Tuesday, August 6, 2013

Will it fall? YES, it will

Joe Stange has a great piece in DRAFT magazine, called "Will it fall?" about the current boom in craft beer and craft brewery construction. Go read it, and then let's think about it.

I've got two things to say about this, and I'll save the important one for last. But first, this quote bothered me: 
“What the industry is afraid of is low quality, and that will taint the quality of craft beer overall,” says Jeff Schrag, owner of Mother’s Brewing, a regional microbrewery that opened in 2011 in Springfield, Mo. “But I don’t know,” he adds, looking thoughtful. “There’s a lot of beer now that’s tainting the image of craft beer.”
Really? "a lot"? I am coming across more poorly-made beers than I have in quite a while -- after running into them all-too-often in the mid-1990s -- but it's still a very small amount, a small percentage compared to what I was getting back then (and I have to lay some of them off -- still -- to bad tap maintenance at bars, though that's better also). So I'm wondering if what we're talking about here is more about "beer that doesn't live up to the wild expectations of alpha beer geeks." Big difference.

I'm thinking about that a lot, especially after a tweetstream I was involved in yesterday about the definition of "craft beer." At one point, people started talking about "gateway" beers, because we were talking about Blue Moon, and I had said that no matter whether you thought it was "craft" or "crafty" (the Brewers Association's cute term for beers that come from breweries they don't like), it was introducing a LOT of people to the wider world of beer, and they often went on to other crafts from there. So, said one person, it's a gateway beer. 

I have a problem with that term. Are all witbiers gateway beers? And American wheat, and hellesbier, and blonde ale, and kölsch, and pilsner, and (insert the beer you think isn't as good as IPA or imperial stout or Belgian strong or sour ale here), and -- of course -- Fat Tire and Boston Lager, are they all just gateway beers? If you say it that way, "Oh, they're gateway beers," aren't you essentially saying that they don't measure up?

We're getting too wrapped up in this whole what is/what isn't thing. Step back. Stop telling people that the beer they're drinking is the wrong beer, stop insisting that they drink what you want them to drink. That's the same shit you all got pissed off about when the big brewers did it. When I was a IT buyer for a pharmaceutical 20 years ago, if a supplier started bad-mouthing another vendor, I showed them the door. Tell me about your products. Don't shit on the other guy's. Let's stay focused on the positive.


Now, the second thing... "Will it fall?" Yes, most definitely. Allow me to explain, though it should be obvious. Back in April, I visited the Glenlivet distillery, and walked around it with their "Guardian of Malt," the wonderfully affable Ian Logan. We talked about the boom in Scotch whisky.

"The last downturn was in the mid-1980s," he said. "[Glenlivet's parent company] Chivas just kept turning out spirit, right through the downturn, and now Glenlivet is set with ample supplies of aged whisky." Unlike most of their competitors, he was too kind to add.

"It will turn down again," he then added, matter-of-factly. "It always does. These things are all cyclical, and there are limiting factors on how big it can get." We talked about those limiting factors, but they're really whisky-oriented, and not relevant here...except for capital. Capital is always a limiting factor; how much money can you borrow, at what rate? Capital's been relatively cheap for quite a while, and that's starting to change.

But take it from an industry that has a much longer perspective on this than craft brewing; yes, craft brewing will eventually take a downturn. It's inevitable. Light beer did, and as recently as 2003, that still looked unstoppable. Vodka will. No, really, it will, eventually. And so will craft beer. Now, it may take ten years, it may take twenty, and some brewers will be hit harder than others, but...it will happen. Tastes change, perceptions change, economies change.

Should you plan for it? As a drinker, certainly not. We older farts survived years in a craft beer wasteland; we can teach you the skills you'll need when it happens. But don't live that way now! As Crocodile Dundee said of desert fare; "You can live on it, but it tastes like shit." Live for the moment!

Should brewers, bars, wholesalers plan for it? Well, some. Think harder about expansion plans, and debt in general. But...we had plenty of warning signs the last time around. Keep your ears and eyes open, and take off the rose-colored glasses. This will not last forever...but it may easily last through your next expansion cycle. Pay attention, and you should be okay.

And remember: when I say "fall," I'm talking about retrenchment, a dip, not a disappearance. The few-and-far-between days of breweries we knew back in the 80s and early 90s? That's not going to happen again in our lifetimes. 

But yeah. It will fall. Breweries will close. People will drink something else. YOU might even drink something else, hard as that is to believe now. 15% growth just can't go on forever. Happens to everything.


20 comments:

Bill said...

'So I'm wondering if what we're talking about here is more about "beer that doesn't live up to the wild expectations of alpha beer geeks."'

I'd give Jeff Schrag the benefit of the doubt here, though -- presumably, as a brewery owner, he knows the difference between poor-quality beer and beer that doesn't live up to the wild expectations of alpha beer geeks. I've been buying beer that turns out to be stale -- maybe it was good when fresh, but if it's from a brewery I don't know, I'm not about to try it again. This could be an issue with stuff sitting on store shelves here more than the breweries -- but that's part of the problem with the many many breweries competing for space on shelves, and in the end it still often means poor-quality beer. Maybe not the same problem as the mid-90s in that it's not the brewer/production team with the problems, but the results might be the same -- breweries going down.

Lew Bryson said...

I'm not going to give as much benefit of the doubt as you are -- obviously, I wrote what I wrote -- but yes, there's a learning curve for retailers and wholesalers. They tend to overbuy, in part because of the seasonal/rare allure, and in part because that's how discounting works. And some breweries will fall because of that.

Andy Crouch said...

Good stuff here with lots of interesting questions. Craft brewers (and their industry reps) amaze me when they expend energy castigating others instead of simply celebrating and promoting their own success.

Andy

P.S. Please, please for the sake of my eyes (and readability), abandon the bolding in your posts. Or at least just use it sparingly. I had to cut and paste the article to read it.

Lew Bryson said...

I will NEVER stop the bolding. I am what I am: I'm Popeye.

BTW, liked your latest in BAMag, too. Good stuff, perceptive.

Tom said...

I agree with most of this, certainly with the craft vs craft vs gateway vs whatever. It's all beer and the more people narrow it down and say what is and what isn't the fewer people will get into it.

As far as "will it fall" that seems a bit broad. Fall is a large significant dooming type of word. I don't think craft beer will "fall", what it will do - I suspect very soon - is contract. Rapid expansion, or bubbles, is always followed by a period of contraction, or popping.

The question now is who can survive the contraction and who can't??

Lew Bryson said...

Tom, "Fall" is a bit broad...Draft's headline, not mine, and I just went with it.

But I think "who can survive the contraction and who can't" is premature. This isn't really rapid expansion; the 40% annual growth we saw in the 80s and 90s, that was rapid. Irish whiskey, for example, has been growing at a rate similar to craft beer's current rate for about 20 years, and they're doing fine.

I do think you're seeing a bubble in craft beer, but it's in prices, and I think we'll see some re-adjustment there, and soon...but I don't think that's going to crash the expansion. I'm not so sure a retrenchment and drop in growth is going to happen soon...but I'd submit that that is the question to consider now.

Jeff Alworth said...

Lew, I think you need to define your terms. What exactly is falling? The growth rate, or the total number of barrels produced in craft breweries?

The growth rate will fall--obviously. I think there's an interesting discussion to have there because a lot of breweries are leveraged heavily enough that they require double-digit growth for the business plan to pencil out. They could be in big trouble if the growth rate slows to mid-to-low single digits.

But I think it's panicky to start talking about a fall-off in actuall barrels of beer made. Collectively, all the craft beer in the country (excluding crafty beer) could be made at the AB plant in St. Louis. ONE plant! I can't actually look into the future and see a market where craft beer (however you want to describe it) craps out at 7, 8, even 10% of the total beer market. It may not get half the market, but I'd guess it will be closer to half than the current 6.5%. And that's scads of growth.

Lew Bryson said...

As I said in the comment above, "Fall" was DRAFT's term, not mine. I just wanted to use the headline in my post about Joe's piece (don't know if it was Joe's headline, either; titles in mags often aren't the writers').

Do we see a drop in growth rate, or in barrels sold? Well...the growth rate flatlined in the mid-90s. The BA says volume never dropped, but there's constant juggling of the numbers depending on which brewers' volumes were included because of whether or not they passed the BA's sniff test, so who knows?

But really? The drop Ian talked about was REAL. Big drop in actual sales, depletions, volume, whatever you want to call it. Most folks don't realize it, but wine experienced a similar drop in actual sales in the U.S. market back in the 80s; from 1986 to 1993, wine sales dropped 25%, and didn't get back to 1986 levels till 2002.

So yeah...craft beer could take a real hit. Like I said, likely take years, could be sooner (though I doubt it), but it's definitely possible. Denying it is denying historical fact. Everything crashes, eventually. Apple will, too.

Lew Bryson said...

"Apple will, too."

Er...not sure why I tagged that on there. Forget I said that. Sorry.

Ivan said...

Do you remember, Eau Claire, Ches- Bay, New Amsterdam, Newmans, Rhino Chasers, Maine Coast, Devil Mountain? Yup, there will be a shake out. Hopefully, the tasty guys will still be here. This is a boom cycle and there will be fallout.

beerbecue said...

While I strongly believe there is absolutely nothing wrong with drinking Blue Moon (or most anything else for that matter), I have been known to fall back on "it's a gateway beer". I think it is usually in response to someone who has taken an absolutist crafty or anti-BMC stance, though. It seems like an argument of last resort to convince someone that there at least some modicum of value in the thing they're blindly deriding.

Although, I think you're right. We would be better served with: Stop telling people they're drinking the wrong beer... In any case, I think this beer fascism is one of the most unattractive things about beer right now and possibly even an impediment to it's growth. Thanks for the great post.

Lew Bryson said...

Indeed. I'm sure most craftists would be amazed and disgusted by the amount of Genesee Cream Ale I drink. Screw 'em. Beer's won more GABF medals than most other beers out there, it's cheap, and it's good. It's how I roll.

Tom said...

I forgot to way in on the whole "Gateway" thing. Blue moon or Boston Lager are gateway beers, in my opinion, due to their availability. Any grocery store in my area will carry them, far fewer will carry Dogfish Head 60 minute IPA and no grocery stores carry Duchesse de Bourgogne.

Which is to say that to me the term "gateway" has no negative connotation and I feel that far too many craft beer elitists phrase it as such.

BlueMoon is as apt to get someone into craft beer as 60 minute is to get them into IPAs, should we then hate 60 minute for being a "gateway beer" to IPAs?

Lew Bryson said...

Good points, Tom; I don't like "gateway" because it implies that once you've passed through it, you're done with it. I'm happy to drink a lot of beers others classify as "gateway" beers. That's all.

Witewater said...

I always enjoy reading about your viewpoints. I suppose I just don't have an exceptionally educated palate when it comes to beer but for me, it about what I enjoy. The abundance in the craft beer market give me lots to experiment with but in the end, I come back to those brewers and styles that I like to drink.

Chris Farmand said...

Lew, Great editorial on the DRAFT article. I too think there will be a downturn. My reasoning is with all the nano's and "one-off" specialty breweries coming online, they are not economically sustainable. 24 months after opening the owners will be working "restaurant" hours for minimal pay. The only way to make it in manufacturing is to produce more liquid gold. Which takes me back to your point of capital. These are the most capital intensive business I have ever seen. Gotta know what you are getting into.

Lew Bryson said...

Ah, once again, I've received a really angry comment filled with vitriol about some specific brewers. Sorry, this isn't Yelp; I don't allow that here. Tone it down -- a lot -- and resubmit, if you'd like.

Anonymous said...

Lew,

This is going to be the new "popular topic" in craft beer, amongst others. I've been involved in conversations from both ends. One being the “starry-eyed romantic home-brewer attempting to go pro” version, that gets offended and to a degree angry and viscous when one would merely suggest that the business plan they've been writing in the wee hours will be subject to shelf space woes, tap space limits, raw materials issues, lack of available relevant marketing ideas, and a myriad of other factors involved with this industry. With the alternate reality that perpetual growth doesn’t exist, you are seeing less friendly sentiments from 2-3 year star-ups that are not seeing the growth they want due to new entries. One example recently being Good Beers response to a brewery opening up next door. Everyone is all kumbaya until it hits home. One more evident issue being market saturation, again not with gallons.... but just the sheer number of brands. This has really fueled and accelerated the trend of very high rate non-repeating rotation in new beer markets as well as “familiar/overwhelmed” beer purchases at the bar. Many new brewers (packaging breweries) are having to exercise a nomadic distribution pattern to be able to sell enough beer to stay open, not everywhere, but its prevalent and even seems to go against current optimistic view of what “craft beer” is........a Craft brewery couldn’t possibly be a manufacturing business model with volume being a life blood(cough, sarcasm, cough).. So when bars kill kegs in hours with rave reviews and yet wont reorder that beer for months, and because the race to hit new badges on Untappd is on, which isn't necessarily a bad thing, it presents an interesting logistical challenge. Established crafts are pushing harder and have new releases almost daily which adds to this challenge. On the other hand Brewpubs seem to be an emerging success model, contrary to the adage of, “oh no, open a brewery not a brewpub” of years gone past. If executed well in the right market (key phrase...right market) brewpubs “can” be somewhat isolated from the “bust” or “fall” or “non linear growth cessation” from not having to directly compete for taps or store shelf space. Not that brewpubs are ever isolated from failure and in fact are subject to double the scrutiny as they do have their perils. I think what is happening in America is great and truly is a proliferation of something that we've all adored for years..BEER!. In a nation of poor economic growth I welcome anything that allows people to be happy and spurs a sense of community in America. Beer quality......Beer quality isn't even so much a problem, many new brewers (whom never brewed a day commercially) are making really good beers, however their ability to run a successful business in a highly competitive, very expensive, somewhat convoluted industry is a whole other story. I basically feel as though its the wild west and there aren’t any rules anymore, not that there were per say, but you get my drift. So to wrap my long winded reply up, the “fall” in my humble hop soaked opinion, is going to be in the number of new breweries coming on line and how many stay open. Troegs, Cigar City, Rogue, Victory....(insert successful established brewery here) needn’t worry to much as they’ve captured their audience and will continue to reap the rewards of timing. What I would like to see is the term “craft” in the context of epiphany beers used less, less polarized extreme beer geekdom and more emphasis on solid beers that represent the people making them. Not 120 IBU's just because, not the millionth anniversary beer/collab from Stone, not the look at our beer made with South American furry animal scat, etc.....just solid beers from solid people without the fluff. Niches are great if they are organic and contrived. In the end who would argue against more beer being a bad thing. So lets sit back and watch the “craft” world go by, with a beer in hand of course.

Steven said...

"beer that doesn't live up to the wild expectations of alpha beer geeks."

Sing it.

The Professor said...

"beer that doesn't live up to the wild expectations of alpha beer geeks."

"Alpha beer geeks" are increasingly establishing themselves as the the lunatic fringe of the beer world. LOL.