Craft Brewers Warn of Category Shakeout

Jim Koch

Greg Koch, Stone Brewing’s CEO and co-founder, recently told KNSD, the NBC News affiliate in San Diego, that craft beer is “in danger of being trendish.”

He’s not alone in that sentiment.

It’s not the headline craft brewers want to read, but a few notable names in the craft space are beginning to talk in terms of a potential ‘bubble burst.’

In a recent interview, asked Boston Beer Company founder Jim Koch (no relation), for his thoughts on the idea of a “shakeout” — a potential epidemic of failure among companies entering the craft beer market similar to the one the market faced in the mid-1990s.

“At some point, the growth will slow — after all, nothing grows forever,” he said. “I think market share for craft beer could grow to over 10 percent by the end of the decade but a lot of retailers are reaching their space limit with all of the new breweries out there, especially those brewers who aren’t bringing anything new to the table. At some point, we will have all the IPA’s we need.”

Lagunitas Brewing founder Tony Magee expressed similar sentiments. He believes the question isn’t “if” but “when” the shakeout will occur.

“Something will happen, someday,” he said. “It’s like a forest fire; no one knows when it will start or where it will start, but everyone can be pretty sure there will be one.”

Magee’s advice for young startups looking to achieve success? Be prepared.

“It is more important than ever to professionalize the front end of your brewery,” said Magee. “Distributors are totally motivated to work craft now, but they have limited bandwidth and they will work best with those who are most prepared for game day.”

All three brewers launched their respective businesses before the industry’s first shakeout in 1997, when what had been a fast-growing industry stumbled and shrank. Growth of craft beer sales ranged from 25 to 45 percent in the late 1980’s until 1995 but slowed to 7 percent in 1996 and 2 percent in 1997. That first slowdown was blamed on a combination of a lack of quality product and a shortage of consumer education.

Koch, Koch and Magee believe their businesses endured on the strengths of quality liquid, sound business plans and loyal customer bases. Now they are among the best-known leaders of the current craft boom.

But many brewers – eyeing recent Brewers Association statistics which show 1,381 breweries in planning and 376 brewery openings in the last 12 months – are beginning to wonder if there are enough loyal fans to go around.

“The good news for craft brewers, distributors and retailers is that we don’t see this growth slowing down anytime soon,” said Jim Koch. “With that growth comes variety, which can certainly make it tough for distributors and retailers to keep up. So it’s important for retailers to pay close attention not only to which beers, but also to how many beers they are offering their customers.”

Shakeout or not, Jim Koch is still optimistic.

“It’s hard to say what might happen in the future, but right now we feel lucky to be in the middle of a big growth curve for craft beer and I’m glad to see that growth.”

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