Boom and Bust

The Great Depression. Unemployed men queued outside a soup kitchen opened in Chicago by Al Capone. The storefront sign reads 'Free Soup, Coffee and Doughnuts for the Unemployed.' Chicago, 1930s (Newscom TagID: evhistorypix027753.jpg) [Photo via Newscom]

Mitch Steele of Stone recently wrote a very insightful blog post about the future of craft beer in the U.S.  Intensifying competition and scarcity of human resources and ingredients will lead to tougher times for our nation’s teeming population of craft breweries.  Will this bubble burst?

Steele touches on some really good points.  The big three threats to craft beer in my mind have always been limited taps, the three-tier system, and scarcity of resources.  Let’s examine these.

Limited taps: a bar only has so many taps, obviously.  Even though many bars exist that have over 50 taps, this means that they go through beers more slowly.  In the past, local beer always had an edge at a lot of craft-focused bars, and it was relatively easy to get on tap in your home turf.  However, most bars are not going to only sell local beer (although some do) so the limited amount of “local taps” have to be split among an increasing number of local breweries.   Furthermore, since most breweries tend to brew a light beer and an IPA as flagships, (ourselves included) this limits what may go on.

Profit margins on draught distribution are pretty low, so if you are constantly having to beat on doors to get on tap, you’re not really making very much money.  With such a plethora of choices for beer buyers, some brands may never get beyond a one-and-done or rotator status.

Three-tier system: For those unfamiliar with this, this is the system put in place after prohibition ended which separates breweries, distributors, and bars.  Virginia doesn’t allow for self-distribution, so breweries must sell their beer to a distributor, who then sells it to a bar.  There are ways around this, but it is difficult.  In and of itself, this isn’t so bad, but it has the potential to be very bad for smaller craft breweries.  Big breweries are already purchasing distributors in addition to craft breweries.  When a company owns some craft brands and a distributor, they can offer both lower prices and a selection of proven quality brands.  If you’re a bar owner, you could find it enticing and easier to deal with one distributor who can offer you this.  This is bad for the consumer as well.  Do we really want to live in a world where every bar has the same beers on tap?

Scarcity of resources: Steele talks about hop shortages and a lack of qualified brewery staff.  These are both big problems.  I can only hope that hops production scales up; as of right now, Nelson Sauvin hops are contracted out until the year 2020.  And let’s not even talk about water shortages in the west coast.  Hops use a serious amount of water.

I’ll go even further and talk about something that has been on my mind for the past year: climate change.  The price of beer is highly dependent on the price of hops, barley, and water–historically, very inexpensive.  What happens if this changes?  What happens if the state of drought in California is permanent?  What happens if extreme weather makes growing these crops more difficult?  At the end of the day, beer is a luxury item.  If the future climate dictates that sacrifices be made, I don’t think beer would and should be something that takes precedence over food crops.

So now that we’ve talked about the negatives, let’s talk about some brighter points.  First, bars may only have so many taps to spare for a brewery, but thanks to law changes like Virginia Senate Bill 604 and equivalent bills in other states, breweries always have tap-room sales to help out.  Smaller breweries such as yours truly don’t have to worry about selling a mountain of beer to survive.  Bars may become more of a venue to experience what the nation as a whole has to offer, while for local beer, folks will just go straight to the source.

Second, even if Bud-Miller-Coors, foreign companies, and large U.S. brands with craft r00ts race to acquire distributors and craft breweries, will every bar turn into the equivalent of an airport or baseball park, with Goose Island, Sam Adams, and Lagunitas on tap and nothing else?  Unlikely.  Craft beer drinkers crave variety and authenticity.  Some bars may find cheaper beer prices enticing, but beer drinkers will still flock to places that offer something different.

Lastly, the east coast is producing more and more agricultural commodities.  If problems continue on the west coast, you may see our region rise as a source for beer ingredients.  Already, hop production is taking off in Virginia and New York–five years ago, it pretty much didn’t exist.

Who knows what the future will hold?  On that note, I think I’ll have a beer.

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About crookedrunbrewing

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3 Responses to Boom and Bust

  1. B- says:

    I love this topic. I think the beer industry is fascinating and it will be very interesting to see when the bubble pops because I think it will. We have reached and surpassed the amount of breweries in the country that we had before prohibition. It’s all new ground from here on out.

    It does bother me that it seems the goal of breweries is to get huge and widely distributed. Before prohibition just about every neighborhood had a brewery so that’s what you consumed. The local beer. You couldn’t get beer that was made 3,000 miles away or even 100 miles away. I think part of the fun of being into “craft” beer is that not all beers are available everywhere. It makes it fun to go out of town and check out what’s new in your world of beer. Life would indeed be boring if the same beer was available everywhere… It would be great if everyone wasn’t so greedy. In California it’s hard to find a beer that’s NOT made in California. There are so many breweries in the state there’s just no room for outsiders. I think this will be the downfall of the big boys.

    Have you ever thought about what affect the continuing upward trend of homebrewing has on the commercial beer industry? I’m a homebrewer and I rarely buy beer at the store as compared to what I used to buy 4 or so years ago. I still have my seasonal go-to’s that I just can’t go without but as a whole my commercial beer buying has taken a nosedive. It would be interesting to see if it’s affected the sales of micro/nano beer at all. It probably has had a very minimal affect but it’s at least worth noting.
    Homebrewing also takes up resources too but it’s on a much smaller scale, obviously. If something ever does happen, and supplies are short, I still think us little guys, you included, would be ok and might even be sought out more by the locals for their beer fix. The only difference between homebrewers and you is the TTB and a lot of other red tape…

    I love to support the little breweries around town and I’ve even thought about opening one up of my own. I’m from NoVa, I have a ton of contacts and resources here, I win and place in competitions, and I have a strong passion for creating and brewing. The “bubble burst” does worry me though which is why, if I ever did decide to open up shop, It would be small scale, brewing every day or so, with 5+/- rotating taps and the occasional contract brew for whatever reason.
    It will be fun to sit and watch the show though and see what happens to the industry as a whole. My guess is the big boys will lose out eventually because of my previous point about California. I think once a state reaches its saturation point of local breweries it will be hard for other state’s beer to get in. You’d have to own a distribution company, which a lot of the big breweries do, but local beer will be easier to get and might even still be cheaper since it’s local. People are still getting into the “buy local” idea and I think it’s just going to catch on more and more as time goes by. We will see!! I really don’t see good, local, small nano breweries going anywhere. They were around way back in the day and they’ve still been around since the end of prohibition.
    Cheers, man.

  2. Pingback: Boom and Bust, Part 2 | Crooked Run Brewing

  3. Pingback: Boom and Bust, Part 2 - Crooked Run Brewing - Cheers Virginia!

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