The "Craft Slowdown" is a Fiction

The beer market is changing. For years, the craft segment has been all growth, from the tiniest nano to the category leaders (including gray-market craft like Blue Moon and Shock Top). For the first time in a lot of years, that's no longer true. The Brewers Association recently reported that the craft segment had slowed to just 8% growth (which is still crazy good, though it's lower than at any time since 2009), but here's the thing: the biggest brands are not only not growing, they're in decline:

"[C]ombined volumes for the top 12 craft brewers grew only 1% for the three months to May," Sanford C. Bernstein stated this week citing Nielsen figures in a report titled "The Dramatic Slowdown of Craft Beer Continues." The slowdown appears to be coming from the biggest craft brands.

I recently took a gander at the OLCC's numbers* for Oregon sales, and the story is the same. The state's leading seller, Deschutes, is down 16% over the first half of the year, and the third-largest, Ninkasi, is down 10%. (The OLCC no longer captures figures for Widmer Brothers, another top-seller.) What's going on, says the Brewers Association's Bart Watson, is that the “long tail of craft continues to smoke; there's very little evidence of much of a slowdown there.” The implication is that the big brands are suffering at the hands of smaller competitors.

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This "long tail" he's describing refers to the thousands of small breweries that produce tiny volumes. (In your mind's eye, imagine a graph with brewery volumes on one axis and percent of the market on the other; a few breweries make most of the beer, and a whole lot of breweries--the tail--make marginal amounts.) There's no doubt these breweries have room to grow--it's relatively easy to build ten percent growth onto a base of 500 barrels, and some of those breweries will be growing much faster.

But here's the thing: little breweries just don't constitute much of the volume. Even when you confine your view to the breweries represented by the Brewers Association, the numbers are pretty staggering: 90% of American craft breweries make 5,000 barrels or less of beer a year, and they account for just 12% of the beer tracked by Brewers Association. The top 1.6% of breweries in this group make over two-thirds of the beer. In other words, that long tail could quadruple its production and still only constitute a third of all the beer made. That long tail is never going to account for a sizable share of the volume.

What's actually happening has to do with the breweries that the Brewers Association doesn't track--those recently purchased by ABI, MillerCoors, Constellation, and Heineken--which are growing, and incredibly fast. With Bud's might, Goose Island IPA has become one of the best-sellers in that style. Before selling to ABI, Elysian only had the available hops to brew Space Dust once a week. With ABI's access, hops are no longer a limitation, and the brand has grown 2000%. When I glanced at those Oregon numbers, I was shocked to see the movement of the number-two brewery on the list, ABI's 10 Barrel. In the first half of 2015, it sold a bit less than 13,000 barrels in Oregon. In the first half of 2016, it sold 23,000--an 81% jump.

At the top end, where volumes are measured in millions of barrels, the competition is getting extremely tight. Breweries like Sierra Nevada and Boston Beer are competing against brands that have enormous advantages they can't match:

Using ABI's distribution network, its craft brands now dominate shelf space and tap handles across the nation. Not only that, but the beer is often priced lower than other similar but independently owned craft beers. That has led to accusations that ABI is intentionally undercutting competition: Goose Island kegs, which were once $110, can sometimes be found for $56, and six-packs dip well under 10 bucks, even in major cities. If price is all that matters to drinkers, there's simply no way a smaller, independent brewery can compete.

The "slowdown" in "craft" is a fiction. What's happening is that the top end of the market has gotten competitive, and big companies can afford a price war to build volume. Mid-sized independents can't compete at those prices, and are losing a few customers to cheaper brands like Goose. Some enterprising data journalist will at some point create a database that includes all the brands that fall into the craft category and look at the aggregate growth. I'd bet my bottom dollar it shows that the growth curve is still well above 10%.
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*The OLCC's figures have grown increasingly suspect, but are probably at least accurate enough to assess the direction of trends.

Dusting Off an Old Manifesto

We are entering the week of the Craft Brewers Conference, when a huge amount of energy will be devoted to this theoretical netherworld called "craft beer." It follows a week in which Stone's Greg Koch announced he'd be dumping $100 million into "real" breweries. Or something. Oh god, I grow weary of all this. Titans are arguing about which purity tests to apply (Greg Koch has A LOT more in common with the Busch family than he does with me.) And all of these titans will be appealing to your emotions to get you to buy the right brand, and it's starting to feel awfully tawdry.

What should a good drinker do? Six years ago I wrote a post that got very little traction, but which always struck me as the right answer. Consumers want good beer and a system that supports diversity. I think you should ignore all the blather about craft and consider my old manifesto. It looks even better to me now. Below I've reprinted an edited version, with a few additions in italics. Since I wrote this post, I've traveled the world and learned a bit more about beer, but it all convinces me I was right in the first place.

Buy local, buy good, drink on tap.

Back in the 1970s, Charlie Papazian founded the Association of Brewers--and the more well-known American Homebrewers Association--as advocacy groups for fledgling brewers. The mission grew out of the particular circumstances of that time and place, and was, for at least a decade, clear, accurate, and important. There were two categories of beer: insipid, tin-can beer and handcrafted, artisanal beer. The former had eaten its own, stamped out diversity and quality, and was busily consolidating itself into a single, monolithic product where the only distinction could be found in the color on the label. The latter cared about beer, brewing history, and beer styles, not money. The Association of Brewers therefore had an easy task: support the little guy, support good beer, support independence. It was a moral as much as business crusade.


Unfortunately, breweries can't easily be divided into good beer/bad beer, big/little, and independent/multinational. The brewing industry is a market, and markets grow like amoebas. Trying to contain them in boxes is of no use. And markets are by nature amoral. I have no particular interest in how American breweries organize themselves politically. This manifesto is designed not for brewery owners, but beer drinkers concerned with creating an environment that fosters a healthy market for good beer. It is designed to create the conditions for the production of good beer and a sustainable market. It could also be said to be a blueprint for how Beervana became Beervana, how Bamberg became Bamberg, and how Prague became Prague. These things, rather than a series of ever less explicable categories of being, are what we want to nurture.

Buy Local
Show me a town where the beer drinkers are avid fans of good beer, and I'll show you a town with local breweries. It makes sense, right? If locals are buying your beer, you're inclined to make them happy. But it's not just small breweries that have this effect: look at the great brewing regions, the areas around Portland, Seattle, Denver, Philadelphia--have or had large, regional breweries located nearby. Beer is local. If you have a beer city, it means you have beer people. If those beer people buy locally, they'll have access to good beer. Good beer is fundamentally a product of culture; a dialogue between the people who drink beer and the people who make it. You find good beer where you find good beer culture, and you only find good beer culture in places where beer is made locally by a number of breweries.

The Brewers Association has focused on the independence, but this misses the point. Markets require masses. Towns with breweries have those masses. The problem with consolidation in the 60s and 70s was that local brewing culture died out--vast swaths of the country, lacking any local beer, drank whatever was cheapest, further fueling consolidation and turning beer from a product of local culture into a generic commodity. It's counterintuitive, but even bigger regional breweries help smaller ones flourish because they make the market even that much bigger. You don't have to be xenophobic about it, but spare a copper or two for the local guy(s).  And of course, when you're traveling, drink local wherever you happen to be, to..

(Buying local also helps communities, and is a source of local wealth and prosperity.)

Buy Good
Of course, it's not enough to only buy local--consumers have to demand good beer. Rather than descending into a long philosophical dispute about good, let's use the Judge Stewart rationale: we know it when we see it. Minimally, it's a beer brewed with quality ingredients and attention to style. The reason we should support good beer--whether or not it comes from a small brewery--is that this creates the market for good beer. If consumers always eschew the good for the cheap, they'll get the cheap. If they spend a bit more and buy the good, they'll make it possible for breweries to continue to brew the good. And round it goes.

Buying good creates the environment for local culture to flourish. The commodification of beer creates a generic blandness. Buying good encourages breweries to offer more enticing offerings. What we've seen in the US in the last decade is a race to the top, as breweries use techniques like late-addition hopping to create a new style of hoppy American beer (which is anything but cheap) and embrace techniques like spontaneous fermentation, kettle souring, and barrel-aging. In communities that develop a taste for one of these techniques, local styles may emerge. That has been the history of beer style for 10,000 years.



Drink on Tap
You can buy many of the world's greatest beers in bottles. You can buy brewery-fresh local beer in bottles. But from time to time, you should go to your neighborhood pub and plunk down a five spot on a pint (an honest pint, naturally). The brewing ecosystem is large and diverse. If we don't support pubs, we fail to support the incubators of beer culture. Seeing others in a public space, sampling different kinds of beers, talking with your local publican (who may be the brewer)--these things are the fertilizer for healthy markets. When people go to pubs, they support local beer and local business. More importantly, buying on tap means that the communication between the brewer and the drinker is direct and transparent; it's the basis of that responsiveness that leads to local culture. Markets respond to product trends; publicans respond to people.

Buy local, buy good, drink on tap. Do these things, and good beer will continue to be brewed in your neighborhood. After all, isn't that's what we're really after?