Small Brewers Challenge Traditional Industry Powers

The Brewers Association just released it's annual stats on the industry for 2017. Anyone who stops by here on any kind of regular basis probably knows of the numbers. We now have more than 6,200 craft breweries and the craft sector grew at a 5 percent clip.

Of course, there are signs of growing pains. Nearly 1,000 brewpubs and breweries opened in 2017, similar to 2016. But there were 165 closures, certainly the most we've seen in the craft era. That's not shocking. The rising brewery count makes closings more or less inevitable.

The raging growth we've seen over the last decade is historic. It's been good for consumers and brewers. There are more choices out there than ever before thanks to imagination, innovation and smart marketing. Also more places to find and drink fresh local beer.

But not everyone is happy about the altered lay of the land. The emerging popularity of taprooms and direct-to-consumer sales is upsetting the longstanding structure of the beer industry. That story is nicely documented in this Brewbound article.

The enemies of the status quo are the taproom and the brewpub, places where breweries sell their beer directly to consumers. The growth of that strategy is flipping the three-tier apple cart on its head and causing significant distress among the players that previously owned the industry.

Regional breweries have taken a direct hit. They once had no problem selling their beer in stores and in draft form. Today, consumers are buying more and more beer in taprooms and pubs. Large regional brewers, like Deschutes and Sierra Nevada, are struggling. And they don't like it.

The problem for regional craft extends to restaurants, bars and taverns. Where they once had free access, they are now forced to compete with local brands for tap handles and sales. Consumers want fresh choices. Established regional brands, considered old and tired, have lousy traction.

Traditional on-premise retailers are getting smacked around, too. With craft fans flocking to taprooms and brewpubs, restaurants, bars and taverns see their market slimming. As the Brewbound piece documents, some retailers have taken punitive action against brewers. But the reality for these folks is simple: they can adjust to the new reality or suffer the consequences.

Distributors are not immune, either. All that beer being sold direct to consumers doesn't pass through distributor hands. Distributors still get their pound of flesh for most packaged product and some draft, but the move to local beer and direct sales is a thorn in their side.

Fair is fair, though. The niche small brewers are exploiting is their best possible response to what's going on in the industry. Big beer, led by Anheuser-Busch, is locking down grocery store sets and squeezing small brewers out. That situation will only get worse moving forward.

The best case scenario for craft breweries has always been selling their beer directly in a taproom or pub. Higher profit per ounce, glass, gallon or keg. The emerging reality in distribution has encouraged and forced craft brewers to actively develop that model. It's no accident.

And the success of that model is changing the beer world. But it's unclear how far this can go. The size of the US beer market is declining, not growing. Which means all breweries are, in a sense, chasing the same customers. Right now, local craft brewers are on a roll, transforming the industry.

There's undoubtedly a limit to how many small breweries the market can support. Are we approaching that number? Maybe. But, for now, the little guys are flourishing and the traditional power structure is on edge. Oddly satisfying.