Monday, March 24, 2014

The Myth of Craft Beer Saturation

Despite craft beer’s sustained, double digit annual growth, people love to bring up the possibility that the craft beer market teeters on the brink of outgrowing itself. I hear many people use the word “saturation” as they sagely nurse their third beer. “There’s too many breweries in Michigan,” they say.  “No market can sustain double digit growth forever.  At some point, these little start-ups will begin cannibalizing their own market.”  Then these people – who I assume mean well – go back to the beer that didn’t exist six months ago because the brewery wasn’t even built yet.

The myth of the saturated market has been around since at least 2010, when I first entered the craft beer scene. I remember sitting at the Vierling in Marquette, back when Michigan was sustaining about half the breweries we have now, having the same conversation I see people have now; and all of us are  making the same statistical errors that I did in 2010. The craft beer scene is growing, and that growth is unsustainable; those parts are definitely true. However, craft beer has light years to go before it runs out of growth potential; what people are missing is what, exactly, craft beer is replacing.



See that chart?   You see that tiny, 13.9% sliver of American beer consumption marked “others?”  That’s all the craft beer consumed in America.  That’s what this blog covers, that’s what the 120+ breweries in Michigan and the 2400+ craft breweries produce nationally. Everything else (except Heineken) is either owned by two corporations, or produced by two corporations. Yes, even our beloved PBR, Lone Star, Schlitz, Blatz, Natty Boh, and Old Style, while not owned by AB-Inbev or SABMiller/MillerCoors, are produced in their breweries.  Right now, for every pint of Two Hearted you drink, America drinks five macro lagers – and while that ratio is a little smaller than it was five years ago, that’s a whole lot of potential Two Hearted sales growth that wouldn’t eat into a single pint of All Day IPA.  Put plainly, craft beer is definitely cannibalizing the beer market, but it’s nowhere near in danger of saturation; it’s chewing right into the production of the macro lagers. 

“Craft brewery saturation” is not something anyone needs to worry about for a long time.  That said, the reality that craft beer is viciously dismantling Big Beer’s empire does have other consequences. AB-Inbev is a giant, hulking behemoth, but they didn’t build a phenomenally efficient corporation by being dumb.  They’ve moved to emulate craft beer’s success (some people call these attempts faux craft – I admit to enjoying an occasional Blue Moon).  They’ve utilized their pocketbook to purchase great craft breweries outright – Goose Island is now an AB-Inbev company. The consequences of success ripple beyond the reaction of Big Beer as well; to protect their success, successful breweries have become more litigious.  They’ve become more exacting as to what, exactly, craft beer means, which has resulted in the redefinition of the term both on the state and federal level. Even still, some people disagree as to whether the largest traditional craft breweries (Boston Beer Company, Sierra Nevada) even count as craft beer anymore (they do.)

All that is largely invisible to the consumer, however.  That’s why so many people talk about saturation; a local brewery going out of business due to competition by other local breweries would be directly felt by local imbibers. Lawsuits or statistical pie charts are largely theoretical compared to a place shutting its doors…but that’s already happening.  The rise of craft beer isn't killing craft beer, but it is replacing something.  In every neighborhood, in every state that has embraced craft beer, we’re seeing an inexorable shift; small microbreweries and brewpubs are replacing local watering holes.  The 21st century, with its bans on smoking, its preference for serving food with alcohol, and its demand for variety simply isn’t as welcoming to a place with three taps, a popcorn machine, and a trough in the men’s room.  Cheers, that gilded television dive bar from the 80s, cannot compete in today’s landscape. As our preference for locally brewed, quality beer increases, the places that offer Busch Light on draft with a package of peanuts will continue to fade away -- unless they can evolve into something more.


This shouldn't be thought of as a sad time.  Remember that these same dive bars sprung up in the vacuum left after Prohibition; prior to that, the local brewery was where everyone gathered.  In a way, America is coming back to its roots by supplanting places serving faceless, adjunct beer with pubs where your neighbor makes the products.  Talk of a saturated market, therefore, fundamentally misses the point.  The craft beer revolution has decades of growth left, and it’s already begun to threaten the status quo. The short term losers, however, certainly won’t be well managed breweries: they’ll be macro brands and the pubs who rely too heavily on those brands.

11 comments:

Liz said...

it's true there is no saturation yet, but it is a marathon, not a spring. it took the Big Guys centuries to get that way…..and our beer is just better. thanks for the informative post!

Colin Cummings said...

Cheers was a dive bar? News to me; I thought it was classy.

John Hoefer said...

All of the saturation commentary always seems to focus on volume, which in my and most people's opinion, isn't the issue. What number of brands can survive is the real question. For instance, there are now 80 breweries in San Diego. In 10 years, there percentage of craft beer sold in San Diego will be up, big time I bet, even from today's levels. But I would be willing to bet there will be less than 100 breweries providing that beer to consumers, maybe even less than 80.

So, saturation is an issue, just not a volume issue.

Anonymous said...

Great post, love the context of how craft/locally produced beer fits into broader rediscovery of the value of community. Couldn't agree more.

Dave said...

Nicely put, Seth. I tend to roll my eyes when the "saturation" topic comes up. Ultimately, consumers will tell the world when there is "saturation," and no one will need to worry about missing that cue. Until then, enjoy the ride.

Seth said...

With respect, John, I disagree. If people are focused on saturation as brand survival, they're still fundamentally missing the point. Will every microbrewery achieve the widespread brand recognition that Bell's or Founder's or Sam Adam's achieved? No, clearly, and that was never in the cards. But that won't stop small neighborhood breweries from replacing small neighborhood bars: not by any stretch.

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