The craft brewery industry is in transition. Big companies, like AB InBev and MillerCoors (called Big Beer), are starting craft beer-like equivalents or buying craft breweries. This includes Blue Point Brewing Company and Wicked Weed Brewing. Craft brewery growth has also begun to slow as the market matures. Other craft alcohol industry participants, like distilleries, are becoming a new economic trend. Additional competitors have taken market share from craft beer, like hard seltzers. Craft beer’s answer: cooperation through consolidation.
The last 10 years has seen explosive growth in U.S. craft breweries and the industry nationwide. In 2008, there were 1,500 craft breweries in operation. Today, there are over 7,000. In some cities, like Asheville and San Diego, there’s one on every corner. This growth has taken the country from beer infancy to a world leader.
The annual volume of beer produced by craft breweries has also skyrocketed from 8.5 million barrels to 25.9 million between 2009 and 2018. According to the Brewer’s Association, craft brewery sales represented 13.2% of the 2018 U.S. market by volume. Even though Big Beer spend billions on advertising annually, craft beer continues to take market share. To be clear, Big Beer still holds a great majority of the U.S. beer market share.
In adapting to the craft movement, Big Beer changed strategy by purchasing craft breweries. They’ve bought the likes of Goose Island Beer Company and Platform Beer Co. They’re also starting up offshoot breweries, like Veza Sur. Private equity and other players are creating a conglomeration of breweries to compete. This includes CANarchy and Constellation Brands, the latter of which purchased Ballast Point at a $1 billion price tag. That’s some expensive brew.
When large companies buy craft breweries, the community feels the loss. There’s an episode of The Sour Hour, when Jay Goodwin, co-founder of The Rare Barrel, discusses the news of Wicked Weed’s sale to AB InBev. It sounded like he lost a good friend. Breweries like Wicked Weed see teaming with Big Beer as an opportunity. Co-founder of Wicked Weed, Walt Dickinson, stated at the time of his brewery’s buy-out, “As a brewer, giving our team more resources to continue innovating our portfolio and the ability to reach more craft drinkers, allows us to keep putting the beer and the people first.”
In recent years, the craft beer industry growth has dropped. That is partly because an industry does not simply continue growing at the explosive rate craft beer has grown over the last 10 years. The market eventually says enough is enough, requiring greater quality among the enhanced competition. This point was highlighted by Bart Watson, the chief economist for the Brewers Association, who stated that, “The beer landscape is facing new realities with category competition, societal shifts, and other variables in play. There are still pockets of opportunity both in terms of geography and business model, but brewers need to be vigilant about quality, differentiation, and customer service.” Great breweries hustling to make even better beer? Sounds good to me.
In the face of competition, some craft breweries try to make a name for themselves with outlandish beer concepts. Do you want a a Bloody Mary Ale and Steak and Onion Kolsch? Craft is finding other ways to compete.
Craft breweries have begun joining forces through mergers. There are advantages to this route, including cost savings, scalability, and reducing competition. Examples of this buy-out trend include: in Wisconsin, the Wisconsin Brewing Company acquired Lake Louie Brewery; in Indianapolis, New Day Craft, a meadmaker and cidery, was purchased by Fountain Square Brew Co.; and, in Washington, Hidden Mother Brewing merged with Idaho’s Selkirk Abbey. The merger often leaves the purchased brewery/meadery/cidery with control over operations. This allows the entity autonomy over the process that led to their success. These merged entities can afford what they couldn’t on their own, such as greater distribution channels and internal controls.
As part of this trend, earlier this year, Boston Beer Co. purchased Dogfish Head Craft Brewery for a deal valued at $300 million. The founders of Dogfish Head released a statement as part of the acquisition, which reads in part: “More than a dozen of our peers have sold to international conglomerates, others have come together through platforms bringing a handful of craft breweries together in roll-up. While neither of those strategies appealed to us, we did realize that Dogfish Head would be a strong company with the support of our friends at Boston Beer, and vice-versa.” Boston Beer and Dogfish have characterized the transaction as a merger, but others are not buying it, considering that the Calagiones received their profit in the form of stock in Boston Beer. In any event, this trend isn’t going anywhere.
Barring unforeseen circumstances, good beer in the U.S. is here to stay. We are at a cross-roads though. Craft beer’s maturation has led to the paths we see craft breweries taking today. I’m hopeful that the changing market will serve to further enhance U.S. beer. The changes, hopefully, don’t change too much of what makes the industry so special: the inclusive and “we’re all in this together” type culture. Time will tell.