I heard something funny the other day. Not "ha ha" funny, but "weird" funny. I was in the beer section of a particular grocery store, and inadvertently eavesdropping on a couple trying to decide which beer to buy. This was what I heard:

"What do you think about this one?"

"No way. I'm not giving my money to some rich craft brewery."

I couldn't help but stalk them a little and take a gander at which brewery they were talking about. They were in the "PA Craft" section, after all, and that's "us." I mean, it was already odd that someone wasn't invoking the Evil Empire when discussing how they weren't giving their money to "one of those" breweries, but I can concede that there are some craft breweries that pull down pretty nice stock prices and such. I thought, "probably Yuengling." The brewery in question, though, wasn't some world-beater craft-y corporate place with a wealthy CEO and bicoastal breweries:

It was Victory Brewing Co.

Wait, what?

Optimum Size Theory

I grant you that Victory is a healthy brewery. They have more than one facility. They sell in 38 states and a few foreign countries.

But they're not even in the top 50 in terms of production according to the Brewers Association, and they're a local brewery to the people I overheard.

That really got me thinking.

I've written before that, as demand flattens and breweries start to close, craft beer drinkers might end up distorting the marketplace by rewarding local breweries over good breweries, simply out of sheer locavore sentimentality, and accidentally kill good medium-sized breweries. This was something much more virulent, though. These folks were essentially arguing that size wasn't just a consideration to be factored in - it was enough, on its face, even at only modest levels, to disqualify a purchase from a local brewery.

This would strongly suggest that - if these people weren't the exception rather than the rule, and some conversations I've had since would indicate that they're not - a brewery's optimum size is really, really small.

In a way, that makes sense. If a desire to keep local breweries afloat drives purchase intentions, then the proliferation of them will mean that the median size of the brewery you're looking to support is going to drift towards the smaller end of the set, lopping off local-but-larger breweries in the process.

Logical though it might be, it's still surprising to me, because it suggests that craft beer drinkers have particularly weak brand loyalty.

The Beginning of the End, or the End of the Beginning?

Where I'm still in the fog is what the medium- and long-term effects of this will be. Some high-profile brewery closures recently have prompted a lot of navel-gazing and crystal-ball peering, but so far the talk about them has been all over the place. Overreached on distribution. Over-leveraged their expansion. Too-rosy assumptions about sales growth. Not maintaining quality.

Some have said that this is a sign that the craft beer "fad" is over, and that even the local places will go under - it's just the bigger breweries that feel the hit first, so they're the canaries in the coal mine. It's the beginning of the end.

Others have maintained that this is just a bellwether for production craft breweries particularly, and that the craft beer world will soon be overrun with nothing but brewpubs. In other words, this is more the "end of the beginning" than the "beginning of the end," and that the beer world is simply evolving to accommodate the several thousand new breweries that didn't exist a decade ago.

I tend to agree with the latter, but that doesn't mean it won't end with the former. A healthy craft beer sector probably needs both the local brewpub that's serving a "dining out" customer and the craft production brewery that could theoretically take advantage of economies of scale to put them into at least reasonable price competition with big beer in a retail setting. In other words, I think we need to win on the taps and on the shelves.

Killing off the medium-sized craft breweries through not-so-benign neglect would likely have the effect of fully bifurcating the beer market into the "crafty" ABI-owned sector that would sell through retail locations and the "craft" local brewery sector that relies on $7 over-the-counter pints to keep the doors open.

I guess time will tell. Just musing here, on a Friday morning...

Keep it simple.

JJW

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