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Thursday, August 08, 2013

Reports of Beer's Death Greatly Exaggerated

Let's start with Gallup, which sounded the gong of doom first, one week ago.  Each year they round up a bunch of lushes and ask what they drink, and the results are usually pretty interesting.  This year's edition was no exception:
Young adult drinkers' alcoholic beverage preferences have changed dramatically over the past two decades. In the early 1990s, 71% of adults under age 30 said they drank beer most often; now it is 41% among that age group. There has been a much smaller decline in the percentage of 30- to 49-year-olds who say they drink beer the most, from 48% to 43%, with essentially no change in older drinkers' beer preference.
I started seeing posts like this one from the Atlantic commenting on the findings with shocker headlines like Why Are American Drinkers Turning Against Beer?  Writer Derek Thompson lasers in on the youth trend and tries to get to the bottom of things by talking to unnamed beverages analysts for the poop.  (You can follow the link to see how fresh the theories are.)  Ah, but I have an advantage Thompson lacks: I am old and have been writing about beer for a long time.  This Gallup thing is fun, and long-term trends are valuable, but you shouldn't look at one year, compare it to a year in the distant past, and extrapolate.  (I know because three years ago I trumpeted the finding that young women were flocking to beer and that turned out to be ... statistical noise.) 

The problem?  The numbers jump around a lot.  Let's take a look at that young person's stat.  It does seem alarming that only 41% of America's youth prefer beer (though it's still 13% above liquor at number two).  Yet let's look at the totals from the last three years: 51%, 39%, 45%, and now 41%.  You see, it hops around a lot even among the same group answering the question.  The trend is toward more diversity in what they're drinking, but beer still has the lion's share. 

Now, the second panic was sparked by Joe Stange, who wrote an article for Draft Magazine with its own screamer headline about what is inevitably now characterized as craft brewing's "boom": Will It Fall?  Stange gets answers on both sides of the aisle.  Some say craft beer is headed for collapse others say pshaw.   On the one hand, he goes to brewer Dylan Mosley of Civil Live in St. Louis for my vote of the year's best quote: "Seriously? It’s beer. You know how many people drink beer? If I opened a hamburger joint, nobody’s going to be, like, 'Hey, you know how many hamburger joints there are?' They’d be like, 'Sweet! Another hamburger joint!'"  But then he gives beer geek Ashley Fox the final word and she says--doom gong please--"all bubbles burst."

And from that jumping-off point we get the more definitive judgment from Lew Bryson, an old-timer like me who lived through the 90s plateau.  "'Will it fall?' Yes, most definitely."  I wanted to clarify that Lew meant the actual barrelage would fall, not just the growth rate.  He meant barrelage: "It's definitely possible. Denying it is denying historical fact. Everything crashes, eventually."

I don't buy it.

The American beer market is 200 million barrels strong and has held steady at that level for two decades.  Of those 200 million barrels, craft beer, by whatever definition you want to give it, is definitely no more than 20 million barrels, or about 10% of the total.  (Brewers Association numbers, which show the US consuming about 15 million barrels in 2013, skip beers like Widmer/Redhook, Blue Moon, and Schell Berliner Weisse for reasons that have nothing to do with beer.  Americans think of all of those as craft beer.)  Now you have to ask yourself: in a 21st century world where fragmentation is the way of all things--media, pop culture, the arts, and consumables--why would we expect mass market lagers to continue to hold 90% of the market?  Nothing has 90% of any market.

Could the United States manage to support a craft beer segment that was 15% of the total beer market?  What about twenty or twenty-five?  Of course it can.  We have tons of laboratories where the experiments are happening in real time.  So far, in each case, where craft brewing catches on, it grows faster.  No doubt there's a plateau, but places like Oregon haven't hit it yet.  The new, far crappier Oregon Brewers Guild website no longer lists these stats, but I recall that our consumption is around 20% and growing each year.  And Oregon's market keeps growing and getting more crafty.  This makes complete sense: fragmentation begets fragmentation; choice begets choice. 

I challenge proponents of the "fall" theory to muster some data in support of your case.  Can you point to any cases of over-saturation?  All the doomsday stories I read about point to what you actually expect in a mature market.  Things like real competition for tap handles and shelf space--which Stange mentioned.  I've mentioned this before, but I think a lot of the panic comes from a fear that double digit growth won't continue.  Agreed.  That's clearly unsustainable past a certain point.  (In ten years at 10% growth, the craft market would be over 50 million barrels.  That seems far-fetched.)  But a falling growth rate is a far different beast than actual falling barrelage.  To companies used to double-digit growth--or those whose business plans unwisely depend on it--there may be a rude shock in the future.  But that's no collapse.  In mature markets you have business failures.  Maybe breweries who have lived in a nearly risk-free world will get skittish when things tighten up.  But that's not a fall.

Note: I am aware that Twain actually said "the report of my death is an exaggeration," but if I'd titled this post The Report of Beer's Death Was an Exaggeration, no one would know what I was talking about.


  1. Thought we might have an issue of definition of terms,, we actually disagree. My perspective: I've been in this as a drinker of craft/specialty beer since 1981, writing about beer and the industry since 1994. I write about beer, but I also write about spirits. I've seen this happen. I'll quote from a comment I made in my blog post.

    "The drop Ian [Logan of Glenlivet] talked about was REAL [the late 70s drop in Scotch whisky sales that resulted in the surplus known in the industry as "the Whisky Loch", which we've finally drunk our way through]. Big drop in actual sales, depletions, volume, whatever you want to call it. Most folks don't realize it, but wine experienced a similar drop in actual sales in the U.S. market back in the 80s; from 1986 to 1993, wine sales dropped 25%, and didn't get back to 1986 levels till 2002."

    It happened, and it's very likely to happen to craft beer, too. How? Could be any number of reasons. Tastes in beer could change; poor quality control in the new nanobrewers could turn people off craft beers; continued drops in wine prices could lure even more people away (I know I'm drinking more good $12 bottles than ever before), especially as craft beer prices continue to increase; Blue Moon/Shock Top muddle the category to the point that trust is lost; the Millennials wander off to something else (wine, whiskey, aquavit, who knows)...

    The point is, there are many things that could happen, and they have happened to other categories. Hell, if it didn't already happen to the category in 1997, it was a matter of a few thousand barrels, and I'd want to see all of the BA's numbers for that year before I'd concede it.

    But to be clear: I do think it's inevitable that craft beer's numbers will peak and decline at some point. That may be five years away, it may be 20 (as I said in the blog post), but honestly, I don't see how it can't happen, especially given the steadily declining number of young people who are noting "beer" as their drink of choice. That was the only really disturbing number I saw in that Gallup mess.

    And while we're discussing the historical basis for the Ian Logan said, everything is cyclical. Scotch whisky has come back stronger than ever from the Whisky Loch, and wine is likewise at new heights after its 25% drop. Similar cycles have been seen in Irish whiskey and bourbon, and by God, I just saw that Canadian whisky sales were up strongly for the first time in I can't recall when. When craft beer does fall, I have every confidence it will be back.

  2. One quick comment (because saying more will just expose my ignorance of the the market). Beer as compared to scotch or even wine, is an exceptionally diverse product, and is becoming more so as craft beer rises. IPA is very different than stout, that is very different from pilsner that is very different than kriek.

    They have very different flavors and appearances and even more so, they appeal to very different audiences (how much overlap is there between those who are quaffing Bud at a NASCAR race to those sampling beers at Cascade Barrel House?). I don't think that beer is immune from a slowdown in growth, but as the market expands beyond the macro adjunct lager, I would assume that the increased diversity of product will also provide the market resiliency from a downturn in any particular style.

    Long story short, consumers can choose scotch, or not scotch. The beverage is homogeneous enough that it's a binary question. Beer is diverse enough where the question is no longer binary. I may grow tired of IPAs, but my replacement may very well be sours, or tripels, or porters, or bitters, or... From a consumer preference standpoint, wine is wine, scotch is scotch, brandy is brandy, but beer (perhaps?) is not beer.

  3. Lew, two things. I think old-timers who lived through years of '96-2000 have overlearned the lesson there. (I was one of them; my first article appeared in December of '96.) It's true that there was some trauma, but it was a very different market. It was anything but mature. By the mid-90s, there were a lot of speculators entering the market to make a quick buck. They sold terrible beer (quality and recipes) and a bubble formed. You and I remember the same kind of triumphalism and all the stories in the papers breathlessly reporting brewery counts spiking nearly vertical.

    It sounds the same, but it's not. Now the market is much more mature and speculation is tempered by quality. Most importantly, a FAR greater number of Americans (60+%) at least occasionally drink craft beer. The base is much bigger, the beer much better, and speculation much lower. I also think you get into big trouble when you use other products to analogize beer (as Ken noted). I put it to you again: can you give any evidence that beer is suffering?

    The second point is that, yeah, if you're talking decades, of course there will be changes. Nowhere in any of the panic pieces did I get the sense that people were musing about the state of the market in 2050. People are saying the bubble is here and the pop is imminent. Will the non-mass market segment go through plateaus in the next forty years? Obviously. Will its growth be a gentle curve upward or a spiky rise and fall as with other mature markets? Obviously the latter. But the assumption everyone's working from is that we've come near to the terminal point of growth for craft, and I think it's dead wrong. In ten years it will be much larger than it is today. If you think that's not true, explain how the fall will come.

  4. Ken, The homogeneity of the other markets is an illusion. Take Scotch, for example. First, it's part of a wider whisky category (bourbon, Canadian, Irish; there are others, but not in significant volume). Then within that category, there are blends, and there are single malts, two very different propositions. Within those categories, there are basic blends -- Dewar's, Johnnie Walker Red, Cutty Sark -- and premium blends -- Johnnie Walker Blue, Dewar's Signature, Black Bull -- that are genuinely different in age and malt content. Single malts are quite varied as well: by age, distillery character, peated, unpeated, sherry-aged, wood finished... Your basic Scotch consumer knows these divisions; your basic single malt consumer knows them like a basic beer geek knows beer. To say that Scotch is binary admits that to an outsider, beer is binary. And...there's a lot of difference between the bar crowd that simply orders "Scotch and soda" and the crowd that carefully selects single malts at St. Andrew's in New York.

    What's more, Scotch is truly a worldwide drink, with export sales that are making it a major source of wealth for the UK; second behind North Sea oil, currently. If an established, worldwide drink with literally 100s of years of strength and growth behind it can crash like Scotch did...twice (there was another crash back in the 1890s; another in the 20s, but you can perhaps write that off to Prohibition), then I would submit that craft beer is not immune.

    Now, Jeff. I would meet your first point by saying that craft is only a mature market in small bubbles of the country -- the Portlands, Philadelphia, Seattle, Anchorage, a few others -- and at that, largely "mature" in the view of those within the market, not from without. We have a lot of new breweries, and a lot more coming, which greatly increases the chances of quality problems.

    I've seen it; not as bad as 1996, but it's growing, and it had gone away almost completely. I'm seeing a lack of courage in brewpubs, I'm seeing a lack of real innovation in the majority of brewers (evidenced in the moronic tendency to refer to everything as a type of IPA, for example). I'm seeing some stupid money, although most of that seems to be going to craft distilling.

    I do not agree that I "get into big trouble" by comparing beer to other products. Those "other products" are also beverages, that are to some extent in direct competition with beer. Do you say that beer is unique, and cannot be compared to other markets? Be careful on that. If you haven't, read "American Vintage," by Paul Lukacs; amazing historical parallels in American winemaking with American beermaking, and I have no strong reason to think that will change.

    I don't think I wrote a "panic piece." All I was saying was that there will be a time when craft will peak, and fall back...and that it will probably be ten or twenty years, and that it won't be fatal. But I agree with Ian: it's cyclical, it always is. The good stuff will survive, the good drinkers will find it, and eventually things will turn around again.

    I'm certainly NOT working from the assumption that the terminal point of craft is near; to imply that I did is to spread panic yourself. I've never said that; I've been a 10%er for years, and see it going well beyond that. Belgian specialties are about 1/3 of the market in that country (or were, haven't seen the numbers in a while), and I see no reason why we can't get there. But it's going to be a much, much different craft market when we do get there, and none of us know what it will be like. And the chances are good -- very good -- that at some point, either on the way to 33% or some time after, there will be a fallback, a backlash, a dip, a shakeout...there almost always is, and it may well be caused by forces outside the craft market.

  5. Perhaps I slightly overstated to say that "scotch is binary." Probably even more overstated on wine.

    That said, scotch really has only one "class." Sure, there's variation on that class, but there's a platonic ideal on what scotch is. It's going to have that certain color, it's going to have that taste. It's going to be "scotch."

    Now try to find the platonic ideal of "beer." What color is it? Is it hoppy? What's the aroma? What's the flavors? Is it dark roasted malt? Light roasted? I don't think this is just a beer geek thinking this way. Anyone who is exposed to craft beer is probably aware of the immense variety and that variety reaches further than most other drinks.

  6. That said, scotch really has only one "class." Sure, there's variation on that class, but there's a platonic ideal on what scotch is. It's going to have that certain color, it's going to have that taste. It's going to be "scotch."

    No. Take a glass each of Lagavulin 16, Dewar's White Label, Glenfarclas 40 year old, and Glenmorangie Original, just for example, and get back to me. In fact, I'd love to sit down and do that with you; I think you'd enjoy the hell out of it. (Working on a book called "Tasting Whiskey" right now, so I'm amped a bit.) And yes, "even more overstated on wine."

    Also...what's that got to do with it? If IPA crashes, porter won't? If the public loses their enchantment with pumpkin beers, they'll just buy more Oktoberfests? Granted, raspberry beers crashed hard in the 90s (few cried), but the rest of the category slipped pretty hard too just after that, so I think that supports me more than you.

    Again, not saying this is imminent. Just inevitable. Said the same thing back in the mid 1990s when I looked at rates of growth and realized that if Dogfish Head -- just Dogfish Head -- continued at their current growth, they'd put Anheuser-Busch out of business in 11 years. Couldn't happen. Growth slowed -- to zero -- as expansion outstripped capital, outstripped distribution capability, outstripped marketing even.

    How will it happen next time? I don't know. If I did, I damn sure wouldn't be giving it away in a comment on someone else's blog...

  7. Well I’m a youngster (started legally drinking after Y2K) and but I don’t think in the short term that the gallup polls mean anything major for craft beer. I think the importance of the poll, is that a roughly 30% drop in LDAC-29 year old preference for beer means the crash for mass beer, is nowhere near rock bottom – investors take head. It means BMC are completely losing their base…boomes “old-timers” are cutting back and will soon to be kicking the bucket all together. Their kids aren’t drinking beer as often, and when they do it’s more likely to be craft than BMC. If I’m Alan Clark or Carlos Brito I’m trying to keep the American boat floating long enough to thoroughly set up in Asia (and they are)….I think the analysts will be right, SAB will sell off the sinking ship that is Miller and merge with InBev. Maybe Molson will keep MillerCoors afloat, but I imagine within a decade there will a few shuttered breweries (they won’t need all three breweries on the east coast Albany, Eden, and Shenandoah and it’ll be Milwaukee vs Trenton and Golden vs Irwindale). Not sure how AB will shutter things, but I think the overall beer market will be much smaller unless the big guys radically rethink their business models.

  8. "Also...what's that got to do with it? If IPA crashes, porter won't? If the public loses their enchantment with pumpkin beers, they'll just buy more Oktoberfests? Granted, raspberry beers crashed hard in the 90s (few cried), but the rest of the category slipped pretty hard too just after that, so I think that supports me more than you."

    Yes, that's my thesis. Beer is still a huge business here in the NW, but the scene isn't as IPA dominant as it once was, but slipping away from IPA isn't the same as slipping away from beer. As IPA loses a bit of it's dominance, other styles are starting to become more popular.

    In all my comments, I'm not intending to belittle scotch. I love the stuff. Wish I could afford more of it. Bourbon's a bit more my style, but I appreciate, what I perceive, as significant variations of a theme within the scotch realm.

    I'll conclude by offering a troubling counterpoint to my "diversity" argument. Rum. Real rum can be made with almost anything thrown in it. Which, in turn means that there is vast diversity within the class. But, in the public eye, "rum is rum." It could very well be because the consumer hasn't been educated or exposed to the diversity within the product, but my "diversity" argument only works if people are thinking of IPAs, sours, Stouts and pilsners rather than just "beer."

  9. Sorry Lew, I have to completely agree with Ken on Scotch. Your point is that of an aficionado. You have to consider the average drinker: my wife. To her, any scotch, be it blended, single malt, Speyside, Highlands, 10 year or 40, still tastes like scotch and she does not have a taste for it. On the other hand, while not a huge beer drinker, I can always find something that she will like. She may turn up her nose at an IPA the same as she did my Laphroaig Quarter Cask, but give her a Full Sail Session or a Cascade Kriek and she is perfectly happy. There just isn't the variety of flavors within scotch, or even whiskies as a whole, that there is in beer. And yes, I do drink both. Extensively.

  10. I'm even younger than Sam: I turned 21 only two and a half years ago. My introduction to craft beer occurred before that, however, and the immediately-noticeable difference in quality between the cheap watery swill that most of my college classmates were drinking and the Harpoon IPA that made me really enjoy beer for the first time has pretty much put me off mass-market beer for life.

    And I'm noticing this among my peers as well. We've all encountered the older drinker who grew up on mass-produced American lagers and has a hard time with craft brews, but drinkers are discovering craft very, very early on now. The base is not only bigger, but is also in an advantageous position when it comes to future growth.

  11. Not sure we need to form "camps", but count me in the Lew camp on this one.

    The scariest words any bubble-watcher can ever hear? "It's different this time!"

    I look at it this way. The long term trend for craft beer is positive. The country can support far more breweries than even we have today, including all the "in-planning" ones the BA is tracking.

    But getting from here to there is a b*tch...

    The problem, as I see it, is that there are too many new entrants, too quickly, without differentiation and without a distribution infrastructure to get them to the masses. You have today a public that is on the craft beer "trend", but as Lew points out, it could be craft distilling, tequila, aquivit, or who knows -- wine coolers -- that suddenly becomes the next "in" thing. And *there will be a next "in" thing!*

    Every homebrewer has that dream of opening a nano. Right now a LOT are doing it. They're doing it with whatever capital they can scrape together. They're doing it with wives and families trying to be patient. They're doing it planning to just *squeak by* until they can grow and maybe draw a salary. And they're doing it without formal brewing education or experience and thus quality/consistency might be suspect.

    In Portland, or San Diego, they might be able to hang on like this for a while. But with a new brewery opening on average daily in this country, how can they ever reach a sustainable sales growth rate? How long will it take for the workload (or their relatives' patience) to take it's toll, and they just can't bring themselves to do it any more? How many of them quickly learn that a fun hobby is a terrible job full of hot backbreaking labor -- oh, and you're not making any money, either?

    I think it's a bubble. I think it *will* pop, setting the stage for a sustainable run where the best breweries will succeed and the long-term trend will be more craft barrels produced. In fact, my advice to anyone thinking of starting a brewery would be to wait, to save money, so that when the crash comes, you can buy in on the cheap and be sure you're well-capitalized enough to ride out the lean years. But there's going to be a lot of pain in the middle.

    Again, I just want to be clear: I'm bullish on craft beer in general -- but that doesn't mean the road immediately before us will be without its potholes.