The number was put on the table. It sounded good. It was big, ambitious and bold. Or crazy and unrealistic.
When the guiding lights of American craft brewing met last weekend at the St. Julien Hotel in Boulder to sharpen their vision and undoubtedly drink a lot of good beer, the suggestion was raised that craft brewers should try to claim 20 percent of the U.S. beer market by 2020.
By the end of the meeting, the Brewers Association board had revised the organization’s mission to reflect that goal and made a few changes that might help it get there, including broadening the tent of what it means to be a craft brewer – always a contentious subject.
So are they crazy? Is it an attainable goal or impossible dream?
“It’s a stretch, but that’s what missions are about – something to aspire to,” Brewers Association president Paul Gatza said in an interview. “We’re not looking for a slam-dunk mission.”
The industry has a long road ahead, even with the double-digit growth posted in recent years. According to the BA, craft beer production grew 13 percent in 2011 and 15 percent in 2012.
In 2012, craft beer represented 6.5 percent of all beer produced in the U.S., up from 5.7 percent the previous year, the BA said.
Most analysts would call 20 percent market share by 2020 a long shot, however. San Francisco-based Demeter Group Investment Bank predicted last year craft brewers would command 15 percent of the market by 2020 if existing growth rates hold.
With one stroke of the pen, the Brewers Association put itself closer to the 20-in-20 goal.
The BA holds breweries up to three standards to meet the group’s definition of “craft brewer.” Going into the Boulder meeting, the standards were they must be “small,” producing less than 6 million barrels annually; “independent,” meaning no more than a quarter of the company may be controlled or owned by a non-craft brewer; and “traditional,” meaning at least half of production volume must use all-malt flavoring instead of adjuncts like corn and rice. The knock on adjuncts is they are typically used to lighten and cut down flavor, not enhance it.
The change was made to the term “traditional.” Adjuncts are now OK. That opens the door to D.G. Yuengling and Son Inc. of Pottsville, Pa., which even as America’s oldest brewery did not meet the BA’s “traditional” definition because its flagship standard and light lagers use adjuncts.
Gatza said it seemed wrong to label some of the nation’s heritage brewers as non-traditional. He said an increasing number of craft brewers are using rice, corn or a simple sugar strategically, too – say, to lighten the body of a double IPA.
Gatza projects craft brewers will own 7.6 of the U.S. beer market this year. If Yuengling is in the fold, that alone would cause the numbers to jump another share point on top of that estimate, he said.
The brewery – in a strange disconnect, already a voting member of the BA even while its beer wasn’t considered “craft” – produced 2.5 million barrels of beer in 2011.
Eric Wallace, president and co-founder of Left Hand Brewing in Longmont and a Brewers Association board member, pointed to other changes adopted by the board as key to achieving the growth goal. Most important, he said, is adding to the mission statement of fostering “a commitment to quality.”
Many craft brewers have sounded the quality theme as new breweries have exploded in number, many of them on small brewing systems, and some rushing to get their beer packaged perhaps before they should.
Wallace also singled out the BA’s greater focus on improving access to raw materials like hops.
“It’s an extremely ambitious goal,” he said. “It’s recognized that was quite aspirational. ‘Twenty percent? Are you out of your minds?’ I think it’s a big, big statement. And it recognizes the impact craft beer is having not only on the American beer market, but internationally. The recognition of the American craft brewing scene leaves its imprint everywhere.”
If the lofty goal is to be attained, a couple of Colorado breweries will have a lot to say about it. Both New Belgium Brewing and Oskar Blues are planting stakes with second breweries in North Carolina, positioning themselves for better East Coast distribution and stronger brand loyalty in the South (Oskar Blues is up and running and New Belgium is under construction).
On a smaller scale, Boulder-based Avery Brewing is moving back into markets it pulled out of when demand outstripped supply, and Fort Collins-based Odell Brewing is launching in Texas, a big move for a business that has preached slow growth.
The neighborhood nano trend continues to power forward, but that will not move the needle as much. Neither will brewpubs, which constitute the majority of the 948 new brewery permits issued nationwide in 2013, according to a recent analysis from the industry lobbying group The Beer Institute.
Patrick Emerson, an associate professor of economics at Oregon State University who studies the economics of beer, said those larger craft brewers are the key to the 20/20 goal.
“It is not fantasy to imagine that kind of overall growth but the big factor is always going to be scale and competing on price,” he said. “Why I think it is possible is not so much the proliferation of new tiny breweries but the maturation of the big craft brewers ala New Belgium, Sierra Nevada and the like that are starting to achieve very significant scale economies and can keep prices competitive.”
Other challenges remain. The cider craze has the potential of sapping craft beer growth among younger drinkers, Big Beer is not only going after the craft market but intensifying efforts to market cheap lagers, and the craft beer drinking demographic is lacking in ethnic diversity.
But perhaps no bigger hurdle exists to the growth goal than the likelihood of more craft brewers selling out to Big Beer. One significant defection could take a huge chunk of market share, potentially wiping out the gains from welcoming the likes of Yuengling and other heritage breweries.
Kansas City-based Boulevard Brewing, the 12th largest U.S. craft brewer on the BA’s 2012 list, was acquired by Duvel Moortgat of Belgium in October and will be off the books. Same with Blue Point Brewing of Patchogue, N.Y., which was snatched up last month by Anheuser-Busch InBev.
“There are most definitely brewers that have that exit plan in mind,” said Matt Cutter, a co-founder of Upslope Brewing in Boulder. “I’m not one of them. But that’s really the only card the large domestic players have left. They’re shrinking 1 to 2 percent a year. Craft beer is growing, 13, 14, 15 percent a year. So how do they fill up the extra capacity they have in their breweries? They buy brands. They fill up the capacity and they plug it into their existing distribution network.”
Cutter said craft brewers can help themselves toward the 20/20 goal by brewing more sessionable beers that will appeal to the masses. He can attest to that, watching as his Craft Lager has soared to the top in sales in the Upslope portfolio.
“Absolutely, (consolidation) will happen,” Cutter said. “To what degree? It depends on people’s agendas. And agendas change over time.”
Eric Gorski can be reached at email@example.com. You can follow him on Twitter here.