Does craft beer growth matter?

The Brewers Association reported a halving in craft beer growth in 2016. But does that even matter? On the eve of the Craft Brewers Conference, I asked Rob Tod and Bart Watson of the Brewers Association for their views.

A bubble about to burst? A cup that spilleth over? This picture tells a thousand words.

Almost three weeks ago the Brewers Association reported what we had been expecting: in 2016 the rate of craft beer growth halved to +6%.  In 2015 the group of small and independent breweries the Brewers Association defines as craft grew volume production +12%, the previous year was +18%.  Should the neat six point per year reduction continue, we will see no growth at all in 2017.

Slowing growth in volume sales has caused rapid growth in doom-mongering.

“You have a huge bubble that’s close to bursting,” said the infamous, anonymous Industry Insider in a Thrillist article last August.  “Some say it has already started but no one can forecast exactly when the market is going to split open,” said American Craft Beer in July.

Then Stone made some staffing cuts.  Then Green Flash did.

And then Speakeasy happened.  The sudden announcement that the 20-year-old, 33,000 BBL brewery had ceased operations sent a ripple through the industry, garnering I-told-you-so glances from the nay-sayers.  Too much debt, too much capacity, slowing sales trajectory and an excess of ambition, reads the inscription some are carving on the San Francisco-based company’s tombstone.

This, they say, is the first break in a wave that has been rumbling toward us for some time.  A wave that will soon wash away the glorious future craft beer fans were dreaming of.

This year’s numbers from the Brewers Association showed a slowdown in all areas bar brewery openings. (There’s a joke in there about bars and brewery openings, but this is a serious topic.)

This article is not so much about whether or not a bubble is set to burst.  Instead, the question I ponder is: does slowing growth in volume sales matter?

In the past week I was able to meet with two leading figures in the Brewers Association.  Its Chairman (and founder and CEO of Allagash Brewing Co.), Rob Tod, and its Chief Economist, Bart Watson.

(In a funny twist I chatted with Colorado resident Watson in Portland, Maine – Allagash’s home town – then six days later had coffee with Tod in Los Angeles.  Huh.)

Rob Tod doesn’t look overly concerned about the long-term future of craft beer.

“Craft beer is not going anywhere,” Tod told me, a glimmer of defiant steel in his eyes.  “There are too many breweries now, and they’re too important to overall beer culture.”

“But what industry doesn’t go through cycles?” he continued, referencing the 22 years he’s been at the helm of Allagash. “When craft was a 1% share you can see how you could have years with 50% growth; now by the BA’s definition craft is at a 12% share, and it’s hard to maintain double-digit growth at that scale.”

How important is it to sell more barrels each year than the last, I asked?

“Growth is one of our core values at Allagash.  It’s something we talk about a lot,” he replied. “But one of the things that I clarify when I talk with the team at the brewery is that growth means a lot more than just volume growth.  You know, [as a person] you don’t grow physically from age one to 20 then stop growing in other ways.  I’m almost 50 years old; presumably I’ll grow in different ways from age 50-60.”

Bart Watson, Chief Economist at the Brewers Association: “I’m glad [my numbers] make people a little nervous. Nervousness makes you a better competitor.”

I met with Bart Watson, a man who probably spends more waking hours than any other examining craft beer data, fresh off stage at the New England Brew Summit.  Unsurprisingly, he had been presenting on growth trends.  Does he care that volume growth is slowing?

“The national growth rate is hugely dependent on what happens with Yuengling and Boston Beer.  The growth rate for breweries with smaller barrelage is still very strong,” he answered.  “This is a maturation, moving to a more competitive market.  A bubble’s not bursting, demand isn’t going away.”

But if things slow down to the point that the segment is barely growing, or flat, or even declining – is that a problem? Does growth in craft beer even matter?

“It depends on who you are,” he replied.  “For some businesses, growth is very important.  But for a lot of businesses, it’s far less important.  For the overall industry, I think growth still matters, but for an increasing number it doesn’t matter as much.  Seeing a 6% growth number is only a warning sign for less than half the craft breweries in the country.”

As Watson approaches his annual State Of The Union address to the gathered masses at the Craft Brewers Conference, is he concerned he’ll paint a negative picture?

“My job is not to be a cheerleader,” he said firmly.  “My job is to give the cold, hard numbers; to tell it like it is.  Sometimes it’s good to give a dose of cold reality, so that our membership is making business decisions based on reality.”

“I hope that I make people at least a little bit nervous,” he continued with resolution.  “Nervousness makes you think about your business model, and about what makes you a good competitor.”

“There’s a great chapter in Jim Koch’s book [Quench Your Own Thirst] that every craft brewer should read,” he said. “Jim talks about enduring the last slowdown in the craft beer industry.  When Boston Beer was seeing lower topline growth they took the opportunity to look for efficiency and how they could cut costs.  When you run a business there’s a million things you can do to improve profits in a static market.”

More people than ever before will attend the Craft Brewers Conference in Washington DC next week. Will they walk away inspired or concerned? Bart Watson hopes: both. (Photo © Brewers Association)

Rob Tod seconds this view.  Many spectators thought Allagash was off the boil when it was growing at *only* 10-15% during the heady days of 2010-2015.  That Allagash continues to grow at the same pace now marks the company out as a success story.

“[At Allagash] growth is one of our core values, but we’ve balanced that with other values,” he told me.  “And we’ve always worked to grow in different ways that don’t just involve topline volume growth.  We’ve tried to grow our volume at a rate that feels right for us.  Even when the industry was growing like crazy for a few years, we resisted taking a path that could lead us to 30% or 40% growth rates because we wanted to maintain an operating model that allowed us to protect those core values.”

“When I talk about our values I mean things like quality – you know, we have always invested ahead in quality and have six full time staff managing quality – or giving back to the community, like the $300,000 we invested in community projects last year.  If we were under financial stress we wouldn’t necessarily be able to do those things.  And that’s not a way we want to do business.”

Rob Tod (bottom, center) and the board of the Brewers Association are urging their membership to look beyond topline sales growth. (Photo © Brewers Association)

Bart Watson urges breweries to focus on efficiency, and to focus on the underlying health of their business.  Rob Tod wants craft breweries to start focusing on community, and broader benefits than profit growth.

“There are over 5,000 breweries now, there’s one in almost every community, and they don’t just make beer,” he told me.  “They provide hundreds of thousands of jobs, they support large parts of agriculture and other industries.  And I’ll talk about this at the CBC, but I think one of the most important roles breweries play now is as a gathering place – in pretty much every community you can go to an industrial park at the weekend and people are gathering at breweries.”

“The role now of small and independent breweries – who have done a really good job of learning to talk about our beers – is we need to shift gears and understand how to talk to people about the value of a beer that’s being brewed in a community,” he said.

His point being that in a world where few consumers are unaware of craft beer, it’s time to start banging drums other than the one marked ‘look at our tasty IPA’.

“We’re good at talking about our beers, but we need to get good at talking about our value in the community,” he continued.  “A statistic as of the end of 2016 is that small and independent breweries employ almost 130,000 people in this country – I’m not aware of any other manufacturing industry that’s delivering all these small production facilities in almost every community.  The industry will evolve as people start to see that it’s important for them to buy a BA-defined craft beer as a way to support their local community instead of buying a beer that supports somebody far away from where they are.”

At this year’s CBC, people might talk about the role of their brewery in the community as well as a maker of tasty beer. (Photo © Brewers Association)

Beer writer Jeff Alworth has pointed out that the market has entered a post-craft age.  The task of providing a flavorful alternative to bland macro lager is complete.  Rob Tod’s proposal to move the conversation away from simple product benefits, and toward broader social and economic growth, is a compelling one.

I’m also seduced by both his and Bart Watson’s reasoning that growth need not simply take the form of an ever-increasing river of IPA, stout and (nod of the cap to Allagash) witbier, whose purpose is to purge the American palate of its taste for low-IBU adjunct pale lager.  Breweries are so much more than beer production plants – they’re employers, cultural leaders, community sponsors and social hubs.  More than one writer has labeled the craft brewery the pub of the 21st century.

So does it really matter if absolute volume growth slows?  Will we see a run on investor confidence, cumbersome debts called in and a thundering avalanche of brewery closures?

No, we won’t.  To use a phrase Rob Tod dropped on me, “Craft beer is now part of the fabric of American society”.  It will evolve, and some businesses will shut up shop, or sell to new owners. But the beer will still be there.

The businesses that prosper in coming years will do so in a more mature, competitive market.  They may not push the craft beer sector back into double digit growth, but, standing on the shoulders of pioneers like Rob Tod, you can bet your burro they’ll make some damned tasty beer.

The last word goes to the erudite economist, Bart Watson.

“I would be surprised if we do see 20% market share by 2020.  At the end of the day, so long as we have happy, healthy businesses in craft beer in 2020 everybody will be fine.”

Here’s a nice photo of the sun rising over Boulder, CO, where the Brewers Association is based. This, if nothing else, should help you feel optimistic.

3 Comments on Does craft beer growth matter?

  1. Great piece Jon. The 2020 20% share feels like fiction but a recognition of the broader societal growth that craft can foster can only be a good thing

  2. This is a great piece Jon – I enjoyed the underlying tone of optimism throughout. Now tell me, did you ask Bart Watson how he keeps his beard looking so lustrous?

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