Every now and then, I come across a headline that raises the question as to whether we are reaching saturation point with respect to the number of craft breweries that we have in the United States. Very often, the question is asked with regard to a particular city. Examples of such headlines include:
For the record, there were 5,301 breweries in the United States at the end of 2016, of which 5,234 were craft breweries. The five metropolitan areas with the largest knumber of craft breweries in 2016 were:
- Seattle, WA 123 breweries
- San Diego, CA 115 breweries
- Portland, OR 114 breweries
- Los Angeles, CA 96 breweries
- Denver, CO 93 breweries
The answer to the question as to how many breweries a particular town or city can support is – it depends. It depends on a number of factors; and the existence and strength of these factors differ from place to place. So what are some of the factors that might determine how many breweries a city can support? And what are the strategies that individual breweries (and places) might pursue in order to increase their probability of success in what is becoming an increasingly crowded and competitive marketplace?
Population Size and Composition
It would seem obvious that larger cities can support more breweries. Generally speaking there is a truth to this. Portland, OR whose metropolitan area has 2.2 million people has more breweries than Bend, OR, whose metropolitan area has a population of 165,000. However, Portland also has more breweries than some larger metropolitan areas, including for example, New York and Los Angeles. So clearly there is more than just population size influencing the number of breweries in a place.
One of those other factors seems to be the population composition of a place. Market research shows the Millennial cohort (21-37 year olds) to be the primary driver behind craft beer’s popularity. So, if a city has more younger people (Millennials) then it may be able to support more craft breweries, than a city whose population has a greater percentage of older people. Some research that I have done with my colleagues Ralph McLaughlin and Mike Moore shows that the number one factor, determining how many craft breweries that a metropolitan area can support, is the share of its population who are in the 25-44 age range; the greater the percentage share of 25-44 year olds, the more craft breweries you tend to find.
The number of breweries that a city can support may not only depend on the size and composition of its resident population, but also on its ability to attract visitors, i.e. tourists, from outside. Beer tourism is becoming increasingly popular. A town that is a tourist destination may be able to support a greater number of breweries than a similar sized town that is not a tourist destination. Indeed, breweries themselves may become tourist attractions, drawing visitors in from its surrounding communities and even further afield. A number of communities, including Grand Rapids, MI, have been able to attract a growing number of so-called beer tourists to their community. A community than can attract a lot of tourists is not solely dependent upon its resident population to support its craft breweries; thus may have a larger number of breweries than you might expect based upon its population size and composition.
Neolocalism refers to the preference of individuals to purchase products and services that are produced locally by individuals who live in the community. Activities in which neolocalists engage include supporting the local music scene, purchasing locally produced fruits and vegetables from a farmers market, and drinking beer brewed at a local brewery. Some people are more committed to neolocalism than others. The more people in a city that have a preference for local products, the more likely it is that it can support a larger number of craft breweries. In the aforementioned research that I did with McLaughlin and Moore, we found that metropolitan areas that have more farmers markets (a proxy for Neolocalism) are more likely to have more craft breweries (even after we controlled for other factors such as the size and composition of the population). In another blog entry, earlier this year, I addressed the issue as to why the state of Vemont leads the nation in the number of craft breweries per capita. One of the key factors in explaining this, is the fact that Vermont is number one when it comes to local food initiatives. On a per capita basis, Vermont has more farmers markets and CSAs (Community Supported Agriculture) than any other state. On a per capita basis, it also has more hospitals that are pledged to purchasing local food than any other state. Indeed, on seven variables that measure a state’s commitment to purchasing and eating locally-produced food, Vermont ranks first on six of them. So it is no surprise that the state ranks top on craft breweries per capita – Vermonters love local food and love local beer. Indeed, Vermonters drink more craft beer per capita (19.6 gallons per adult of legal drinking age) than any other state in the union.
Size and Type of Breweries
The size and typeof the craft breweries themselves is also important. The largest type of brewery, as defined by the Brewers Association, is what is called a Regional Craft Brewery. These are breweries that produce between fifteen thousand and six million barrels of beer per year. They tend to serve geographically extensive markets. For example, Boston Beer Company sells its beer in all fifty states, as well as internationally. Bell’s Brewery, who have breweries in Comstock, MI and Kalamazoo, MI, distribute their beer to thirty-two states and Washington, D.C. In 2016, there were 186 Regional Craft Breweries in the United States.
As Regional Craft Breweries are not dependent upon the size of the local market, they can be found in smaller communities . Perhaps the best example of this is the Spoetzl Brewery. Spoetzl is located in Shiner, TX (population 2,069). Spoetzl ‘s beers (including its flagship Shiner Bock) is available for sale in most parts of the country. In my city of Toledo, OH, I can buy beers brewed by Spoetzl in several dozen bars and retail outlets. The amount of beer that the Spoetzl Brewery produces has nothing to do with the size of the town in which it is located.
Breweries that produce under fifteen thousand barrels annually are classified as either Brewpubs or Microbreweries. The Brewers Association defines a Brewpub as “a restaurant-brewery that sells 25 percent or more of its beer on site. The beer is brewed primarily for sale in the [brewery’s] restaurant and bar.” A Microbrewery, on the other hand, sells 75 percent or more of its beer off-site. Most of the beer it sells reaches the consumer via bars, restaurants, or retail outlets such as liquor stores. A sub-category of Brewpubs/Microbreweries are Nano Breweries. The Brewers Association does not provide a definition of a Nanobrewery. In fact, very few states define a Nano Brewery. One notable exception is New Hampshire, who define a Nanobrewery as one which produces under two thousand barrels of beer per year.
Like Regional Craft Breweries, Microbreweries are less dependent upon foot-traffic. They distribute most of their beer to a larger geographic market, and sell it via bars, restaurants, and retail outlets (liquor stores etc.). Think of Microbreweries as small-scale versions of Regional Craft Breweries.
Brewpubs, as noted above, sell most of their beer on-site. As such, they are very dependent upon foot-traffic (either in the form of residents or visitors) to sell their beer. In addition to beer, another attraction of Brewpubs is food. Indeed, the food aspect of Brewpubs is one that is often overlooked. According to the journalist Rebecca Skoch, the fact that Brewpubs sell food, makes them “just as much restaurants as breweries.” The dual-offerings of beer and food has the potential to attract more customers. The food has to be good though. Brewpubs are increasingly recognizing the importance of high quality food. A number of Brewpubs in Chicago, for example, “are refocusing to champion their food, bringing in seasoned chefs to create more polished and elegant menus that will garner as much attention as their beers.” Indeed, Chicago is home to the country’s first Michelin-rated Brewpub – Band of Bohemia. Not all Brewpubs need to provide Michelin-rated food to keep customers happy. An above average hamburger or pizza will probably suffice.
Size of brewery and the primary venue for sales (on-site versus off-site) influences how many breweries a city can sustain. The larger the geographic footprint of a brewey’s market area, the less important the size and composition of the local market is likely to be. In other words, the city is more important as a production location, and less important as market place. So a small city could, theoretically be home to a large number of breweries which are focused primarily on external markets. When it comes to Brewpubs (and Nanobreweries) the size of individual establishments is important. A city could support a large number of Nanobreweries, each producing low volumes of beer annually. In an article in San Diego Magazine, Bruce Glassman asked “Can San Diego sustain 100 Green Flashes? [a Regional Craft Brewery] Probably not. Can it sustain 200 “nanos” making 500 barrels a year? Entirely possible.”
Closely related to size and type of brewery is market focus. Indeed, the three are inextricably intertwined. One of the strategic decisions facing the owners of craft breweries is the extent to which their growth and success is going to be dependent upon nurturing local markets or focusing upon penetrating geographically more distant markets. By definition, Regional Craft Breweries, such as Stone Brewing and New Belgium Brewing, have been very successful by pursuing the latter of these two strategies. There seems to be an emerging consensus, however, that new craft breweries (and many existing ones) should focus on developing their local market. Intuitively, this makes sense. The market nationally is not large enough for an additional five thousand New Belgiums (see Bruce Glasman’s quote in the previous paragraph). It might be large enough, however, for an additional five thousand small-scale Brewpubs, that are focused on serving high quality beer and food to locals and tourists. Focusing on the local market allows a brewery to develop a loyal following of consumers. Writing in Wine & Craft Beverage News, Tamara Scully suggests that:
“One advantage to staying locally focused is the connection to the local consumer, and even control over the product. If a local bar is having issues with the tap, a small brewer can respond. If a bar sells out unexpectedly, distributing your own product can mean a rapid response time, for example.”
“When we started, we wanted to be part of a community. I want to know our regular customers because they live down the street. Our success hinges on our ability to attract those customers and deliver them an experience that compels them to come back and visit us again.”
There is scientific research supporting the contention that smaller breweries, focused on more geographically constrained markets, may be the most prudent approach. According to a study published by Wesson and João Nieva de Figueiredo in the Journal of Business Venturing, the most “successful microbreweries are geographically focused, often producing specialized products with a strong local flavor”.
So what does the future hold for craft beer in America’s towns and cities? As a Geographer, I would argue that geography is important. Bart Watson, Chief Economist of the Brewers Association, agrees. Watson recognizes importance of place (and differences between places) when trying to figure out how many breweries a particular city can support. As noted by Watson, “it varies by all the demographics and socioeconomics and rules of a place.” Watson also believes that most markets can support more breweries. In an interview in January 2017, Watson stated that, “while the craft brewing industry is entering a period of maturation, most markets are not near saturation.”
In an article about the market for craft beer in Philadelphia, PA, journalist Mark Dent makes an interesting observation. He suggests that, “thanks to increased consumer desire for locally-made beer, brewpubs have the potential to steal market share from non-brewing neighborhood bars and restaurants.” If Brewpubs are able to steal market share from bars and restaurants, this opens up considerable room for additional growth, and for more Brewpubs to enter the market. Of course, if Brewpubs are successful in attracting customers from bars and restaurants, it could result in some of the latter going out of business. Another city having discussions about craft brewery market saturation is Denver, CO. One area of the city where craft brewery growth is especially prominent is the River North (RiNo) neighborhood (I had an opportunity to visit RiNo last month). RiNo is home to over ten craft breweries. Eric Nichols is a brewer with one of RiNo’s breweries- Beryl’s Beer Co. In describing the drinking scene in RiNo, Nicols says, that, “instead of bars, we have breweries”. An exaggeration admittedly (there are bars in RiNo), but Nichols’ larger point should not be lost. According to Mike Hess, co-owner and Head Brewer, at River North Brewery, many of new craft breweries in the neighborhood have opened “cozy taprooms” and in so doing are going for the “nice neighborhood pub feel”. Hess believes that there is room for more Brewpubs in RiNo. And it is not just in Denver that such observations are being made. Bryant Goulding, one of the co-owners of Rhinegeist Brewery in Cincinnati, OH describes some of the newer, smaller breweries that are opening up as the “equivalent of the neighborhood bar with a brewhouse.”
So it seems that focusing on local, perhaps even hyper-local, markets might be the key to success in an increasingly crowded market place. Providing a ‘neighborhood bar’ type ambience, along with high quality food, may also be critical success factors. Of course, the beer has to good as well. The number of breweries that any particular city can sustain will depend upon local conditions, including the size and composition of its resident population and its ability to attract beer tourists. And the places themselves also have an important part to play in brewery success. Whether they adjust zoning ordinances to be more brewery friendly, or promote their breweries to out-of-town visitors, the town and cities that breweries call home can make it easier for new breweries to enter the market and for existing ones to sell more beer.
McLaughlin, Ralph B. Neil Reid, and Michael S. Moore. 2016. Inter-metropolitan location patterns of commercial craft brewing in the United States. Studies in Regional Science, Volume 46, Issue 1, pp. 15-129.
Wesson T, Nieva de Figueiredo (2001) The importance of focus to market: A study of microbrewery performance. Journal of Business Venturing, Volume 16, Issue 4: pp. 377–403.