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Headwinds Facing Craft Beers

Beverage World:

By Bill Anderson

The craft beer industry is by far one of the most interesting segments of the industry to watch these days.  It’s an influencer segment all by itself – proof that raising taste profiles and pricing, while at the same time telling authentic, local brand stories, can lay the groundwork for sustained, impressive growth.

It will be worth watching to see if the current proliferation of breweries can last or if this is the beginning of a bubble about to burst.  Sometimes it’s hard to look at the numbers of new breweries opening and not think we are at the edge of a crash.  With these concerns come all of the inevitable questions: Will retailers continue to give crafts outsized space? Will distributors have room in their warehouses for additional SKUs? Will the consumer continue to be so promiscuous? And will wine-ification come to the space as some beer geeks continue to focus on styles rather than brands?

But the most interesting question is whether crafts will continue to expand market share. At a recent conference on high-end beer brands, John Hall, the founder of Goose Island, made the now oft-repeated prediction that craft beer share has the potential to double in the short term.  The growth arc of this industry supports this prediction, but the problem lies in expansion production capacity. Unlike NAs that are produced by a range of co-packers in multiple locations around the country, crafts often feel compelled (rightly, I think) to continue to produce their single brews at their home base. And the issue there is that it’s expensive.

Recently, DogFish Head and Allagash had to announce that they were pulling out of a number of states due to their inability to fill the orders of distributors in those states. In response to the rising demand and planned geographic growth strategies, several leading craft brewers have announced expensive capacity expansion projects, including new facility expansions by DogFish Head, Stone and Sierra Nevada.

So what is most problematic for craft’s growth is the simple but daunting challenge of production capabilities. Many of these crafts will be able to finance these growth plans through traditional bank financing and others will need to raise outside capital.  In either case, the new debt and/or equity might put additional strains on the operations and culture of these companies and may dramatically alter how crafts will grow in the future.