Is There a Craft Beer Bubble?

Of course you clicked on this one. "Craft Beer Bubble" has turned into quite the buzz phrase recently and posting about it is just about instant click-bait. So yes, I did stoop to this level.

But let's be honest, as soon as I started writing this blog, you all wanted to hear about this topic. You had to know it was coming. Everyone's been asking about it, and everyone has an opinion on it. So, why not share mine with you?

When you talk about there being any sort of "bubble," in economic terms this means that sales are happening at a price point that is well above the intrinsic real value of the asset. Often, when people talk about the craft beer bubble, they are insinuating that more breweries are opening up than there is demand for craft beer.

The basic idea is that the supply will at some point outstrip the demand, and the bubble will burst, causing a mass fallout of many craft breweries across the country. That is important to note. There is not a bubble unless it bursts.

Those that side with this idea believe that we have reached the height of the demand for craft beer, yet more and more breweries are opening up and brewing craft beer in attempt to meed and grow this demand. This side believes that demand will plateau, while the supply keeps growing, resulting in the immanent burst. They argue about when it will happen, but they're sure it will happen.

The other side believes that demand for craft beer has thus far outpaced the supply, and that will continue to happen in a sustainable growth pattern that will not result in a burst. Craft beer only makes up 5-10% of the total beer market, so the belief is that this demand will continue to grow for a long time to come, thus we are not experiencing a bubble, but more of a craft beer awakening. Those that believe this think that there is not a bubble because this rate of growth will not result in a burst.

So what do I think?

Honestly, who am I to say? I have the same data that everyone else has, and have been observing this phenomena just like the rest of you, and my crystal ball is in the shop for maintenance, so I don't have the answer.

But I can certainly offer an opinion. ;)

I don't think we're experiencing a bubble. But I also don't think this pace of growth can continue unchecked. I believe we're seeing monumental growth, and the craft beer industry will continue to grow for at least the next 5-10 years. 

Why? Because that 90%+ market-share owned by big macro beers and imports is dwindling. There are so many people happily drinking their Coors Light that haven't been confronted with craft beer yet, so they don't even know what they're missing. And all of the millennials that are just turning 21? They are much much more likely to drink craft beer from that age than their parents, and very few people who begin with craft beer end up switching to macro brew.

Anecdote to support my point: We have this couple. Nice folks. He's always worked in construction. Now they own their own company where they buy a house, live in it for 2 years, fix it up, renovate everything, then sell it for profit. It's manual labor, hard work. It's not get-rich-quick. They're probably around 40 years old and he has a bad back with chronic pain. These two are not your stereotypical craft beer consumer (you know, the 25-35 year old white male with a beard that works in the tech sector....aka a good percentage of the people on this list).

They came into the store for the first time a few months ago and asked for a pilsner, the lightest thing we had. I don't recall what we poured them at the time, but they enjoyed it, liked the atmosphere, maybe picked up a few bottles and said they'd be back. 

Fast-forward to now. This same couple has been in many times, and now they sit down and she orders the biggest IPA on the menu and he wants the most sour thing we have on draft.

This happens All. The. Time. It's not unique, and I don't see it slowing down anytime soon. In fact, as more breweries and bottle shops open up, more of these types of folks will wander in out of pure curiosity. And, as long as they have a good experience (and aren't turned off by craft beer enthusiasts acting like children), they'll probably come back.

But I think the game is inherently changing. I don't think we'll likely ever see "The Next" Sierra Nevada, Boston Beer Co (Sam Adams), or New Belgium. I think we're hitting the maximum number of big national craft beer brands that established themselves in the mid-80s when there was literally no other craft beer to be had. 

If you're starting a brewery today (or in the past 5 to even 10 years), it is going to be very difficult for you to compete with these breweries. I wouldn't recommend trying it.

Will we see more breweries the size of SweetWater, Odell, Anchor, and Victory? Maybe. These are the big regional breweries, and I think they may grow to challenge the giants mentioned earlier. But again, I don't believe a brewery starting up in today's market can achieve that level of growth.

On the flip-side, I do think almost every brewery opening today has a fighting chance to be quite successful as a local or even state-wide brewery. There is a hunger for local beer, and as long as the liquid is good, and they follow good business practices, I don't see the bubble bursting on these breweries.

Each new small brewery that opens up today is gaining a faithful following in their neighborhood, but when they try to compete in other neighborhoods, they're not only competing against the Sam Adams and Sierra Nevadas of the word, but they're also competing against the neighborhood favorites of that area. That is going to be a very tough fight to win. Home field advantage is real.

Some breweries will make it over that hump, but most will not. The trouble with this many breweries opening up is that in the coming years,every neighborhood will have their brewery. Sierra Nevada achieved nationwide distribution because there were so many neighborhoods looking for a local brewery, and they came to the rescue. That's not possible anymore. Heck, there are breweries in Wake Forest, Clayton, Smithfield, Hillsborough, Waynesville, etc. Heck, Carrboro has two breweries now! If you're not from North Carolina, you don't know these small towns, but the point is that almost every community will have their own brewery in the next 5-10 years

So, is there a bubble? No, I don't think so. Are we going to continue to see growth? If I were a betting man, I'd say yes. Will we continue to see this level of growth? Not indefinitely, but we're not seeing much of a slow down anytime soon. Will we continue to see the local homebrewers turn into the next Jim Koch (of Sam Adams) and Ken Grossman (of Sierra Nevada)? No, I don't think so. I do think that saturation is going to hold this back from happening.

But hey, I've been wrong before. ;)

Curious what others think. I'm sure I probably don't even have to ask you to respond this time, as I can already feel the comments coming. Feel free to post your thoughts in a comment below (I do read them!).

As always, if you know others who would be into reading and discussing this sort of thing, forward this along and have them sign up.