You'd Probably Never Guess That This Is Craft Beer's Scariest Problem

In my college and post-college days, I considered myself to be quite the beer connoisseur. Yes, I know what you're thinking; and no, tapping the PBR or Natty Ice keg wasn't my idea of a good time.

Source: Walknboston, Flickr.

Instead, I enjoyed trying as many new beers as possible, hitting up microbrew-inspired beer festivals, heading to breweries in Southern California (where I lived at the time), and yes, even taking notes and logging my opinions of each beer online at, which has ballooned into a one-stop knowledge shop for all things beer related over the past decade. All told, I had tried more than 900 different beers in just a couple of years before I backed away from my hobby because of, at the time, a combination of time and money factors.

The rapid growth of craft brewing
It's been about 13 years since my first foray into beer snobbery, and let's just say that the craft brew scene has grown by leaps, hops, and bounds since then. Before 1980 there were just 89 breweries total in the United States, according to the Brewers Association. Based on their rankings, a "brewery" includes brewpubs and microbreweries, regional brewers, and even large non-craft breweries (think Anheuser-Busch InBev (NYSE: BUD  ) and Molson Coors (NYSE: TAP  ) for example). By June 2013, this figure had exploded to 2,538 total U.S. breweries. We're talking a compounded growth rate of 10% per year for the past 35 years!

Source: Brewers Association.

Like your typical business, brewpubs and craft brewers face a number of economic hurdles they have to overcome. These can include pricing pressure on supplies, the high cost of buying new equipment and leasing space to start a brewery or expand a business, the ability to appeal to both men and women (women are a rapidly growing component of the craft brewing industry, both as customers and brewers), and even acts of God, such as the California drought that has made access to clean water and quality hops and grain difficult for most breweries within the state.

Yet for all intents and purposes, there's even a greater potential calamity that serves as the scariest problem for the craft beer industry. That problem is ... (drumroll, please) ... itself!

Based on the current growth trajectory of the craft beer industry we're on pace to see more than 6,500 breweries in the U.S. before 2025! That's a staggering and likely overwhelming number of beer choices for citizens to choose from -- and it could potentially take away from the nostalgia of the craft brewing industry.

One of my personal favorites, Stone Imperial Russian Stout. Source: Stone Brewing.

What makes craft brewing unique?
One factor that's made craft beer so great over the years has been the personal relationships forged between the brewers and the consumers. I can speak on a personal level that I've met the owners and head brewers of a number of Southern Californian breweries, including the now well-known Stone Brewing. These owners and brewers are thrilled to meet the public, introduce you to their beers, and give you a thoroughly unique experience that you can't get from walking into the supermarket and picking up an 18-pack of Budweiser, Miller Lite, or Coors Light.

Along with that personal relationship comes an engulfing history behind their brands. Whereas the history of larger non-craft breweries is often lost in the billions of gallons of beer they produce each year, a tour of almost any microbrew will yield a personal story that can forge an emotional bond with the brand. This is one reasons regional breweries and microbrews such as Boston Beer (NYSE: SAM  ) , the company behind Samuel Adams, and Craft Brew Alliance (NASDAQ: BREW  ) , the company behind Widmer Brothers, Kona, and Redhook to name a few beers, have outperformed their non-craft brethren in recent years. You can even see the difference in their advertisements, where Jim Koch, co-founder of Sam Adams, is frequently present in commercials, while the brewers and CEOs behind Budweiser and Coors are rarely, if ever, seen.

How overcrowding could weaken or cheapen the craft beer movement
But what happens as this field begins to get crowded? One possibility is that the nostalgia surrounding craft brew, and even the quality, could get watered down. It would be clearly tougher and tougher for new entrants into the field with so many established breweries already up and running, so there's honest concern that brewers may cut corners and cheapen the craft business just to get their product in front of consumers, which would only serve to harm the entire craft beer movement.

Source: LondonDrinkUp. 

We're also seeing traditional non-craft brewers infiltrating the craft beer space and trying to disassociate these beers with the parent company. For example, in 2013 BeerSceneMag conducted a survey of 300 random beer festival attendees to find out whether they drank Shock Top, Leinenkugel, Goose Island, or Blue Moon. Between 58% and 72% of respondents affirmed that they had. Yet all four of these brands are owned by either Anheuser-Busch InBev or Molson Coors, and fewer than half of the respondents were aware of this. Of those respondents, about one in four said it would affect their decision to drink these brands moving forward. Moving into the craft brewing space could ultimately boost sales for Molson Coors and Anheuser-Busch InBev, but their sheer association to these aforementioned four brews also threatens to cheapen a rapidly growing craft movement build on taste, pride, and an emotional bond to a brand (and what's in the bottle).

Don't count out craft brew just yet
However, it may not be time to count out microbreweries and larger craft brewers like Sam Adams and Craft Brew Alliance just yet, at least according to Joseph Tucker, executive director of I asked Tucker, a beer enthusiast himself, this past week about his concern over the rapid growth in craft breweries within the U.S., and whether the nostalgia of craft brewing would suffer from it. Here's what he had to say:

Most consumers have been dealing with a dizzying array of options for 10 years, so this is really nothing new despite all the new players. There's only so much shelf space at beer stores and tap handles at bars. We've already had too many choices, so I think despite most of us knowing there'll be some kind of shakeout, the temporary increase in options will only create hardship for new brewers trying to establish their brand and new consumers.

Furthermore, as he pointed out:

Ratebeer is all about crowd sourced identification of quality. And the best few representatives of good taste are those making great beers and earning the highest scores for them at our site. Anyone with our app or with Web access can quickly cut through the dross and find out what's good and interesting.

In other words, what's inside the bottle is what really matters, and given that craft beer consumers tend to be such an open-to-sharing but tight-knit community, always looking to expand their knowledge and their palate, it's pretty easy for the consumer to wade through a sea of choices and find higher-quality microbrews to enjoy, even at the click of a button these days.

Ultimately, the craft brew trend does favor already established companies that have the potential to grow at a much faster pace because of their more nimble size and sometimes cult-like following compared with non-craft brewers like Molson Coors and Anheuser-Busch InBev. This would mean the potential for further growth from Boston Beer and Craft Brew Alliance. However, it could also mean rough times ahead of new breweries just starting up and difficulty in differentiating their brand from the next dozen breweries being opened.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2014, at 10:24 AM, snommis69 wrote:

    Nice article - love the words from Mr. Tucker!

    Two things - one, we're seeing a rash of brewers who really don't know what they're doing. Just because your buddies like your 5 gal batch of homebrew, it doesn't mean you can scale up and run a brewery. Bad products will weed out over time - just because you CAN brew doesn't mean you SHOULD brew.

    Second, we will likely go through a consolidation similar to what was seen in the '70s and early '80s. The strong will survive, be it by combining like Craft Brew Alliance, or by staying in the local/niche markets. I don't think we'll see too many more Yuenglings or Boston Beers rising up except maybe the players like Stone that are on that trajectory now.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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