Opinion: Craft beer is pricing itself into a bubble

Alpine Happy Gnome FEATURED

Craft beers at The Happy Gnome // Photo by Joseph Alton

Editor’s Note: Jim Watkins is the co-owner of Sociable Cider Werks in Northeast Minneapolis. Unless otherwise noted, facts here reflect his own work and research. The opinions expressed in this commentary are those of the author. 

It seems my newsfeeds of late have been packed full of claims that Minnesota craft beer is a bubble waiting to burst. These analyses cite the speed of the industry’s growth, but they seem to lack any real evidence related to the defining characteristic of a bubble: pricing. A bubble is an environment where products with continually increasing prices are suddenly no longer able to fetch those prices. It, therefore, follows that to burst our little Minnesota brewing “bubble” something (or someone) has to shoot the bottom out of craft beer prices. Enter Anheuser-Busch and their recently acquired craft breweries.

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Jim Watkins // Photo courtesy of Sociable Cider Werks

Let’s start with some background. Craft beer has been on a rocket ship of growth since 1980, when fewer than 100 breweries were producing in the U.S. Today there are more than 5,000 producers. During that period, those independent breweries grew their share of the market from near zero to about 10% of the U.S. beer market. As an industry insider who spends far too much of the day in the cool beer bars in the city, 10% seems like it’s a bit low. Hell, finding a “Bud Diesel” handle inside the city is like playing drunk Where’s Waldo.

The reason my perception of craft’s size is skewed is because the cool beer bars, (or just about any beer bar) in the inner Metro is almost exclusively craft, but when you escape our little urban oasis that number goes way down.  When compared to the inner Metro, the MSP suburbs are home to twice as many people but according to area distributors they consume about half as much craft beer. Drive to “strip mall land” and I promise you, Waldo is everywhere.

So what does this have to do with bursting the craft beer bubble? I’m glad you asked, dear reader. Here’s a dirty little secret for you: the total volume of the U.S. beer market has not grown materially since 1980. Total beer production in the U.S. pretty much flatlined at about 200 million barrels and hasn’t moved much. Sure we have breweries galore to choose from, more craft beer festivals than we can attend, and fancy 100-line draft systems at bars and restaurants, but all those successes have been Budweiser’s failure. It has been a zero sum game in the truest sense of the word. Turns out that rising tide floating all those boats was actually water being displaced by a sinking behemoth.

So that’s it, Bud has lost. Good job little guys. David triumphs over Goliath, the Vikes win a Super Bowl, and all is right in the world. Not so fast. Bud’s business is beer, and in the face of a nearly 70% decline in sales of the Budweiser brand since 1988, they are very successfully making up that volume by replacing it with the very independents that took it in the first place. Furthermore, they have been actively working to restrict sales channels for remaining independent brewers by purchasing independent distributorships in states where they can and by exerting pressure on their vast distribution network to sell more of its products through things like the incentive plan for distributors that the company rolled out in 2015.

What we know is that 1) The future of Bud is all tied up in its stable of acquired craft breweries; 2) The race is going to take place in the suburbs; and 3) Bud has a macro-producer’s panache for rigging the starting gates through anti-competitive practices.

Certainly those of us embedded in the craft beer scene know bullshit when we see it. Imposter or “crafty” products are obvious. Kona Brewing two-for-ones? Fuck you very much, I’ll take a Day Tripper. But what happens when my mom starts buying craft beer? I ask because Betsy did the beer buying in my childhood household, and it turns out she wasn’t alone. Women account for 65–70% of alcohol purchasing decisions. Turns out purchasing for a household is different than filling up a single person’s fridge. I’d argue that budget typically becomes a bigger consideration and localness or independence of the producer take a back seat. When it’s half the price of a locally-produced product, does Betsy know or care that Goose Island is managed, marketed, produced, and distributed by the Bud Empire? No, she gives literally zero shits. She just knows that a $4.99 four-pack of 312 is a good deal and that Jimmy loves IPA. Sale executed. Does that mean all moms think this way? No. There are plenty of very hip, craft-beer-savvy suburban buyers out there who wouldn’t dare buy a “crafty” product, but I’m willing to bet they are in the minority.

So what the hell does this have to do with bursting a bubble? It has everything to do with the fact that small independent producers are inherently inefficient at producing beer. We just don’t have the economies of scale to profitably sell $16 suitcases of beer. We survive because of a two-tiered pricing model. So when less discerning drinkers get accustomed to buying $5 six-packs and $90 kegs of “crafty” beer from Bud’s newly acquired affiliates, it effectively resets the market price for craft in the areas most critical for craft beer growth. Throw in a few larger local producers that follow with similarly priced products and, POP! Bubble burst. “Craft” beer no longer fetches a premium price.

Should we care if inefficient producers can’t survive? I mean after all, if my beer gets cheaper, I have more money to spend on other stuff, effectively making me richer. Of course that wouldn’t be inherently bad if large producers continued to innovate, but this is Budweiser we are talking about. A company with the best equipment money can buy and arguably a staff of the best brewers in the world and yet they haven’t sent an innovative or interesting beer to market in 20 years. (Bud Light Lime does not count.)

Where does all this leave us? It leaves us with our eyes on the ‘burbs. For our cottage industry to continue to grow, it is more important than ever that we demand independently produced beer. It requires that we teach family and friends that don’t know about craft beer why indies are so important, and more importantly it requires that we, as small producers, stop marking our kegs down to $90 per half barrel. We have a valuable product, and when we mark it down to “crafty” levels, we play right into Budweiser’s hand.

Update, Dec. 22, 9:40 am: This post has been updated with a clarification from the author.

 
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