't. There was a thread about this a while back but I can't remember what it was named to post a link.

 

Saturation. There's only X amount of shelf space at a liquor store and not every beer can have a spot. The good sellers stay there, the ones that dont loose a spot to something else.

 

Thank you for noting FFF, their regulars have always been overpriced. I've always felt, without mentioning anything by name as to not start a war, many of their beers have a counterpart that's either comparable or better for the price you pay.