What’s going on with craft beer?

When I get together with my brewing colleagues, there’s often a lot of head scratching as we ask each other “what’s going on?” and “what’s next?”. Truth is, we don’t know! Lots of beer styles have been touted as the “next big thing” over the last few years, and none of them have fully materialized. Even seltzer, which everyone was jumping on that bandwagon just a year ago, has largely failed as a craft beer offering, succumbing to price advantages and increased competition for shelf space from the larger producers.

Back in 2015, I published my thoughts on the amazing growth of craft beer, what I thought was good about this, and also what my growing concerns were. One thing is for sure, nothing in this business ever stays the same! Things change quickly. I’ll publish my recap on these blog posts soon, with a “Where I was right/ Where I was wrong” analysis (with apologies in advance to Colin Cowherd).

Craft Beer Sales at an All-Time High
Craft Beer Sales at an All-Time High … And Why This Could Be Scary

But I thought after 7 years I’d revisit this topic. This time I’ll start off with what’s concerning me about the current state of craft beer, and next time we’ll get into the positives.

First, the alcohol market is changing, and quickly. I often hear stories about college fraternity and sorority parties not serving beer, instead gravitating towards FMBs, seltzers and mixed drinks. Frankly, as someone who has dedicated my life to the brewing of beer, this scares the crap out of me. As our CEO Carey Falcone says, seltzers don’t lead people to good beer, they lead people to cocktails. Has craft beer evolved into “Dad’s drink” from the perspective of younger drinkers? History has shown the new generations want certain things they enjoy to be different from their parents’ preferences and social norms. The alcohol business has always been very cyclical, and it appears that craft beer’s moment might be starting to pass. Overall beer volume has been decreasing for several years. That said, there will always be demand for good beer, it’s just that the rapid growth and expansion we’ve seen over the first 30 years of this business is slowing down.

As a result, innovation in many breweries is currently focused on non-beer beverages: seltzer, spirits, ciders and FMBs. Beer industry experts are recommending brewers start exploring spirits and other non beer options. While I had anticipated a bubble burst, I did not anticipate it being due to the growth of spirits, seltzers and FMBs.

Another concern is regarding many craft brewers’ troubling financial status. Several brewing businesses leveraged loans against their anticipated double digit growth, and when that growth didn’t materialize, these brewers are finding themselves in serious financial straits. Covid didn’t help either, obviously, with many brewers who relied on taproom sales really struggling to survive. I’m now seeing a lot of breweries unsuccessfully dealing with lease issues and rent hikes. As a result, we are seeing some significant brewery closures and equipment auctions right now, and most industry experts feel like it’s only going to get worse. We are also seeing increasing partnerships, consolidation, and creation of buying associations to get some economies of scale in purchasing.

Some really talented brewers are leaving the business and moving on to other careers, maybe as part of the “great resignation”- who knows? Brewing is hard work, and craft brewers have historically not been paid much, with brewery owners banking on the “coolness” of the job and beer perks to help offset lower wages. Trained brewers are skilled artisans, the brewing trade is expensive and hard to learn, requires solid science, engineering, mechanical and management skills. I do see that breweries are now increasing wages and salaries, which helps the brewers, but will also drive up the cost of making beer.

The supply chain issues I brought up in a previous post are causing even more serious issues right now for brewers. Ingredients are scarcer, and the prices are still increasing, often due to higher shipping costs, and now also due to general inflation and other factors. The price of 2021 crop year bulk malt jumped up almost 20% this year because of the historically poor crop, which was a result of the extreme heat and drought in barley growing areas in North America. The price of stainless steel has jumped significantly. The price of nickel jumped up 70% in a day-and continued increasing uncontrollably, causing the London Metal Exchange to shut down nickel trading for a week. Nickel is a key component in stainless steel, which is used for brewery equipment, tanks and kegs. Russia and Ukraine supply much of the world’s wheat, barley and nickel. The Russian invasion of Ukraine is causing massive instability in global commodities markets. So, at some point, brewers have to consider raising their prices, because their Costs of Goods Sold (COGS) are becoming much higher. And higher prices could very well lead drinkers to pick another beverage.

I remember having a conversation with the VP of Sales at Stone, Arlan Arnsten, who I really enjoyed working with and had tremendous respect for. He was an industry game changer on the sales side-he developed the Distributor Conference that happened before the Craft Brewers Conference for several years, and he was a major contributor to Stone’s massive growth in the 2000s.  And he told me that if we ever came up with a new beer that was unexpected, but everyone thought was a homerun, he’d shout it from the rooftops and create a market for it. That was a key element of Stone when I was there, but that started to go away in my latter years as beer sales became more competitive. It doesn’t happen as much anymore-the industry has changed.

When Stone was growing very fast I had a chat with then New Belgium Brewmaster Peter Bouckaert who was in town visiting and stopped by. And Peter told me that at New Belgium, they really became a serious business and things really changed at about 300,000 bbls, which subsequently mirrored my experience when I was at Stone Brewing. And serious business means implementing business fundamentals and administrative processes that are more detailed and complex than the processes being used by most mom and pop microbreweries. And a stronger focus on sales and marketing, which meant less influence from the brewing team on what to brew (more chefs in the kitchen, and less willingness to try to get excitement for something unproven).

This is a consequence of breweries evolving into serious businesses, but I am concerned that so many breweries are abandoning true beer innovation to chase trends and branch out into other beverages. Newer beer consumers are not very interested in beer style exploration, and seem to want many versions of the same beer, or something else besides beer. Think about it: How many “new” styles have come out in the last 5 years? Only a handful that have had little or no success, when it used to happen multiple times every decade. And think about classic styles that have essentially disappeared from many brewers’ portfolios: Pale Ale, Belgian Trappist styles, Amber and Red Ales, and any English styles. Sure there are exceptions, and some really good ones which I’ll talk about next time, but many passionate, skilled brewers are struggling to keep these styles in their plan.

Related to that is the proliferation of brands and SKUs that are overwhelming beer distributors. This is in direct conflict with beer drinkers who want to try a new beer every time they go out. Distributors are growing increasingly less willing to get behind a beer brand or beer style that has an unproven history, and that in turn changes the priorities for the craft brewer. Never underestimate the influence of a distributor on a beer’s success, or on what products a brewer sends into distribution.

Back when craft brewing started, NOBODY was interested in chasing trends, they all wanted to create something different and to some extent, create new trends. The entire business was fueled by beer innovation for decades.  It’s becoming rare now when a brewmaster or head brewer has complete creative control over what they brew or can generate excitement about doing a beer style that no one else has brewed before. Times have changed.

Next time: What is encouraging me about the current state of craft beer.

New Realm Brewing Co.

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