Craft to the left of them, Megabrew to the right - How is life for the brewers stuck in the middle?

Craft to the left of them, Megabrew to the right - How is life for the brewers stuck in the middle?

As consolidation at each end of the beer spectrum dominates the headlines, Stephen Beaumont looks at the squeeze on those in the middle. How is life for those too big to play small and too small to play big?

Earlier this month, the newly-minted World's (Even) Largest Brewer bought up yet another small brewery in the US. Anheuser-Busch InBev's acquisition of Karbach Brewing of Houston, Texas, its ninth such purchase in the US alone, was not entirely unexpected; the geographic swath of AB InBev's 'High End' division had been missing a property in the south-east of the country.

Who cares if Anheuser-Busch InBev buys more craft brewers? - Click here for a just-drinks comment

The Karbach buy does raise some interesting issues, the largest of which concerns the continued viability of breweries that are too large to sneak under the radar, yet are too small to be able to compete on anything even approaching equal footing with the industry giants. I refer here to what might be termed the 'new nationals', even though some of them are already going international. These are breweries like Sierra Nevada, Stone, New Belgium and Boston Beer in the US, Central City and Steam Whistle in Canada, Duvel Moortgat in Belgium and such longer-established mid-tier players in the UK as Fuller's and Adnams.

The members of this new class of brewers are certainly the most susceptible to the pressures that industry consolidation bring in their home markets. Whereas smaller players can lessen their vulnerability in the larger marketplace by selling increasing percentages of their wares through their front door via taproom, growler and brewery store sales, the larger a brewer grows, then the less viable that option becomes.

This raises the question of whether these 'new nationals' will be able to survive as independent businesses.

Taking the US as a test case, it helps to first get a sense of the numbers involved. Because, although the country's ever-growing brewery count is what tends to make the headlines, production numbers tell a more accurate tale. For instance, out of the 4,258 brewers that the Alcohol and Tobacco Tax & Trade Bureau confirm as having sold at least one US barrel of beer in 2015, almost 75% sold fewer than 1,000 barrels, or 1,173 hectolitres. Further, of the 3,811 brewers for which the Brewers Association reported production numbers in 2015, a mere 36 produced in excess of 100,000 barrels, with only three – Yuengling, Boston Beer and Sierra Nevada – topping 1m barrels, and three more – New Belgium, Gambrinus and Lagunitas – brewing in excess of 500,000.

Interestingly, although rumours continue to circulate about many prominent US brewers, of the top six companies mentioned above, only Lagunitas has thus far attracted a suitor in the form of Heineken, which purchased a 50% stake in the Petaluma, California brewer in 2015.

Is Heineken right to jump in bed with Lagunitas? - Click here for a just-drinks analysis

Consider the ten brewers that follow the top half-dozen in terms of production, however, and you'll see a slightly different picture. Ballast Point, 11th on the overall list, was famously snatched up by Constellation Brands a year ago, while number 12, Brooklyn Brewery, recently sold a 24% stake to the Japanese brewer, Kirin. Continuing through the list, the 13th in production, Firestone Walker, agreed last year to combine its operations with the US interests of Duvel Moortgat, a move many in the industry viewed as an acquisition by the growing Belgian brewery. (Due to the timeframe of the reporting period, Duvel Moortgat USA itself appears in 15th position on the list.) In fourteenth place is Oskar Blues Brewing Holding Co., the name of which reflects its status as a buyer rather than a seller, it having over the past two years purchased both Perrin Brewing of Michigan and Cigar City Brewing of Florida.

So, yes, at least in the US - by many measures the world's most mature craft beer market - it would appear there is a level of production at which it becomes challenging, though by no means impossible, to compete without the assistance of a greater entity. That level of production would seem to be somewhere between 250,000 and 500,000 barrels per year.

That said, however, given that the vast majority of breweries in the US – 75%, as noted above – account for somewhere between 1% and 1.5% of the generally stagnant overall beer market, and that major brand beer sales have been in a general decline for some time, dropping a collective 4.34m barrels in 2015 alone, there would seem to be plenty of space still available for the 25% that do brew more than 1,000 barrels each.

The road might be rockier for those that have already saturated the national market but, for those with room still to expand to new markets, the main limitation would seem to be SKU exhaustion on the part of distributors.

In countries without the three tier system, the road ahead may be even rosier, with industry consolidation forcing the international player to choose in which markets they wish to focus the bulk of their efforts, even if occasionally that comes at the expense of their home bases. 

That's not to suggest that the rate of craft brewery buy-outs is going to die down any time soon, rather that there are many stubbornly-independent brewers out there who will continue to redefine and reshape the regional, national and international beer market for some time to come.