Inside America’s Craft Beer Economy
The U.S. craft beer industry has been steadily growing. In 2018, the number of breweries operating in the country surpassed 7,000. Analysts predict that nearly 1,000 more U.S. craft breweries will open in 2019, according to C + R Research. That’s nearly twice the peak number of breweries that operated in the United States in the years before Prohibition laws forced them all to close Jan. 16, 1919.
Since then, craft beer has made a big comeback in the United States. Now people are asking: How long can it last? Here are 16 facts about the craft beer boom and where it might be going.
What Exactly Is a Craft Beer?
To be considered a craft beer, a brewery can make no more than 6 million barrels of beer annually, according to guidelines set by the Brewers Association, a trade group representing U.S. craft brewers and breweries.
In addition, an alcohol-related company that's not a craft brewer can control no more than 25 percent of the brewery, and the beer can’t be produced with rice or corn.
Craft Beers Boast Unique Flavors
Craft brewers are known for making unique styles and flavors of beer that range from hoppy IPAs to sour ales to dark stouts and porters. Many brewers experiment with combining flavors and styles to create innovative beers, which are generally more flavorful than the lagers produced by large brewers like Budweiser, Miller and Coors.
Get to Know the Pioneers
Craft beers started gaining popularity in the United States in late 1970s following the success of three well-known craft beer companies — San Francisco’s Anchor Brewing Co., Boston Beer Co. and Sierra Nevada Brewing Co.
A Craft Beer Was the First U.S. Beer Sold in Germany
Jim Koch, co-founder and chairman of the Boston Beer Co., which produces Samuel Adams beer, was an early innovator in the craft beer industry. He left a lucrative job as a consultant at Boston Consulting Group in 1984 to start his brewery.
“When I started, nobody believed American beer could be good,” Koch told Fortune magazine. “American beer was a laughingstock.” However, Samuel Adams lager became the first American beer to meet the German Beer Purity Law and to be sold in Germany.
Craft Beer’s Impact on the U.S. Economy
The craft beer industry has had an enormous impact on the U.S. economy, contributing $76.2 billion in 2017 and more than 500,000 jobs, according to the Brewers Association.
“With a strong presence across the 50 states and the District of Columbia, craft breweries are a vibrant and flourishing economic force at the local, state and national level,” said Bart Watson, chief economist for the Brewers Association.
The Most Popular State for Craft Beer Is...
Although most people would probably guess California is the most popular state for craft beer, they would be wrong. Vermont holds that title. Vermont has 11.5 craft breweries per 100,000 residents 21 and older, and produces 151 pints per every adult in that age group, according to C+R Research.
Rounding Out the Top Five States...
Montana and Maine come in second place with 9.6 breweries per 100,000 21-and-older residents each, followed by Oregon with 8.5 breweries per 100,000 and Colorado with 8.4 breweries per 100,000.
The Least Popular States for Craft Breweries
Although all 50 states have at least one craft brewery, Mississippi has the least with 0.6 breweries per 100,000 residents 21 and older. Other states lacking in craft breweries are Georgia (0.9), Alabama (0.9), Oklahoma (1), Louisiana (1), Texas (1.3), New Jersey (1.3) and Utah (1.5), according to C+R Research.
Notice that the South has the lowest amount of craft breweries, perhaps due to restrictive liquor laws. For example, laws in Georgia and Alabama ban craft breweries from selling their beer directly to customers.
States With the Most Growth in Craft Breweries
New Jersey and Kentucky are tied as the states with the most growth. They have each experienced 43-percent growth in the number of in-state craft breweries since 2015, followed by Oklahoma with 39-percent growth, North Carolina with 37-percent growth, Virginia with 36 percent growth and New Hampshire with 33 percent.
Much of the increase is due to states adopting more liberal licensing laws. For instance, in New Jersey microbreweries can now sell their beer by the glass or by the keg, and, in Kentucky, new laws allow breweries to produce more beer.
And About California...
California ranks No. 22, with 2.6 breweries per 100,000 residents 21 and older.
Commercial Breweries are Losing Market Share to Craft Beer
Meanwhile, large commercial breweries like Anheuser-Busch InBev and MillerCoors are steadily losing market share to craft breweries.
Overall U.S. beer volume sales were down 1 percent in 2017, whereas craft brewery sales continued to grow at a rate of 5 percent by volume, reaching 12.7 percent of the U.S. beer market by volume, according to the Brewers Association.
Commercial Brewers Aim for Their Own “Craft” Brands
To fight for market share, commercial breweries are buying out craft breweries and launching their own “craft” brands, which technically do not fit the Brewers Association’s definition of craft beer, according to a CNBC article.
Since 2011, InBev has purchased 10 formerly independent U.S. craft brewers, according to CNBC. Among those purchased are Chicago’s Goose Island, Colorado’s Breckenridge Brewery, Virginia’s Devils Backbone Brewing Co. and North Carolina’s Wicked Weed Brewing.
Some Craft Brewers Sell to Survive
When InBev bought Seattle’s Elysian Brewing Co., in 2015, one of its three founders, Joe Bisacca, admitted to trade publication BrewBound that running a brewery and four brewpubs was exhausting.
“For me, I had been going hard and fast and wearing different hats,” he told Brewbound. “Personally, I got tired of the minutiae and all of the little problems.”
Craft Beer Drinkers Want Better Labeling
However, InBev isn’t putting its name on the labels of the craft beers it has purchased, making it difficult for beer drinkers to know whether they’re drinking a craft beer or a formerly craft beer that is now being made by a large commercial brewer.
“Beer drinkers know that big brewers are buying up little brewers, but it's hard to tell who has been purchased based on the beer label and packaging. We have the right to know who makes our beer,” Julia Herz, craft beer program director, Brewers Association, writes in a commentary for CNBC.
Private Equity Firms Have Targeted Craft Beer
A number of private equity firms also have made investments in craft beer. For instance, Fireman Capital Partners, a Boston private equity firm, has bought into Oskar Blues Brewery, purchased part of Cigar City Brewing and has created CANarchy, a craft brewing collective.
New York City investment firm Ulysses Management LLC has invested in New York’s Southern Tier Brewing and Philadelphia’s Victory Brewing Co., and created Artisanal Brewing Ventures to provide management advice, assistance and vision to independent craft brewers and distillers.
Is the Craft Beer Market Becoming Saturated?
Many are concerned the craft beer market cannot sustain this incredible growth. The craft beer industry saw sales of $26 billion, or 23.4 percent of the overall beer market in 2017, a $2.5 billion increase from 2016 and $3.7 billion more than in 2015.
But the percentage of growth has slowed, according to Fortune. “As distribution channels experience increased competition and challenges, craft brewer performance was more mixed than in recent years, with those relying on the broadest distribution facing the most pressure,” Watson of the Brewers Association told Fortune.