Jordan has made some excellent observations about the unfeasible nature of the present day bubble in the growth of craft breweries in Ontario, the nub of which is this:
The growth in the case of Ontario specifically and in North America generally is parabolic in nature and there are some problems with that. I sincerely doubt that there’s a brewery out there whose future business planning is not predicated upon the idea that they will grow and flourish. Confidence is the key to Capitalism, after all. The problems are that customers are a finite resource and the amount of beer consumer is dropping annually in both Canada and the U.S. If you look at the craft beer market segment, it is booming. There’s more reportage on the subject than ever before and experts are getting interviewed left and right. The thing about parabolic growth is that we’ve seen it as recently as 2007 and it usually doesn’t end well.
I was thinking at first that, rather than parabolic, he meant exponential but, lad that he is, he knows exponential means growth up at an increasing rate of growth whereas parabolic means that in part but also has a mirroring arc down that mirrors for every arc going up. No possible ex-nay on the doomsday in that usage.
So, is that true? I have my suspicions that it is but what are some sub-considerations to poke a stick at the theory. One certainly is the need for a widening of the consumer base for craft beers. Most established craft breweries I am aware of in Ontario are exhibiting growth in the sense they are expanding. And this isn't a time of many closings. But how certain are the futures of the new unestablished breweries? How much marginal demand is still untapped? Remember, it is not a shake out if only newcomers fail. It's just their own failure. Failure to appreciate markets have saturation points and that the seventeenth IPA or short release seasonal has less appeal than the fourth or seventh. Does the market need each of the newly opened breweries or those in progress of opening? Probably not given the market has already achieved a remarkable diversity and any increased demand can be met by existing brewers adding capacity.
Yet there is pressure. I had a call a few weeks ago from an investment house asking for, as they always do, free advice in the form of my views of the craft brew market. My first observation was that the level of financing they brought to the table was far greater than a craft brewery would need. Over 10 million gets you five new breweries at a reasonable entry point, not one, and as noted above it is not clear why we need five new breweries. So right off the top their appreciation of scale was off. Then the question was why I was not as optimistic as they expected given how packed a few named beer bars and craft breweries were. I indicated that were there actually a cultural change going on you would expect to see twenty-five times the increase not the perhaps doubling or tripling that's actually gone on. We left it there and the follow up call never occurred. Perhaps my advice was worth every penny it cost. Could be.
And remember what I wrote on Friday. The spread of the use of IPA as code for what you want in new beer is itself problematic. It speaks to an uneducated transient sort of interest. A bubbly sort of interest that is easy to latch on to and as easy to set aside as the next wave of new drinkers naturally rejects the interests of the current one. I had a new IPA Frankenstein of a brew yesterday that need not be mentioned. By a very reputable brewer, it was a combination of dull and horrible. It was a one note blat from the shrill end of the brass section. No progression of flavours. Just the hops overwhelming the putative waggishly juxtaposed style. A beer that will easily be forgotten or even rejected as a foolish example of the era.
The optimist sees the bubble as something needing to be burst so that we can get back on track. So, I am an optimist. I have seen sufficient evidence of a solidifying of the craft beer market in the form of profit being turned back into capital investment, in the form of distribution being realistically limited and in the form of solid brewing still being the norm that I don't think the bubble will cause a general collapse. But, still, burst it will and should be expected to burst if only that the sideshow of novelty can be recognized for what it is.