Does anyone else think that there is a craft brewery "bubble" forming?

looked over the site real quick and didn't see that it has been asked about before so sorry if it has and I missed it.
Seems like I'm hearing news nearly once a month or so that there is going to another brewery or brew pub or even just a craft beer pub opening up somewhere in my area (general D/FW area).

For example:
When I first got into microbrews (before I got into brewing) I only knew of 3 places where they had a real selection of beers and specialized in it. I'm sure there were more, but I only knew of the three. To top that off when I got into brewing around this time last year there were only 3 breweries in all of Dallas. Population of well over a million, and only 3 (according to the tour at Franconia Brewery) in DFW.

Now I know of 5 breweries, just found out today that 2 more breweries have license approvals and will start and one brewpub.

I'm not complaining! Trust me I love that there is growth in the area but it seems this trend is popping up all over the country, very rapid growth. Obviously no one expects this level of growth to continue forever, that's not my "concern" or maybe just observation. Just that maybe it's being over done, that in a few years or so a lot of these brewery startups will find there isn't a big a market for all the product out there as thought and they'll be shutting doors...

No pun intended on the title by the way.

Nah, I don't think so, I don't think it's any more rapid than it's always been since the first ones opened (at least here in Detroit) in the early 80's. It hasn't been rapid here, just steady. We now have nearly 100 through out the state of Michigan. I guess it all depends on what your definition of rapid is.

As to them shutting doors, that's happens in all business sectors. But I think it has ore to do with the quality of your product rather than if a market gets saturated. Over the last 40 years there's probably been a dozen of them in Michigan that folded. More to their making crappy beer than there being too many of them.

Is it any different for BMC bars? You can have a ton of them on a strip and they're all doing fine, except the ones that give crappy service or their food sucks, those fold, but usually another one moves in to try to take it's place.

There's places like Ann Arbor, Mich and even a couple areas in Downtown Detroit, and Royal Oak where the micro breweries are in walking distance, and they are usually very busy every night.

I'm just going by my experience living in Michigan, where craft beer and homebrewing both have a huge following (we also have more LHBS in Metro Detroit than any other area evidently)

I am expecting to see something happen fairly soon. I wouldn't consider it a bubble bursting, but more of a culling the herd. Many of the new brewpubs, nano's, micro, beer bars, and everything else opening up are just catching the wave of the boom in popularity. There are people that have always thought they made good beer and their friends told them they should sell their beer but never could or did. They didn't because they didn't think it would be successful or didn't have the funding or whatnot. Now with the change in popularity they think it will be and instant success like all the others and funding is much easier to get. Come to find out it wasn't as good as they thought and they fail.

So, like I said it isn't really a bubble bursting but there will be a lot of places closing down just because they weren't good enough to compete.

TomHanx said:

. Just that maybe it's being over done, that in a few years or so a lot of these brewery startups will find there isn't a big a market for all the product out there as thought and they'll be shutting doors...

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Alcohol is one of the only industries that has never really had a slump or bad economic time. If anything, these new start ups will be fighting to make better beers, and each one fighting to make something better than the other breweries around them. There will always be a market for a good drink.

Revvy said:

We now have nearly 100 through out the state of Michigan.

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wow. that's a lot. someone correct me if I'm wrong but I don't think there's more than maybe 30 or so breweries in all of Texas. wikipedia shows 25, there's a few missing from that list though but not much.

Revvy said:

As to them shutting doors, that's happens in all business sectors.

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That's very true which is partly why I'm expecting to see doors close. Whether or not it's the business itself or an over saturated market depends on a lot of other hard to determine factors. But agree ups and downs seem to be a part of every business segment.

Revvy said:

There's places like Ann Arbor, Mich and even a couple areas in Downtown Detroit, and Royal Oak where the micro breweries are in walking distance, and they are usually very busy every night.

I'm just going by my experience living in Michigan, where craft beer and homebrewing both have a huge following (we also have more LHBS in Metro Detroit than any other area evidently)

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Sounds awesome, wish there was more real support of microbrew scene in dallas area.

Dallas Brew Pubs/Microbeer =

dataz722 said:

So, like I said it isn't really a bubble bursting but there will be a lot of places closing down just because they weren't good enough to compete.

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Yeah, that's pretty much exactly what Revvy said. I guess I still think maybe it's not that we're at a point where the is just entirely too many microbreweries out there, but that at this pace if it doesn't slow down soon I could see there being too many competing micros and not enough consumers for micro's.

I guess that I didn't maybe think of that though as being a larger contributer to closings than just over production. There are so many popping up all the place with little to no experiace in either brewing at that level or with some kind of business background, that it will start to catch up.

I can definitely see a "bubble" at some point. It happened in the 90's, but the situation was slightly different then. Most of the breweries that closed were owned by financiers looking to invest in the brewing business, not by brewers.

I can't bump into two homebrewers without one saying he wants to "go pro". Everyone wants to open a brewery, but there is definitely a limit to the amount of brands any given market can sustain. The question is how many that number is. Personally I only think about that stuff when its someone else talking about it.

Revvy said:

Is it any different for BMC bars?

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I think its totally different. A bar isn't necessarily about the beer they serve. The atmosphere, the retinue of DJ's/bands, the location, etc are all more important as far as BMC bars go. Now picture a block full of brew pubs. They can certainly develop all those attributes I listed for the BMC bars, but they also have to compete against each other (something craft beer apparently is averse to do) for customers who are choosing between them mainly because of the beer. Its a totally different dynamic.

When I was in the Army, there was a strip in Colorado Springs with like 5 bars on it. We would wander between them because each had a different crowd, specials, etc. If it was 3 brewpubs, I don't see that happening. "Hey guys, lets drink a stout here, then a Pale Ale here, then a wheat beer here,"... they wouldn't have that situation. People would choose one and that would be their regular place. Could a few block radius really support multiple brewpubs long term? I doubt it.

Interesting question.

I say no for one reason: Concentrated ownership

Breweries are typically private & closely held, so "irrational exuberance" by the market can't really bid up equity prices.

With tech or housing, the entire nation was involved and the nation lost a ton of money. In this case a bubble burst would be limited (and devastating) to that concentrated ownership. But what about for us, the consumers? I'd suspect cheaper beer. What happens when bubbles burst? Asset prices fall; breweries would need to move product just to stay afloat, margins suffer, prices drop, etc. Supply > Demand, P falls.

I'm gonna think about this more though...very interesting.

EDIT:
Another thought...why do bubbles form? In a simplistic sense, it's over-speculation (+ leverage recently) on profit-making opportunities. You don't see Goldman Sachs or VC/PE going after nano/microbrewers. The returns just aren't there. As most pro-brewers know, it's not a lucrative industry. The "boom" is obviously fueled by demand, but it's also greatly fueled by people who are passionate about making beer and wanting to spend their time & energy doing it. It seems to be less about seeking excess returns.

TyTanium said:

But what about for us, the consumers? I'd suspect cheaper beer.

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That brings me to a whole other thread I should start sometime but when are we gonna see that?? I know a lot of guys out there probably don't mind forking over a few extra bucks for better beer, but I can't be the only one on a budget.

Tired of seeing one bottle of Sierra Nevada Dubel for $10 bucks look over a few shelves and see a 6 pack of Budlight for 7 bucks

I see it as more of a paradigm shift in all things. People are going back to locally made products, more artisanal products. It seems like people might, might, have seen the downside of industrialized food and are looking for alternatives. People who are into food are embracing their local farmers markets where they can talk to the person who plucked their carrots out of the ground. People who drink great beer want to talk to the brewmaster and know what malts are in the beer they are drinking at that moment, what was the hop schedule on the IPA they just enjoyed. I see people becoming more aware of what they are purchasing/consuming. With the amount of information out there on the interwebs, people are becoming a little better versed in the products they use everyday and we are seeing that by the increase in the number of things like microbrewies, farmers markets, restaurants who celebrate farm to table, etc. Hopefully it's here to stay.

^ +1 to that. Florida is really virgin territory when it comes to craft breweries. We're just now starting to see a surge in brewing growth in our area. That being said, there's an equal amount of brew pubs popping up producing "blah" beers as well as ones producing some really good stuff.

Quality and a simple bit of business sense is going to keep a lot of the good craft breweries in business. Tap rooms of the good craft brewers are always overflowing, and the better brew pubs are doing well.

****, if buffalo wild wings can survive serving up crap wings and cheap BMC, craft is going to continue to grow here at a 30% rate.

Where are all these brew pubs in DFW? I'm over in ft worth and besides Rahr I'm unaware of any new breweries/brew pubs coming up on our side of the metroplex. My roommate works at BJ's and he told me they can't legally brew and sell on the same property in Tarrant county. He is an idiot though and may be completely wrong...sorry to thread jack.

I don't see a bubble yet. At the start of the craft beer movement there were plenty of wannabees and not a lot of great brewing.

These days, not only are there more qualified brewers, but a population gaining in craft beer acceptance.

As the number of microbreweries grows you will continue to hear stories of some of them going out of business. It happens. I don't think there is going to be a massive exodus from craft beer any time soon.

If I lived near a good brewpub I'd spend a considerable amount of time there, drinking, hanging out, helping.

Matter of fact, there is a place only 15 minutes away adding on and I see they have windows installed and are now working on the interior. Only taking 1/5 years longer to get going than originally planned!

I foresee a homebrew club forming in the area with meetings held there.

Airborneguy said:

I can't bump into two homebrewers without one saying he wants to "go pro". Everyone wants to open a brewery, but there is definitely a limit to the amount of brands any given market can sustain. The question is how many that number is. Personally I only think about that stuff when its someone else talking about it.

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There is really only a pretty small percentage of the population that knows how to make beer. There is an even smaller percentage of the population that knows how to make GOOD beer. I encourage anyone that wants to take it to the next step, if you think your brews are as good or better than what's available, then share it with the people .

Nah, definitely not for me, too much work. I have a nice retirement coming at 43 years old. I plan on spending it brewing for myself .

gregkeller said:

I see it as more of a paradigm shift in all things. People are going back to locally made products, more artisanal products. It seems like people might, might, have seen the downside of industrialized food and are looking for alternatives. People who are into food are embracing their local farmers markets where they can talk to the person who plucked their carrots out of the ground. People who drink great beer want to talk to the brewmaster and know what malts are in the beer they are drinking at that moment, what was the hop schedule on the IPA they just enjoyed. I see people becoming more aware of what they are purchasing/consuming. With the amount of information out there on the interwebs, people are becoming a little better versed in the products they use everyday and we are seeing that by the increase in the number of things like microbrewies, farmers markets, restaurants who celebrate farm to table, etc. Hopefully it's here to stay.

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+1 I do notice in my area of Virginia that we see more of the local brewery's beers on the shelves than more of the bigger craft brewery's beers. I see more Gordon Bierch, Red Star, Old Dominion than I do DFH and stone. I think people are really starting to boost their own local economy by getting a better product locally produced or grown. I think if there were a "bubble", it would be in areas or states that have an almost overabundance of craft breweries, i.e. San Diego. My 2 cents

TomHanx said:

wow. that's a lot. someone correct me if I'm wrong but I don't think there's more than maybe 30 or so breweries in all of Texas. wikipedia shows 25, there's a few missing from that list though but not much.

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37. At least according to a tweet from the TABC a week or so ago.

Tex said:

Where are all these brew pubs in DFW? I'm over in ft worth and besides Rahr I'm unaware of any new breweries/brew pubs coming up on our side of the metroplex. My roommate works at BJ's and he told me they can't legally brew and sell on the same property in Tarrant county. He is an idiot though and may be completely wrong...sorry to thread jack.

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There's the Zio Carlo Magolia Brewpub in Fort Worth. Not sure what the status of it is, I'm in Dallas, so I don't make it over to Cowtown very often. I do know the owner isn't a fan of the President. The only brewpubs I know if in Dallas are the chains.

one thing to also consider is that estimated overall beer sales were down about 1% toward the end of 2010, while craft beer sales were up 15% in the beginning of 2011. this has been the trend the past few years also from what i have read. my understanding also is that craft brewing is just under 5% of total beer sales. so the trend might also be changing taste and there is plenty of room for that.

of course, on a local level i do believe in what has also been said about a market and what can be sustained, that is just business. living in in a city with many breweries, i am quite glad for the selection and support who i can. plus i can't wait for one of denver's newest breweries, crooked stave, to open its doors down here (they are brewing out of funkwerks up in fort collins right now).

b

It seems like every time I turn around, someone is opening a brewery or brewpub. SWMBO is pushing me to do something with mine, to somehow incorporate it into my retirement plan (which is still at least 4 years away), but I'm just not sure of the return on the investment with the market becoming increasingly saturated. It's true that even in hard economic times, alcohol sales remain strong, but I can see cost to income ratios becoming problematic in the future. If you aren't First, you'd better be Best.

If you mean about a bubble in the commercial craft beer industry ...

There’s a bunch of dynamics that apply to a larger alcohol-related sector that make it harder to see whether there is a “problem” or not. This affects not just Microbreweries but also Brewpubs, Small Wineries, Taverns, Class C license-holders etc.
They are all in a similar boat in some ways.

This includes positives like ...
A greater usefulness (or demand for) local alcohol providers closer to drive or walk to, due to concerns about drinking and driving ... including buying craft beer at the store and bringing it home.
Good financing rates for those that can actually get financing for their production or retail operations.
More awareness of craft products due to online communication, homebrewing and word-of-mouth.
An apparent return to the craft and croft mentality, and interest in certain products as was the trend in the 1970’s (gardening, brewing, home food production, farmer’s markets etc). I think part of this too is that there is at least some trend toward (if you’ll allow the expression) a more “European” model of alcohol production and consumption. Both in terms of production but also I hope (!!) of the idea illustrated by the Public House ... your “living room away from home” ... basically “community life” - which is something that sustains the European quality of life at a more reasonable expense to the consumer.

And negatives affecting the sector such as ...
Uptick in small businesses in general due to the economy (i.e. greater competition).
Reduction in people’s disposable income.
Smaller number of drinkers overall as the boomer demographic gets more health conscious and drinks less.
Greater difficulty of obtaining financing.

So, where is the danger for craft beer outlets like brewpubs and microbreweries?

For the small concern, I think your safety in part depends on your exposure being very local. For the larger concern, (larger microbreweries) your downside exposure is both local and regional or larger. The exposure to market risk is greater and the effect on your bottom line is greater as the business’s overhead is greater.
Meaning that those producers that are “small, fat and happy” are the ones that are in the best position to avoid disastrous effects in a downturn. The greater you are scaled to the larger market, the greater your exposure to the over-saturation of craft beer providers and any potential “bubble”.

All I know is that there were 36 breweries in Cincinnati in 1870 and now there are 6ish with a few more popping up.

I'm worried about the supply and cost of malt and hops for us homebrewers as more of the breweries start popping up.

Colorado has 140+ breweries with a huge amount in development. I can see ingredient costs going up, which will drive beer prices up, and maybe shutter some of the smaller guys.

http://www.fermentedlychallenged.com/2011/09/list-of-colorado-breweries-in.html

...but if ingredient prices go up that means it becomes more profitable to supply it, which means more farmers grow it, which means supply increases, which means prices fall. Not convinced on this one.

But we have already seen it. Like with the Denver bulk grain buy attempt.

Kaleco said:

But we have already seen it. Like with the Denver bulk grain buy attempt.

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True...differential in adjustment times lead to seasonal spikes. Good point.

maxam said:

All I know is that there were 36 breweries in Cincinnati in 1870 and now there are 6ish with a few more popping up.

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Ha!


back to the point, there is a 140 breweries in Colorado?? I'll try as much as possible to not talk in generalities and just plain conjecture, a quick review of wikipedia shows about 270 municipalites listed in CO. I've been through CO a few times there are plenty small, remote, barren places there. Just conservative guess lets say 30% of the cities are under a population of 5000 so those won't even be counted for this example because they're so small. Look at a ratio of 140 breweries to around 200 cities? So nearly a brewery per city? If it works, then great. I'm not saying it won't or can't, but my reasoning tells me that it honestly is probably too much.

anyways, not saying anything is absolute or I'm right or anybody else is wrong. Just thinking out loud.

Some interesting articles from a beer blogger I read on Facebook:

http://beernews.org/2012/02/buckbea...+Craft+Beer+News+Leader)&utm_content=FaceBook

http://beernews.org/2012/02/airdale...+Craft+Beer+News+Leader)&utm_content=FaceBook

http://beernews.org/2012/02/kelley-...+Craft+Beer+News+Leader)&utm_content=FaceBook

http://beerandwhiskeybros.com/2012/...g-to-close-this-is-a-glimpse-into-the-future/

Revvy said:

Nah, I don't think so, I don't think it's any more rapid than it's always been since the first ones opened (at least here in Detroit) in the early 80's. It hasn't been rapid here, just steady. We now have nearly 100 through out the state of Michigan. I guess it all depends on what your definition of rapid is.

As to them shutting doors, that's happens in all business sectors. But I think it has ore to do with the quality of your product rather than if a market gets saturated. Over the last 40 years there's probably been a dozen of them in Michigan that folded. More to their making crappy beer than there being too many of them.

Is it any different for BMC bars? You can have a ton of them on a strip and they're all doing fine, except the ones that give crappy service or their food sucks, those fold, but usually another one moves in to try to take it's place.

There's places like Ann Arbor, Mich and even a couple areas in Downtown Detroit, and Royal Oak where the micro breweries are in walking distance, and they are usually very busy every night.

I'm just going by my experience living in Michigan, where craft beer and homebrewing both have a huge following (we also have more LHBS in Metro Detroit than any other area evidently)

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I'm no expert in business, but there are problems that can cause any business to close, no matter how great their product or service is. Poor cash flow management is one. If you don't have the cash to pay the bills, you're screwed, even if your sales are great. The second is a related problem; over-expansion. I've read interviews with two pro brewers who say that they wish they had grown at a slower pace, and Flying Dog has pulled out of markets in my region for this reason. Falstaff brewery, at one point the second largest brewery in America, collapsed because of overexpansion.

Ultimately, I look at it this way. Beer is better fresh so local breweries are a good thing, 50% of the beer on the market is pretty forgettable stuff, there are many bad businessmen out there, and the brewing industry is reaching a new era where creativity and new or forgotten techniques are creating great possibilities. It's a good time to be a brewer and a drinker.