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Thursday, August 16, 2012

Spinning the Brewery Growth Numbers

There was an awful lot of buzz when the Brewers Association released its mid-year state of the industry snapshot a few weeks back. Continued big growth in craft beer is the nuts and bolts of it. Setting the details aside for just a moment, you have to wonder how long this train can keep on rolling.

No matter how you cut it, craft beer continues to be one of the few bright spots in our haggard economy. Dollar sales were up 14 percent on a volume increase of 12 percent for the first half of 2012. The Brewers Association estimates that craft brewers sold 6 million barrels during this time. Something to remember if you're keeping track at home is that all of this is happening at a time when overall beer sales are in mild decline. Indeed.

Download a high-resolution version of this graphic.
Looking at the numbers, you won't be surprised to learn that the number of new breweries opening continues at a rabid pace. Since the end of 2011, we've added 177 new breweries, to reach a count of 2,126. If we compare June 2011 to June 2012 numbers, we've added 350 new breweries. Put another way, a new brewery has opened almost every day over the course of the last year. Wow.

Of the operating breweries out there, the vast majority (2,075) are craft breweries. In case you aren't aware, the Brewers Association defines "craft brewery" according to a list of requirements focused on annual production, ownership and type of beer brewed. There's an ongoing debate over what constitutes a craft beer and a craft brewery, but I think that discussion is best left for another time, quite possibly another blog.
By the way, the numbers for growth and total breweries are unprecedented. The only time we've seen similar growth was the period following the repeal of Prohibition, but there were nowhere near as many breweries then. In terms of total breweries, you have to go back to the 19th century to find a time when there were as many. In those days, almost all beer was local and there were small breweries on virtually every street corner in some cities.

Another number that always attracts a lot of interest is breweries in planning...I'll get to why. The Brewers Association says there were 1,252 breweries in planning to go against the 2,126 in operation at the end of June. That's right...the number of breweries in planning is now more than half the number of operating breweries. Another first.

If you go back to the end of 2011 (my graph), you'll see there were 915 breweries in planning. I admit it's somewhat shocking to see that an additional 300+ breweries in planning have been added in just six months time. It's a number that's likely to balloon further by the end of the year. Who knows where it will wind up.

The brewery in planning number tends to create a stir among beer fans. Big numbers can have that effect. It's important to understand, though, that many of these breweries won't open for years...and some will never open. As a gent at the Brewers Association told me a while back, there's a lot of tire kicking going on out there. People get jazzed up about opening a brewery and put together a plan. Then shit happens. Sometimes they can't get funding or other things get fouled up. Poof! The plan vanishes.

So the number that matters most is how many breweries opened during a given period of time. If you look at my graph, you'll note the dark blue bars appear to be taking fairly moderate steps up each year. We ended 2009 with 287 planned new breweries; 143 actually opened during 2010. We ended 2010 with 513 planned new breweries; 260 actually opened in 2011. We ended 2011 with 915 planned new breweries; as of June, 300 of those had actually opened.

If you like predictions, let me make one: We will see 455-460 new breweries in 2012. Why do I think so? Because the percentage of actual new breweries to planned new breweries since 2009 has been right around 50 percent each year. So about half of the 915 planned breweries at the end of 2011 will open this year. That's my guess. Watch what happens.

Honestly, I think it does get a little scary going forward. There were 1,252 planned new breweries as of the end of June. That number is sure to balloon by another 300-400 before the end of the year, at which point we could have something like 1600 breweries in planning. If the year-to-year percentages stay relatively constant, we'd be looking at another 800 new breweries in 2013. Seriously crazy!

Going back to the rhetorical question I asked at the outset: How long can this train keep on rolling? In my mind, a lot depends on where these new breweries are located. I did an analysis of planned new breweries last fall (it's here) and will do another one when the data becomes available (I've asked, but the Brewers Association hasn't yet delivered).

That analysis concluded that a majority of the new planned breweries (55 percent) were located in areas that are drastically underserved from a craft beer standpoint. See, it turns out there are still many parts of this country that have very limited exposure to craft beer. It's not hard to fathom sipping boutique beers in Oregon. Most of the South, big chunks of the Northeast and Midwest, and much of the Southwest are underserved. As long as the new breweries are bringing these areas up to speed, I think the craft beer train continues to roll.

Where might there be bubble trouble? I think we'll begin to see problems in places where there's big growth alongside high brewery counts. Oregon and Colorado both have a high number of breweries per million citizens with more in the works. How many is too many? Clearly, no one knows...or is willing to discuss it publicly. So we'll have to wait and see.

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