The Outlook is (Pick One: Gloomy, Exciting)

After my year-end post last week, I got an intriguing email from Van Havig at Gigantic. It was a response to my comments on drinker promiscuity:

The trend nevertheless continues to gather speed every year. The number of different beers out there is just staggering. This is true even if you limit the discussion to packaged beer; with seasonals, specialty lines, collaborations, and experimental single-releases, there are hundreds in larger markets each year.... It's a conservative estimate to place the average number of beers produced by each brewery at 25 a year, and if so, that means there were 150,000 separate beers brewed in 2017.

This resonated strongly with Van, who wrote the following.

If consumers don’t settle down and start supporting breweries, rather than beer, the blood bath could be considerably greater than it would otherwise. In other words, I’m hoping drinkers start buying more of the beer from breweries they trust, and participate less in gambling on any new beer they see. In my mind, it’s an odd dichotomy: do you support all breweries because you want to have “selection,” and as a result perhaps many of them won’t get the revenue they need to stay open?  Then there could be a real crash that could result in less selection.     

For a long time I have thought that many craft beer drinkers feel that the breweries exist solely for their drinking  pleasure. It's as if they don't really see them as businesses that have  to keep revenue above costs. The Commons is the obvious example. If craft drinkers actually supported breweries like the Commons, by buying their beer because they knew that they could trust it—rather than saying, “Man, that Urban Farmhouse is great, but have you tried this beer that’s sort of OK from some brewery whose other beers are marginal, but they used Himalayan sea salt in it?”, then maybe they could still be drinking Urban Farmhouse. Are we dooming ourselves to AB/Miller-Coors slavery again because we just have to try something new?

Van and I had some back and forth on this, and he made a couple of qualifications. He joked that he's a "glass 3/4s-empty sort of person" and added that part of it was informed by having lived through the craft beer crash of the 1990s. He is also a trained economist, so take that for what it's worth; his views were also of the trends happening nationally. (Patrick, my podcasting sidekick, is also a trained economist, and he thinks things are going swimmingly. But economists never agree.)

I hear enough offhand comments from brewers about the grim reality of churn that I assumed this view was widespread, if not universal. But, rather than just running with that fascinating quote as a quick think piece 🤔, I decided to check in with some other brewers. I learned that, in fact, breweries may be a little more chipper about the future than I guessed. I should mention that I sent out a query to five brewers and got two responses, which is an unusually low response rate--so make of that what you will.

Nevertheless, the two brewers who did respond had interesting things to say. My first comment came from Fort George's Chris Nemlowill. Fort George is a decent-sized regional brewery (17,000 barrels in 2016) that is old enough (10 years) that it no longer has the glamor of the new kid.

I have to disagree with the idea that the demise of the craft brewing industry is a result of drinker promiscuity. I believe that the rise of craft beer culture in our country is actually due to the consumer’s thirst for newer and better. It has created a flurry of old-forgotten beer styles to come back to life and new styles to emerge. If we craft brewers rest on our laurels, we are toast. The majority of customers these days want new things and our job is to provide them the best new beers we can think of. Is that easy? No, it’s incredibly hard and it’s getting harder, but our success depends on it.

I love hearing from breweries because they often say something unexpected. Chris mentioned the thing that does worry him:

If we allow it, AB/Coors will kill us slowly by squeezing our supplies and purchasing up all the distribution routes. While watching Untappd people don’t see the battle behind the bars to get tap handles or shelf placement. If you can’t get your beer into a store it is really hard to grow your brand past being a small brewpub. In our distribution territory I’ve watched distributor consolidation happen over and over. A distributors book either ends up way too big for many brands to gain traction or AB purchases the distributor and shakes the non-AB brands out. The craft beer industry needs to nurture independent, non-AB/Coors owned beer distributors and help work with them to gain access to store shelves, bars and restaurants if we are going to continue to gain ground.

All right, a smaller, more nimble brewery like Fort George likes churn. I suppose that's not inconceivable. But what about a larger brewery? I sent this question to Karl Ockert, now head of brewing operations at Deschutes--and a brewer whose experience goes back to the founding days of craft brewing in 1984. He watched craft go through enormous change, and he was the one who invented the term "the novelty curve" to indicate the steadily shrinking time it takes a hot beer to go cold in the marketplace. His thoughts?

I understand what he is saying and as a brewer I support people supporting their favorite breweries with their business. However, the craft beer sector has always been about innovation, novelty and something different. It’s our reason for being. So it’s kind of hard to criticize our customers for practicing what we trained them to expect and look for. Yes, its challenging and very inefficient to be constantly innovating but it is also fun and exciting to see new directions and flavors pop up. We are the envy of the beer planet. Who would have envisioned west coast IPA in 1986? Or that Germany would change its brewing rules to make them? Or that AB would dry hop beers in their mega brewery plants? Or that craft brewed beer would be available, yea demanded, in cans?  Not me. To the writer I say, fear not! but keep brewing, keep perfecting and keep on innovating. There are a lot of beer drinkers out there anxious to sample your latest interpretation.

I particularly like that elegant formulation. Getting away from the one-beer per brand model was a radical feature of craft brewing. Choice was one of the main selling points.

By chance, Baerlic's Ben Parsons weighed in on Facebook with a comment exactly on point for this discussion. He agreed to let me repost some of his thoughts here. Baerlic is one of those newer, small breweries, one of the little fish purportedly feasting on novelty and churn. Ben refers jokingly to churn as rotation-ation, and does acknowledge that it's not perfectly ideal. "I can say for sure that rotation-ation is a complete pain in the ass from a sales and production standpoint." He points out a few advantages, though:

Hop Contracts - rotation-ation means we can avoid—or at least limit—having to go all in for those "Flagship" brands and exist in the spot and/or whatever falls off the bigger local breweries truck world. This is a great thing for small breweries that have a hard time with predicting the future salability of a particular beer.

Rotation-ation isn't killing beer flavored beer: Over the last several months we have been brewing a Pre-Pro Lager we call Dad Beer. Its sales are neck and neck with anything hazy in our taproom. That is a great sign that there are still loads of people who want beer flavored beer.

In a quick exercise last fall, I calculated the number of Untappd reviews for our core IPA (our biggest seller) to the number of pints brewed and sold since we opened. I calculated that 4% of pints sold were ticked on Untappd. And if consumers rarely if ever drink the same beer twice, then that means almost all of our consumers exist outside of that beer ticker world.

These are just comments from four brewers--hardly a representative sample. (I strongly encourage other brewers to weigh in if you have thoughts.) What I take away from it is this: the market is tough and there are very real dangers The failure of the Commons was not hypothetical. My guess is that these breweries are working from the same facts--gathered together, I think they would all agree about where the market is right now--but whether they see them as more hopeful than dangerous or vice versa is a matter of how they interpret those facts.


Jeff Alworth3 Comments