The Golden Age of Beer
I was perusing my litany of beer podcasts the other day when the latest Brewbound Podcast popped up on my feed. It was featuring Lester Jones, a longtime beer industry vet and chief economist for the National Beer Wholesaler’s Association, or NBWA. Lester strikes me as a reasonable and highly insightful person, and has always done a great job of painting an accurate and realistic picture of the beer business for plebeians like me over the years. Lester presented a concept, something he coined “Cognitive Beer Dissonance”, and it’s something that I’ve been stewing on for a number of years now as a beer industry professional and beer fan. It gave me the opening I needed to help clarify my thoughts further on the state of the industry and the “health” of the beer category in general. This post is incredibly TL;DR, so brace yourself for a full frontal here.
Cognitive Beer Dissonance
I LOVE this concept, as it perfectly embodies how I feel about beer these days. 2019 represents the apex of beer in world history in many appreciable and measurable ways:
The ubiquity of locally produced, high quality products is at an all-time high here in the United States.
The general awareness of beer in the cultural zeitgeist is also at an all-time high.
There are more production breweries, globally, than at any other point in human history.
We consume beer regularly with purpose, zeal, and unwavering interest…we talk about it, and blog about it, and make movies about it.
We have leading global certifications on beer to help codify expertise and encourage intellectual discourse.
Beer is now the center point of a road trip (or at least a day trip), versus a quick aside on the way to the actual destination.
Beer is legitimately, really cool.
We’re living, unequivocally, in a time when beer sits at the vanguard of culture and consumption. Right?
Yes, but…and this is certainly because beer is both my business and a rather dedicated hobby, it doesn’t feel like that when I read the beer news, listen to my podcasts, interact with my fellow beer professionals, and have discussions at my own brewery on consumer behavior and annual depletion numbers. I’m an avid subscriber to Beer Business Daily, and were I of weaker constitution, I would think we were all completely f$%ked (No Harry…beer doesn’t just have a Tito’s Vodka problem).
Mass consumption of adjunct light lager is down significantly (barring a few special cases…Mexican Imports and Mich Ultra basically).
Craft isn’t growing anywhere near the historical pace it was in the past 10 years (+4% in 2018 across regional and micro breweries and brewpubs).
Spirits and wine are stealing our market share and our slice of the beverage alcohol pie.
Flavored malt beverages and spiked seltzers are seeing meteoric category gains (which aren’t beer, strictly speaking).
Craft breweries are closing at an increasing rate, and yes, opening at even faster rate.
The on-premise (bars and restaurants) are getting tired of competing with taprooms and own-premise sales, and they feel betrayed by the very brewers they’ve been supporting all these years. Why would I carry your beer if the taproom you opened three blocks away is stealing my business?
Beer is old news, its business model is toxic to the industry at large, and the bubble has burst. Long live gin and tonics. Right?
Headwinds, tailwinds, Category considerations
The beer industry as a whole is currently, and arguably, in the throes of its most dramatic period of evolution since it became a real industry in the United States. Very briefly, here's what's going on:
We have over 7,450 breweries in the country according to to the latest BA numbers. This is regional breweries, local small-production breweries, and brewpubs. 7,450. If you're wondering whether that's a lot of places that make beer...that's A LOT of place that make beer. It's not more than we can handle, however, as we have a highly populated and geographically enormous country.
Hyper-local consumption will continue to grow - At this point, roughly (at least) 80% of the people in the country live within 10 miles of a local brewery. You would have a hard time making that claim about most business categories (like...a post office) in this country. Breweries are fast becoming the de-facto community anchor and local public house that they used to be 250 years ago, and the people seem to be demanding it. Furthermore, they love drinking beer from just down the road. What’s more appealing than well made, fresh, local beer?
Large, multi-national breweries are, on balance, selling less beer in the U.S - There are many, many reasons for this. Some of these multi-nationals are selling significantly more beer, and some of the multi-national's specific brands are doing really well, but the numbers in most of their books aren't getting noticeably less red as time progresses. These companies are dealing with their own identity crisis in an age of authentic, purposeful brewing.
Consumers are drinking less beer, overall - Whether we like to admit it or not, wine and spirits are taking up a larger and larger portion of the overall alcoholic beverage pie, so to speak. In 2006, 65 percent of males listed beer as their go-to drink in the beverage alcohol category. Fast forward to 2016 and that figure has dropped all the way to 43 percent. Headwinds are popping up across all demographics, ages, and geographies.
If we’re honest, craft beer has a bit of an identity issue - Craft beer grew on the back of, and directly in opposition of, flavorless light lager. They took the basic business model of brewing beer and added story, context, flavor, and purpose to the market positioning. They also reintroduced the United States to the majesty (yes…beer is that amazing) and variety of beer styles that are available around the world. You can have your pale ales and goses and dunkels and milds and…all of it! They eschewed using girls in bikinis and instead created a brand based on an approachable lifestyle, quality, and innovation. Their message resonated loudly in the face of corporate corn lager, and it was brilliant to watch them take a few swipes at the big guy. But now….they’re running into demographic and social headwinds. The consumer they found success targeting 10 years ago thinks they’re old news, and now they have to latch onto hot industry trends (gluten-reduced, fruity, low-alc spritzer-type “beer”, for starters) in order to fill the production hopper and keep the balance sheet…balanced properly. This isn’t every brewery, and many large breweries are still seeing healthy, sustainable growth, but it’s a lot of them. What is “craft beer” now if it can’t be the thing we thought it was? Is it ok that it’s shifting to away from the heady days of double digit annual growth and moving toward a more mature, tighter, highly competitive market? What should a craft brewery stand for anymore?
Legislation is inexorably moving toward more lenient distribution and taproom laws - More and more states are amending and updating their beer laws to make it more comfortable for local breweries to open up, and more importantly, grow. Taproom laws, direct-to-consumer sales at said taprooms, and self-distribution (forgoing the requirement to use a distributor to sell to their customers) are all becoming more ubiquitous.
Beer, and craft beer, generally speaking, is still awful at appealing to minorities, women…you know, 80% of the U.S population basically - The Brewer’s Association has a fantastic new diversity ambassador to help shine a little light on the issue here, and it was a laudable step in the right direction. Women, on balance, still don’t drink anywhere near the same amount of beer as men (calories, image, choose your reason). I’m speaking quite broadly here, but the diversity of my local taproom just isn’t diverse…it’s white washed and homogenous. I’m one of those white, bearded guys, so take what I’m saying with a grain of salt. Why the heck don’t more women drink beer? Seriously…it doesn’t make sense to me. And it’s not just the calories thing.
The zeitgeist around beer is strong - Awareness of beer, and its subsequent trial rate, is at an all-time high. We're drinking less beer, but we are at least willing to try whatever's in front of us more consistently. More people are more emotionally connected to the product of beer than ever before.
These aren’t all the factors, but they highlight some of the factors that play into the state of the business these days, both positive and negative... and something about the state of the business has been bothering me, and I think we need to address it sooner than later.
Given all this change, and given the incredible level of competition and dynamism present in the modern day beer business, I think the dissonance I’m feeling has to do with the way we're measuring the health of the category, empirically and anecdotally, and I think it's high time we put together a new formula for the modern age of brewing.
Measurement and Evaluation
The general barometer for the “health” of the beer category has almost always been a 10,000 view on large, domestic beer producers like ABI, MillerCoors, Pabst, etc. They make the lion’s share of beer in this country and as such, they swing the biggest statistical hammer when we look at the “amount of beer” being consumed in the United States. That’s not to say that we have discounted or ignored the incredible rise of locally produced beer over the past 10 years (sales of craft beer now account for 24% of all beer spending in the United States!) , but domestic producers like ABI still make the vast majority of beer, so a marginal gain or loss on their balance sheet makes a much larger dent in national consumption numbers than a handful of breweries making less a thousand barrels of beer a year. They’re a statistical drop in the bucket, or more appropriate to the scale of this metaphor, the ocean. Companies like IRI, VIP, and Nielsen are the keepers of the scan data at major grocery stores and the depletion data at our country’s beer distributors, and they track this growth and decline on a daily basis. The basic problem here is simple, however - Scan data and depletion numbers alone miss a LOT of what can be defined as success factors for beer in the U.S.
Furthermore, strictly using purchasing behavior of light lager and macro brewer’s beers as our yardstick in 2019 is analogous to looking at the closure of most big box stores (Macy’s, JC Penney, Toys R us, etc) and saying “People just don’t like clothes, or toys, or kitchen appliances, as much as anymore”. That’s patently untrue, as we all know, and it doesn’t reflect the reality of the modern consumer accurately. People love clothes, and toys, and kitchen appliances…they just love them in different ways and buy them from different sources and at different frequency. Their brand affinity it still very high.
We’re, of course, not just using light lager as our barometer these days. We’re measuring local consumption, and wine consumption, and spirits consumption closely, and the truth is that we are actually drinking less beer than we used to as a country. It’s this shift in the consumer dynamic that we are forced to reckon with as an industry. But that’s not necessarily a bad thing.
So…where does that leave us? How do we figure out “what’s working” in beer, and more importantly, what metrics do we use in order to determine how “healthy” beer is in the United States? If we take the basic assumptions I’ve laid out so far, and introduce a slightly new paradigm, we can start to shift our perspective on how we should be viewing this fascinating business.
Normalization and Maturation
Changes and disruptions to any industry’s purchasing behavior come with the expected quantity of bumps and bruises. The media reacts, and beer fans react, and people shout and holler, but there will always be winners and losers in a capitalist market, and more relevantly to beer, there will never be a day when the consumer set becomes static and predictable. I rue the day personally, as I’d be out of a job ;-p.
I was chatting with Patrick Emerson, co-host of the Beervana Podcast and professor of economics at Oregon State University, on this very topic (somewhat) recently and he, as most professional economists do, provided a few enlightening anecdotes and real-world examples of what the beer business could be morphing into in the modern age.
I’ll roughly paraphrase his take, as this post is already long enough. Essentially, a “healthy” market in economics is one with the right proportion of entries and exits…that is, businesses being created and businesses closing up shop. This churn rate is the result of increased competition, changes in purchasing behavior, access to market, changing demograhics, technology…literally hundreds of factors. The end result, consequently, is quite beneficial to consumers. They get high quality products, variety, and easy access to said products. Sound familiar?
The restaurant industry is the obvious analog here. Major chains are struggling (to put it lightly) right now because their consumers aren’t compelled to eat there anymore. Why would I go to Ruby Tuesday if I can go to a local shop that serves me better food for the same price? If major chain restaurants aren’t doing well, does that mean that America doesn’t like eating out as much as we used to?
Not at all…in fact, quite the contrary. We like eating good food more than ever, and America LOVES going out to eat. It’s the pastime of my generation, and it’s a huge business. Patrick’s assertion, which is starting to really hit home nowadays, is this concept. Beer is fragmenting, evolving, and in many ways, improving as new breweries open, older breweries struggle to cope with this change, and consumers look for new and “better” experiences. Beer is turning into the restaurant business, with more entries and exits, shorter half-lives on the business model itself, and a step change in the entire experience.
The Golden age of beer
Lester sums up the whole paradigm perfectly in this quote
I’m going to leave you in this article with more questions than answers, but I’ll stake my reputation to this claim: Beer is still, and always will be, the beverage of the people. Consumption of beer cuts across age groups, demographics, and socioeconomic strata with ease, and more people really do enjoy drinking beer now more than ever.
The evolution of the beer business means that the yardsticks that we’re accustomed to using have to evolve, and our perspective on what success looks like must evolve with it. Beer is getting more diverse, and yes, fragmented. Folks are drinking at their local brewery more frequently, and the beer at these breweries continues to improve. Locality has emerged as the #1 brand driver in most markets, and on top of all that, younger people just don’t drink as much booze as we didn. Hard seltzer, kombucha, gluten reduced beer, N/A beer…it’s all up for grabs in this brave new world of bev alc consumption.
I’ve been in this business over a decade now as a marketer and educator, and yes, I try to take the long view whenever I can. I’m old school is many definable ways too…I like my IPAs with pine character and malt backbone. I like my german lagers with a lovely rounded malt profile and squeeky clean yeast character. I like the regional breweries I cut my teeth on 15 years, and I’m a big fan of the authentic storytelling that made these regional players so successful in the first place.
I’m confident that we live in a wonderful time to be a beer fan. It’s most certainly changing, and our job isn’t to fight the change, but embrace a new perspective on how we can help move with the tide and keep people coming back for more.