The Bubble Versus Mature Market

Last week, Time posted an article that asks the familiar question: is the craft* market saturated?  (I know--I was shocked Time still existed, too.)  I was happy to tweet it and let it go--until Alan posted related thoughts yesterday.  Well, two makes a meme, and memes need feeding.  Here are my meaty bits:

1. It's really important to distinguish between brewpubs and breweries.  Yes, there's a point at which the supermarket shelves become too packed to admit yet one more brewery's packages, but brewpubs are another matter.  If the US had ten thousand of them and they averaged 500 barrels a year, that would amount to all of 5 million barrels--or 2.5% of the beer sold each year.  We can handle that.
2. Paul Krugman, who is more reliable than me on these matters, describes a bubble as "a situation in which asset prices appear to be based on implausible or inconsistent views about the future."  A brewery bubble would be a situation in which the overall capacity of all the craft breweries were radically higher than the actual number of barrels required by the market.  
3. A mature market, by contrast, is one that has reached a state of equilibrium.  In beer terms, that would be a situation in which the number of barrels of capacity equal the number of barrels of demand.  In order to grow, breweries would need to cannibalize each other.  That sounds bad, but it happens to be the definition of a healthy market.  Presumably, people would quit buying crap beer and buy more of the good stuff. 

The craft beer segment has been expanding at some shocking amount for a decade (mid-single digits to low double-digits.  Every year.)  You would therefore expect a ton of new brewery openings.  But it's also true that at some point, the market will hit equilibrium.  For awhile, this will cause widespread gnashing of teeth and breweries used to amazing growth will feel like a collapse has arrived. Most craft brewers have never seen flat sales or a market that wasn't growing.  It will be deeply unnerving.

But I don't see any evidence that the capacity of craft breweries is so outstripping demand that we're in a bubble.  Can anyone point to such evidence?  Anyone?  See, no bubble.  At worst it looks like some places might finally be approaching a mature market.

We'll survive it.


Update.  Just to underscore the difference between a mature market and a bubble, let's talk about one of the classic examples: housing sales.  At the height of the housing bubble in 2005, there were 1.28 million houses sold in the US.  In 2011, only 306,000 homes sold.  In an average year, the US should be selling around 700,000 homes, if I'm reading the stats correctly.  The craft beer segment was roughly 15 million barrels in 2012.  If it were a similar kind of bubble, we would place the actual healthy market for craft beer at about 8 million barrels, and we could expect the burst bubble to drop sales down to less than four million.  Does anyone believe that's where we are?  Even if the bubble were less severe--as most bubbles have been--does anyone doubt the US can consume 15 million barrels of craft beer a year?

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*Yes, "craft" is a terrible name for a brewery, but it's not terrible when referring to the market segment.