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…
The cost to get started up even is no joke. I wish it was only $100 per barrel to start a brewery. We’re looking at a number much much higher then that 🙁