The Second Craft Beer Revolution: Will it Stick This Time?

January 23, 2013 By Harry Schuhmacher

It’s hard to believe it’s been 18 years since I attended my first Craft Brewers Conference. At the time I was working for a beer distributorship in Houston, and the management there was just getting interested in crafts and imports. We had just taken on the Celis brands, and as the CBC was in Austin that year, I persuaded my bosses to let me attend. I was the eager young buck, pad and pencil in hand, ready to take copious notes about this burgeoning new beer category and show my superiors that this thing had legs.And indeed, the microbrewery industry, as it was called then, had long, beautiful, tan Cameron Diaz legs. Everybody and his uncle wanted in. The dot-com bubble was just starting to bloat, and the craft bubble was keeping stride.

There were just a few hundred people in attendance, but it had the aura of a circus. (In fact, Brewers Association chief Charlie Papazian appeared on stage in a clown outfit. I can’t remember why.) When Charlie asked for a show of hands of who was planning on getting into the beer business, about half raised their hands. Later, Boston Beer Co.’s Jim Koch practically pleaded with the crowd to remember to put code dates on their beer and make sure it’s fresh. I think he foresaw what was coming, but I don’t think most people had a clue of what he was talking about.

The exuberance and electricity in the air were palpable. Craft beer was hitting the national radar, and rags-to-riches stories abounded. Since 1985, the craft beer segment had not experienced less than 20 percent growth per year. In fact, for most of the years between 1985 and 1997, volume was up 40 to 60 percent, and in 1987 it was up more than 100 percent. These were heady numbers, and everybody from disenchanted Wall Street financiers to burned-out engineers to young get-rich-quick swashbucklers was looking longingly at our little industry.

Pete Slosberg of Pete’s Wicked Ale was our god. He signed a baseball for me. I can’t think why. Our distributorship acquired the rights to his brand in Houston and then proceeded to ride that brand to amazing heights, rivaling Sam Adams, only to then ride it down again until he sold the brand to The Gambrinus Co. in 1998, which discontinued it last year.

I also met Andy Klein, who started a contract brewery called Spring Street Brewery, which made Wit Beer. He later succeeded in creating Wit Capital, an online investment bank that sold shares directly to the public over the Web. Eventually Wit Beer faded away, but he sold Wit Capital for millions.

There was a hot beer that year called Rhino Chasers. It too faded away. Anheuser-Busch was soon to introduce a red amber beer called Red Wolf. Yep, it faded to obscurity. I met yet another guy who was funding his beer on the Vancouver stock exchange as a penny stock. It was contract brewed, naturally. It is not available anymore.

What we didn’t know back in 1994 was that this euphoric craft beer bubble was about to burst. The 40 high-volume increases we had seen since 1985 were to turn into a 1 percent gain in 1997. The frenzy of new contract-brewed brands had hit a fever pitch, and people were shipping beer to distributors regardless of demand. Suddenly, beer of questionable taste and quality started backing up the supply chain until distributors and retailers said “no more.” Shipments were refused and a shakeout ensued. Strong brewers continued to grow, but others fell like flies.

Too many microbrewers sailed too close to the sun, and their wings melted, sending them crashing back to earth. Or more like flies getting too close to one of those electric fly zappers. Or something.

Many folks are drawing parallels between today and the mid-1990s. There are now almost 2,000 craft breweries with another 1,000 being planned. People are flocking into the industry. Bankers are lurking in hallways at the CBC.

Will we see a repeat of this as capacity grows and 1,000 new brewers come online? I don’t think so. First of all, we aren’t seeing the 40 to 60 percent growth we saw back then. More like 9 to 12 percent today. Craft beer’s Cameron Diaz legs of 1995 are today more like Sissy Spacek legs—still not bad, but they’ve got some maturity, and only serious fans find them attractive. That’s sustainable as more and more young people enter the market and prefer more flavorful beers. And we don’t have as many charlatans entering the space. Distributors have proved to be pretty decent gatekeepers. They are more careful about whom they take on their book. The beer must have a good story, somebody who is passionate about it and excellent quality to even get a seat at the table. Distributors today, many of whom were burned with worthless inventory in 1997, are more careful about whom they’ll do business with. Retailers, too.

But aside from the industry controls, there is also an important consumer component today that did not exist in 1996. They did not have the digital tools we have today. They didn’t have Facebook or Twitter. These are automatic controls that will keep what Jim Koch refers to as “science experiments” off the shelves.

In fact, I think that Charlie Papazian’s recent prediction of craft beer reaching a 10 percent market share in a few years is a pretty safe bet. With all the new brewing capacity coming online—not only with Sierra, New Belgium, Lagunitas, Oskar Blues, SweetWater, Dogfish Head, Ninkasi, Bell’s et al, and with new breweries being completed—I think more than a share point a year is a slam dunk. Brewers Association director Paul Gatza estimates 3 million more barrels of capacity is in the planning stage, and that’s just what’s publicly announced. Craft brewing grew 1.3 million barrels last year. So all that math adds up to capacity keeping up with demand for the next two or so years, provided demand keeps growing at the same pace it is today. In the near future, if the demand curve continues in its current trajectory, there will likely be even more investment in capacity, to the tune of more than $1.5 billion.

Bottom line: Yes, I think it’s definitely possible for craft to hit a 10 percent share by 2017, if not probable. The main impediment to reaching that goal in my mind would be the competing growth rates of the Big Brewers’ craft brands (Blue Moon, Shock Top, Leinie’s, Goose etc.), which are not in the BA’s definition of a craft beer. This craft-beer revolution is different. The people I see entering the industry, for the most part, are actually interested in the beer. They may be bankers or plumbers, but most of them are also homebrewers, or they really care about making good beer. Imagine that.

It takes me back to the lunch I had with legendary Belgian brewer Pierre Celis in 1994 in Austin. A genial man with a small frame, Celis was just glad to be back in the brewing industry. When his brewery in Belgium burned to the ground, he regrouped and chose Austin, Texas, for his next brewery and made an excellent wheat beer before it was popular. He told me, “Harry, this revolution in beer will only be sustainable if we make beer for the right reasons. And the only right reason to make beer is to make great beer that you’re proud to serve to your friends and like to drink yourself.”