How Long Can We Have
                 Unprecedented Growth?

For BeerNexus.com


If you didn’t know better you’d think that CRAFT BEER aka CFT (for identification
purposes) was a symbol on the stock market. The stock market continues to increase
and hit new highs. This past month it closed over 26,000! It’s been growing steadily
since it bottomed out in 2009 and has increased an amazing 250+%. Of course as it
continues to increase there’s more talk of a bubble and an upcoming correction,
since that’s typically the way the bull market ends. Does the value of the stock really
relate to actual value of the goods and services that company is producing? It does
to some degree but in an overall market correction does it mean every company lost
X% value the same day? I think not. It’s called a market correction and those that
benefited by the overall increase on the way up as opposed to just their results will
also take the hit that everyone is taking irrespective of their individual performance.
What about that fictional CFT symbol? Well it’s also shown amazing growth.

Let’s look at craft brewery counts from the Brewers Association over that same
period;
Year        Brewery Count                Year over Year Growth
2009                1,596
2010                1,749                           9.6%
2011                1,977                         13.0%
2012                2,420                         22.4%
2013                2,898                         19.8%
2014                3,734                         28.8%
2015                4,504                         20.6%
2016                5,234                          16.2%
2017                6,000+                        14.6%

That’s good solid, consistent growth. The first couple of years were slow but the
overall economy had just taken a big hit, so any growth was probably pretty good.
Over the last five years the overall increase is an impressive 147.9% and equally
impressive is the overall increase of 275.9%!!! Damn, craft beer is trending right on
target with the stock market average in the after mini-recession recovery! We do
need to acknowledge we’re looking at the average and that not every stock is a
winner. There are a few individual stocks that increased >1,000% in the past 5 years,
two of which are drug companies and we all know what FDA approval of a major drug
can do to bolster a drug company stock, and there were also big losers over the
period. (Of course if my last month’s prediction of the creation of Rx Beer comes to
fruition then we could see that kind of increase for an individual craft brewery).

How about the craft beer volume share; that should hopefully correlate to overall
brewery increase? Tapping (no pun intended of course) the BA again we see;

Year        Craft Beer Volume Share        Year over Year Growth
2009                         4.3%
2010                         5.0%                                 16.3%
2011                         5.7%                                 14.0%
2012                         6.5%                                 14.0%
2013                         7.8%                                  20.0%
2014                        11.0%                                 41.0%
2015                        12.2%                                 10.9%
2016                        12.3%                                    0.8%

Like the brewery count we’re seeing the craft beer volume increase every year and
the percentages are in a nice range except for two years. The huge growth in 2014
must be a result of the redefining of Yuengling as a craft brewer and adding their
millions of barrels to the craft list. The negligible growth in 2016 must also be greatly
affected by the delisting of two breweries from the craft list, Lagunitas and Ballast
Point, which were #6 and #11 in 2015, which if adjusting them out in the prior would
show a more reasonable growth.

But I think the big question is, is the volume growth enough to support the increase in
breweries? We know that as breweries open every year, some close, some merge
and some get bought by mega breweries or private equity/venture capital. That’s to
be expected in a business environment; a type of survival of the fittest. But is it really
the fittest, or is some of it the newness and luck? We all know we’re attracted to
every new brewery to see what they have to offer, but to be honest I’ve found many
of them to be making just okay beer. They may have one really good one, but in a
lineup of five or six or more, that’s not exciting. Location makes a difference also as
the road trip (for those of us willing to drive) or the beer bus (for those of us wanting
to be driven) or even the Beercation (for those wanting to travel) allows us to hit a
few breweries within a reasonable radius and check them out.

We also can’t underestimate the change in the “tasting room” over the years. Think
back years ago when there weren’t as many breweries, regulations were stricter and
the cost to taste was minimal. Today’s environment is much different, with fancy
taprooms with big screens selling flights and pints at, in some cases, prices similar or
close to a local bar. And they’re selling four packs, six packs, cases and growlers.
Many of the smaller breweries are surviving, some even thriving on this, but living off
the taproom could be dangerous if the economy does turn.

So what about the older established craft breweries that don’t have the “newness”
angle? Well they need to be constantly working on their seasonal and special
releases since just producing the great beer they always did doesn’t seem to cut the
mustard now. Last month I wrote about D.L. Geary’s in Maine, one of the 80’s craft
beer pioneers in the country making great beer for thirty years but whose sales
dropped of precipitously over the last few years and to survive were bought by
another brewery.

Well it didn’t take long in the new year for shoes to start dropping and we’re talking
some big shoes. First it was Saratoga Brewing up in Saratoga NY opened in 1997,
but more importantly its parent Mendocino Brewing. They opened the first California
brewpub (2nd in the country) in 1983, as the Hopland Brewery, with their flagship
beer, Red Tail Ale. I was lucky enough (I should take more credit and say smart
enough) to have visited their brewpub in Ukiah, CA and taste their beers fresh in
1990. I consider Red Tail Ale one of the classic crossover craft beers along with (to
only mention a couple) Fat Tire and Boston Lager. And others in their lineup, the
Blue Heron Pale Ale and Eye of The Hawk Select Ale are both excellent. Both
breweries over expanded, ran into financial trouble and were bought/acquired in
separate deals by the same group. I was overjoyed when they started to brew
Mendocino beers in Saratoga and I could get them here in NJ. They were one of my
mainstays for years until their NJ distributor went bankrupt and they never seemed to
get another one. Checking into it further, they closed the Ukiah brewpub suddenly
days before the Saratoga facility was closed and their chairman and indirect majority
shareholder is fighting extradition to India, which who knows if that’s part of the issue
or not. I’m really hoping they get bought and continuing producing. I’m thinking I may
need to make a run up to NY to pick some up and hope it’s not the last one I have.

Last I knew Saratoga was the only brewery making the Indian beer Kingfisher, so
wonder where that will go, not that I intend to purchase any. Pabst is the ultimate king
when it comes to owning distressed beer brands; maybe they’ll start buying some
distressed craft beers so they can compete with the High End and Tenth and Blake.
Good thing I have a strong heart as a couple of days later the next shoe dropped:
Smuttynose is being put up for auction in March! Seriously; another iconic brewery in
trouble! Sure they’re not in the top 50 craft brewery list, but they’ve been making
great beer since 1994. And if you’ve been up to New England or partway down the
east coast you can find their Shoals Pale Ale, Old Brown Dog and Finestkind IPA. But
they have something in common with Mendocino/Saratoga. They out grew their
brewing spaces so in 2010 they began construction on a new facility at Towle Farm
in Hampton, NH. They opened in mid-2014 and keep their original brewery, which
ironically they bought at auction, and renamed it Smuttlabs to do contract brewing
and experimental/product development stuff. In 2015 they open a restaurant at their
new location. And two plus years later they’re at 50% brewing capacity, out of money
and now up for auction. They obviously over expanded and weren’t thinking or
expecting there to be 6,000 craft breweries a few years later they’d be competing
with as opposed to the less than a third of that back in 2010.

Like the stock market the craft beer bubble is looming and some have already taken
a hit. I wouldn’t be surprised to see more “announcements” as the year progresses.

Well I think I need to relax and have a beer. Where’s Alfred Loomis when you need
him?




Glenn DeLuca writes about beer and culture of drinking. He may
be reached by writing thebigG@beernexus.com.

***   ***   ***
Glenn DeLuca
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