There is a growing concern among the craft beer industry that the explosive growth in the number of craft beers and the breweries that brew them has created an artificial craft beer bubble. The Brewers Association release statistics showing that as of June 2012 the number of breweries in the United States reached an all time high of 2,126 surpassing the historical high of 2,011 in 1887.
The question becomes whether this drastic increase in breweries is the result of an increased American citizenry interested in the consumption of finely crafted or if the craft beer revolution is the result of a fashionable trend. There appears to be vast disagreement even within the craft brewing industry as to whether the popularity of craft beers is artificially inflated or not.
Jim Koch was interviewed by EnterpriseNews.com and they reported Mr. Koch’s views on the subject.
[Jim Koch] also spoke about the craft beer bubble being near a popping point. He thinks the market share could grow to 10 percent by the end of the decade, but he thinks that most stores have reached their limit for all the new breweries. He said there are too many breweries brewing similar beers without adding anything to the market.
I think Mr. Koch’s idea of over saturation is not to be summarily dismissed. There is something to be said about an over-abundance of choice. Beer in America has an artificial upper limit set by the distribution model. In this way it is difficult for a brewery to move its beers from production line to tap line. Think of your local distributor. If the number of breweries with several beers doubled within the next five years would these distributors be able to even adequately stock these beers?
The problem isn’t that breweries shouldn’t or couldn’t open but at a certain point the barrier to entry will grow to be prohibitive without up front distribution deals. It doesn’t make fiscal sense for a distributor, bottle shop, or grocery store to carry every beer from every brewery willing to ship to their area.Thus shelf-space is limited. If they have a profitable lineup of select beers it takes considerable incentive for them to include new, untested beers.
Thus as the industry grows it will become much more difficult for smaller breweries to get the beers into the hands of the craft drinking public. But are we there yet?
The antithesis is that I don’t believe we have hit that upper limit yet. A 125 year high might seem like a huge increase in breweries and thus beers but the population has exploded since 1887. In 1900 there were 76.09 million people living in the United States. In 2012 there were approximately 314 million people living here. Some simple math means that we should be worried about record highs when we reach 8000 breweries not a mere 2126.
Granted this logic isn’t exact as shipping beers nationally was a LOT more difficult in the late 1800s versus today. But the point remains that there are a lot more available drinkers today than there were before prohibition.
In the end though nobody really knows what the upper limit of the craft beer industry will be. Currently craft beer sales are less than 10% of all beer sales in the United States. This seems to suggest that there is still plenty of growth for the industry.
I think the bigger issue is the diminishing capitalization of markets by new breweries. It is harder and harder to establish a new craft brewery when so many excellent breweries already exist. But the solution for that is for another entry.
What do you think about the possible growth of the craft beer industry? Is it a bubble?