A brief history of the Beer industry and what that could mean for today’s brewers.
(Industry veteran and consultant Cliff Panneton is predicting a bleak future for new and some existing craft brewers. There will be plenty of growth as craft brews take market share away from the Mega brewers, but some micro-brewing companies will be vulnerable as the bubble bursts.)
In the 1980s there were slightly over 50 different brewing companies in the United States. The top six breweries – Anheuser-Busch, Miller, Heileman, Stroh, Coors, and Pabst had multiple brewing locations and controlled approximately 90 percent of U. S. beer production. There were 82 active breweries if you include those multiple locations. There was a time when almost every town had its own brewery. In the late 1800s, there were over 4,000 breweries in the country. By the early 1900s, the number of breweries dropped by 60% due to improvements in technology. In 1919 the year of prohibition the brewing industry was dead. On December 5, 1933, when prohibition ended, 31 breweries were back in operation within six months, and by the 1940s there were over 490 breweries. In the 1960s those numbers dwindled to half and continued to spiral downward as The top six breweries – Anheuser-Busch, Miller, Heileman, Stroh, Coors, and Pabst continued to grow and take market share away from everyone else. That started to change in 1978 when the federal government legalized homebrewing. Today thanks to companies like New Albion, Yakima Brewing and Malting Co., Anchor Brewing, Sierra Nevada, and The Boston Beer Company, who started a resurgence in the craft brewing industry, there are over 3,400 breweries.
There could be another thousand craft breweries opening up within the next several years. It seems everyone wants to own a brewery. In 2014, the craft beer industry produced over 22 million barrels which were 11 percent of the market. As this market segment grows, volume is being taken away from the top two Mega breweries, Anheuser-Busch InBev and MillerCoors. In order to slow the loss of market share, the Mega breweries are starting to become more creative and they are either purchasing craft breweries, producing competing products under other beer company names or both. For example, Anheuser-Busch purchased all or parts of Fulton Street Brewery LLC (Goose Island Brewing), Craft Brew Alliance (Blue Point, Kona, Widmer Brothers, and Redhook Ale Brewery), and Blue Point Brewing. They also produce Shock Top Beers. MillerCoors started the Tenth and Blake Beer Company, which owns Blue Moon and Leinenkugel brewing company. They seem to be doing this to provide their wholesalers a better selection of products. Recently Heineken announced they purchased 50% of Lagunitas Brewing Company located in California while MillerCoors has announced a planned majority interest in Saint Archer Brewing Company.
Although there will be continued growth in the craft brewing industry and some near-term growth for new craft brewers, I am predicting a bleak future. Unless you are a brewpub and brew beers sold inside your establishment, other types of craft brewers may not survive. When you open up your business you may have a lot of people purchase your products because they want to try the new kid on the block, but the idea is to get people to continue to purchase your products and grow your business. The problem is with over 3,400 breweries producing multiple products, you have well over 25,000 products to choose from. There is limited tap space in bars and restaurants, along with limited shelf space in beer stores.
Before pasteurization and advancements in distribution and technology, people didn’t have a choice but to drink the beers produced in their hometowns. People supported their local brewers like sports teams and didn’t seem to want to drink anything else. Unlike the consumers in the past who were loyal to one brewer or brand, today’s consumers are not as loyal. They want to try beers from many different breweries. It is not uncommon for people to purchase different beers every time they shop. For example, they may not purchase a whole case of pumpkin beer from one brewery but would purchase multiple bottles or six-packs from numerous breweries. Therefore, a wide selection must be kept on hand or be made available for the consumers. Many bars and restaurants have a few of the standard brands in stock or on tap and rotate the remaining taps with different products all the time. It’s not uncommon to find over 25 beers on tap. With over 25,000 different products, it is becoming hard to find wholesalers and retailers to handle the creations from all these brewing companies.
I believe there will be rapid consolidation and mergers in the craft beer business within the next few years. The larger Mega brewers and large craft brewers, along with private equity companies will increase purchases of good craft microbrewers at a high rate. Small brewing companies cannot produce beer at the same price points as the larger companies can. Should there be another major recession, beer drinkers will consume less beer or lower-priced beers. In addition, there are already too many beers to choose from. As in the past, there will be many brewing companies that do not survive.