03 September 2013

The Craft Beer Market Saturation Argument

Jake Wrote:

I think the notion of saturation in the current craft beer market is bullshit. There, now that we have that out of the way, let me explain.

The topic of saturation is at the forefront of a number of conversations right now. On an almost daily basis, I see a quote from an owner of a large, established brewery talking about how we are on our way to a repeat of the late '90s bubble or, as one Indianapolis Star article so eloquently put it, "There's an option for craft beer on every corner." Hell, even Darren Rovell tweeted about it the other day. By the way Darren, please stick to sports.

It would be foolish of me to dispute that some areas of the market are nearing a saturation point, but, this view that craft beer is like a snake that tried to swallow a deer and is about to explode seems misguided. The argument breaks down into two categories: The crazy growth the craft beer segment is experiencing and that the vast majority of new breweries are making the same styles of beer.

The growth in the number of breweries, the volume, and the dollars is undeniable. As a refresher, in 2011 the craft beer segment grew 13% in volume and 15% in dollars from 2010. In 2012, the growth was 15% in volume and 17% in dollars for the year. The first two quarters of 2013 are keeping pace with those numbers as well. However, the liquor stores, distribution warehouse space, and tap lines that get beer to our drinking lips are not being added at anywhere near that pace. The pinch point of getting beer into the market is where I see the first part of the saturation discussion starting. Additionally, there are now the most breweries in the United States than ever before in history according to the Brewer's Association (2,538 in 2012). The 2,538 is often compared to pre-prohibition numbers of 2,011 in 1887 and 1,179 in 1919 (the year prohibition was enacted).

The second part of the discussion is rooted in the large amount of breweries making roughly the same beer; namely Blonde, Porter, and IPA. I have a theory that as people explore craft beer, brand loyalty falls. Think about it. As you and your friends try different styles, you are looking for a style and a price point that you can support within that style. Eventually, you find a few breweries that you like and then the brand loyalty builds to a point where you are buying different styles from the same brewery because you trust them with your dollar. Once you get there, then you still try the Blonde/Porter/IPA from a new brewery, but you're a little jaded and not as willing to tolerate what you once were. At least that is what my experience has been.

So, there is the construct that I see for the saturation argument. The market doesn't have capacity to get beer from brewery to the drinker and there are already 50 well made beers in the style that consumers may not be interested in number 51. As John Laffler told the Chicago Tribune when he was opening Off Color: "If you go into Binny's, there are 50 well-made IPAs. Why the hell would you throw your hat in that ring?"

But, I think there are some holes in the assertion that we are in a saturated market. First, the population in the last 100 years has obviously grown. In 1919, there were an estimated 105 Million people in the US. Math says that is 1 brewery per ~89,000 people. As I am writing this in 2013, the estimate is 316 Million people and ~124,000 people per 1 craft brewery in the US. I read a great statistic a few months ago that there are 10,000 people turning 21 every day in the US. If beer accounts for 49% of overall alcohol sales, I can deduce that 4,900 of those newly minted legal purchasers will buy beer. Craft beer accounts for 10% of dollars spent on beer, so 490 of those people will spend money on craft beer. So, 3,430 new purchasers of craft beer enter the market every week. If you're a math nerd like I am, Indiana is 2% of the population or 69 new 21 year olds every week. Anyway, the people, and their money, are in the market.

Now, the tough discussion. As I mentioned above, there is no doubt that it is a crowded market. My chief concern for those 1,600+ breweries in planning is how they will differentiate themselves from the existing 2,538. It feels like we hear of a new brewery opening in Indiana on a weekly basis. Invariably, they list a core set of beers that are a Blonde, a Porter, an IPA, and a fourth beer. Some will choose to differentiate by location and others will choose recipe additions. Either way, I hope it works.

As with any industry, there are going to be places that never should have opened. A wise man once said, "Just because you can open a brewery, doesn't mean you should." My point is that I do not think those closings are because of a saturated market, I think they will be because of an inferior product or location and people choosing to spend their dollars with a trusted brand that is already established.


  1. We see the same thing in Charlotte. Local law has changed recently to make it easier for a brewery to start, but unless they've got a "hook", it's tough to penetrate the market and get any kind of loyalty.

    We talked a bit about this on @cltbeercast a few episodes back, but you're right; it's amazing how we keep seeing more of the same. In our market, we have 4 or 5 established breweries. The artsy one, the hoppy one, the german one, and the one with the core set.

    Here's my point: I'd be content with more places opening, if they dialed in on one or two styles and perfected them before feeling the pressure to be everything to everyone. Get crazy, go the route of The Alchemist, and make ONE beer better than everyone else. Sure, you can just make the same thing as everyone else, but the best differentiator you'd want is to get the reputation of having the best [insert style] in town.

    I don't need another brewery that's looking to cash in on the "fad" -- I'd like another brewery that wants to be the best.

    1. Thanks for reading Jeff. I completely agree. I don't think breweries need to come out with four choices, I would say 1-2 would be fine as long as they are done well. We recently had a brewery open that is focused only on cask beers. They have done really well since launching earlier this year.

    2. Our "german" brewery in town has a saying. Rather than spending 10% of your time developing some crazy new style that doesn't fit in with your portfolio, why not focus on your core 3 and make them all 10% better.

      Then they went and won silver at GABF. Just sayin.

  2. Good stuff, Jake. I have my favorite breweries, and I will always give the new guy in town a chance. That being said, with each new brewery it gets harder and harder for them to win me over. There is no perfect formula to being a successful new brewery, but location, quality products, accessibility, and creativity keep me interested.

    1. Alec, totally agree. The other thing that came up in conversation over the weekend is being willing to give the new brewery a second chance after 6 months to see how/if they have improved. I have a hard time doing that and need to work on it.

    2. My favorite brewery in town used to be the one I thought wouldn't make it. They turned the corner, and now are excellent. Sometimes a new place needs time to adjust to making their homebrew recipes on big boy equipment, as that's what a lot come from. It's a process. The key is to support locally.

  3. Good point and I'm relieved to see some calm in the "beer bubble" hype. As long as there is sufficient demand for the number of breweries that exist, and their beers are something we're willing to pay for (enough for them to stay in business) then we're simply still seeing demand justify the supply that is there. I think it will only become truly "saturated," when a brewery can only justify opening when another leaves the market. But, as always, time will make these patterns much more clear and we'll be able to see where the balance is in the long run.