Craft Beer By The Numbers…Very. Scary. Numbers.

I don’t usually do much linking here, but my buddy Harry Schuhmacher over at the painfully expensive but excellent Beer Business Daily has put up a public post briefly pontificating on the amount of money it will take craft brewers to build the capacity necessary to achieve certain goals they have discussed in the past. As he says in the penultimate graf:

But even if craft brewers can drive demand to 20% of the market, how to pay for it? Dan Kopman at Schlafly points out that it takes about $100 a barrel to build additional capacity (on the low end). If craft brewers can drive consumer demand to sell 30 million extra barrels to gain 15 points in market share, that’s $3 billion in investment. That’s a lot of dough. It highlights the importance of the small brewer tax break. It also points out the advantage big brewers have, because they already have plenty of capacity, and even if they need to build more, they can squeeze quite a bit out of their current facilities.

About six years ago, Kim Jordan, co-founder of the New Belgium Brewing Company, talked about a goal of reaching ten-percent market share for the craft beer segment.

AC You are the keynote speaker at next year’s Craft Brewers’ Conference. What do you think is the state of the industry and how do you think craft brewers can grow?

KJ I was at the Brewers Association of America conference last month and I was really excited. I talked to a lot of people who were adding capacity or more fermenters or building warehouse space. It was my sense that people were feeling pretty upbeat about their future. It kind of reminded me of the early nineties, which is pretty exciting. So I think the small brewing industry is continuing to gain legitimacy. We have passed the point where people wonder if we are just a fad. I think we have a lot of possibility to make a niche for ourselves as small, regional breweries that are being highly engaged in our communities, good corporate citizens, brewing interesting beers, fulfilling peoples’ desires to want to buy something made locally that is more distinctive in taste.

I have also heard industry leaders, such as Jim Koch from Boston Beer and Greg Koch of Stone Brewing, talk about the possibility of craft brewers attaining 15 to 20-percent market share. To hit these numbers, Harry calculates craft brewers would have to produce an extra 30 million barrels of beer. I don’t have any solid numbers on the total capacity craft brewers maintain today, but they continue to build bigger facilities and will collectively produce approximately 8.5 to 9 million barrels this year.

So if my math is correct (and frankly it is not my strongest suit), I think this means the 538 craft production breweries (regional crafts, microbreweries, and contract operations), which comprise nearly 90-percent of the craft beer produced in the United States, would have to spend approximately $5.5 million each in order to reach this capacity point. To date, many regional craft players have spent equal to or exceeding this amount in order to build breweries with a couple hundred thousand barrels of capacity. Many are already servicing substantial debt loads, a whole other issue the industry will soon have to address (especially if growth ever slows), and likely will need a great deal of outside help (be it bankers, distributors, other breweries or beverage alcohol players, or other third parties) to achieve these numbers.

While discussing these goals, many brewers have just been happy to take market share in terms of dollars rather than volume so capacity building became a secondary priority to maintaining higher price points. These are some sobering numbers…

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Discussing the Discussion Over the Brewers Association’s Recent Craft Beer Sales Numbers…

As I trudge my way through the book (and a pile of legal work frankly), I occasionally lift my head to read what others are writing about beer-related topics. As a testament to my limited world view, the few topics I inevitably pop into tend on occasion to reference things I have written. So was the case with the recent press release from the Brewers Association touting the craft beer industry’s recent sales numbers, which was then discussed by Beernews and Tom over at Yours for Good Fermentables. Both discuss my recent BeerAdvocate column in which I question whether it’s such a good thing to have every craft beer available on your local store shelves and use it to parallel the Brewers Association’s announcement of the following numbers:

Dollar growth from craft brewers during the first half of 2009 increased 9%, down from 11% growth during the same period in 2008. Volume of craft brewed beer sold grew 5% for the first six months in 2009, compared to 6.5% growth in the first half of 2008. Barrels sold by craft brewers for the first half of the year is an estimated 4.2 million, compared to 4 million barrels sold in the first half of 2008.

The folks at Beernews see this announcement as sort of a bad omen for craft brewers. While acknowledging that craft beer continues to grow, especially compared to the losses suffered by many larger brewers. In truth, I haven’t really digested or even thought about the numbers with my present schedule and that probably won’t happen until closer to the Great American Beer Festival next month but at first glance I can’t say I think the numbers are anything to really worry about. 9-percent dollar growth is pretty impressive in a down economy, especially considering that consumers, by most retail accounts, took the first two or three months of the year off from buying everything, including beer. Boston Beer, which comprises as much as a quarter of the craft beer industry’s sales numbers, took an especially hard hit in the first quarter of the year. I wouldn’t be surprised to see these numbers edge up a point or two by the end of the year. On the other hand, Coors Light has apparently raised its sales 6-percent so far this year by volume, so who knows.

I do agree with Beernews that the Brewers Association’s simultaneous announcement regarding the number of craft brewers was a little bit odd or even sleight of hand.

The U.S. now boasts 1,525 breweries, the highest number in 100 years when consolidation and the run up to Prohibition reduced the number of breweries to 1,498 in 1910. “The U.S. has more breweries than any other nation and produces a greater diversity of beer styles than anywhere else, thanks to craft brewer innovation,” Gatza added.

I suppose it’s just reassuring the media about the success of craft beer, which is certainly understandable in a world where decreased sales can be seen as a sign of weakness, even in a crap economy.

I won’t spend any time rehashing what I’ve said in previous columns about the serious issues facing the craft beer industry, including its selected method of achieving these levels of growth and whether they are sustainable except to say the following. While in Bar Harbor, Maine, this past weekend, I had a great dinner at a restaurant in Southwest Harbor, the Fiddler’s Green, which had a fantastic and detail beer menu. While that was a pleasant an unexpected surprise, it paled in comparison to my shock at being able to buy, on-premise, several of Stone Brewing Company’s 22 ounce bottles, including its Old Guardian Barleywine and Smoked Porter, for ridiculously cheap prices ($7 and $6 respectively). By way of reference, these prices are equal to or cheaper than what these beers cost at a liquor store in Boston. Now I think that this particular restaurant may very well have been the furthest possible place you could enjoy Stone’s beers away from the brewery while still in the continental United States (approximately 3320 miles). And while it was nice to have the option, I can’t help but wondering about the wisdom of sending beers so far from home and whether anyone is making any money on these sales. (For the record, we opted instead for the 750 of Val Dieu Grand Cru for $12, which went great with the Pot du Creme)…

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