Beer economist: For somebody to grow, somebody has to shrink

The article below and, more particularly, the comments therein by Bart Watson  – economist for the Brewers Association – serve to emphasize the importance of allowing direct-to-consumer sales by breweries.  If, by law, a brewery’s sole revenue stream is distribution, i.e., is prohibited from direct-to-consumer sales, it is going to have a difficult time surviving.  This has been true for some time now, but with current market trends and other states tweaking their laws in favor of craft breweries, the passage of SB85 becomes more and more vital.

Beer economist: For somebody to grow, somebody has to shrink

Source: Cincinnati.com

Shauna Steigerwald

Feb. 8, 2017

“There’s still growth out there, but it’s harder to find.”

That’s the message about the craft beer market that Bart Watson, chief economist for the Brewers Association, conveyed to an assembled crowd of brewing industry professionals at the Duke Energy Convention Center Wednesday morning.

Watson, whose organization is a national trade association representing small, independent craft brewers in the U.S., spoke as part of the third annual Ohio Craft Brewers Association (OCBA) Conference. The event had some 450 registered participants this year.

Nationally, craft beer’s growth rate is slowing, but the industry is still growing. Watson said. Some of the slowdown can be attributed to craft beer’s larger base: Consider that there are now more than 5,000 breweries operating in the country, more than at any time in U.S. history, and up from about 2,000 just five years ago. He expects to see the number of craft breweries continue to grow to as many as 8,000 or even 10,000 in the near term. Once closings are factored in, the U.S. currently nets an average of 2.1 new breweries every day, he said.

Being in the middle of states in terms of its number of craft breweries, Ohio in particular still has plenty of room for growth, Watson figures. Mary MacDonald, OCBA’s executive director, said the state ended 2016 with 194 active breweries, having grown by 44 last year. Expect to see that number increase again this year. Ohio currently has 236 licenses, meaning more than 40 new ones are already in the works.

The industry has big economic implications for the state: Ohio craft breweries have a $700 million impact on the state’s economy and provide nearly 4,000 full-time equivalent jobs, Watson said.

As for where Ohio’s growth could be headed, he points to Michigan’s 445 active licenses as a reasonable benchmark. Kentucky, by the way, has 60; Indiana, 163.

It’s also important to considering not just the number of breweries but also how much – or rather, how little – they are producing.

“The vast majority of these breweries are really, really small,” Watson said. “They’re operating more like a restaurant or a bar than a production facility.”

By his thinking, an occasional brewery closure, such as Ei8ht Ball’s recently announced local exit, is not cause for alarm but a sign of a more mature industry with increased competition.

“If 500 close, I wouldn’t blink an eye,” because twice as many would likely open in the same timeframe, he said.

He does expect to see changes in the industry, though. Before his speech, he said that beer drinkers shouldn’t expect to see breweries grow at the rate of local breakouts MadTree or Rhinegeist, which he singled out as anomalies in the industry to begin with.

“The era of moving from a microbrewery to a multi-state, regional is not dead, but it’s going to be very infrequent,” Watson said. “It’s going to be harder for everyone to grow in an environment like this. For somebody to grow, somebody has to shrink.”

Also, nearly 80 percent of drinking-age U.S. adults already live within 10 miles of a brewery, so it’s no longer enough to just find a new place to open one. Most likely there will already be competition when a new brewery enters a market.

So he talks about differentiation a lot now. “Now, I think you’re going to have to do something different,” he said. That might include things like launching beers that stand out in a crowded market or targeting underserved segments of the market, such as female beer drinkers, he said. “I think the next phase is going to be the interesting one.”