I have now brought up the mid-late 90s boom and bust several times here without much context, partially because I was 12 years old at the time. Brewers bring it up anecdotally, blaming the dive of craft beer growth on new companies that came into the industry just to cash in on the backs of others. Those companies reflected poorly on craft and lots of drinkers turned their backs on what had been a rapidly-growing niche market. Whether that is the real reason or not, I don’t know, but their word is all I have.
To illustrate this with numbers, according to Brewers Association data from 1986 to 1995, craft beer grew anywhere from 29% to 75% year-over-year. From 1995 to 1997, growth dipped from 58% to 26% to 2%. This is the ‘bust.’ Growth was anywhere from 0% to 6% from 1997 to 2003, quite modest relative to the years before and after the boom decade.
So with that in mind, it’s natural to see the mid-90s mentioned as craft beer surges to 14-15% growth in 2011. Is history repeating itself? Most brewers would probably tell you that is in some ways and isn’t in some ways. When you consider the massive expansion that so many breweries, especially regionals, are undertaking, no one seems to be concerned about 1997 occurring again though.
What’s interesting about 1997 is that a report just happened to be released early that year profiling the craft beer industry. You can find the PDF hosted exclusively on a random Angelfire website (yep, that Angelfire).
It’s a bear of a report to skim through in just one morning at 225 pages but there are some things that remind me a lot of 2011.
Like this paragraph on Miller Brewing…
Holding onto a solid second place is the Miller Brewing Co., a subsidiary of Philip Morris, Inc. Miller’s best-selling brand is Miller Lite. Miller participates in the craft/specialty segment through a subsidiary it set up in 1995, the American Specialty & Craft Beer Co. This unit serves as an umbrella for the Jacob Leinenkugel Brewing Co. (which Miller bought back in 1988), and two craft breweries in which Miller acquired a controlling interest, the Celis Brewery, Inc. and Shipyard Brewing Co.
How about issues around the definition of ‘craft’ and its impact on the ‘index’…
To an enormous extent, the answer depends on how one defines the market. If Anheuser-Busch, Miller, Coors, or one of their subsidiaries introduces a product (or repositions an existing product) as a craft/specialty brew and that product takes off, then the category could be as large as Anheuser-Busch, Miller, or Coors wants to make it. As a matter of fact, the definitional problem will hit in 1997 when the IBS adds Leinenkugel and F.X. Matt to its domestic specialty index, inflating the index by hundreds of thousands of barrels. The IBS’s time series will have to be footnoted to facilitate apples-to-apples comparisons with its historical data.
How about this one on new products…
Until now, much of the craft and specialty segment’s growth has been fueled by new products, new markets, or both. We believe (but don’t have the data yet to confirm) that brand loyalty is still generally low, and that many craft beer customers are still at the experimental stage, willing to try new products that sound appealing, look appealing, or come with strong word-of-mouth recommendations. But evidence is beginning to mount that the new product pipeline may be overflowing.
History sure seems to be repeating itself.
So what did the analysts make of the ‘health’ of the industry and what did they predict for 1997 and beyond?
Unfortunately, only a few pages of the report were dedicated to the declining growth happening at the time. Here are four factors that researchers identified that preceded the steep decline in growth:
1) Declining growth by public brewing companies
2) Declining growth in the Pacific Northwest, the most mature craft market in the U.S..
3) Drop in stock prices of craft brewers
4) Slowdown in distribution growth
One could debate whether these were really key factors in 1996 though it begs the question, “What are the important factors in predicting a slowdown in the current decade?” That question, in itself, deserves a blog post so I will leave it at a question for now.
Keying back in on the report, the analysts admitted that the above factors were crude factors were crude in attempting to predict the near-future of craft beer. There were two main things to which analysts boiled things down…
…that craft has a ceiling…
At the high end, the craft segment is bounded by the simple fact that most Americans do not like the taste of beer. The largest segment of the domestic beer market—by far—is light beer, with a market share of about 37%. Anyone who has ever tasted a light beer knows that light doesn’t just mean low in calories—it means low in taste. When Consumer Reports reviewed beer in its June 1996 issue, they presented a flavor profile of all the beers tested. They graphed each beer’s flavor profile on what amounted to a 99 grid that measured hop flavor (or bitterness) on the horizontal axis and malt flavor on the vertical axis. As a group, most of the six light beers tested rated a 2 (very low) on hop flavor and a 1 (even lower) on malt flavor. These are the most popular beers in America, and are three times more popular in the United States than in any other country in the world.
…and a floor…
There is also a floor under the craft/specialty segment. This is not a fad segment like packaged draft, dry, ice, clear, or perhaps even red. While growth in the craft segment will slow, it will not peak quickly and then lose share, as the fad beers have. The craft/specialty segment has firm underpinnings from homebrewers and other beer aficionados. Many of the homebrewers prefer to brew their own beer (done right, it’s even better than the best of the craft brews), but they often sample commercial brews to try unfamiliar or difficult-to-brew styles, and of course they’re top prospects for drinking craft brews when they are at a restaurant or brewpub.
By and large, both of these remain true today so it’s not beyond a reasonable doubt this this ride we are on is part of a cycle and not permanent.
At some point, growth will dip back into the single digits but how far into the future will that year come?
After studying the industry and acknowledging that a decline was imminent, the analysts predicted double digit growth to hold all the way through 2000 and predicted 8% growth in 2001.
Their predicted craft beer production figure in 2001?
Actual craft beer production in 2001?
They over-estimated growth during that period by over 60%.