The Magic of Compound Growth

The Brewers Association put out a report about mid-year growth among its members today and it will elicit yawns from most.  And why not?  Same old, same old:

During the first six months of 2013, American craft beer dollar sales and volume were up 15 percent and 13 percent, respectively. Over the same period last year, dollar sales jumped 14 percent and volume increased 12 percent.

 

During the first half of 2013, approximately 7.3 million barrels of beer were sold by small and independent craft brewers, up from 6.4 million barrels over the first half of 2012. 

This is so routine most people won't bother giving it a lot of thought.  It's been much the same for the last ten years: 

The Brewers Association estimates 2005 sales by craft brewers at 7,112,886 barrels up from an adjusted total of 6,526,809 barrels in 2004, an increase of 586,077 barrels or 8.1 million case-equivalents.  [The organization] reported craft segment growth of 7.2 percent for 2004, a year in which wine (2.7%), spirits (3.1%), imported beer (1.4%) and non-craft domestic beer (0.5%) all reported substantially smaller growth rates.

For a decade, growth has plugged along between the middle-single to middle-double digits, offering these monotonous gains.  But if you look at the real barrels involved, you see that they're starting to look something other than boring.  In 2004, breweries made 6.5 million barrels in all; in the first half of 2013, they made 7.3 million barrels.  This is the magic of compound growth.  When you start out with a small base, ten percent growth looks fairly linear for the first few years.  But because it's compounding--growing ten percent on top of the year before--pretty soon it starts to shoot up sharply.  If we run the little experiment, starting with 6.5 million barrels and increasing that by 10% a year, we come to a chart that looks a whole lot like what actually happened.  For fun, I've extended it out so you can see that if current trends continue, in a few years' time this will amount to pretty hefty barrelage:

Will that growth rate continue?  Who knows.  In about year 13, this segment would occupy 10% of all beer sales in the US, assuming (and I do) that the total market doesn't change much.  (It's been roughly 200 million barrels for a quarter century.)  At some point, the rate flattens out and you start seeing a more "normal" healthy growth of 1-3% a year.  It's hard to guess when the rough plateau will arrive.  I wouldn't bet on it coming super soon, though, were I a betting man.