Beer Bubbles — Throwing my stick on the pile

Wow.  Every few months, we get a “scandal” in the craft brewing world, and geeks get all in a tizzy and opinions get thrown around and people become overnight experts, then it blows over and we all have beer together.  We’re at the peak of one of these cycles, and it’s all about craft beer growth, particularly in the USA.

If you’re already glazing over, here is a video that still makes me laugh so hard.  Feel free to watch it, then go about your day.

Okay, if you’re still with me let’s start from the beginning.  A popular thing right now, in business papers during slow weeks, is to talk about whether “the craft beer bubble is about to burst”.  There is no doubt, the success of craft brewing ebbs and flows.  And it is definitely enjoying a big upswing.  Because we now are aware of the concept of a “bubble bursting” (Dotcom, 2008 USA Housing Market, etc), it makes for a good headline.  Craft brewing is exploding, particularly in the USA.  There are currently around 2500 breweries operating in the USA.  TIME magazine states that there are another 1250 “in planning”.  It makes it obvious that market watchers would start to wonder about it’s viability.  Bear in mind, there is probably also some sense of jealousy, as it’s an example of a really small, often family-run, business segment, that is experiencing growth pretty well every other sector would kill for.  So we get these articles and blog posts, predicting a “bubble burst” is just around the corner.  Bearded brewers closing shop, holding signs at street-corners that say “will dry-hop for food”, etc.  In some ways, in our culture, this is a measure of success.  The vultures circle, eying the fattest animal.

So, you get a push back from the industry.  They want people to know that their success isn’t about to drop off.  Banks should keep loaning money to start-up brewers, bars and restaurants can rest assured their locally-made craft beer supply won’t dry-up, drinkers know that David’s sling will keep dominating Goliath’s sword.

This very thing happened this week, when the Brewer’s Association (a huge brewing body in the USA) posted a blog post, basically explaining why craft brewing was a-okay.  You can read it here:

Immediately some folks felt comforted.  Others noted that the statistics used seemed to cherry-pick somewhat.  Others still (I was one) pointed out that a post from the Brewer’s Association, saying everything was just dandy with brewing, lacked a sense of impartiality.

Right off, let me point out: We’re mostly talking about craft brewing in the USA.  The trends there do often (proportionally) reflect Canada, but it’s not a 1:1.  Now, when we talk about a “bubble” in the USA, we’re using a trendy term.  There is no doubt (or at least, there shouldn’t be) that even a catastrophic crash in craft brewing would have the same impact as the housing market crash of 2008.  Yes, a bunch of people would be out of work, and there would be up-stream fallout for hop growers and equipment manufacturers.  It wouldn’t be pretty, but you wouldn’t find talk of bailouts and economic stimulation.  Despite being important, the industry just isn’t big enough.  Okay?

So, when we talk about a craft beer bubble, and it’s potential bursting, I assume we’re just talking about the possibility that the market can’t sustain the growth of craft brewing, and we will shortly see a correction (another very trendy term).  The argument from the BA and non-bubble supporters is to point out that sales of macro beer (Bud light, Coors, etc) has been declining and craft is taking that market-share.  Consumption of beer in the USA has also increased a bit (though over multiple years, it hasn’t kept in line with population growth).  So there’s plenty of beer to sell, right?

Furthermore, they say, look at Germany. Don’t look too closely, or you will see that the number of breweries in Germany has been cut in half in recent decades.  But look, they have a population of 81.9 million people, and around 1300 breweries (hard to say exactly, as they keep closing….).  That means they have one brewery for every 63 000 people.  The USA, on the other hand, has a population of 313 900 000, and only around 2500 breweries (hard to say as they keep opening….), which means one brewery for every 123 600 people.  The USA could double it’s brewery count and just have caught-up to Germany!  Plenty of room to grow; full steam ahead!

Now the first problem, as noted, is German beer consumption per capita is dropping like a rock, breweries are closing, and nobody can really say when they will bottom out.  If their numbers were at least stable, it would be an arguably safe comparison, but they’re not.  I say “arguably safe” but I would still argue against it.  Why?  Enter problem two: It’s fine to talk about breweries per capita, but it misses a vital metric: beer consumption per capita.  I don’t know if you’ve been to the Bible Belt, but there are still dry counties; teetotalism is alive and well in the USA.  Even in the drinking population, many Evangelical Christians would be secret, or infrequent, or ashamed drinkers. And there are a lot of Evangelical Christians in the USA. So, for the sake of argument, let’s add that metric in.  Beer consumption per capita in Germany is 107 l/year.  In the USA it’s 78 l/year (in case you’re wondering Canada is only 68l/year).  What this means, is that the USA consumes 97 936 hectolitres per brewery, while Germany consumes 67 410 hectolitres per brewery.  Suddenly just a 50% increase puts the USA with a higher concentration of breweries than Germany.  Of course, we also must entertain the fact that some amount of USA beer consumption is imported (even from Germany!) and the same is true in Germany.  Both countries also export enormous volumes of beer (though, for the most part, that’s not from craft brewers).  Hmmmmm, things are getting confusing.

Now let’s add in another comparison, the Czech Republic.  In case you didn’t know, Czechs out-drink us all in terms of beer.  Actually, they mop the puke-soaked floor with us.  The average Czech drinks 132 litres of beer per year!  But with a population of only 10.5 million, their yearly consumption is only 13 860 000 hectolitres.  Further, they only have 125 operating breweries, meaning their hectolitres per brewery is a whopping 110 880 hectolitres!  Doesn’t look like they have too many nanobreweries in the Czech Republic.

What about us Canucks?  Okay, 34.9 million drinking an average of 68l/year per person, means a yearly consumption of 23 732 000 hectolitres. The most up-to-date number I could find on breweries in Canada was 391 (which I already know is too low).  Which means we have one brewery per 89 258 people, somewhere between the USA and Germany.  But by consumption that’s 60 695 hectolitres per brewery, and suddenly we look a lot like Germany, and are actually well ahead of the USA.

So what does that mean?  Well, if you follow the USA/Germany argument, those Czechs could double their breweries and be in roughly the same territory as Germany in consumption/breweries; they are going slow.  But they are also the leading beer drinking nation in the world. Canada is experiencing a brewery/consumption increase that is climbing faster than the USA, which theoretically puts us in greater risk of any bubble effect.  Czechs sure drink a lot of beer.  Incidentally, Egyptians don’t (they rank in at a measly 0.1 litres/year).  What this means is, there are a whole heap of numbers floating around out there.  Churchill allegedly said “Only trust statistics you’ve manipulated yourself”.  I alluded to breweries exporting, and haven’t factored those numbers in (I’m an over-night expert; I’m no statistician).  Right now, with a few notable exceptions in the USA, “craft” beer stays mostly in the country it was produced in, but that could change, which would skew the numbers again.  Also Germany has a “better” brewery/consumption ratio (forgetting the fact it’s getting worse daily), but Germany doesn’t have an ABIB making up a majority of the beer produced and consumed (funny enough, Canada does, though it is two breweries that make up like 75% of the beer consumed, and yet we still have a brewery/consumption ratio similar to the “good” one from German.  More clouds gathering around the Canadian market…..).  My point is, the Brewer’s Association are using some statistics to “prove” their point.  I just accidentally made myself statistically quite worried about bubble-potential in Canada.  But all of these numbers are potentially variable and definitely don’t tell the whole story.  Numbers alone can’t tell the whole story, there are other factors.

For one, there’s the double-edge sword of quality.  There was a slump in craft brewing in the 1990s, caused at least partially because a number of places were opening, but were not making awesome beer.  If you live in a craft brewing-rich area, think about all the breweries around you.  I bet there are at least a handful who’s beers you don’t drink.  Not necessarily because they’re bad (though that certainly can be the case), but because they’re just not great.  Very mediocre beers, aimed at the mass-lager crowd.  No reason for a person who likes bigger beers to drink them, because they don’t taste like much; no reason for the lager louts to convert, because it’s generally more expensive, and no chick in a bikini ever appeared in an ad hocking it.

On the other side of that equation is that the big guys are catching on.  Molson-Coors bought Creemore and Granville Island, and started the Six Pints brand (think Beer Academy beers).  They let Creemore start the Mad and Noisy line, meaning their portfolio now has interesting beers that range from fine to really good.  ABIB, has been a bit slower on the Canadian side.  They’re trying with the Keith’s brand (Harvest/seasonals and Single Hop Series), and while the beers are generally derided by geeks, for being at best mediocre examples of the style, and an on-going hatred for Keith’s because they call their ale an IPA, I think you will find that they have gotten a number of “converts” in the mainstream (who haven’t so much converted, as moved from a back pew to the choir loft).  In the USA ABIB bought Goose Island and basically seem to have treated it the same as M/C did Creemore.  Sophie is still remarkable, even though by the Brewer’s Association’s standards, it’s no longer made by a craft brewery.  Expect to see them continue to produce excellent craft-quality beers, despite ownership.

Already we must assume that the craft market’s ability to steal share from the big guys is limited.  At some point it will level off, because there are a number of people out there who just really genuinely like light beer, that is heavily marketed to them.  Let’s just invent a number, and say it’s 70/30, okay?  Now what happens when the biggest, richest, most marketing-savvy breweries add their products into the “craft” mix?  Could they claw-back 10%?  15%?  20%?  Who knows.  But I can tell you, lots of people base their growth projections for craft on current trends.  In the next two years, the big boys will buy more medium-large craft breweries.  They will open more specialty brands.  They might have reacted too slowly to prevent a serious ding in their business to date, but things are changing.  Bottles of Bourbon County Stout and cans of Creemore Kellerbeir in the grab-n-go at The Beer Store in Ontario?  Possibly.  Another Goose Island-sized takeover in the USA? Most definitely.

I am not predicting a craft beer great depression.  I am not a crusty “I liked craft beer before Fritz Maytag” hipster.  I love craft beer, and love seeing the success of the market.  I love the excitement and energy in the scene here in the GTA, which is infectious.  I love finding myself in conversation at the auto-body shop with a 40-something mechanic talking about Radical Road’s Wayward Son, and where the best cask in Toronto can be found.  But I want brewers to be as cautious as any other business owner in this day and age.  I don’t want budding brewers to hear the sweet-sounding statistics of the Brewer’s Association and refinance their home to open a brewery on the grounds that there’s plenty of pie for everybody.  I want everybody to consider the very real possibility that in two years Canada and the USA might have over 5000 breweries between us, and we might be back down to 2500 three years later.  Let’s compare ourselves to Germany, but do it with a view to history.  Let’s remember that this brewing giant, who had clear skies on the horizon 30 years ago, has lost 1/3 of it’s consumption, dropped from 2nd to 5th in global production by country, and seen it’s number of breweries halved through merger and closure.  True, people wonder if Germany is about to enter it’s microbrewery Renaissance, but that remains to be seen.  In all of our cases, regardless of all the statistics and yeasayers and naysayers, the future is unwritten. Be careful out there.

Note: This post actually took a lot to write. My thanks first and foremost to Stephen Beaumont and all the commenters on his Facebook post that got this ball rolling, and ideas percolating.  Also thanks to, The Oxford Companion to Beer, Wikipedia (with references),, and The Brewer’s Association.  Please note, this is as close to listing references as I plan to get, unless somebody wants to pay me to re-write this for real publication somewhere else.

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