I make presentations about the geography of the American craft beer industry to academic audiences all around the world. Earlier this month I spoke about the industry at the Jubilee Workshop of the Tinbergen Institute in Amsterdam, the Netherlands. The day after my presentation I was sitting in Amsterdam’s Delirium Bar with some of the other workshop participants. At one point in the conversation someone asked me as to what share of the market American craft brewers might eventually be able to command. It was an intriguing question and one that I am asked with some regularity and, as a result, have often pondered. However, as the Danish physicist Niels Bohr once said “Prediction is very difficult, especially if it’s about the future.” But I’m willing to give it a try.
Let’s begin with some basic numbers. According the Brewers Association there were 3,418 craft breweries in the United States in 2014. In 1981 there were only eight. In 2013 and 2014 alone more than one thousand new craft breweries opened up. In dollar terms craft beer accounted for 19.3% of American beer sales in 2014, up from 5.4% in 2005. These statistics clearly indicate a craft beer industry that is growing. All of this growth is taking place at a time when American’s consumption of beer in general is declining. Americans consumed 3.4% less beer in 2014 than in 2008. This means that craft brewers are capturing a larger and larger share of a declining market.
Bohr is correct. Predicting the future is difficult. It seems to be particularly difficult when it comes to craft beer. Case in point – in 2013 Mintel forecast that craft beer sales in the United States would reach $18 billion by 2017. In actuality craft beer sales hit $19.6 billion in 2014. In fairness to Mintel they could probably not have foreseen a decision by the Brewers Association in February 2014 to change its definition of what constituted a craft brewery – a change which meant that Yuengling were now classified as craft. Classifying Yuengling as a craft brewery certainly increased the craft segment’s market share. A previous definition change by the Brewers Association in 2010 (which allowed the Boston Beer Company to be classified as craft) was a major contributor to increased market share since 2005 that is noted above. Definition changes notwithstanding I firmly believe that craft beer is neither a fad nor a passing trend. It is here to stay. And, because of demographic forces, I am of the opinion that it is well positioned for continued growth over the next twenty years.
If you walk into any brewpub or microbrewery tasting room one thing you will observe is that the patrons tend to be made up of young adults. The same can be said of the beer aisle of any retail store that sells craft beer. Such an observation is supported by market research firms such as Mintel who indicate that it is the millennial generation (those between the ages of 21 and 34) who are the primary consumers of craft beer. In contrast traditional beer (think Budweiser and Miller Lite) is the preferred drink of older Americans. The relative youthfulness of the American craft beer drinker is one key to understanding its future growth potential. According to the U.S. Census Bureau 1 in five (over 65 million) Americans are between the ages of 20 and 34. As these millennial craft beer drinkers get older I would expect them to continue drinking craft beer. I say this on the premise that as someone switches from traditional beer to craft beer (or drinks craft beer from the get-go) it is highly unlikely that they are going to switch back to drinking the former in any significant quantity. In other words once a craft beer drinker always a craft beer drinker. Thus as millennials age they will continue to prefer craft over traditional beer. This bodes well for the American craft beer industry.
A second piece of the puzzle to understanding the growth potential of craft beer is those individuals currently too young to drink alcohol. One in four Americans (over 82 million) is under 20 years old. As they reach the legal drinking age it is the choices that they make that will be critical. Some of course will choose to abstain from alcohol while others will prefer wine or distilled spirits. However, for those who decide to drink beer, they will have a choice between craft and traditional beer. I would argue that a significant percentage of those individuals will choose craft beer. I say this for a number of reasons. First, awareness of craft beer will be high for those individuals. Today there are more bars, supermarkets, and liquor stores selling craft beer than ever before. Even as recently as ten years ago the number of bar taps or amount of supermarket shelf space devoted to craft beer was relatively small. When these future beer drinkers enter such establishments they will be acutely aware of the availability of craft beer. Second, there will be what I refer to as the parental demonstration effect. As the children of current craft beer drinkers reach legal drinking age I expect that they will be heavily influenced by their parents. If mom or dad is a craft beer drinker I suspect that many of them will educate their adult children on the wonderful variety of styles and flavors that await them in the world of craft beer. Also the craft beers that inhabit their parents’ refrigerators will not go unnoticed and that will influence their decisions as well. The craft beer drinker of today will beget the craft beer drinker of tomorrow.
At the other end of the age spectrum are the older Americans – those who prefer traditional beer. The natural rhythm of life means that these individuals will be the first to depart this Earth. As they do the traditional brewers will be losing their key demographic and unless they can convince significant numbers of younger Americans to choose their product over craft beer then they are destined to lose a larger and larger share of the domestic beer market.
So back to the question I was asked in the Delirium Bar in Amsterdam. How much of the American beer market can craft beer capture? Well I am not going to be nailed down to a specific market share. However, with demographic momentum working in their favor, capturing somewhere between 40% and 50% of the market (as currently defined) by 2035 is not unreasonable. Of course I may be wrong. This prediction hinges upon the next generation of beer drinkers preferring craft over traditional beer. Preferences sometimes have a habit of changing with generational shifts. If I am correct, however, the craft beer glass will be one that is half full rather than half empty for quite a long time to come.