Are We in a Craft Beer “Bubble”?

Source of graph: Brewers Association and blogs.wvgazette.com

Written by Tom Becham for Professor Goodales

Let me begin this article with a complete non-sequitur. Americans seem to be able to accept even the harshest of criticisms if they come from people with British accents. Whether it be Gordon Ramsey, Jamie Oliver, Simon Cowell or even the Supernanny, it seems to go over better when delivered with a “BBC Standard” intonation, or even an East End London working class accent. So, while you’re reading this article, pretend that I sound like I’m from Cambridge. Or even the slums of Manchester. Chances are, being Americans, none of us will know the difference anyway.

I believe we may be in the middle of a “craft beer bubble” similar to the dot com and real estate bubbles. I don’t have anything other than circumstantial evidence and intuition to support my assertion. I also admit that there are certain factors which might mitigate against my conclusion. I certainly hope I’m wrong. But don’t be entirely surprised if I’m not. In short, I think we will soon witness another large contraction of the craft beer industry, as was witnessed in the ’90s.

Why would I say that?

Well, the first problem is the economy. While I know that craft beer has continued to grow, despite hard economic times, there are some problems here. Craft beer has boomed because many of those who drink fine wines or more expensive spirits have switched to less expensive, but still tasty, craft beer. If times continue to be hard, many more will switch first from more expensive craft brews like Alesmith and Rogue, to cheaper ones like Widmer and Goose Island, which are partially owned by Macros Bud/Miller/Coors. Then, if economic pressures still apply, they will go yet cheaper to “craft” products like Blue Moon, which is actually made by Coors, justifying their purchases by saying, “Sure, technically it’s Coors, but it’s still drinkable”. If that happens with enough drinkers, then craft breweries shrink and start to disappear from the marketplace, with the Macro-Swill makers being the only winners. Despite what many people may claim, no industry is “recession proof”, not even brewing. In fact, you may have noticed that some regional brewers who have recently started to distribute nationally – like Dogfish Head and Great Divide – are scaling back a bit for various reasons. Look for this trend to continue.

The previous situation is exacerbated by the fact that large distributorships are either owned or heavily influenced by the Macros. If overall beer consumption drops for economic reasons, who will distributors cut from their client lists first? It won’t be their biggest clients, Bud/Miller/Coors, that’s for sure! Sure, some of the larger craft houses like Stone and Sam Adams have secured their own distribution channels, but they are the exceptions rather than the rule. Indeed, Professor GoodAles has featured stories of state legislation proposals which would make things even more difficult for craft brewers. Smaller brewers will face some intense financial pressures.

Next, the sheer volume of breweries has exploded very recently. Craft brewers more than doubled their beer output in the past year. The hop shortages of years past are with us again, and part of it is simply because of demand by brewers (there are also climate change issues which could be affecting barley and hops output, too, but those are too involved for an article of the length I intend). After all, when every brewer and his DOG is making a Double/Imperial IPA, the hops tend to be consumed very quickly. Indeed, some of my recent conversations with small brewers have indicated rather lengthy waits to purchase the more popular super-bittering hops, like Simcoe. Simply put, craft beer may be growing beyond the capacity of the agricultural infrastructure’s ability to support. While agriculture may have some ability to respond to this situation, there are other, higher priorities for agribusiness at this time (like basic food supply).

Finally, there is the sheer variability of craft beer itself. I will return now to my Simon Cowell alter ego. While I prefer to remain a “nice guy” most of the time, I also agree with Simon that sometimes people without talent should NOT be encouraged. This includes brewers. And unfortunately, as delicious – even transcendent – as some craft beer may be, there is also a lot of it that is at best mediocre, and even just plain bad. I don’t think it does craft beer as a category any favors to support bad examples just because they come from small brewers. Indeed, I think the worse small breweries SHOULD go out of business, because the very ethos of craft beer is quality not quantity, which should apply to of craft breweries, as well.

I have to say that personally, I LIKE that fact that a new small brewpub has opened 15 minutes from my home (Surf Brewing, in Ventura, California), which far outstrips the single previous example of a local brewpub (Anacapa) in beer quality. But I don’t NEED both places near me, strictly speaking. The trouble is, Anacapa is older and more established, and will probably weather future economic disruptions far better than Surf, the newer start-up. I am already choosing to support Surf with my wallet, but with my luck, I’ll be left with Anacapa. Such are the vagaries of the marketplace.

I already know I’m going to receive some angry comments on this ‘blog for this article. No doubt, many will wish to tell me in great detail how wrong I am. To be honest, I hope they’re right.

Graph source: Brewers Association and drinkwiththewench.com

Tom Becham lives in California, he’s a homebrewer and reviews beer, brewpubs, breweries and beer events for professorgoodales.net.