Beer Monopoly




    International Reports






Posted July 2013


Will U.S. craft beer momentum continue?

U.S. craft beer market │When you’re on a roll you might as well roll, because it's not going to last forever. You certainly don’t stop and take a picture. What a banal truism if ever there was one. But it captures well what’s happening in the U.S. right now. Ever since the controversial debate over “craft versus crafty” beers was kicked off last December, there has been a lot of beard-scratching and soul-searching by industry pundits, cranks and smarty pants over concerns that eventually the segment’s growth will reach the glass ceiling. The jury is still out if, or when, this will happen. Meanwhile, an always confident Charlie Papazian anticipates that by 2017 craft beers will have a 10 percent market share and at this point the momentum will take them past that.

This has probably given quite a few people the vainglorious idea that the U.S. could eventually become the “new” Belgium. In “old” Belgium, AB-InBev and Heineken-owned Alken-Maes have about 70 percent of the market, which leaves the rest – a hefty 30 percent – to the other Belgian brewers, whom their friends over in the U.S. like to call “craft”. If the U.S. were really to go all the way of Belgium, then craft brewers could be on a roll for some years yet before market developments put a damper on their sales.

For the past few years, whenever I was pressed to make a forecast, I reluctantly predicted that a 10 percent market share for craft beers in the U.S. seemed possible. Making forecasts is not something I like doing. I am a journalist, not a clairvoyant. Also, if I get it wrong, I will fret over this forever. But I had a major argument in support of my assumption: the strong Three Tier System in the United States. It provides a certain degree of protection against the retailers’ power because alcohol producers have to sell to an intermediary, ie, a distributor, rather than directly to the retailer. Hence, craft brewers have been able to expand their niche without the Big Brewers clubbing together with the retailers to push their beers off the shelves. Today, most craft brewers sell their products through distributors, who are aligned with either AB-InBev or MillerCoors, thus benefitting from an infrastructure built to support Big Beer without having to build it themselves. As far as I can see, there isn’t any political will to abolish the Three Tier System. Therefore, I believe that distributors will continue to support small labels getting on to supermarket shelves and on tap handles in bars, providing U.S. consumers with an array of choices never enjoyed before.

Still, you can imagine my relief when, in a recent industry report, the highly respected analyst Ian Shackleton at the investment bank Nomura, whose job it is to make forecasts, wrote that by 2017, imports and craft could account for over a quarter of the U.S. beer industry (versus currently 20 percent) with the remainder of U.S. beer being flat or even down. He thinks that a 10 percent market share for craft beers is likely.

There you go. If you add imports and craft beer, the U.S. is already well on its way to become the “new” Belgium.

At first sight, U.S. market figures seem to underline the craft brewers’ optimism. The number of breweries in the U.S. steadily declined for most of the 20th century. After bottoming out at fewer than 100 in the late 1970s, the industry has seen explosive growth in recent decades at rates which have made the rest of the world seethe with envy. There were 2,336 “operating U.S. breweries” on 31 December 2012, according to the Brewers Association (BA), an industry body which represents craft brewers. In fact, more than one brewery per day came on stream last year (total 399). Those 2,336 breweries included 109 so-called “regional” brewing companies (with an output over 15,000 barrels / 17,550 hl), 1,084 microbreweries and 1,119 brewpubs, plus the 24 brewing facilities owned by AB-InBev and MillerCoors.


Die-hard optimists

What is really baffling is that there were 1,254 breweries in various stages of planning at the end of last year. I am not sure that all these breweries will materialise eventually. But, if only 600 of them do, that’s another substantial increase. All this makes me wonder: Do these starry-eyed brewers-to-be honestly think that when they finally enter the business and start selling their beer they have a safe ticket to success? On the face of it, industry figures give boost to their confidence. In 2012, craft brewers sold an estimated 13.2 million barrels (15.4 million hl) of beer, up 15 percent from 2011, and in so doing they outpaced the larger beer industry, which grew less than 1 percent. As craft brewers make up only 6.5 percent of the total beer market, they may think there is hope for growth.

Another factor that speaks in favour of the young hopefuls is a low overall failure rate. Unlike in previous years, only 43 breweries were boarded up in 2012. This is a negligible number considering that most of them were brewpubs. If brewpubs go bust, it is usually because they have failed in the restaurant side of their business – a frequent occurrence in the restaurant industry. This can be taken as an indication that craft brewers these days tend to have more business acumen and, by extension, greater staying power than many of the earlier entrants to the industry.

Now if you add one to the other – historically rising sales of craft beer plus huge numbers of clever beginners, no wonder many believe this equals a rosy future for craft brewers.

Given Americans’ overriding optimism in most matters of life, the occasional notes of warning that I have picked up in recent months can serve as a reminder of the ancient Latin adage “non omne quod nitet aurum est” (“not all that shines is gold”).

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