Is A Craft Beer Bubble Brewing?

You only have to glance at our home page to be confronted with the mixed signals that we’re starting to see in these frothy craft beer times. Earlier this week, the Brewers Association released their mid-year data on the US craft brewing industry, which showed that craft beer’s production volume had increased an amazing 18 percent during the first half of 2014. And just one day later, we came across an insightful article written by Joshua M. Bernstein for bon appétit, where Dogfish Head’s Sam Calagione is quoted ominously as saying “We’re heading into an incredibly competitive era of craft brewing… There’s a bloodbath coming.” Those are sobering words on Sam’s part and we couldn’t stop thinking about them.

But maybe we’re stupid to worry…

Some of us are just optimists by nature – the glass is always half full, and the Brewers Association’s data released this week paints an encouraging picture, to say the least.

“The sustained double-digit growth of the craft category shows the solidity of demand for fuller flavored beer in a variety of styles from small and independent American producers,” said Bart Watson, chief economist, Brewers Association. “Craft brewers are providing world-class, innovative products that continue to excite beer lovers and energize the industry.”

So, maybe it’s stupid to worry…

But we’ve also a great deal of respect for an industry leader like Dogfish Head’s Sam Calagione. This guy’s self made and he (along with his wife, Mariah) built Dogfish Head up from nothing. Sam’s been in the trenches for years – and we think his seasoned “street read” is better than most. So when he expresses concern that there’s “a bloodbath coming” – he most definitely has our attention.

There were two numbers in this week’s report from the Brewers Association that are both mind-boggling and gave us pause:

 As of June 30, 2014, 3,040 breweries were operating in the U.S., 99 percent of which were small and independent craft breweries. Additionally, there were 1,929 breweries in planning.

That’s an incredible number of new breweries! And those 1,929 “breweries in planning” will soon all be fighting for American craft beer consumers. Like it or not, the craft beer world is fast becoming more competitive and if things get ugly, breweries may need to be both gifted and strategic to survive.

Quality and scale will both become increasingly important factors to any brewery going forward.

Quality hardly needs an explanation. Suffice it to say that with the kind of growth that we’re seeing now, brewing good beer soon won’t be good enough – it better be brilliant. Breweries making great beers are not going away no matter how crowded a marketplace gets.

Scale will also demand more attention. Some new breweries are smartly adopting super local business plans. They see their strength in clearly-defined and manageable regions and they intend to own their backyards. Many of these breweries place their emphasis on building their brands locally in their brewpubs, though events, and in their tasting rooms. In many states, they are succeeding by being able to sell directly to their fans – as well as by grooming their breweries to be beer tourism destinations – thus bringing their fans to them.It’s those larger-scaled breweries, more dependent on distribution, that we think Calagione is alluding to when he’s talking about an impending bloodbath….and we can’t help but worry along with him.

All this growth isn’t taking place in a vacuum. Will there be a time when retail’s existing shelf space can no longer accommodate all the new brands fighting for attention? And in spite of the increasing number of dedicated craft beer bars and tap lines – when will those outlets no longer be able to accommodate the sheer volume of beer coming their way?

And what’s the eventual impact of formidable West Coast & Midwest breweries such as New Belgium, Sierra Nevada, Oskar Blues, Lagunitas, Green Flash, (and soon Stone) all moving East? How will this East Coast migration impact future distribution patterns and product availability both on- and off-premise?

But maybe Sam’s overreacting and maybe we’re just stupid to worry…

We’re cheerleaders for the industry here at American Craft Beer. And while we’re heartened by all this growth and activity – Sam’s words of caution weren’t wasted on us. Some of us watched our portfolios multiply madly before the tech boom went bust. Many of us saw our homes’ values go through the roof until everything eventually collapsed.

There are those who suggest that the growth of all these new breweries is only a reflection of the industry’s attempts to keep up with America’s ever-increasing desire for serious craft beer – a trend that shows no signs of letting up!

It’s all very exciting.

So, maybe it’s stupid to worry….