Is Craft Beer a Bubble?

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Is Craft Beer a Bubble?

It’s a good time to be in the craft beer industry. The big three of Bud, Miller and Coors (BMC) are watching their market share get chipped away by the purveyors of well-made lagers and ales. Craft breweries are popping up like weeds. Walkerville Brewery recently reopened with an expanded line-up and became the 32nd member of the Ontario Craft Breweries Association (OCB). The Windsor Beer Exchange will be opening this month, a new home-away-from-home for craft beer lovers in Windsor.

Microbrew

This unprecedented growth begs the question: is craft beer a bubble? The industry is starting to wonder when, and more importantly how, the growth is going to stop. Is craft beer going to reach equilibrium and stabilize, or is the bubble just going to keep growing until it bursts?

In trying to answer this question, we must look at the data. For those of you who don’t want to read all the way to the end of this article (SPOILER alert!) my conclusion is that we are not in the midst of a craft beer bubble, and that in Ontario specifically there is a huge capacity for growth.

There are 32 breweries in the OCB, Walkerville being the newest member, and there are a few more craft breweries in the province that don’t belong to the OCB. The total number is around 40. For a comparison, Belgium, long considered the beer mecca of the world, is a lesson in beer sustainability. The population is less than that of Ontario, and is served by nearly 200 breweries, most of which have been around for dozens (and in some cases hundreds) of years.

American Craft Beer

Closer to home, there are 140 craft breweries in Michigan, having grown from only 3 in 1991. This incredible growth rate is representative of the US as a whole – in the 1970s there were less than 100 breweries in the States, including the BMCs, while today there are over 2,500. This is an all-time record; the number had previously peaked at a little over 2,000 before Prohibition.

If we take the States as a comparison, and I think we should, a craft beer bust is not imminent in Ontario. If anything, the boom here is just getting started.

Could craft beer be a bubble in the States? The market is much more saturated than in Canada (California alone has over 300 breweries) while still very much a new culture. However, it’s misleading to compare the number of pre-war breweries, almost all of which closed during Prohibition, to the number today without factoring in population growth. The 2,000 American breweries pre-Prohibition served 63 million people, while the 2,500 of today serve 316 million. So if the market was in equilibrium before prohibition, then it won’t reach saturation today until there are at least 10,000 breweries in the States. If Prohibition had never happened, maybe we would have already reached that number.

Wine & Beer

The most obvious (and possibly the best) thing to compare to the craft beer industry is the wine industry. There are 8,000 wineries in the US, most of which are less than 50 years old, and the industry remains very profitable, despite having gone through their “new-and-trendy” phase way back in the 70s.

Closer to home, there are more than 180 wineries in Ontario, and hopefully we’ll have that many breweries soon. The Lake Erie North Shore (Essex County) is the latest recognized wine region in Ontario and has grown from 4 wineries to almost 20 in the last 11 years.

Yet in Windsor there is still only one craft brewery and one micro-brewery. Clearly we can handle a lot more growth before the market is saturated.

It’s far too early to start worrying about a craft beer bubble in Ontario. And when the growth does finally taper off, the breweries that will survive will be those that focus on specialisation, localisation, and quality. A competitive craft beer market rewards quality and runs sub-par breweries out of business. So at the end of the day, the bubble is good for the beer drinker.

By: Derek Harrison

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