Craft Beer's Rabbit Hole

When interviewed for the film PDX Brew City in 2014, I was asked if I thought a craft beer bubble was forming. It wasn't a hard question to answer. Of course there was a bubble forming. I could see it during my research for Portland Beer.

Portland's brewery count was around 20 in 1999 and about 30 in 2009. It then began to spike upward, surpassing 50 by the end of 2012. We have something like 75 today. National numbers show a similar upward trajectory beginning in 2007. There are around 7,500 breweries today.

PDX Brew City has gone through several iterations. When I saw the film early on, my response to the bubble question produced a fair amount of snickering from the audience of mostly industry folks. Craft beer was still exploding at time and not many wanted to consider the eventual downside. Last time I saw the film, the bubble comment had been edited out. No need to ruffle restless feathers.

Of course, there's plenty of recent evidence in the form of closures. consolidations and related data that confirm the craft beer bubble is losing its form. We aren't talking about a total implosion, but the upward trajectory of the industry, once considered unlimited by some, perhaps many, has flattened considerably. What happened?

Saturation
Market saturation is the first and most important component in what has come to pass. It happened because the number of operating breweries and the volume of beer produced surpassed growth of the actual consumer market. When craft was growing at 15 percent annually, a thousand or two new breweries a year maybe made sense. In our present circumstance, no.

Saturation is not monolithic. By that, I mean there are still places that aren't locally or regionally saturated. Rural areas were slow to catch the craft beer bug and are slowly catching up. Most urban areas are fully saturated. That isn't just about breweries, by the way. Saturation includes breweries, pubs, taprooms, growler fill stations, pop-up bars, etc.

With consumers chasing more local beer in pubs, taprooms and the like, large regional brewers have experienced massive sales declines, particularly in mainstream grocery and retail. Those channels are now largely the domain of mass market lager and "pseudo" craft. Independent brewers, who once bolstered profits via mainstream channels, have been increasingly marginalized.

Innovation Craze
In an increasingly crowded market, brewers have gotten desperate to somehow differentiate themselves from others. You might think that would lead to an intense focus on quality standards as a way to stand out from the crowd. And there's more good beer today than there was 10-15 years ago. But quality has not been the primary focus.

What happened, instead, is that brewers started fooling around with radical approaches and ingredients, hoping to tweak the interest of fans who want something different every time they sip a beer. The rising power of social media influencers, who hype newness and uniqueness, almost certainly played a role in this transformation, in which craft beer achieved cult status.

What it means is newness and coolness are king. Breweries strive to produce a continuous stream of fashionable beers, preferably packaged in cans or bottles with glorious artwork designed to catch the eye of dazed consumers. Beer bars, taprooms and bottleshops must keep abreast of the newest beers and trends or be considered out of touch, irrelevant.

Overload

The logical extension of saturation and innovation craze is the endless onslaught of events intended to create buzz and interest. These take the form of tap takeovers, release parties, tastings, as well as large and small festivals which cram the weekly, monthly and yearly calendar. There was a time, years ago, when we talked about event fatigue. We hadn't a clue what was coming.

Here again, the rising importance of social media influencers has helped drive what some might regard as event madness. Social media channels are bombarded with event details. The purpose of the madness is that breweries, taprooms, and festivals are able to show that, yes, they are perfectly in sync with market fads, trends and sensibilities. Almost everyone is stuck playing the game.

The cumulative effect of the cavalcade of events is overexposure and confusion. In practice, you see beers and brands being wildly hawked all over the place on a daily basis. They melt together and fade into the background quickly.

Rabbit Hole
This is the rabbit hole down which craft beer has fallen. You have to wonder where we go from here. Or if there's an upside.

Craft Beer's Ultra-Competitive, Jelly Bean Reality

Before I launched this blog in 2011, I had observed the trajectory of craft beer dating to the 1990s. Those were quaint times, thinking back. There weren't that many breweries and, to a large extent, you mostly knew who they were and what they were good at.

That began to change after the financial crisis of 2008. It was around that time that the brewery count started to tick upward wildly. One of the stats I included in Portland Beer was that Portland's brewery count had increased 40 percent between 2009 and 2012. It continued to rise from there.

The national numbers are similar. Between 2009 and 2012, the total craft brewery count rose from 1,698 to 2,420, according to the Brewers Association. Between 2012 and 2015, the count nearly doubled, ending at 4,628. Between 2015 and 2018, another 2,718 opened. Total craft breweries at the end of 2018: 7,346.

Those stats, unless you look at the detail, obscure something significant about the structure of the current market. Between 2009 and 2018, microbrewery growth was off the hook....more than 4,000 opened during that period. Framed differently, for every microbrewery that existed in 2009, there were roughly eight by the end of 2018.

Brewpubs, which had formed the backbone of the industry for several decades, saw subdued growth by comparison. Between 2009 and 2018, around 1,500 brewpubs opened, an increase of about 150 percent. Regional brewery growth was miniscule, an increase of less than 200.

In effect, the craft beer landscape was transformed. Today's industry is dominated by small breweries that focus almost exclusively on beer. Brewers Association stats have shown that those breweries are creating the bulk of industry growth. What they share is that they rely on beer sales to stay in business.

That scenario has made differentiation the name of the game. You have to make yourself known somehow. That's one reason we're seeing packaging with wildly colorful labels and creative designs. If your packaging is dull and unengaging, consumers are less apt to notice you next to other shiny stuff on shelves.

There's also the beer itself. Differentiation means playing around with experimental ingredients and names. Where it once meant using different hops or malts, it now means almost anything. Have you tried Fudgesicle Ale? How about Fruit Loops IPA? What about Donut Lager? You simply must.

The result is that shelves in beer stores have turned into jelly bean showcases featuring wild packaging, experimental ingredients and crazy beer names. The fact is, a lot of consumers are simply looking for what's trendy and new. Anything to capture their interest.

What's hot today probably won't be hot tomorrow. Brand churn is in overdrive. If you're a brewer, you best be thinking about the next wacko beer you plan to produce and market. It better have unusual ingredients and a fancy name. The packaging better be eye-catching.

The result of the new reality is that craft beer is increasingly fad-driven and trendy. Social media has helped with that, for sure, by facilitating the spread of images and banter. The question is, do these themes add up to this being a healthy or unhealthy market? Asking for a friend.

The answer depends on your point of view, I suppose. To me, it looks like an increasingly saturated market in which many (perhaps most) of the players are desperately vying for the same customers by tossing all kinds of ideas out there and hoping something sticks, if for only a minute..

How's that going to work out? We shall see.