We’ve Reached Peak Brewery

From WBUR last week, the number of US breweries has now passed the five thousand mark:

The number of American breweries topped 5,000 for the first time last year, with craft beer makers accounting for 5,234 of 5,301 U.S. breweries, according to new figures from the Brewers Association.

Just five years ago, there were only about 2,000 U.S. craft brewers, which the Brewers Association defines as small or independent beer makers. Last year alone, more than 800 opened for business.

The history of American breweries is interesting. I did a small research project on the market in 2012 while in grad school, and the momentum that was just starting then has continued through today. The Brewers Association has a few well-made interactive charts here.

The market has had a number of distinct periods. Here’s a brief history, with a nice chart:

  • Pre-Prohibition: In the 19th century, there was a fairly vibrant and diverse brewery sector, with a peak of over 4k breweries. Most of these were small, community businesses, often run by European immigrants. These consolidated in the late 19th century into the 20th.
  • Prohibition: For obvious reasons, officially there were no breweries from 1920-1933. Most of the large commercial brewing equipment sat idle, and unofficially many small ones continued to operate on some level.
  • Big Brewery Take Over: A number of breweries started back up after prohibition, but the regulatory landscape was more complex and restrictive. And attitudes towards alcohol were still mixed. This favored the existing, dominant players, such as Anheuser-Busch and Coors. They took advantage of this environment, and the unique circumstances of WWII which did not favor new entrants, to strengthen their market power. By the 1970’s there were fewer than 100 US breweries, and the top 3-4 brewed most of the beer. Unfortunately, this was also the most homogeneous US beer has even been, as all of the dominant breweries were making lighter, non-hoppy beers similar to Budweiser. All a bit boring.
  • Homebrewing Legalization: As crazy as it sounds, after prohibition, homebrewing was illegal until 1978 when Jimmy Carter signed a bill legalizing it. This was one element of the complex and restrictive regulatory landscape I mentioned above. If you generally had to break the law to try brewing for the first time, and the required equipment wasn’t readily available (i.e., it was difficult to break this law even if you wanted to), then there weren’t many paths to starting a new brewery. The average person couldn’t experiment to determine (1) whether they liked brewing, (2) whether they were any good at it, and (3) whether other people liked their beers. All good things to know before you take a bunch of risk to start a new brewery. After 1978 it took some time for the homebrewing community to establish itself and seed new breweries, but this gradually happened and the market became much more diverse starting in the mid-late 80’s. The number of breweries soon hit hockey-stick growth which continued until the 2001 recession when there was a peak of just over 1,500 breweries. Over this time beer began to vary with fuller more interesting recipes, such as Harpoon IPA, which was was released as a seasonal summer in 1993. Interestingly, highlighting the lack of entrepreneurship in the market before this period, Harpoon’s site indicates that in 1986, “Harpoon was granted Brewing Permit #001 in the Commonwealth of Massachusetts because it was the first brewery to commercially brew and bottle beer in Boston in more than 25 years.” Jim Koch didn’t open Samuel Adams’ Boston brewery in JP until 1989.
  • Craft Brew Take-Off: The the number of breweries didn’t grow for about 10 years, from 2000-2010, but there was quite a bit of experimentation over this period. I started homebrewing in 2006, and and at least from my vantage point it seemed as though the homebrew community was pushing some pretty innovative recipes, many of which you couldn’t find in a store. Lots of people were making extremely hoppy beers, sour beers, and lot of brews with non-traditional grain bills and yeast uses. Many were bad, but some were great. Beginning in 2010 there was a wave of new brewery openings, many of which were craft breweries making these types of fairly unique and distinctive recipes. Interestingly, when I looked at market in 2012, I learned that beer sales were actually declining in gallons over the period, but the craft brewery industry, defined here, was experiencing double digit growth. So the new guys were finally taking share from the incumbents.

This chart sums it up nicely:

In 2012 after finishing grad school I briefly entertained the idea of starting a small brewery. At the time, it seemed unlcear whether the craft brewery growth trend would continue, or whether the market was over saturated with small brewery start-ups. It was obvious that craft beer was going to maintain a strong presence in the market, but it was hard to say whether a high density of craft breweries in a small area like Boston could all successfully coexist. Maybe it’s not too late. Magellan’s?

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