BOOM OR BUBBLE?

THE FUTURE OF CRAFT BEER

Patrick Munro Emerson
Oregon State University
Beervana Podcast

WHO AM I?
Economist by day - OSU Economics

Research: International Development focus on child labor

Home brewer/craft beer enthusiast by night

Became interested in the economics of the craft beer industry

Good pedagogical tool

I follow the industry as a hobby

Moonlight as a podcaster on the Beervana podcast.

THE FUTURE OF CRAFT BEER

1.

2.

3.

Demand for craft beer

1.

What do you value in beer?

2.

Learning to love craft beer

Supply of craft beer

1.

Brewery count

2.

Craft beer volume

Craft beer market and the economics of craft beer

1.

4.

Mergers, Acquisitions and Equity Investments

1.

5.

What are the economic forces that shape the industry?

What does this mean for the future?

Boom or Bubble?

WHAT DO YOU VALUE IN CRAFT

BEER?
Taste/variety
Story of brewery/owner
Personalities owner/brewers
Uniqueness - small/independent
Local
Price

DEMAND FOR CRAFT BEER

Still growing, especially in less

saturated markets
Maturing: middle aged buyers
native to craft beer
Awash in choice:
Less loyal
Used to new

SUPPLY OF CRAFT BEER:

U.S. BREWERY GROWTH 2012-2015

Current Count (2016): 5,005

Breweries

SUPPLY OF CRAFT BEER:

NUMBER OF CRAFT BREWERIES IN U.S.

SUPPLY OF CRAFT BEER: U.S. CRAFT BEER

PRODUCTION BY TYPE OF BREWERY

OVERALL BEER MARKET IN 2015

ECONOMICS OF CRAFT BEER

Economies of scale
Industrial product / artisanal product
Access to markets
Experience good
Looking for new tastes / experiences
Will trust known breweries
Will follow buzz / trends
HEAVY costly to ship

ECONOMIES OF SCALE, INDUSTRIAL V. ARTISANAL:

NUMBER OF U.S. BREWERIES OVER TIME

Source: Brewers Association

EXPERIENCE GOODS:
LARGER CRAFT BREWERS STUMBLING
Widmer sales down 19% this year
Boston Beer (Sam Adams) sales down 6% this year
Sierra Nevada

Sierra Nevada Pale Ale sales down 6% this year

Torpedo sales down 9% this year

CRAFT V. MACRO: BUDWEISER

MERGERS AND ACQUISITIONS

ABInBev

MillerCoors

Duvel Moortgat

Elysian

Hop Valley

Firestone Walker

10 Barrel

Revolver

Boulevard

Golden Road

Tarrapin

Ommegang

Four Peaks

Saint Archer

Breckenridge

Goose Island

Karbach

Blue Point

Devils Backbone

Mahou San Miguel

Heineken

Founders

Lagunitas

Constellation (Modelo)

Ballast Point

ABINBEV HIGH END DIVISION

VOLUME OF MACRO OWNED

CRAFT

Source: Brewers Association

EQUITY INVESTMENT & ESOP

Equity Investments

Full Sail

Sweet Water

Southern Tier

Victory

Cigar City

ESOP

ODell

Left Hand

Harpoon

WHY BUY?
VOLUME U.S. CRAFT BEER SINCE 1984

Source: Brewers Association

WHY SELL?
Liquidity for investment and expansion
Owners want to cash out some sweat

equity
Access to distribution networks and

markets

BOOM OR BUBBLE?
Demand is still increasing but maturing
Supply is catching up
Overall market is growing but at slower rate
Exports growing rapidly
As market matures will see more failures consistent with

other markets but no bursting bubble

EXCESS CAPACITY?

BOOM OR BUBBLE? FUTURE

TRENDS
Bigger craft brewers are struggling while lots of smaller newer

breweries are grabbing market share.

Established brand versus novelty/buzz

More friendly regulatory environment in many states

Easing access to markets

Mergers and acquisitions by large conglomerates

Decreased access to distribution and shelf space/tap handles?

Better knowledge of business now that it is maturing

More brewing and business talent being created
Some markets mature/saturated (Portland) but many parts of

U.S. still young and growing

OREGONS CRAFT BEER

INDUSTRY

OREGONS BIGGEST BREWERIES

1.

Deschutes Brewery

10. GoodLife Brewing Company

2.

Widmer Brothers/CBA*

11. Breakside Brewery &

3.

Full Sail Brewing Co

4.

Rogue Ales Brewery &

Headquarters

12. Fort George Brewery

5.

Ninkasi Brewing Co

14. Hopworks Urban Brewery

6.

Hop Valley Brewing Co

15. Worthy Brewing Company

7.

Laurelwood Public House

and Brewery

16. Caldera Brewing Co

8.

Boneyard Beer Co

9.

McMenamins Breweries

Taproom
13. Pelican Brewing Company

17. Double Mountain Brewery

18. Oakshire Brewing

Source: Brewers Association

*Widmer/CBA not in BA

OREGON GROWTH COMING FROM

NEW BREWERS

BREWING IS A SIGNIFICANT
INDUSTRY IN OREGON

BIGGER OREGON BREWERIES SELL

A LOT OUT OF STATE

BREWING EMPLOYMENT IN
OREGON BY REGION
Alcohol Cluster N. Coast
8.3
Jobs per 1,000
Population (2013)
U.S.
2.9
Oregon
4.6

S. Coast
2.0

Portland
5.3

Willamette
Valley
3.5

Southern
Oregon
3.2

Gorge
8.9

Northeast Oregon
3.1

Central Oregon
5.9

South Central/Southeast Oregon

1.6