The Session #112: The Other Beer Economy

8055045283_f19683a3f3_oOntario is the laggiest of beer economies. Our policies are always at least 100 steps behind everywhere else that is culturally and geographically similar, and about 50 steps behind the industry. In response to Session #112 from The Beer Babe, ‘The Other Beer Economy,’ in which we discuss all the businesses that create a network that support the beer industry, I will provide you with an anecdote that illustrates just how much potential the “other beer economy” has here.

A major angle to my master’s Major Paper, “Ontario’s Craft Beer Industry: Current Assessment and Future Directions,” was the tension between beer entrepreneurs and the roadblocks that prohibition era policy frameworks created. Essentially to be a small-scale entrepreneur in beer in Ontario before 2014, you were working under really weird rules coming from both the LCBO (Liquor Control Board of Ontario) and the AGCO (Alcohol and Gaming Commission of Ontario), and before 2010 you were paying hilarious amounts of taxes. Through my research interviews I attempted to get a sense of how difficult or easy it was to navigate and adhere to said rules – were they clear? Who was overseeing? Who was auditing? Who would you answer to if you broke one of them?

The answers to the majority of these things were often unclear. Some were just easy to ignore, claim ignorance, which would then lead to a small change in that outdated policy (as I’m relatively sure happened with Beau’s and direct home deliveries…) etc., etc. So, the most potent of these was this: prior to Fall 2015, small brewers (that is, below 400,000 hects), were not authorized to pool their deliveries to points of sale. This meant that they weren’t even allowed to hire a third-party delivery service to store and warehouse their product and deliver to liquor stores and licensees.

Problems: I was aware of at least two of these types of businesses in Ontario that did offer this service (must’ve gotten one-off passes from the AGCO or something?) and had been doing it for years. Further, there were a number of open secrets about this or that brewery throwing their product onto this or that other brewery’s truck for certain bar deliveries who’d keep hush hush about it.

So, Fall 2015 comes around and as part of this new policy roll-out, surprise! Small brewers can pool their deliveries now! This was, of course, announced as if it had never been done before and had been strictly prohibited prior… but I digress.

Anyway. The point is, in 2014 or 2015 Ontario got wise to the fact that, in prohibiting this type of third-party delivery activity, they were also seriously stunting that level of entrepreneurialism that would only add to Ontario’s economy. We now have Coldhaus and RG Transfer, two distribution companies, expanding their operations and I’ve heard whispers of other delivery and warehouse services starting up in the province.

We’re still in a bit of a wild west moment for small brewers here in Ontario – it’s a lot of small companies just hacking it together and trying to do everything in-house. Secondary entrepreneurs filling those niches that are, frankly, costs that most business owners in other sectors would have outsourced anyway (like, marketing, for example, or even packaging!) are, I would argue, probably going to make more money than the majority of new brewers over the next few years, and faster. When you’re aware of a direct need, and only need to invest in say, one or two pieces of equipment and then charge other businesses for use of it, (I’m looking at you, mobile canning line dudes!) you’re laughing.

Basically, my thoughts are this: as long as Ontario keeps loosening up on the beer business like they have been, more entrepreneurs can enter the market and be more creative about the types of things they do in and around alcohol. There really is endless potential at this point.

Oh yeah: and hops/grain agriculture here is a bit of a joke. A sad, sad joke. I have other stuff to say about that, and in a nutshell it’s that agriculture needs a lot more government support than just creating market conditions. Farm businesses are high risk and complicated – and I’m no expert but aren’t hops particularly susceptible to disease? So I suppose that, on the manufacturing end, loosening the market is helpful, but government response to creating market conditions for new entrants to the agricultural sector needs to be a whole lot more hands on than it is.

 

Session #80 Round-Up: the Nays

Now we come to the nays. In answering my own question, “Is Craft Beer a Bubble?” it turns out that I chose the winning side. Of the 28 (including me) beer bloggers who contributed to the Session #80, 13 leaned heavily to the ‘nay’ side of the debate.

Of course this doesn’t make us right. I would think that beer bloggers would have some bias, and as Jon Abernathy said in his contribution on The Brew Site, “people on the inside of them have such a hard time recognizing there is, in fact, a bubble until it’s too late and it bursts.”

graphStill, it was a remarkably balanced debate, with 9 bloggers suggesting there is indeed a bubble (or something like it) and 7 on the fence. In order to give every contributor the time of day without having to subject the world to a 4000-word blog post that I wouldn’t expect anyone to read, I decided instead to split the round-up into which of the three camps I felt each blogger fell into.

Part 1: the Yeas

Part 2: the Undecided

And finally, here be the optimists among us:

Keep reading…

Session #80 Round-Up: the Undecided

2852-940x626As the host of Session #80, I posed the question “Is Craft Beer a Bubble?” To my delight, the (to my count) 27 contributions to the Session were very much distributed across the spectrum of possible answers to that question.

I decided I should divide the round-up according to which side (as I understood) the author of each contribution was on in the debate. Yesterday I published the first part, which included the 9 contributions which, to my mind, argued in favour of there being some kind of bubble which must eventually burst.

As I said yesterday, it’s not all black and white and none of the contributors treated it as such, so none of the responses fall totally on the one of the extreme ends of the spectrum. But today I’m round-up all those contributors who seem to sit more or less on the fence, not arguing strongly for either side of the debate.

Keep reading…

Session #80 Round-Up: the Yeas

Well I think I can safely say that Session #80 was a success. I count 27 contributions which I found, with some surprise, to vary widely in their views on the subject. Because of how balanced the debate was, I’ve decided to split up the round-up according to which “side” the contributors were on, beginning with those who argued that yes, craft beer is a bubble.

Of course it’s not all black and white and none of the contributors treated it as such, so many of the responses that I consider to be in the affirmative are to some degree on the fence, and several of them rejected calling it a bubble while still suggesting that a burst or bust of some kind is inevitable.

So without further adieu, in order of appearance, here be the pessimists among us. Come back tomorrow for the rest of the round-up.

Keep reading…

Session #80 – Is Craft Beer a Bubble?

On the first Friday of every month, beer bloggers from around the world all write their own perspective about a single topic, as chosen by a monthly host. As this month’s host, I have chosen the top to be “Is Craft Beer a Bubble?”

I’m going to take a local approach to my answer and talk specifically about craft beer in Ontario.

Let’s start with numbers. There are 31 breweries in the Ontario Craft Brewers Association, the newest of which are Ramblin’ Road Brewery Farm of La Salette and Sleeping Giant Brewery of Thunder Bay, and there are a few more craft breweries in the province that don’t belong to the OCB. The total number is probably around 40.

For a comparison, Belgium, with a population less than that of Ontario, is served by nearly 200 breweries. Closer to home, Michigan, again with a smaller population than Ontario, has around 140 craft breweries, having grown from only 3 in 1991.

The incredible growth rate in Michigan is representative of the US as a whole – in the 1970s there were less than 100 breweries in the States, including the BMCs, while today there are over 2,500. This is an all-time record; the number had previously peaked at a little over 2,000 before Prohibition.

Clearly, if we take the States as a comparison (and I think it’s fair to do so), a craft beer bust is not imminent in Ontario. If anything, the boom here is just getting started.

Keep reading…

One-Week Warning: Session #80

This is a friendly reminder that the Session #80 is coming up! The subject is “Is Craft Beer a Bubble?” Leave a link to your post in a comment here or send it to @DerekGHarrison on Twitter.

I’ve had some interesting feedback already. Gary Gillman had this to say:

Is he asking whether craft beer itself – the concept of rich, well-made beers – may have a finite life and be absorbed by mega-brewing? I.e., that mass market adjunct beer will reassert itself to take almost 100% of the market again?

A second read is, no, craft brewing itself is not in doubt, but many current players may not survive the recent expansion of the market: there may be another 90′s-style shakeout.

A third reading is, the beers themselves will survive, but perhaps they will end up being made by the megas who will push out all the small players because they can make the same thing at least as well and distribute it better and for less.

To clarify, the question is intentionally ambiguous. We may all have our own interpretations of what “craft beer bubble” means, which I think makes the discussion that much more interesting. If you think we are in some kind of bubble, what kind of bubble is it, and by do you believe it exists?

Nate O. had a brief response I quick like:

It’s hard to tell how close you are to the cliff’s edge until you fall off. Once you hit the bottom, it was all so obvious.

To the extent that the explosive growth in craft beer is based upon predictions (or dreams, gut feelings, delusions, etc.) of continued growth, not on fundamental analysis of realistic operating cash flows, craft beer meets the basic definition of a “bubble.”

I think it’s more useful to consider craft beer as two fairly discrete groups: “real businesses” and “vanity projects.” The “real businesses” will continue to grow and thrive through the bubble, The vanity projects, those with no strategy, no competence, no competitive advantage, no idea how to manage a manufacturing corporation, will fold as soon as the bubble bursts.

I’ll let you know my thoughts on Friday and I look forward to reading yours.

Session #80 – Announcement

The Session, or Beer Blogging Friday, is an activity where beer bloggers from around the world get together (not literally) to write their own perspective on a single topic. Each month, the Session is hosted by a different beer blogger, and I will be taking my turn for Session #80, on Friday October 4th.

Session #80 – Is Craft Beer a Bubble?

It’s a good time to be in the craft beer industry. The big brewers are watching their market share get chipped away by the purveyors of well-made lagers and ales. Craft breweries are popping up like weeds.

This growth begs the question: is craft beer a bubble? Many in the industry are starting to wonder when, and more importantly how, the growth is going to stop. Is craft beer going to reach equilibrium and stabilize, or is the bubble just going to keep growing until it bursts?

I look forward to reading everyone’s opinions about this. I have an opinion of my own, of course, but you’ll have to wait until October 4th to find out which way I lean.

I’ll be sending out a reminder toward the end of the month. Make sure to leave your contributions as a comment here or send them to @derekgharrison on Twitter to be included in the round-up.