The Future of Craft Beer: Market Expectations and Upcoming Challenges

By Bill Sysak, Foodable Industry Expert

Part 3 of a Three-Part Series on the State of the Craft Beer Industry in America
Read part one here and part two here.

If you’ve been following my 3-part series on the State of the Craft Beer Industry in America, you now know about how the craft beer revolution began and where it is currently. You also know what giant brewing companies like AB InBev are doing about craft beer’s rising popularity. Now let’s look at what the future holds for craft beer.

Where is craft beer going?

The future continues to look bright with craft beer showing a 17.1% growth by volume YTD in the first quarter of 2015. I, like many industry insiders, agree that we are looking at a 20% by volume market share by 2020, up from the 11% mark in 2014.

India Pale Ales continue to hold the top spot in craft beer sales with an amazing 26% volume share of all craft, and make up for 3% of all on-premise alcohol beverage sales. No more bitter-beer-face commercials, beer drinkers love the hops and continue to want their palates challenged with more extreme, aggressive flavors.

We are over 3,500 operating craft breweries with 1,700 in planning. Craft breweries continue to open at a rate of 1.7 breweries a day. At this rate, we will be over 4,000 operating breweries in America at some point in 2015. With the low percentage of breweries closing last year — less than 50 — we are looking at 6,000 craft breweries by the end of the decade.

Is this too many? Not at all. There are more than 9,000 wineries in the U.S., with 43% of those in California alone. Over half of all operating breweries are producing only 500 barrels or less. How much is a barrel? Let me put it into perspective for you. Remember those keg stands you used to do in college with fizzy yellow beers? Those were half barrels. Most breweries produce less than 1,000 kegs per year, just enough to support their tasting rooms and a few local accounts.

Upcoming Challenges

There will be speed bumps as craft continues to grow. The rate of new brewery openings is only sustainable if new craft breweries are making quality beers. Will all these breweries coming on line become large regional players? Definitely not. There just aren’t enough tap handles and off-premise SKUs for everyone. Even though every time you walk into your local grocery store it may seem like there are more craft beers on the shelf, let’s face it, there is only so much shelf space and that’s OK. These small nano-breweries do quite well only selling beer at their tasting rooms. If a brewery sells a keg of beer to a bar, the bar owner will pay $150-$200 for that keg and reap the majority of the profit. If that brewery sells that same keg of 1,984 ounces or 124 pints in their own tasting room at $5 a pint, well, you do the math. 

Consumer Control

Who’s to decide which breweries will stay small and which will grow to be the next Dogfish Head or Stone Brewing companies? You, the consumer, will of course. Marketing and luck will play a part, but the biggest factors are innovation and quality. Creating new and flavorful brands of the highest quality will continue to set the best breweries apart. With all these new breweries popping up and a continued push to drink local — in other words, supporting your local brewery — quality will become a bigger factor than it ever has been. When there are 10 pizzerias in your neighborhood, which do you choose? Hopefully the ones that are making great pizza and not the ones that are closest or most convenient. Treat craft beer the same way and support the new breweries that are making quality products. Don’t forget your old favorites, and let the breweries who are making subpar beer know about it.

Over the last 38 years, I personally have turned thousands of fizzy yellow beer drinkers into craft beer drinkers. To be honest, it’s been easy. Show most people something better and they will convert. My biggest nightmare is one day I will be trying to convert someone to craft beer and they will say they’ve already tried it and it sucked and they will have been right. Quality, quality, quality!