Why 2013 could be last call for craft beer

A look back on last year shows strong growth for small brewers, but lots of fracturing in the community they've built.

By TheStreet.com Staff Dec 31, 2013 1:29PM

Caption: Beer pouring into a glass
Credit: © Jim Scherer/Getty ImagesBy Jason NotteTheStreet.com

 

PORTLAND, Ore. -- If the term "craft beer" wasn't wheezing its way into irrelevance before 2013, it collapsed into oblivion at some point during this year.


Boosters at the Brewers Association craft beer industry group argue that craft beer added $34 billion to the U.S. economy this year.

Meanwhile, the 2,480 craft breweries operating among the 2,540 U.S. breweries that existed as of June far outpaces the 2,011 breweries that existed in total during U.S. brewing's peak in 1887.


But that's not making a happy little community of beer artisans dedicated to experimenting with existing styles and improving their beers. Instead, it's exposed a swelling undercurrent of animosity that's eroding any intangible definition of the term "craft" and is replacing it with a production number and dollar amount.


We saw the first evidence of this in January, when the Brewers Association felt it would be a good idea to lay down the law and determine which beers were "craft" and which were just "crafty."


It surprised no one by putting Anheuser-Busch InBev's (BUD) recently bought Goose Island brand and MolsonCoors (TAP) and SABMiller joint venture MillerCoors' Blue Moon and Leinenkugel's on the list, but it managed to draw some ire by lumping pre-recession brewers including Pennsylvania-based D.L. Yuengling and Minnesota's August Schell into its grouping of bad guys.


It also includes the Craft Brew Alliance and its Redhook and Widmer Brothers brands on its blacklist, which puts its figures for craft beer sales and production at odds with industry observers including Beer Marketers' Insights -- which includes Redhook, Widmer and those brewers' roughly 30 years of history in their publication's craft numbers.


Yet it is something that Boston Beer (SAM) founder and Samuel Adams Boston Lager creator Jim Koch said to Tom Cardella, head of MillerCoors' Tenth & Blake craft division, at a Beer Marketers' Insights conference in spring that gave a better idea of how brewers -- or at least larger craft brewers -- define "craft": We craft brewers have created a category that is able to command a price premium based on our points of difference from the mass domestic brewers. And that has created a lot of profitability in the category and a lot of growth.


In that breath, Koch offered a wise, reasoned definition of craft beer that no one could provide until that point. He also, perhaps unwittingly, made it about numbers rather than quality. That argument hasn't killed "craft beer," but it left the term mortally wounded.


Nowhere did that become more clear than in the halls of Congress, where the emergence of legislation that would provide tax breaks for brewers fractured the craft ranks.


Forget about the sequester and the government shutdown that left breweries' approvals for new beers in jeopardy for a brief span in September: It was a visit to Washington in May that shook things up a bit.


Brooklyn Brewery joined Bend, Ore.-based Deschutes Brewing, Utica, N.Y.-based Saranac brewer Matt Brewing and Kalamazoo, Mich.-base Bell's Brewery in D.C. to ask Congress to support reducing the excise tax on the nation's brewers.


Those brewers offered varying levels of support for the Brewers Excise and Economic Relief Act of 2013 (or BEER Act) that would reduce the federal excise tax on beer for all brewers and beer importers. The act, introduced by U.S. Reps. Tom Latham, R-Iowa, and Ron Kind, D-Wis., with 33 original co-sponsors, would help reduce the overhead on Brooklyn and the others and would, ideally, make it easier for new breweries to break into the business.


That, in turn, might actually soften craft beer prices a bit for consumers.


The BEER Act, though, is also supported by Anheuser-Busch InBev, MillerCoors, Heineken USA, Constellation Brands' (STZ) Corona distributor Crown Imports and Magic Hat and Pyramid brewer North American Breweries. That makes it a bit of a sore point for craft beer lobbying group The Brewers Association, of which Brooklyn, Bell's, Matt and Deschutes are full members.


That group has been working on its own legislation -- the Small Brewer Reinvestment and Expanding Workforce Act (or Small BREW Act) with members of Congress including Sens. Ben Cardin, D-Md., and Susan Collins, R-Maine.


Under the Small BREW Act, law that allows brewers making fewer than 2 million barrels of beer annually to pay $7 per barrel on the first 60,000 barrels they produce and $18 per barrel on every barrel thereafter would be amended. Instead, the smallest brewers and brewpubs would pay $3.50 on the first 60,000 barrels. Once brewers grow to between 60,001 and 2 million barrels, the rate would hit $16 per barrel. Any brewer that exceeds 2 million barrels (about 1% of the U.S. beer market) would begin paying the full $18 rate.


Washington-based lobbying group The Beer Institute, which is supporting the competing BEER Act, saw common ground between the two bills and made clear that any help the beer industry can get would be appreciated.


Overall U.S. beer sales had been in free fall since the recession. A 1.2% uptick in 2012 stopped losses dating back to 2007, but A-B sales increased only 0.7% while SABMiller/MolsonCoors joint venture MillerCoors watched sales slip 1.1% despite help from Blue Moon, Leinenkugel and other "craft" brands.


Though craft beer's share of the industry has grown to nearly 7% of its volume and 11% of its overall sales, it's largely because drinkers are turning away from the big brewers' blander light lagers and either switching to craft beer or turning away from beer altogether.


Basically, "craft" and all it entails aren't making the beer industry grow, they're just helping it survive. Craft beer's buyer base is still overwhelmingly white and male, while just about every other demographic is shifting toward hard alcohol, malt beverages or ciders.


Craft beer has recognized this and is starting to widen its gaze beyond beer. Boston Beer's Alchemy & Science branch in Burlington, Vt., is acquiring other brands while its Angry Orchard cider line, which has become the top-selling cider in the U.S., has boosted the company's bottom line. Not to be outdone, Craft Brew Alliance teamed with a cider maker in Eastern Oregon to launch its Square Mile line of ciders this year. Even this piece's beer-focused author gave home cidering a try this year.


This all made folks around the industry started to mutter about the "craft beer bubble." Can craft beer really sustain its growth? Will there still be enough demand? New Belgium Chief Executive Kim Jordan and Oskar Blues founder Dale Katechis thought so, with each speaking to us at length about expanding their Colorado operations to North Carolina.


Even in beer-saturated Oregon, brewers including Pfriem Family Brewing's Josh Pfriem and Ecliptic Brewing's John Harris saw niches waiting to be filled. From Austin to the nation's capital, brewers have been finding ways to not only keep craft beer's momentum going, but to do so in creative fashion.


They partner with corporate sponsors, they collaborate with other breweries and they're overall optimistic about the days ahead.


But there's a menacing shadow lingering over all of those good times. As Boston Beer surpasses 2.5 million barrels of production and Sierra Nevada in Chico, Calif., flirts with the 1 million barrel mark, their owners who have overseen that growth for 30 years or more are starting to consider succession.


People ask if the craft beer bubble is going to burst not just because they know some cynical yokel out there is trying to build a garage nanobrewery to sell to the highest bidder, but because craft beer's pioneers are starting to consider retirement. While it was nice to see Kansas City, Mo.-based Boulevard Brewing get the big-brewer treatment at the Royals' ballpark this year, the brewery's sale to Belgian brewer Duvel Moortgat in October was a reminder that the first wave of microbrewers may not stick around much longer.


Right now, there is no question that there is a thirst for what continues to be called "craft" beer. The amount of people reading our coverage of it year after year and the evolving laws in states including Texas and Alabama -- the latter of which became the last state in the U.S. to allow home brewing after revising its laws this year -- suggest there's room for expansion. If quality remains high, access continues to open and all aspects of brewing and consumption become more familiar to the U.S. drinker, small brewers have room to open and thrive.


If brewers get too caught up in the numbers, pioneers sell to the highest bidder and new breweries concern themselves more with being acquired than brewing a batch people will love, then you'll see that term "craft" go flat in 2014.

 

More from TheStreet.com

 

33Comments
Dec 31, 2013 3:37PM
avatar

If you as a customer can drink your beer in view of all the equipment that was used to brew it, it is a craft beer.  End of discussion.

Dec 31, 2013 3:41PM
avatar

Whisky's to rough,

Champaign costs too much,

Vodka sets my mouth in gear,

I like beer.

It makes me a jolly good fellow.

Dec 31, 2013 2:52PM
avatar

After traveling in the South a bit, I've come to realize that the beer there sucks.  Bud light lime is not a good beer!!!  Well at least if you compare it to microbrews.  Come to find out its illegal in some states to have your own microbrew and distribute it.  Miller, Bud, & Coors love the market down there because all the big names have all the market share and its sad.    Don't even get me started on dry counties either...... 

 

The big distributors hold all the power because the product has to be moved around in an efficient way, so support your local breweries!  Show some pride!

Dec 31, 2013 9:22PM
avatar
The article writer doesn't have a clue about "craft" beers. We all have our favorites and enjoy trying new brews too. Beer is proof that God loves us and wants us to be happy- Ben Franklin.
Dec 31, 2013 5:41PM
avatar
Any bottle that says :Lite" or "Light" is not a beer. it's not about drinking quantities to get a buzz. it's about savoring the taste and variety of beers/ales.
Dec 31, 2013 2:34PM
avatar
Yuengling.  America's oldest - and best - brewery.
Dec 31, 2013 3:17PM
avatar
if the beer is good, who cares who makes it; InBev is working on putting Belgian quality in BUD even, so if you can find a beer you like that is made by a major, great!
Jan 24, 2014 7:34AM
avatar

So, once again, a confusing article from MSN.  What are they trying to say?  Craft beers are on their way out or craft beers are not on their way out or the term "craft beers" has a different definition than the common understanding and the term is on the way out??

 

Jeesh, there are a lot of words in the article, but not a lot of lucid thought.

 

All I know is that at the liquor stores in my town, most of the shelf space is now taken by beers that folks in these parts consider to be craft beers - something other than the light pale mainstream beers like Bud or Miller.  Typically all three walls are craft beer / micro brews while one interior aisle is for the big mainstream light pale beers. Wine and hard stuff are in interior aisles

Dec 31, 2013 4:18PM
avatar
 I don't drink beer often, but when I do it's usually a craft beer. Most of the major brews are inconsistent or bilge water, especially on tap.
Jan 1, 2014 10:31AM
avatar
Merriam-Webster dictionary definition "craft beer":  A specialty beer produced in limited quantities.
Dec 31, 2013 9:25PM
avatar
DragonMead... Final Absolution. Beat out Belgi****s crafted in Belgium IN Belgium.
Jan 24, 2014 7:27AM
avatar

The article states: "Basically, "craft" and all it entails aren't making the beer industry grow, they're just helping it survive. Craft beer's buyer base is still , while just about every other demographic is shifting toward hard alcohol, malt beverages or ciders."

 

Really?  What "other demographic" is shifting to higher alcohol malt beverage?  Not my Asian friends or my Middle Eastern friends.  I'll have to check with my Native American friends, but that doesnt leave enough "other demographics" to be considered "Most"

Dec 31, 2013 6:06PM
avatar
Glad I drink Whiskey, too many choices and worries about beer...
Jan 1, 2014 9:33AM
avatar
I work part time in a liquor department. With craft beers, it's just the new item of the week. Be a man, hit the liquors.
Jan 1, 2014 11:00AM
Dec 31, 2013 3:54PM
avatar
3floyds.  Hands down the best.  Gumball, Zombie, Broo Doo, Dreadnaught, etc .....

Everything else (including Surly AND New Glarus) is day old cat tinkle.



Dec 31, 2013 5:33PM
avatar
beer snobs worse that wine snobs it all taste like ****
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

108
108 rated 1
257
257 rated 2
439
439 rated 3
626
626 rated 4
499
499 rated 5
530
530 rated 6
713
713 rated 7
522
522 rated 8
339
339 rated 9
136
136 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.