Through the Pint Glass: How Craft Can Be Growing and Shrinking at the Same Time

Craft brewing can be a crowded place.  Many cities or regions are nearly overrun with new and growing craft breweries, despite concerns that the market is becoming saturated.  There's a strange dissonance to reading on one day that a major craft beer producer is laying off thousands of employees and that the growth in craft sales is slowing - and the next day that a new brewery, or brewpub, or tap room is opening just down the street.

So which is it?  

Sadly for us here at Beer Simple, the answer isn't...well, simple.  

Craft Beer Is(n't) Continuing to Grow

Craft beer's sales and production continue to increase.  Craft's market share is growing.  Last year saw the US set new records for number of breweries - not just since Prohibition, but in its history. Craft is growing.

Craft beer's rate of growth, though, is slowing.  Production growth outpaced sales growth in 2015, suggesting that we're approaching a saturation point.  More breweries are opening, sure - but more closing, too.  Craft is dying.  It just doesn't know it yet.

So which is it?  

Both.  Craft is dying.  Long live Craft.

Asymmetric Warfare

The David and Goliath story of Craft vs. Big Beer is an attractive one, and has fueled the success of thousands of small breweries.  But let's not forget that most of the time the "David" side is the losing bet.

Insurgence is a phenomenon that pits a less-centrally-organized and smaller group against a larger and cohesive group.  In a traditional heads-up conflict the small and disorganized insurgency gets its ass handed to it by the larger force.  However, if the insurgency can leverage its advantages and make the conflict an asymmetric one, scoring points off of the larger opponent while incurring little-to-no damage itself, then it can achieve some success.

But, over time, the structural advantages of bigger competitors is likely to reassert itself.  The big beer folks fight back.  And, interestingly, "craft" breweries' success starts to count against them. Some craft breweries are looking awfully big - and the more they succeed, the bigger they often get.  When craft brewery owners might be billionaires, the folksy, local-oriented rationale of their insurgency starts to get as hazy as a NE IPA.  

And, more importantly, the market and everyone in it evolves.

Natural Selection

The reason that craft beer can be prospering, growing, shrinking, and endangered all at once is because the marketplace is dynamic and what you see depends on where you look, and how you interpret it depends on what questions you're asking.  But the players in this game are all evolving - or, at least, they should be, or they're putting their survival at risk.

So let's see what each side is up to.

It isn't as though big beer is powerless and just resting on its shaky laurels.  It takes steps to undermine craft beer's identity (we're fussy, pretentious, and elitist).  It buys up craft breweries which lets it compete directly and muddy the craft-definition waters.  Is that brewery one that was bought out?  Took a private investment?  From whom?  Is that a "crafty" high-end brand from a big brewery?  And make no mistake, confusion is their friend.  It allows traditional purchasing incentives (attractiveness, price, marketing tools) to work again, and in the meantime the big breweries can make better products that supplement their mass-market pale lagers - after all, their problem was never that they didn't know how to brew.  They just needed the incentive, and craft showed them that there was a market for that product.

On a long-enough timeline, they probably win out, especially as larger craft breweries start to form a kind of brewing "middle class": regional or national breweries that land somewhere between the street-corner local brewery and the multinational behemoths.

So what's craft to do?  Well, just like the big breweries have adapted, so too do they need to.

Craft was never going to compete with big breweries on a one-to-one basis.  Selling beer in that kind of quantity means selling something that anyone can drink, and that's not craft's long suit.  If it wants to keep "winning," then it needs to play the game it can win, not one it can't.  Craft needs to play a game that rewards quality, freshness, and local identity - and it needs to deliver on those elements, consistently.

Retreat to Move Forward

Philadelphia as a beer market is just stupidly crowded.  There are something like 70 "local" breweries, depending on where you draw the boundary within the metropolitan area, and they keep popping up.  And despite that, many existing breweries are expanding - but out, not up.

What I mean by that is that they're spreading, not just "growing."  At least five local production breweries have opened new brewpubs/tap rooms in the area, and one is planning on opening a third.  That's a sustainable strategy, and one that allows for flexibility - both in terms of further expansion and, if necessary, a retreat/redeployment in the event they've overreached.

If craft beer people like local and fresh, then there's a natural limit to the extent to which a craft brewery can expand its distribution, production, and reach from a single point.  It's a self-limiting proposition.  But opening individual locations (especially if they also do their own brewing) can create a patchwork of revenue-generating, beer-moving, and reputation-building nodes that allow for expansion while maintaining craft beer's relative advantages.  It's also a mechanism to address the quality concerns that are festering in the craft community, since a diffuse brewery expansion model let's the smaller breweries take advantage of the parent brewery's resources and requires them to adhere to the same standard.  

On-premises production and sales through multiple outlets under one banner makes it possible for an army of Davids to compete with a few Goliaths.  They'll never "win" - that's not what this is about.  It's about sustaining the trend towards more choice and better quality.  You don't get that by having thousands of breweries that are all trying to be Sam Adams or Stone.  

Simply put - less is more, so long as you can reproduce the "less" in a lot more places.

Maybe it wasn't so complicated after all.

Keep it simple.

JJW