Good questions are better than easy answers

At the recent Craft Brewers Conference in Portland much of the discussions were centered on the growing interest in Private Equity firms that are interested in investing in craft breweries.  A number of industry pundits and consultants commented that with ABI kicking tires and all the PE interest, prices may be peaking for these craft breweries.

In the last several years a number of distributorships have changed hands.  While not officially published, it is widely believed that these distributorships have sold for multiples of between 7x-10x.  Consider that 30 years ago, a wholesaler with a regional brand and some imports would go for 1x, and one with a national brand could produce 2x, this is dramatic growth.

Right after WWII, the US beer market was at 86,600,000 BBLS.   This volume was produced by 476 operating breweries in the country.  What is interesting is that starting in 1945, and for the next several decades; beer experienced a rapid and dramatic growth in volume, driven by the largest generation in history, the baby boomers.

The US beer volume peaked in 1990 at around 203,658,000 BBLS and since than the overall production has remained flat or is declining, depending on the year.  In 2014, US beer volume came in at 197,124,000 BBLS.  Still quite a dramatic growth in volume since 1945.

With all this dramatic growth during the 40s, 50s, 60s, 70s, and 80s, the number of breweries producing this growth in sales has dropped from a high of 476 breweries in 1945, to a low of only 44 breweries in 1979.  It is safe to say that those remaining breweries must have been happy, as they most likely were producing at full capacity during these decades of growth.

When the industry peaked in 1990, the number of producing breweries also started to increase in number.  Last year there were just under 3,700 breweries operating in the US, as noted in the chart above.  These breweries were producing the 197,124,000 BBLS. as reported from 2014.  What this looks like is that in 1979, the average production per brewery was about 4, 186,000 Bbls, however, in 2014 those 3,678 breweries averaged about 52,315 BBLS each.

It has also been widely reported that there are up to 2,000 more breweries anticipating opening.  Many of the current operating craft brewers are in expansion mode and adding capacity.  While this is not new news to the industry, one can do the math and note that the annual volume per operating brewery will drop much further.  In essence, this is just what the consultants are predicting.

The pundits are all saying the same thing, that consolidation and closures are inevitable given the number of craft breweries.  Add in a flat or declining beer volume and something will have to give.

Consider that for decades we had a rapidly growing beer volume supported by a rapidly declining number of breweries.  Now for 20 years we have a rapidly growing number of small craft breweries, after a declining beer market, although the craft segment is expanding at double digit rates.

For the short term the question is just how high will the value of these craft brewers go?  For the long term, good questions are better than easy answers!