(links and images still need to prettify’d, but the text is set)
(|ARCHIVE|) The second installment in a series of six readings and interpretations from The Geography of Beer (https://www.amazon.com/Geography-Beer-Regions-Environment-Societies/dp/9400777868) , Part III - Societies. The abstract of the current paper, ‘The Ubiquity of Good Taste: A Spatial Analysis of the Craft Brewing Industry in the United States’ by Ralph B. McLaughlin (mailto:firstname.lastname@example.org?subject=The%20Ubiquity%20of%20Good%20Taste%2C%20EndlessPint%20Write-up%20) , Neil Reid and Michael S. Moore, may be read on Springer (https://rd.springer.com/chapter/10.1007/978-94-007-7787-3_13) .
Some Say Fire, Some Say Ice
Long ago, before time, in a place that did not exist, our universe came into being. All matter and energy exploded out of an infinitely dense and hot extension-less point (the singularity). The send out force persists and powers the accelerating expansion of the universe. What happens ultimately depends upon the created matter and energy. The ratio between these two densities will determine whether we inhabit an open, flat, or closed universe, which in turn will speak to the fate of the universe. On opposite ends of the spectrum we have an infinite expansion and a collapse, The Big Crunch (http://science.howstuffworks.com/dictionary/astronomy-terms/big-crunch.htm) .
The latter theory of the universe’s end, if it is even meaningful to speak of it in these terms, states that the universe’s expansion is insufficiently fast to outpace the amount of gravity contained within it. If this is true, the rate of expansion will at some point slow, stop, and then reverse itself. At the point of reversal the universe will commence to fall back on itself. This will result in an increase of cosmic background heat as galaxies and stars are brought closer together and eventually collapse on one another. The state and entropy of the universe at the time of the collapse will help determine the uniformity or clumpiness of the crunch. It could be that we are headed for a return to the singularity and an end to matter, energy, and time. Phew, I need a beer.
More interesting for our purposes than the ubiquity of good taste is the paper outlining the decline in per capita production while brewery counts have exploded. These two contradictory stories have been happening roughly simultaneously from 1981 to the present (the paper concluded with data up to and including 2011, published 2014). This observation speaks to the recent acquisitions by traditional big beer breweries and the oft-cited and equally oft-delayed Peak Craft. It has been said that demography is destiny and based on the numbers relied on and the analysis provided it would appear inevitable that a reckoning is coming as more breweries chase fewer opportunities, with the majority of new breweries by definition being craft, relying on more expensive materials and methods.
If a big crunch in the craft beer world comes we can look to our physics friends for ideas about what that may look like. As long as the expansion in production stays within consumer demand we may expect continued growth and can say that the escape velocity is greater than the gravitational constraint. Production overreach, by how much and for how long, will be a crucial determinant in the unraveling. It is likely the entropy would be greater this time than at the hard stop of Prohibition or even the slow conglomeration following WWII, when 40 years of inexorable reductions in traditional breweries saw the count go from nearly 1,000 drop to just two dozen national breweries.
With many more players, all scrambling for a viable survival strategy, unavoidably getting in each other’s way and cutting off what limited escape routes are available we will see a greater amount of cosmic (read, “market”) heat. Sticking with the model of a collapse we should expect clumpiness to develop. Instead of just a couple (inter)national giants, we will be left with several regional powers following mergers, acquisitions, and a general die-off (or lapse into local irrelevance by the smallest of players). Even the profits afforded to these regional behemoths will be hard won as they fight off similarly desperate players for the same number of customers and shrinking wallets. The reasons for this collapse will be numerous and interrelated: production overreach; resource scarcity due to a combination of supply, price, and inevitable weather related issues; changing demographics; declining consumer purchasing power; buy outs; and already plucked lowest hanging fruit.
Craft beer heads become animated when you mention Peak Craft, the impending pop in the craft growth balloon. These same people take it personally as if their identity is at stake. Not thinking straight they fail to see that at least considering the possibility provides the best chance of understanding the fall out and an opportunity to plan accordingly. The deniers are various: consumers, producers, and industry organizations. Each has their own built in biases as to why they would like to see the growth continue indefinitely (money, Sherlock). However, unless they are willing to concede that the whole globe is potentially a hop, wheat, and barley field they need to admit that there is a physical limit to resource growth, and well before we need conjure up such a thought experiment we would have hit the consumer spending limit.
The Craft Crunch will be uneven, disjointed, and eventually televised. Initially it will likely not be clear to outsiders that it is happening at all. The point of reversal may not even be exactly known to insiders until after the fact. When the first micro brew popped up on a supermarket shelf or craft beer tap at a local bar some people noticed. As two, three, and more made their presence on the scene it became more difficult to ignore. Over time the battle for shelf space and tap handles reached (has it already?) a saturation point whereby, once again, few notice the addition of a new entrant, already dazzled by the plethora of options. When the unwinding happens we can reasonably expect the same customer awareness in reverse.
Absent a particular favorite brewery disappearing, the exit from the market of one craft brewery here, another there, two this week, ten last month, will not register. Eventually as more go under and the bounty of choice becomes thinner some will take note. They may nudge a friend to mention it. Eventually, it will be hard not to notice and hear about the crunch.
While on the national level beer consumption is going down, many regions and craft breweries are experiencing an expansion in consumption. The craft beer industry as a whole has been hitting years of double digit growth in volume, revenue, and establishments. With greater competition and the limit of what is physically possible to sell we are already seeing the downfall of several breweries, whether due to over expansion, continued low margins, battle for shelf and tap space, or as buyouts by the Big Boys (more about this in the next edition). The consolidation will in time serve as a positive feedback loop, where the perception of a falling market will create the reality, which will reinforce the perception and thus help develop a self fulfilling outcome by way of limited available revenue, credit, and place more power into the hands of the well established, the suppliers, and retailers.
With new developments, for example on-premise sales at the brewery in an increasing number of states, and more innovative practices to come down the road, it is premature to project overly gloomy prospects but while the industry of craft should continue to do well as a (sub) sector, the only part of the US beer sector to consistently grow over the past two decades, the same cannot be said for individual establishments. As bar sales continue to flag and retail purchases by necessity become more important how things play out will be critical in determining the winners and losers. https://www.flickr.com/photos/pulpolux/ pulpolux However, when it comes to shelf space the traditional breweries hold the advantage in marketing, distribution, scale, portfolio (both as they continue to scoop up quality craft firms and make all kinds of lime monstrosities, and the like), and discount capabilities. Small breweries will likely retain a holding of local support, regional brewers will see diminishing returns, and everyone in between will have to fight it out for what little daylight remains. This means healthy competition and continued options for the consumer in the near to medium term but things get NE IPA hazy the further out we look.
Overall beer production and consumption has steadily declined over the past 30+ years, while craft and imports continue to show growth. That most likely means that more consumers are switching than being brought into the market. As long as this rate of conversion retains an adequate level to drink up the increasing craft production things remain calm but as those conversions become slower and harder to come by (previously low hanging fruit already converted, dwindling disposable income, changing demographics, switching costs related to unexpected costs for a higher priced product) we will experience a shakeup. When Peak Craft hits the causes are likely to be tied to consumption but the equivalent of the Big Crunch will be felt on the production side.
Fire and Ice
by Robert Frost
Some say the world will end in fire,
Some say in ice.
From what I’ve tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.