Is the Sky Falling? A Few Words on … the ‘Craft Beer Bubble’ (with charts!)

main stages of bubble 1

From 2000 to 2006, American home values nearly doubled.

From 1995 to 2001, the Nasdaq Composite, driven by the massive dot-com growth of that time, more than quadrupled.

Between 2007 and 2017, craft beer sales are expected to triple. (Or is that tripel? Nailed it.)

One of these things is not like the others … yet.

As history tells us, when the bubbles of the real estate market and dot-com era burst, it took some time to regain traction. As sales of craft beer continue to increase and the number of breweries around the country grows to new historical highs, what’s in store for the world of beer?

Obviously, there are great differences in the realities of real estate, dot-com businesses and beer. However, there are some similarities between the rapid expansion.

First, here’s a look at the housing buildup, which saw values almost double from 2000 to 2006 (courtesy of the NY Times)…

housing chart 2

… and a peak at how the Nasdaq Composite was impacted by dot-com companies, seeing exponential increases leading up to 2000…

dot com bubble 2

… and finally charts showcasing the increase in craft beer sales (courtesy of somethingsbrewing.com)…

Craft-Beer-Sales - somethingsbrewing

… and growth of breweries…

brweery count

There are lots of varying opinions on the legitimacy of the craft beer bubble. While we don’t know for sure what will happen, there does seem to be hints that we’re in the “Mania Phase” of an economic bubble which comes just before the “Blow off” crash.

Charlie Papazian, one of the godfathers of craft beer, doesn’t believe in the threat of the bubble:

We are knee-deep in foam (laughing) and it’s rising all around us. By 2017, [the Brewers Association] anticipates pretty confidently that we’ll have 10 percent of the volume, and at that point, the momentum will take us pass that.

The 10 percent volume refers to craft beer’s overall market share, which stood at 5.7 percent in 2011. In all fariness, not all industry insiders believe that such fast growth is a sure-fire, good thing. Jim Koch, another early pioneer for the craft movement, is a bit weary:

He thinks the market share could grow to 10 percent by the end of the decade, but he thinks that most stores have reached their limit for all the new breweries. He said there are too many breweries brewing similar beers without adding anything to the market.

Everyone’s got an IPA now and everyone’s trying to hop the living crap out of it. Why? Because novelty accounts for something in the current state of our market. With so many options – and often somewhat similar options – brewers have to find a way to stand out.

That doesn’t mean everyone is doomed. It just means at a time when competition is fierce, shelf space is limited and livers bellies are full, can all this growth sustain itself?

As Papazian points out, the beer industry saw a boon in the late 1990s because “investment people got involved and people were getting into the business for the wrong reasons.” Are we terribly far away from this now? Lots of people are getting into the industry today because of its monumental growth and there’s money to be made. But they’re also getting into the industry because of their genuine love of beer.

Chicken or the egg?

No matter how big the threat of a bubble may be, there seems to be no question that one exists. It’s just a matter of how big and strong it can get and its risk for bursting. In the meantime, craft beer is growing, we’re enjoying tasty brews and people are loving it. That’s a good thing.

But maybe it’s also a good thing to pay just a little attention to that voice in the back of our heads

And while we’re excited by all this growth and activity – there’s a small voice in the back of our head advising caution. Some of us watched our portfolios multiply madly before the Tech boom went bust. Many of us saw our homes’ values go through the roof until everything eventually collapsed.

Some food beer for thought.

+Bryan Roth

13 Comments

Filed under A Few Words

13 responses to “Is the Sky Falling? A Few Words on … the ‘Craft Beer Bubble’ (with charts!)

  1. Thanks for the interesting post. You may enjoy this discussion on Boak and Bailey’s blog, if you haven’t already seen it.

    • I hadn’t caught that, so thanks very much for sharing!

      Very interesting parallel between UK and US, although no surprise that increased beer interested has come from everywhere.

  2. I think part of the problem with the housing boom and the dot-com were fanned in part by forces other than consumer demand. I can’t think of any major externality at play with craft beer, perhaps other than the flighty attention of hipsters. :) (I understand you don’t see these as an exact parallel). I just don’t think there is sufficient market distortion for a huge crash.

    That being said, I think you’re right about being in a manic phase…there is no way this kind of hysteria is sustainable. But I don’t think the fall is going to be that bad. It will be good, though. There is too much crappy beer and shelf clutter.

    • Absolutely – it’s not an apples-to-apples comparison, but I think I’m driving at the super-basic common denominator of hype/consumer demand, right?

      Thanks a bunch for bringing another opinion to the discussion, by the way.

      For all three, which are all uniquely separate in their moving parts, the ultimate force pushing them is/was the idea of an ever-increasing market. These good times won’t ever end! All three bubbles were/could be pushed because you just keep doing that until the economics of it aren’t feasible.

      (I think I just spent a paragraph poorly describing a bubble)

      Anyway, I think what I’m getting at is that for all the differences between the three, they are still held together by the idea of hype. The bubble on beer might not pop in an explosive fashion, but deflating the bubble still means a shift in things.

      (Sidenote: I have absolutely no economics training aside from my own reading for fun)

  3. Three things
    1. We may be in a craft beer bubble, but if it pops there will STILL be more craft beer drinkers left behind than before.
    2. Comparing the housing market sales and Nasdaq levels to craft beer sales might be just as compelling of a comparison as comparing it to Coke sales or antibiotic sales.
    3. I believe that as the flywheel of distribution speeds up (assuming it will get there), this locomotive of craft beer will continue to pick up IMO.

    Lastly, very cool article.

    • … and I’m so glad that no matter what happens, demand will certainly remain for high-quality brews. People are invested in this now, which I love.

      Thanks for adding to the conversation – cheers!

  4. DJC

    The bubble likely isn’t on the demand side, but in supply. Craft beer consumption is going up because more people are finding they enjoy it. Craft breweries are opening because demand is increasing, but likely outpacing the realistic increase in demand. Right now retail/bars are excited about chasing after the next new thing, but soon it will be just too much (and too much mediocre brew). It will become harder and harder for new breweries to sell their wares unless they’re producing truly exceptional suds. Breweries will stop focusing on gimmickry and “innovation”, and introspectively refining their products. I expect very well-made versions of classic styles such as pilsners, unfiltered lagers, saisons, porter, bitters, etc. will take the spotlight from multiple-barrel aged, sixteen hopped, 18% face-blasters. We’ll see the chaff separated from the wheat, but I wouldn’t anticipate a drop-off in consumption. Personally, I’m looking forward to it.

    • DJC – Thanks for this great addition to the conversation (and for stopping by). I think you’ve hit on a very important part of this – one I’m coincidentally working on right now for a blog post this week.

      Like any market, there are tons factors at play here and this is certainly a good point for the increasing beer industry. Cheers!

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