In our next installments, we will take a look at the “bubble issue“ from a national perspective and consider whether Prohibition was responsible for the demise of local breweries. Make sure you are on our mailing list so that you will be notified when the next installment comes out.
In our previous blog, we looked at the question of whether the rapid growth of local craft breweries represented a bubble. Here, we take a look at the issue on a national level. Back in 1978, the number of breweries in the U.S. bottomed out at 89. Recently, the Brewers Association has reported that the number of breweries in the country now exceeds 5,000. That’s an annual rate of growth approaching 12%, at a time when the economy was growing at an average rate of about 2.6% a year (the balance, 2017). In the last 5 years alone, the number of breweries has more than doubled while the population of the U.S. has increased just 4%.
Historically, we have seen the number of breweries rise rapidly and fall dramatically. Through the middle of the 19th century, the number of breweries grew as immigrants, particularly Germans, brought their recipes, yeast and capital to America and opened neighborhood breweries. In 1873, the number of breweries in the U.S. reached a peak at over 4,000 (Brewers Association), at a time when the population of the U.S. was about 45 million people. That works out to 1 brewery for every 11,000 people. If we had a proportional number today, we would have over 29,000 breweries. There are a number of reasons why we may not reach 29,000 breweries in our current age, but it does suggest there may still be room for growth
What about the fall that followed? Is the subsequent drop in breweries relevant to or current situation? The 100-year decline in the number of breweries that begin in the late 19th century saw a move from neighborhood breweries to large-scale factory production. Railroads and refrigerator railcars made national distribution possible. Cost efficiencies of large scale production made local breweries less competitive. Attitudes regarding “factory produced” were much different than they are today. In an era with minimal regulations or oversight, some local breweries produced not just bad beer, but dangerous beer that could make you sick. In contrast, “factory produced” had positive connotations, suggesting cleanliness, consistency and modernity.
The reasons for the previous contraction in the number of breweries would not seem to apply today. In fact, the opposite seems to be true: we are in a long-term consumer trend favoring local, craft, and artisanal products: across the economy “we are in the midst of a craft revolution” that is being led by craft beer (Goldman Sachs, 2016). Big Beer continues to lose market share at a rate of about 2% per year. It is true that the increase in the number of craft breweries is happening more quickly than the growth in the craft share of the market, so competition is increasing within the craft beer community. Consequently, we are seeing declining profits and layoffs at some of the large, nationally distributed craft breweries (Market Watch, 2017), which some have seen as a sign of a bubble ready to burst. Instead, the drop in the Big Beer share of the market and that of nationally distributed craft beers can both be seen as signs of the prevailing trend toward local beer, moving us closer to the state of affairs in the 1870s, when every neighborhood had its own brewery.
As more and more people decide to try their hand at opening a brewery, it is logical to assume that not all new breweries are going to produce an excellent product and not all will survive. But as long as craft beer continues to grow market share and as long as the public gravitates toward local offerings, the number of breweries will be sustained or will increase. Support Your Local Breweries!
In our next installment, we will look at the effect (if any) of Prohibition on the number of breweries in the country.
Do you see it differently? Please weight in, we would love to include your comments.
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Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset.
Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset.
Jack Daniel’s owner Brown-Forman won’t disclose the distillery’s production capacity, but they confirm it is north of 10 million proof gallons a year.
Interesting read — I like the analysis, especially the 1 brewery for every 11,000 people over a hundred years ago, and if we had the same proportion today it would be 1 brewery for every 29,000. Given over 5,000 breweries today, it does in fact look like there could be room for growth. I have heard and read elsewhere the craft brewing industry is saturated, but I’m not so sure anymore given your analysis above — in addition, ‘mass producers’ of beer have been consistently losing market share for years now… And, regarding the comment above about knowing if the craft beer you’re purchasing is indeed a small craft brewery — just this year, the Brewers Association has created a seal that makes it easy for you to know if you are buying beer from an independent brewer. We are one of those small independent brewers and proud to be one…The icon, technically known as the independent craft brewer seal, was launched by the Brewers Association in 2017. We are starting to stamp the seal on our packaging. http://www.churchstreetbeer.com
Thanks for your thoughts, Jake.
Another bubble may be brewing in bourbon, or so the headlines of late have read.
Excellent analysis.
Something I would love to see, whether as an article or later in the museum itself, is a discussion of how big companies take over successful craft breweries, such that the distracted consumer may inadvertently end up supporting the big names rather that the small micro-brew he or she is imagining.
Are there simple, practical ways in which the consumer can check whether a given beer has remained truly “micro”, as of a given date? Perhaps some app?
Good idea. We have plans for a “Who makes that beer?” exhibit in the museum and a piece on the evolution of breweries over time, dynamically illustrating new breweries, acquisitions and closings throughout history. But resources in the meantime would be helpful. We will see if anyone weighs in with thoughts. If there is nothing out there, we may have to see if we can develop something.