Reports of the Craft Beer Bubble Have Been Greatly Exaggerated

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If you’ve spent any time talking to people in the craft beer community, you’ve heard them bring the subject around to an ominous prospect for the industry: a bubble. The argument goes that an industry with such short pedigree and such rapid growth will invariably collapse under the weight of its own success, resulting in bankrupt businesses, lost jobs, and empty glassware.

But is the bubble real? Or is it just a specter brought about by nervous beer-drinkers? First, let’s take a look at the facts.

The biggest and most obvious growth over the course of the craft beer movement has been in the amount of breweries. In 1978, there were a mere 89 breweries in the United States. That’s 1 brewery for every 2.5 million people. Last year, there were 2,538. Is this a boom? Perhaps, but it’s equally likely that this is a return to normalcy – especially when you consider that in 1887, there were 2011 breweries. In 126 years, we’ve gone from 1 brewery per 30,000 people to 1 per 126,000 people. In those terms, we’re practically in a recession.

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The brewery count figure is perhaps the biggest fuel for the bubble-belief fire. But it should be noted that although the number of breweries is increasing rapidly, the total beer volume is a bit steadier. Which means that these breweries are probably stealing market share away from the big guys rather than making beer that will not be drunk. The vast majority of those breweries are brewpubs that don’t even compete with each other, so what we’re seeing is not really a market expanding – just subdividing.

But even with the rapid growth that’s happened over the last couple of decades, it’s important to remember that a boom is not always a bubble – which is hard to comprehend, especially when the economic definition of the term is a bit hazy, to say the least. Robert Shiller won the Nobel Prize last year for his study of bubbles, and has perhaps the most durable definition of the term. In his words, an economic bubble is “a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase.”

There are two important components of that definition: one, that prices are increasing, and two, that people are communicating that increase in a way that gets people to buy in a speculative way.

And this is where the craft beer bubble theory fails – there really is no meaningful speculation taking place in the industry. Sure, rich guys with plenty of money to burn are entering the industry with little hopes of actually succeeding, and many are probably doing so because they’ve heard stories of others finding great success in the field. In a crowded industry, they might not be able to find a market to sell their beer – that is, if they even can navigate the process to get the beer created in the first place. But unless they are starting their business just to turn it over quickly to a greater fool, they are not technically speculating. Technically, they are making a shitty investment.

So with little opportunity to flip breweries, the only other real option to speculate in this industry is on the stock market. Except for the glaring reality that there are only two publicly traded craft beer companies in the United States. Boston Beer Company, which makes Sam Adams, and Craft Brew Alliance, which consists of Redhook, Widmer Brothers, Kona, and Omission. Both have done well, with SAM increasing five-fold in the last five years, and BREW increasing three-fold. Neither, however, seem to be overinflated.

 

The last five years on the NYSE for Boston Beer Co (in red) and Craft Brew Alliance (in blue),

The last five years on the NYSE for Boston Beer Co (in red) and Craft Brew Alliance (in blue),

And at the risk of eating our words, let’s remind ourselves of what’s insulating craft beer from risk. Beer is, after all, a vice, and vices are fairly recession-proof. In fact, bars are one of the most resistant businesses out there during a recession. This stands to reason – can’t afford a nice dinner out? How about 1 or 2 rounds instead! Depressed about not having a job? Go to the bar!

So feel free to stop worrying, and learn to love the brewery. Chances are, it’ll be around for longer than you imagine.

 

Dan Shapiro is a drinker, brewer, and voiceover actor. Check out his drunk ramblings on Twitter @DanDShapiro

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