Recent figures releases in the US suggest that the growth of craft beer in the country continues unabated. Larry Nelson takes a look at the numbers.

What goes up, must come down, spinnin’ wheel got to go round… .” This, from the second, self-titled album from Blood, Sweat & Tears, released in 1969 when the band was at the height of its fame. The single reached number two on the Billboard Hot 100 chart, and was written by band member David Clayton-Thomas. 

Which concludes the trip down Pop Music Memory Lane for today, save that the lyric lends itself nicely to this month’s column: The boom in all things craft beer in the US. Is its continuing double-digit growth in both volume and sales value sustainable? Or, are we witnessing the creation of a beer bubble so big that, one day, when it bursts, people will forget about the dot.com dust-up of the 1990s?

The numbers for craft beer are beyond bullish at the moment, with double-digit percentage gains the norm. Six-month figures released this week have the craft community continuing to brew beer at record volumes and receiving record rewards. The Brewers Association, the non-profit trade body that represents the majority of America’s craft brewers, has half-year volumes to the end of June at 7.3m barrels (that’s 31 gallons per barrel in the US), an increase of 13% over the same period in 2012. In value terms, sales climbed by 15%. 

Bullishness aside, craft beers still represent little more than a drop in the ocean that is the US market. For calendar-2012, the BA placed craft volume at 13.2m barrels, equating to 6.5% of the beer market. The value of craft beer was placed at $10.2bn for the year, a figure that equates to just over 10% of the overall value available. There is considerable potential for growth, especially with mainstream brands such as Budweiser, Miller and Coors in decline.

All of this excitement is attracting entrants. During 2012, the BA has it that 2,347 craft breweries operated for some or all of the year, with 409 brewery openings against 43 closures. (This figure may be adjusted, with it originally reported at the end of March 2013.)

Yet, craft beer is a global phenomenon, with growth being recorded not just in the US but virtually everywhere on the map. In the UK, the number of brewers has surpassed 1,000 in the past year, a threshold which was unthinkable ten years ago, when a tax break was introduced as an incentive for for small producers. In Italy, meanwhile, craft brewers number in excess of 550, and this from a standing start in the mid-1990s.

It’s not just developed markets where craft is gaining in momentum - you’ll find microbreweries in the most promising of markets; Brazil, Russia, India, China, but in reality virtually everywhere. For example, Christian von der Heide, SVP group supply chain director for East African Breweries in Nairobi, estimates that there are least ten microbreweries in operation or in planning in Kenya.

But, it’s the US where the craft brewing movement first came to prominence, in the early 1990s, and as such it’s the one market where there’s sufficient historical trend data to suggest possible future outcomes.

At the moment, the US is living through its second craft beer boom. In the mid-1990s, there was a surge in craft brewery openings that proved unsustainable. Volumes subsequently stagnated well into the new millennium.

Brewers Association director Paul Gatza remembers this first boom-and-bust cycle well. He recalls that the issue was the quality of brewers entering the market, with some attracted by what appeared to be easy money – brew a beer, any beer and the world would be your oyster.

But it wasn’t. Consumers and bars and restaurants weren’t fooled - at least not for long - and those brewers that didn’t put product quality first and foremost didn’t stay the course.

The numbers support this argument: As noted, while beer volumes stagnated for several years, the number of breweries declined over the same period. This suggests that there were brewers during this interregnum who gained volume. The strong survived; the weak were culled from the herd.

Gatza thinks, that this time around, the growth in craft brewery volumes may well be sustainable, and that there are differences between now and then. For starters, the supply chain is much more sophisticated and demanding – distributors and wholesalers expect product quality and consistency. Demand patterns have changed as well: For the liquor and convenience stores that dot the country's landscape, craft beer, in some fashion, is now a must-have.

There are general consumer trends that favour micros. Buying locally is on the increase, not just for beer but for any number of foodstuffs. If you had to pick the greatest competitive advantage between a craft brewer and their much bigger competitors, this is it.

There’s also room to grow. The state with the greatest per capita craft brewer density is Vermont, with about one brewery for every 24,000 residents. That’s probably a sustainable population base for a specialist micro or brewpub – while the Brewers Association includes in its data a genuine national force, Boston Beer, and up-and-comers such as Sierra Nevada and New Belgium, both of which are expanding their footprint to the east coast by building breweries cheek-by-jowl in North Carolina, the median production figure for its members is just 500 barrels. Of the 2,347 craft breweries operational last year, almost half that number, 1,132, were brewpubs. 

It is the bigger states that are seeing the greatest growth in start-ups – Gatza reports that Texas added 30 breweries during 2012, moving from 50 to 80, resulting in one brewery for roughly every 290,000 residents. Further west, California absorbed another 50 brewery openings last year. There’s still room to grow in a very real geographic sense, as start-ups fill the gaps in the craft brewing landscape.

Incidentally, the BA’s calculations don’t include craft beers that are brewed and marketed by the national players, such as Anheuser-Busch InBev and MillerCoors. Brands such as Shock Top from ABI and Blue Moon from MillerCoors are not regarded as craft beers by craft enthusiasts – but they probably are seen as such, to some extent, by casual beer drinkers. 

But, there are still tangible limits to growth. There could well be a brake on expansion in the off-trade; the amount of shelf space supermarkets are prepared to devote to craft beer is finite. At some point, someone will be crowded out. 

Here’s the most amazing number of all, one that makes it seem likely that at some point there will need to be a market correction. The Brewers Association is reporting this week that there are a further 1,605 craft breweries in some stage of the planning process. 

If all these come to fruition, that’ll take the American market close to a staggering 4,000 craft breweries. As such, will there be correction in the market? The best guess answer is yes, but not to the extent that one might imagine – a few hundred closures, rather than a few thousand, would seem most likely.

And, given the last boom-and-bust cycle, the outcome of such a downturn is that the survivors will come back bigger and better able to compete. Craft beer is here to stay in the US - and it’s only going to keep getting bigger and, undoubtedly, better.