Craft Beer Saturation: Lesson Learned, Lesson Followed?

A recent article from Time Magazine online mentioned some concerns over the rapid growth of the craft brewing industry. While this article barely scratches the surface of the concerns mentioned (it doesn't even touch others), it focuses on the associated industries' ability to accommodate this growth. Restaurants, bars and retail stores are finding it difficult to provide space for these new breweries and their new beers. As such, competition among craft breweries for this limited space is intensifying. Some see this competition as a very strong adversary to not only the continued growth of craft brewing, but its chances of sustaining its current status. In other words, after the Big Bang comes the Big Crunch.

This is not a surprising or unrealistic prognosis. Craft brewing saw a Big Crunch in the 1990s, so there's ostensibly no reason to foresee it not to happen again. Except there are several. One is that after the 1990s Big Crunch, say the last 10-15 years, the big breweries (Anheuser-Busch, Miller, Coors) refocused their targets on each other, allowing the few craft breweries who survived to build strong foundations.  Breweries like Sierra Nevada, New Belgium and the largest craft brewer, Boston Beer Company, helped cultivate a resurgence of craft beer.  Under cover from the giant breweries' gaze elsewhere, small breweries crept back into the market, and this time they assessed what went wrong before to apply what they learned today.

The main lesson was that direct competition with the financial capital of big breweries is suicide. No need to attract attention from Bud, Miller, and Coors beating themselves up. Which is another point: the big breweries consolidated.  Miller, Coors and Molson merged (for lack of a better term), AB was bought by In-Bev, which just acquired Group Modelo. Meanwhile, the craft beer lover was not to be forgotten. The Internet plays a big role here as well.  Beer lovers took to cyberspace to advocate for better beer.  Websites like BeerAdvocate and Ratebeer are consumer driven, contain open forums and information on beer, beer styles, beer events and beer…you name it. The need for advertising through Super Bowl commercials, billboards and sporting event sponsorships became fleeting, and therefore big money was not the dominant weapon it once was.

While other factors differentiate today's craft brewing boom from the 1990s, the focus now is on how to keep it up, and to keep at bay the Big Crunch. Back then the competition was for tap handles and cooler doors, and this is still a part of the scene.  Yet it's not the whole picture. Perhaps the most unique characteristic of today's craft beer scene is the scene itself.

The size of breweries opening up today is relatively tiny. One brewery will not make a dent on the national share of the beer sales market. Places like Denver Beer Co and Hogshead Brewery reside in small buildings, like old auto mechanic garages, where their consumer base spans less than a square mile.  Restaurant tap handles and retail shelf space are not their primary concern. It is a different business plan than the big breweries and the craft breweries of the 1990s. Craft breweries are becoming the neighborhood hangout, which harkens back to Colonial days.

This is what can prevent a Big Crunch, if many craft brewers stay extremely local. If money is poured into competing for limited space, then big money can be lost.  Attention should be, first, on the beer.  Good beer will lure people in and persuade them to stay.  Next should be customer service (well, you need a tasting room first). Making people feel like friends, or guests, rather than customers is not a secret, but it isn't all that easy to do. Skills in personal interaction are rare in today's social media world, yet are vital to small business.  So, the people have come to drink great beer, and they're staying…what else can they do at these small breweries?

The brewery is not just a drinking hole; it's a gathering place for everybody, although only adults can enjoy the beer.  Atmosphere is important--otherwise people would just stay home.  Music, volume, space, table arrangement, outside seating, etc all affect the brewery. Some places provide board games, others have periodic group meetings. Accommodating designated drivers, children, pets and tourists have little to do with beer…but everything to do with a neighborhood brewery.

And this is working: These places are busy. Sometimes breweries cannot keep production ahead of consumption; there is more demand than supply. That's a good business recipe, yet it shouldn't be a sign for breweries to expand and start distribution. While a particular neighborhood is familiar with their brewery, many others are not, and to make them aware takes money and time.  Both of which are needed in the original location to maintain great beer, customer service and atmosphere. If they do this, then they have established a strong opposition to any Big Crunch that may occur.

Some believe that the lack of retail and tap space will hurt craft brewing, and this may be true for breweries looking for space.  But revenue does not have to come from distribution; on premise tasting rooms are becoming neighborhood hot spots.  While this may not provide short term profits, it can lead to long term, established success. People want to gather, mingle, talk, play and meet.  The neighborhood brewery is the perfect place, away from the labyrinth of distribution. With so many neighborhoods in the U.S. saturation is a long way off.