There is no shortage of brewers who, in recent months, have the courage to claim a day of reckoning is coming, the sky is falling, or a shakeout is happening in the craft beer industry. Jim Koch’s infamous interview in which he stated, “The end of the craft beer revolution is near” got a lot of attention. From where Jim sits, I imagine it looks that way. Jim’s empire is worth less than $2 billion today. Only a couple years ago, it was worth nearly twice that. Given that perspective, It’s not hard to imagine why he and other corporate craft brewers at the top of the game think the revolution is ending. With all due respect to Jim and the others, they are all wrong. The real revolution is just beginning.
From where Jim and other corporate craft brewers sit, their world is definitely changing. They take that to mean that preferences for craft beer are also changing. They can’t see the forest for the trees. Today’s big craft breweries strayed a long way from what originally fuelled the craft revolution. The most successful craft breweries today are not so different from the big multinationals. They just don’t have the Super Bowl commercials … yet. Maybe that’s what they aspired to be all along, or maybe they let opportunity get the best of them. What does it mean to drink an 805 in Berlin, Germany? I grew up in the 805. Back then, most people in Southern California didn’t even know what that meant, but times are changing.
Craft beer is also changing. There are 5,300 craft breweries today. That’s an awfully long tail that gets longer with each passing day. It’s the rise of the long tail. I can imagine a day when there are 10,000 craft breweries in the U.S. For that day to come, not everybody who starts a brewery can be the next nationally or globally distributed beer. If that’s the reason people get into the business, then the revolution is already over. The first generation followed a well-worn path of getting as big as they possibly could until what they produced became commonplace. Spins data, grocery store shelf space and the other macro statistics collected by companies like IRI and Nielsen reflect their sales well. That data won’t accurately measure when craft continues to grow from the bottom up. The revolution is far from over. It’s just evolving.
Of course, nothing is guaranteed. For the craft revolution to continue to evolve and flourish, it must be filled with brewers who don’t have ambitions of world domination. To survive, the next 5,000 craft breweries will need passion, and lots of it. They will need to aspire to have 2,000-3,000 loyal customers who stop by for a beer or two a couple times each week. If they get more than that … great! Their sales will cannibalize sales of the big craft beer companies that make the news. That will continue to create the impression that the craft revolution is dying. It’s in the interest of every big craft brewer to perpetuate that myth that the craft revolution is over so they can draw new borders, circle the wagons, protect the empires they’ve built and prepare for a period of greater stability. The same is happening in the hop industry. It’s never in the big guy’s interest for the little guys to get stronger and more numerous. Think American Revolution and the success story that followed.
The best time to kill any revolution is in its infancy. The next generation of craft brewers threatens to jeopardize the existence of the current empires in the same way that corporate craft brewers threaten the existence of the multinational brewery empires. Economies of scale allow the biggest guy on the block to produce for the cheapest price. The smaller players have something with which the big guys can’t compete … local. You can’t scale local. That is a trend that will disrupt the craft beer market. It will disrupt the hop and malt industries along with it. We’ll talk more about that in an upcoming blog.
Private equity firms don’t like to invest in local business with no prospects for hockey stick growth. Famous business journals don’t usually report on local success stories. Being local isn’t a business model that will make anybody a billionaire. To be successful, the next generational of craft brewers must bring craft back to its roots or be content drinking somebody else’s beer. Thousands more craft breweries will create hundreds of thousands of jobs, resurgence in locally produced quality products and a sense of community for millions of people. That’s a real revolution!