Many New Year’s Eve revelers will ring in 2020 with a pint of craft beer made by one of the more than 8,000 breweries that are now in operation across the United States.
According to Brewers Association (BA) chief economist Bart Watson, approximately 7,500 breweries opened over the last 10 years, and the U.S. beer industry will boast nearly 8,500 brewing companies once the final numbers are tallied early next year.
The growth of America’s craft brewing sector is arguably one of the most compelling business stories of all time. Craft brewers contributed $79.1 billion to the U.S. economy in 2018 and were responsible for more than 550,000 full-time equivalent jobs, according to the BA.
But how did we get here? What factors enabled so many entrepreneurs to launch brewery businesses over the last 10 years, and what major storylines do industry experts believe defined the last decade in beer?
I asked a cross section of brewing industry professionals for their thoughts on the most significant stories of the 2010s. Here’s what they had to say:
Just before the start of the 2010s, two hugely important deals effectively gave rise to the craft brewing industry we know today. In 2008, Belgium’s InBev acquired Anheuser-Busch, and SABMiller established a U.S. joint venture with Molson Coors known as MillerCoors.
“Those twin deals marked a sea change away from sharp price competition and a focus on volume share, to one focused on dollar sales and profit per barrel,” Watson told me.
Echoing Watson, longtime beer industry writer Harry Schuhmacher, owner and publisher of Beer Business Daily, believes these two landmark transactions helped create an environment where consumers increasingly sought to “trade up” to more expensive brews as both companies focused on raising prices across their portfolios.
“This duopoly in many ways gave craft beer the price umbrella to thrive,” he said. “The drive toward margins over volume pushed brewers and distributors to focus on higher-priced beers, and in the last ten years that has meant craft beers and imports.”
Indeed, the 2010s were marked by six straight years of double-digit growth within the craft category as U.S. beer drinkers saw the value in spending a few extra dollars per six-pack for the opportunity to sample a variety of different styles and flavors.
According to beer industry veteran John Bryant, owner of Spokane, Washington’s No-Li Brewhouse, the A-B acquisition contributed to the growth of craft as the foreign-owned company shifted its focus away from investing in research and development, innovation projects and the three-tier system.
“A highly leveraged buyout changed the playing field to maximizing efficiencies, squeezing profit margins and leveraging resources,” he wrote. “Craft brewer proliferation filled the void left by A-B. Distributors and retailers sought out new brewers, new brands and new alcohol beverage categories to supplement margins and gross dollars, and to serve the customer.”
Recognizing opportunity, entrepreneurs poured into the beer space in an effort to capture a slice of market share that larger brewing companies were ceding to smaller players.
“In the last decade, the rate of new brewery openings was staggering,” Allagash Brewing founder Rob Tod wrote. “Today not only can you find a brewery in nearly every community, but you can often find a brewery on every block.”
Roughly two new breweries opened every day over the last decade, as Brewers Association-defined craft beer market share grew from less than 5% to more than 13% of total U.S. beer volumes.
Many of the new category entrants opted to forgo their reliance on the three-tier system (breweries sell beer to distributors, who then sell it to retailers), and instead focused on delivering an ever-rotating lineup of beers directly to consumers via taproom sales.
These taproom-focused breweries were able to capture margins that would have otherwise gone to wholesalers and retailers, helping startups turn a profit shortly after opening.
“Nothing has shaped the landscape as dramatically as the ability for breweries to sell direct to consumers,” wrote Adam Romanow, founder of Boston-area craft brewery Castle Island Brewing. “I’d be willing to bet that, if it weren’t for the advent of the taproom, the number of breweries in the country would clock in at less than half of today’s current count.”
Another Boston-based brewery owner, Harpoon’s Daniel Kenary, also believes that the number of U.S. breweries would be cut in half without taprooms.
According to Kenary, the allure of brewery retail sales “caused a crush of new entrants” and “attracted hundreds of millions of dollars in investment capital.”
“This has perverted the economics in the industry and will take years to unwind,” he said. “It has caused us to become more conservative financially while needing to be ever more creative with our brands.”
Millions of new barrels of capacity came online over the last decade as companies rushed to satiate consumer demand for craft beer.
Hundreds of millions of dollars were poured into large-scale facility expansions, and some long-established breweries built secondary production outposts (Sierra Nevada, New Belgium, Lagunitas, Oskar Blues, and others), while hundreds of other craft breweries invested heavily in stainless steel fermentation tanks as well as expensive brewing and packaging equipment.
“The tremendous growth (3 million+ barrels in 2014) accelerated large brewer investments in the space, led brewers to invest in new facilities and capacity, created an incredible buildout in the U.S. hop industry, and set the stage for thousands more breweries coming online,” Watson said.
And according to Schuhmacher, all of that capex spending could become a problem in the years to come.
“The next decade will reveal a tremendous amount of excess brewing capacity, which will drive closures, consolidation, and lower pricing,” he said.
Midway through the last decade, dozens of craft breweries sold to foreign conglomerates, private equity firms, family offices or other craft breweries.
Anheuser-Busch snatched up 11 small beer producers, while MillerCoors purchased four craft breweries.
Private Equity firm Fireman Capital Partners established the CANarchy Craft Brewery Collective and purchased Oskar Blues, Cigar City, Deep Ellum Brewing, Three Weavers, Perrin Brewing, Wasatch Brewing and Squatters Craft Beers.
Family office Ulysses Management launched Artisanal Brewing Ventures and purchased Victory Brewing, Southern Tier, Sixpoint and Bold Rock Hard Cider.
Some of the more notable transactions included Boston Beer Company’s purchase of Dogfish Head, Lagunitas’ sale to Heineken International, Mahou San Miguel’s acquisition of Founders Brewing and New Belgium Brewing’s sale to an Australasian subsidiary owned by Japan’s Kirin Holdings called Lion Little World Beverages.
However, no acquisition was more eye-catching than Constellation Brands’ $1 billion purchase of Ballast Point in 2015. Constellation paid about $3,500 per barrel for the San Diego-based craft brewery – roughly $2,500 more than breweries were selling for at the time.
That one deal alone significantly impacted brewery valuations and dealmaking over the next four years.
“The inflated valuation caused a bubble, much like the real estate market circa 2008,” wrote BrewDog USA chief revenue officer Adam Lambert.
Constellation would struggle to grow sales of the Ballast Point brand, and earlier this month agreed to sell the business for less than $100 million, according to Credit Suisse analyst Kaumil Gajrawala.
“The fire sale of Ballast Point caused a giant lowering in valuations and created a false bottom,” Lambert added. “Now there is a scramble to figure out the middle ground.”
According to Molson Coors chief communications officer Adam Collins, “changing consumer tastes and habits are the story.”
Toward the end of the decade, health-conscious beer drinkers started seeking out innovative new products that offered flavor and refreshment with fewer calories.
The desire for “better-for-you” alcoholic beverages gave rise to hundreds of hard seltzers, dozens of low-calorie craft beers and even a handful of alcoholic kombucha products.
More than 82 million nine-liter cases of hard seltzer will be sold in 2019, according to IWSR, a data firm that provides insights on the alcoholic beverage market. By 2023, IWSR predicts that sales of hard seltzer will exceed 281 million cases.
Meanwhile, companies like Dogfish Head and Oskar Blues are creating lower-ABV beers with fewer calories. This year, Dogfish released a 4 percent ABV, 95-calorie “Low-Cal IPA” with 3.6 grams of carbohydrates called Slightly Mighty. Similarly, Oskar Blues recently debuted a hazy IPA with 100 calories called One-y.
“Consumers are generally less loyal to drinking craft beer exclusively and more interested in exploring beer and beyond beer alcohol beverage options,” Dogfish Head founder Sam Calagione wrote.
If that’s the case, could the next 10 years be defined by a surge in hard seltzer sales or perhaps even a turnaround for “light” beer?
Check back tomorrow to find out what trends Calagione, Watson, Schuhmacher and others believe will define the next 10 years in beer.
In the meantime, I’ll leave you with a comment from New Belgium co-founder Kim Jordan that sums up the last decade perfectly.
“What an incredible time to be a beer drinker, even if it’s made it harder to succeed as a craft beer business.”
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I am a business writer covering the complex and highly-regulated beer & spirits industries for Forbes. I previously spent nearly a decade as the driving force behin
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