When the Levee Breaks: The Impending Craft Beer Bubble

via AmericanCraftBeer.com

There will soon be a point when the market can no longer handle the number of new breweries entering the market. Some say it has already started but no one can forecast exactly when the market is going to split open.

Here’s what might happen when it does…and who will suffer the most.

According to the Brewers Association, between 2013 and 2014 there was an 18.6% increase in the number of breweries in the United States.456 Microbreweries opened in 2014 with only 23 closing their doors. Additionally, 159 Brewpubs opened with only 23 shutting down as well. 

The small, local breweries only distributing to their immediate surrounding towns and cities will endure a small decrease in sales in saturated markets such as Portland, OR and San Diego, CA. Lucky for them though, the trend of supporting local is a movement that has not shown signs of slowing down.

These breweries are able to stay safe by keeping operations small. They have strategically locked themselves in with a loyal fan base and have made meaningful connections with their surrounding bars and restaurants. As there start to be too many breweries for too few tap handles local restaurants will carry what’s local, freshest and from companies who they know and trust.

The large craft breweries such as Stone, New Belgium and Sierra Nevada have expanded strategically and have locked down enough key distribution channels to weather the storm. They have also established themselves as reliable and consistent brand options when you can’t seem to figure out what to get in the supermarket. 

These larger craft breweries might see a decrease in sales but it won’t be enough to force massive closings. Stone has already started to streamline their operation by removing beers that probably had poor sales such as Sublimely Self Righteous and Levitation.

The breweries that are going to be punished the most when the bubble bursts, are the midsize operations. These are the breweries that have just outgrown their local market and consumers no longer consider them truly “local” anymore. They’ve probably been through one, if not more, expansions and are already distributing out of state and beyond.

Breweries such as Highland in North Carolina or Coronado in San Diego are roughly the size that will get hurt the most. They might have too much money tied up in needed expansions that they won’t be able to cope the loss in sales. 

I expect that we will begin to see more craft breweries acquiring other craft breweries to expand their distribution and get a piece of another market. This option would present a great opportunity for mid-size, or even large, breweries that are afraid of losing too much market share.

We are at a changing point in the industry…one that will rearrange the beer landscape.

Where will you be when the bubble bursts?

Originally Published Feb. 10, 2016

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