In the final scene of Back to the Future, after Marty McFly has improved the arc of his fate by correcting errors of the past, his mentor, Dr. Emmett “Doc” Brown, sends his flying DeLorean time machine careening into McFly’s driveway. You might have fixed the mistakes of the past, he says, but in the future, your offspring are jerks.
Let’s move to the final scene of another video, now, on April 22, 2009, at the Brewers Association’s annual conference – when toasts are raised by a room full of brewing entrepreneurs, who have just viewed the debut of the provocative “I am a Craft Brewer” video to great acclaim. If Doc had showed up then – certainly, as played by Christopher Lloyd, the shaggy inventor would have fit right in – and offered the brewers a DeLorean ride into their future, what would he have said in assessing it?
After all, the “I Am A Craft Brewer” video featured dozens of small U.S. brewery owners extolling their independence while simultaneously calling out large beer company executives as “snake oil salesmen,” and criticizing those companies for brewing “lowest common denominator” products with ingredients such as rice and corn.
Since then, a number of the featured brewers – including the founders of Ballast Point, Avery Brewing, Elysian and others – have sold all or parts of their companies to the very same suits they referred to as “ad men” back in 2009.
Also, some of the brewers who attended that CBC event, and applauded when the video concluded, could be putting rice, corn and other adjuncts in their beers today – the Brewers Association revised its “craft brewer” definition in 2014 to include beers made with those ingredients.
So what if some of those brewers in the room could have sped through the nine years to come to get a glimpse of the future? They’d see years marked by tremendous prosperity sure, but also now marked by buyouts, closures, layoffs and a wild new stylistic trend: brewing low ABV lagers.
What would those who had come along for the ride have said about what they had brewed up on that April afternoon?
HARDSCRABBLE NO MORE
In some ways, Stone Brewing founder Greg Koch, with his own shaggy persona, was channeling his inner Doc Emmett in the “I Am a Craft Brewer” video when he said, “these are unprecedented times in the history of American brewing,” as he walked along an expansive brew deck perched above his company’s taproom and restaurant.
“While the monolithic industrial brewers have continued to get more monolithic, it’s craft brewers that have been capturing the hearts and minds of the American public,” he continued.
Koch was mostly right. Craft brewers were indeed capturing the attention of more mainstream drinkers in 2009. That year, the craft beer segment consisted of about 1,600 breweries and grew seven percent, to just over 9 million barrels. But the truly unprecedented times in craft brewing would begin the following year, when the category grew 12 percent, kick-starting six straight years of double-digit growth and a tremendous amount of change within the larger beer business.
Fast-forward to 2018, and there are now more than 6,000 U.S. craft breweries collectively producing more than 25 million barrels of beer – more than 30 percent of which is one style, the IPA. Around 10 percent of that beer was sold directly to consumers last year.
That’s something that neither Koch, who launched Stone Brewing in 1996, nor the brewers listening to his keynote speech at the 2009 CBC, could have predicted.
After all, it was a paradigm shift from the world of the brewers who had started up in the early 1990s – the first craft beer boom.
“I recently got to spend some time with Paul Shipman, who started Redhook, and he used this great expression: All of us were playing with our Erector Sets and we didn’t realize it,” Craft Brew Alliance CEO Andy Thomas, who got his start in the beer business with Heineken at the end of 1994, told BevNET.
“Some people started tinkering around and the world changed around them – and they changed the world – but they never really intended to be revolutionaries,” Thomas continued. “In hindsight, we ascribe all of this intent and deliberation to what they were doing, but they were just trying to make a living.”
Much of the brewing cohort that has followed the debut of the video came with bigger dreams, however: Many brought bigger bankrolls, a more robust set of professional skills, and aspirations beyond simply playing with expensive brewing equipment.
“In this decade, we have had a ton of private money flow into the space,” said industry consultant Bump Williams. “Some of it has been good, and some of it has been not so good. And it’s not just the private equity money, but also people who have really strong business acumen. They are bringing in business intelligence that a lot of craft brewers didn’t have before.”
That’s one of the reasons why companies like Devils Backbone, Funky Buddha, Golden Road, Saint Archer, Wicked Weed and others who launched production breweries after 2010 have already sold to larger brewing entities or private equity firms.
The room in Boston wouldn’t hold a fraction of the craft breweries that are out there now: Since the end of 2010 – thanks largely to an increased interest in homebrewing, a loosening of three tier laws, and easier access to capital – more than 4,200 breweries have opened in the U.S.
Collectively, those companies helped to create demand for roughly 15 million barrels of more flavorful – and in many cases more potent – craft beers.
But the uptick in new category entrants also created a considerable amount of competition for established players such as Boston Beer Company and Sierra Nevada, who helped pioneer the craft brewing movement in the early 1980s.
Both of those companies, among many other established craft brands, have faced significant declines over the last two years as the “long tail” of new breweries has cut into their market share. During quarterly earnings calls, Boston Beer founder and chairman Jim Koch has blamed the company’s declines on the increasing number of new companies flooding the space.
“We are still seeing challenges across the industry, including a general softening of the craft beer and hard cider categories, more and more startup brewers opening their doors, and retail shelves that offer an increasing number of options to drinkers.”
Thomas and CBA have been faced with similar challenges, and have responded by pulling distribution of its Widmer and Redhook brands back to the Pacific Northwest and other key markets.
“I think it is difficult for anyone to compete now, but one of the things that makes it especially difficult for a legacy brand is not having the novelty factor,” Thomas said. “Our biggest advantage is that we have experience, but our biggest disadvantage is that our experience sometimes colors the way we think of things, because we’ve lived through it.”
That experience, Thomas argued, might make longtime players slower to react to emerging trends – be it the emergence of direct-to-consumer sales, hazy New England IPAs, or the growing interest in taprooms. In other words, the early innovators aren’t keeping up with the innovation curve.
All of those trends, along with a handful of other factors, are contributing to the “redefinition of the beer market as we know it,” Thomas said.
“It is not as simple as craft versus import, versus domestic, versus sub-premium, versus super-premium anymore,” he said. “All of the changes in society are driving changes in who the consumers are. And as consumers have changed, I think their occasions have changed – and that’s everything from retail impact, to channels, to what they look for and that has impacted need states.”
EXPANSION AND CONTRACTION
Since the 2009 CBC conference, the total number of beer SKUs sold at traditional off-premise retail accounts has grown from approximately 5,900 to more than 17,000, according to data from market research firm IRI Worldwide.
And by the year 2020, the number of U.S. beer distributors bringing all of those SKUs to market will have declined from around 4,000 in 1970 to an estimated 650, according to industry consultancy Independent Beverage Group.
The proliferation of new breweries and brands, coupled with the declining number of distributors, has impacted the craft beer category in several ways.
Some brands, like San Francisco’s Speakeasy Ales & Lagers or New Hampshire’s Smuttynose Brewing, which relied on traditional distribution, have been forced to sell in the face of looming foreclosures.
Others, like Massachusetts’ Trillium and Tree House, have built their businesses on direct-to-consumer distribution models and thriving taprooms that don’t rely on wholesalers or retailers for sales.
There are also companies like Stone or Night Shift Brewing, which have built sizeable self-distribution businesses in their own backyards.
“We are the most fragmented as an industry that we’ve ever been,” Thomas argued.
Of course, craft brewers are responsible for a vast majority of those new items, creating a phenomenon known as “rotation nation” that has made getting on tap – and staying on tap – a nearly impossible task.
“Nothing pisses me off more than you sell them [retailers] a keg and it’s gone in two days and you’re off,” Heavy Seas founder Hugh Sisson told Brewbound Session attendees last year. “Hello — last I could tell we were here to make money.”
That money isn’t flowing in as it had in years past. Across the industry, companies of various sizes – Anheuser-Busch InBev, Pabst Brewing, Craft Brew Alliance, New Belgium, The Gambrinus Company, Stone Brewing, Green Flash Brewing, and Summit Brewing – have laid off hundreds of employees in the face of slowing craft growth trends.
“We are looking at some correction within the market,” New Belgium spokesman Bryan Simpson said when the company announced that it would cut 4 percent of its workforce in February. “We fully anticipate getting back to growth someday, but at the moment we had to right-size the business.”
The growth of craft beer from BA-defined breweries continued to slow in 2017, to about 5 percent. And many within the industry expect future growth to be in the single digits.
“Why is craft slowing down? I think it is math,” Thomas said. “You can’t continue to have counter trends to an industry, as you become a bigger part of that industry. Sooner or later, you are going to start to look like that industry.”
Since 2008, the total beer category has declined from a peak of 213 million barrels to 204 million barrels in 2017.
Many of the volume losses are still coming at the expense of larger brewers. Aware of the crowded field for innovation, however, some smaller companies that expanded capacity during craft beer’s boom years are now seeing opportunity in those declines. They are introducing light lager offerings that are not only intended to compete with those from A-B InBev and MillerCoors, but are also being brewed to fill tank space.
Michigan’s Founders Brewing is selling 24-packs of its new Solid Gold Premium Lager, a 4.4 percent ABV beer, for 80 cents a can in some markets. Night Shift, meanwhile, just introduced a light lager called Nite Lite that it hopes will steal share from Bud Light and Miller Lite.
“If you look at existing light beer options, it becomes clear that there’s a lot of overlap: bland flavors, redundant branding, macro-brewery after macro-brewery,” co-founder Rob Burns said. “We think customers deserve better than this sea of sameness.”
Or, maybe, the industry created by the craft brewers, as they become a bigger part of the beer category, is absorbing the competitive dynamics of the business as it existed before they entered the scene, one that might indicate a growing emphasis on efficiency and market share. Are they visionaries? There are competitive threats to the business, certainly, like the legalization of marijuana, the growth of a new craft spirits industry, and changing racial demographics that have, Thomas believes, led to a boom in import sales in the past decade.
Time, money, and innovation create change. And there’s no time machine around, unfortunately, to tell us what the industry will look like in 10 years. But looking back, what might the brewers say? Would they be concerned about the whirlwind they unleashed, or would they chalk it up to growing pains?
We know what Doc Emmett would say. As with anything, looking at the wonder of it all, he’d make it simple.
“Great Scott!” he’d say. And he’d be right.
THE NEW IMPORTS
CBA’s Andy Thomas believes that changing demographics have had a considerable impact on the types of beers being consumed in the U.S., with a growing presence of Latino or Hispanic consumers helping spur an increase in imports from Mexico and other countries. He pointed to health trends in the 1980s and early 1990s as one reason for the growth of light beer during those periods. During that time, the U.S. population was more than 80 percent white, according to U.S. Census data.
But as demographics have changed – as of 2010, only 72 percent of the U.S. population was white – so too has consumer purchasing behavior.
Nearly 67 percent of the 34 million barrels of beer imported into the U.S. in 2017 (about 23 million barrels) came from Mexico. By comparison, only 11 million total barrels of beer were imported into the U.S. in 1995.
Thomas chalked that shift up to the fact that more than 16 percent of the U.S. population is now Hispanic or Latino.
But demographics alone can’t explain the craft beer category, which has grown from just under 6 million barrels in 2004 to more than 25 million barrels today. That’s more than just demographic forces, it’s social and cultural change as well.
“It’s the coming of age of a new generation,” Thomas argued. “Localness and social consciousness are driving a lot of the revolutionary trends we are seeing in craft.”
For his part, Williams described the last two decades within beer as the “Cs of change.”
“Consumers, craft, consolidation and consumption,” he said, noting that while consumer buying habits and product offerings have evolved, so too has the industry itself.