There Is No Craft Beer Bubble(?)

I think that the only thing safe to say about "bubbles" is you can only talk about them intelligently looking back in time at them.

 

As a bonafide nostalgian, I concur. "That was a really big bubble!" just may be a future plaint, but I doubt it. Really good beer from "here" and brewing at home will keep things honest. Just as they should, I think.

 

Nice to see that the guy seems to know that the bubble, if there is one, would be with breweries not beer. But I'm not sure that the amount of money being paid to own a brewery is greatly inflated beyond actual value of what is being acquired.

In the most recent housing bubble folks were paying more for a house than it's real value would normally command. When that crashed many were left owing more on the house than it could be re-sold for.

I pretty much agree with the idea that demand for beer may be slowing relative to the growth of new markets but then the really local operations seem to be doing pretty well at opening up new markets in areas where folks are not used to having easy access to flavorful beer.

So I think we may see a "shake-out" with some badly run breweries failing (regardless of the quality of their beer). In fact I think we're a bit overdue to see some increase in the failure rate among new breweries, but I also think we have turned a corner with popular taste and we'll continue to see steady, if slower growth and some stabilization because of some rather fundamental changes in popular tastes that go well beyond the one-and -done crowd looking for the-latest-and-greatest.

 

The overall demand for craft beer will likely not shrink, growth will slow and eventually stagnate. I don't expect any craft beer fan to go back to macros.

The issue is that there are a ton of tickers supporting marginal breweries in their quest to achieve the next milestone in untappd. As they burn out, they'll revert to drinking primarily the good stuff. The lesser beers will sit on the shelf, becoming even more mediocre and, eventually, they whither and die.

Locally I'm already seeing beers that just aren't selling. A brewery from a neighboring state is pulling out, despite extremely strong sales for craft beer in general. I suspect their stuff simply isn't selling here.

If you make top notch craft beer, I doubt you'll have problems unless you expand to a point where you can't maintain quality and/or freshness. If you're 2nd tier, you'll likely maintain. Below that, you'll likely die a slow death.

This, of course, is all JMHO. I am not an industry expert, just a craft beer fan who pay attention.

 

While I mostly agree with this statement, it's a good one, doesn't the move, "The Big Short" suggest otherwise? That you CAN predict a bubble bursting if you're savvy enough.

I could be totally wrong here as well, so feel free to correct me. Much of that movie was confusing to me, granted I wasn't completely paying attention either if I recall.

 

Or cause one if you are big enough and have corrupted regulatory procedures in your favor to take advantage of it bursting. The silver bubble and housing bubble come to mind.

And re: being savvy, we only hear about the correct "guesses", and if they weren't so rare they wouldn't be so profitable.

 

Which Cincy brewpub you talking about?

 

This is something I've imagined would have happened by now, but all it may take is a factor, event or reality that reduces disposable income just a bit more to reduce the luxury of making pub trips, brewpub trips, or buying of fancy waxed bottles etc.. Breweries that barely see black month to month and depend on bar sales could topple if household income doesn't begin to outpace inflation and/or absorb increased expenses. How I see this as a relevant issue for craft beer is this - craft had it's most recent take off in 2011, 2012 maybe. Now it's 2016. Maybe I'm generalizing here or assigning more influence to a certain class than reality supports, but if you consider nearly correct the time frame I suggest craft started ramping up, a decent number of drinkers were 22 - 25. Now they are 26 - 29 and looking to start families, getting more serious in careers, and with exception to Barry, most people are no longer living with and depending on their parents for buying (or trading...) beer. That disposable income is disappearing for life reasons and not buying as much as it did in 2012 due to economic reasons. And even when the disposable income is still there, the time people can spend standing in release lines, hanging out at brewpubs, etc., starts to wane when lifestyle changes start to transform your empty moments. Keep in mind that I look at BA as a vacuum, and not fully representative of the craft drinking public. Where we are all die hard (ok - insane, nuts, irrational, whatever you call it) when it comes to keeping up our habit, truth is that there's probably the majority of folks buying craft that won't offer ti the same place in their lives once lives get sticky or whatnot.

I don't think we've completely turned the corner just yet because hard sodas, various "a-ritas" and now hard ice teas are still rolling out. Apparently all the marketing gurus see a softness in the craft market that they can either pluck away or sway with these items. I get to this conclusion based on the observation that wine and hard liquor sales haven't fallen off, and in fact the wine and liquor segments have increased while beer sales have slightly decreased in the past few years*. They are targeting folks that have gravitated away from macro apparently. So it would seem to me that the market suggest that popular taste is still evolving.

http://www.statista.com/topics/1709/alcoholic-beverages/

 

Oh yeah, I forgot about that part of the movie.

I think this ran through my mind earlier, good point.

https://www.thrillist.com/drink/nation/craft-beer-dark-insider-secrets

Not that Thrillist is a be-all end-all for debates, I like some of their articles. And I found this interesting from an insider in the business. I think a lot of the points in this article are valid concerns.

 

I think the big question is which breweries are going to get hurt as the market matures. We could see a market where the small, local breweries still flourish and continue to open yet see some of the mid level breweries begin to merge and/or fail.

Lots of breweries are doing very well realizing they make a lot more money selling direct to consumer at their breweries than sell through traditional channels. These small breweries are also making some incredible beer. Paste's blind ranking of IPA's shows an interesting trend, the handful of wow beers from a few years ago are now in a large crowd of wow beers, many no longer at the top.

I live in Massachusetts, the other day I thought to myself why would I drive an hour and a half into the middle of nowhere in the middle of the day Wednesday to TreeHouse. Then wait in line for 10-12 cans of beer which will consist of two beers I have no choice over when I can go to a whole bunch of breweries closer by and near places I want to go. I went to NightShift brewing in Everett Mass recently, waited in no line, had multiple choices of beers and could drink on site in a really fun environment. Now Tree House does produce better beer than Night Shift but is it worth the inconvenience for a moderately better beer? SingleCut Beersmiths is another great example. Went to their brewery a few months back and had the same experience as with Night Shift. No waiting and a awesome atmosphere.

Tree House is opening their new brewery next year but its still going to be in the middle of nowhere. Tree House also isn't alone and I'm not trying to pick on them but the point is at some point there becomes less and less of a reason to wait in line for beers that are becoming somewhat run of the mill (and Tree Houses expansion might also accelerate that). Waiting in line should be reserved for amazing one off or limited release beers. I think this is starting to happen with the shift in some breweries moving from 750ml bottles to cans for their everyday beers. That's another area that needs to evolve. Bombers used to be reserved for special beers not some random IPA.

Will we shift to going to breweries rather than liquor stores and bars? Would this affect behavior for a larger section of the population than just the BA crowd? How will that change the overall market? If the small breweries make their locations more and more a destination will that affect demand the same way that the early marketing of craft beer did for beer in general?

 

I think another thought that needs to be added to the mix of this conversation is what is a normal rate of closure for businesses, and what is a "bubble" of mass business failures?

Food and beverage start ups have some of the highest failure rates of any industry. At a certain point enough businesses fail concurrently that it is considered in retrospect to be a "bubble" bursting, but some business failing is capitalism, survival of the fittest.

And one more thought to add is that beer in general is becoming less, not more, popular. Folks are ordering more cider and spirits now, and less beer. Craft beer is the exception, but we are a small part of a large industry that has been losing popularity for a while now.

 

Beer is just like everything else. I remember The Prodigy book store at Quaker Village. Amos Johnson was the proprietor and the place was a jewel- this was mid 70s- and I did everything I could to keep his place afloat, buying books that I still haven't read...but his labor of love wasn't enough to pay the bills. Outside of The Browsery and stores in New York, and London The Prodigy remains in my mind as a place of great solace, that likely was thwarted by the initial advent of unseen and new commercial forces.

 

In general the failure rate for startups is that 50% will be gone within 5 years. As you say it's higher for food and beverage startups. But that 50% seems to be a natural process since it seems so universally true regardless of the industry.

So far, for breweries, etc. it seems to have been much lower than expected (looking at BA figures on startups and closures), but then the majority currently in business haven't even been around for 5 years ( ) plus they've been riding a surge in popularity of flavorful beer.

 

I doubt there is a bubble in demand coming, but there is stiff competition for beer shelf and tap space. The old start-up brewery model of brew in a warehouse, bottle/can/keg beer, and distribute everywhere you can is going to be tough to maintain. Small brewers focused on local customers with on-premises sales and limited distribution will do fine. Large nationally distributed brewers with more resources will do fine. The mid-size regional brewers who have to depend on the distribution model are going to feel the pinch competing against the big league brewers and the local home-team brewers.

 

I think choosing cider (whether instead of beer or as new beverage) may have slowed a lot this last year:

http://ciderjournal.com/cider-sales-growth-decline-2015/

Putting this together with slowing of growth in flavorful beer might just indicate that folks seeking alternatives to the mainstream have found what they wanted or moved on to yet something else entirely.

 

Interesting info. I guess the trend around here is different, at least I hope it is, as I live in apple country, this area lives and dies by apples, and there are cideries doing well everywhere, including Bad Seed down the road from me, and lots of new products with increasing shelf presence in stores.

I do notice lots more spirits drinkers around, perhaps that is the main destination for ex beer lovers

 

Well given the numbers in that chart, the places around you should continue to do well but there's some reason to expect their numbers may not be increasing so much and that demand/growth of shelf space for their output may slow down or stabilize. (Although given that Johnny Appleseed did his work so well up there the slowdown may well have a bigger effect on those places not in prime apple country.)

More interesting I think is that the decline in growth isn't unique to beer and seems the case with ciders as well. Now if the growth of hard sodas and hard tea also show signs of slowing down....

 

Craft beer may be an exception, but for how long? As noted, we're a fickle bunch and all you have to do is peruse WBAYDN and NBS to learn that. And participants in those threads are not the biggest examples of tickers. I had a friend on UnTapped who went through something like 600 beers in about four months, then dropped off the beer planet. Not even interested in it anymore. That type of consumer is not helping the longevity of the industry. When I joined up I think there were about 1800 breweries, now that's pushing 5,000? That is since 2011.

Another confounding factor is the "local". I think local is great - I love being able to say my beer comes from right down the street. But by direct observations, some of these small, local breweries do not make good beer (as objectively as I can determine). Whether it's bad recipes, lack of knowledge, infection, or just plain screwed up flavors in an attempt to be "innovative", it's beer I'd rather not drink. Yet they thrive because people think it's cool. How much is that going to hurt the mid-sized brewery with distribution? I think eventually that phenomenon will have some impact on who survives, which alters the Darwinian nature of the scenario - some of the weak may survive at the expense of the good. It'd be great if I could walk next door and buy a beer that's as good as Stone or Sierra or Victory, but the fact is it's tough. Much easier for me to find what I perceive as a mediocre beer supported by rabid locavores.

I'm in MA as well, and there world class/near world class within an hour of my doorstep. But maybe I don't want my "neighborhood" brewery to be that far away. I can be at a good store in fifteen minutes, and if I can't get my "local" there, I'll gladly take Stone or Sierra Nevada or any of the other larger players that have distribution. I don't need every beer I drink to be an earth-shattering experience. I think these "at the brewery" sales are going to get old to people in a hurry and the circle will eventually shrink around them. It's just seems common sense - why spend all that time just to obtain beer on the regular? I don't care how good a beer is, I can't take the time to drive to the brewery every time I want something from Trillium that oh by the way may have sold out on Wednesday and it's SOL Saturday when I get there.

Movement from store shelves - there's SOOOO much beer even in stores with small inventories and great selections. I am surprised at what sits on shelves week after week. But that reflects the buying habits, my own included. I'm still in exploration mode, so I'll grab a this and that but not a lot of any one thing. Two exceptions are my binkies - Allagash and Jack's Abby, and even within those I pick and choose. I can't remember the last time I bought a case of one beer, even for a cookout or gathering. I'll buy a little of this and a little of that and hope I cover all the bases. With the overabundance of beers, there's no way they all sell through and I think the way we buy shows there's not a reliable number of repeat sales. We asked for this, in a way, demanding more variety, more fresh beer, etc. and by observation, the market is over-saturated. Too much gets produced, too much sits in distro, and too much sits on store shelves, and we cry "old beer"...

There's so many variables. We don't know all of the mechanisms in play, either, and I certainly have no head for business. I'd guess some breweries are "home grown", but others are backed by venture capital or deep in the pockets of the banks, I would think. Remember the video done by Sam Calgione and the Pain Killers - Pinchin' Pennies? Comes the day when the piper has to be paid - can all of these small places pull that off if they have investors and are running on the edge of the red month to month? The investment gets bigger as these places fight for distribution and maybe expanding beyond their means too, and this ties back to the quality thread from a little while ago and some private conversations about overall quality - beer rushed to market. There's plenty of signals that the status quo won't be maintained for whatever reason.

 

I do indeed think that some of the 'weak' will survive at the expense of the 'good' due to the buy local movement.

Cheers!