The Brewers Association announced that in the next 5 years they expect to see their current 11% market share in the $100 billion US beer market jump to 20%. But what will craft beer look like if that were to happen? Currently, The Brewers Assocation defines craft brewers like this

Small

Annual production of 6 million barrels of beer or less (approximately 3 percent of U.S. annual sales). Beer production is attributed to the rules of alternating proprietorships.

Independent

Less than 25 percent of the craft brewery is owned or controlled (or equivalent economic interest) by an alcoholic beverage industry member that is not itself a craft brewer.

Just last year the definition of craft beer was changed to include the likes of Samuel Adams, Yeungling and Straub. These are huge breweries producing upwards of 2 million barrels a year. All craft breweries pay dues to the Brewers Association based on production levels. It’s these larger companies that produce the most money that go to fund things like the Brewers Association’s new DC lobbyist.

We’re already seeing the current trend of breweries to remain small (most craft breweries make less than 1,000 barrels a year) and centralized – a growing trend towards farm breweries, where breweries grow their own ingredients. But we’ve also seen various acquisitions lead to concerns that there is a consolidation of breweries, that could lead to diminishing diversity – the very thing that will keep craft beer thriving. Elysian and 10 Barrel both purchased by AB/InBev. Full Sail, Abita, Magic Hat, Pyramid, Stillwater and others have been purchased by private equity firms. Sticking to it’s guns, the Brewers Association, stripped Founders of it’s craft beer title when it sold a 30% share to a Spanish brewery company. But it’s not just craft beer being bought out by Big Beer and private equity firms. Craft beer is buying craft beer. For instance, Oskar Blues is already looking at using it’s relative size to purchase smaller breweries.

To boot, former craft brewers are building companies that will purchase yet more breweries. The founder of Harpoon Brewery, Rich Doyle, has started a private equity firm, Enjoy Beer, that will buy up smaller faltering breweries.

Enjoy Beer will create partnerships with additional top craft brewers who wish to preserve their local independence, while gaining shared resources in areas such as marketing, sales, purchasing, logistics, and finance in order to compete with large-scale corporate competitors.

Last year marked the fewest closings of both Brewpubs and microbreweries in recent history as well as the most openings. Perhaps Enjoy Beer is positioning itself to be the go to private equity firm, if and when the craft beer bubble bursts.

As we reported the other day, there is also the coming threat of a price war among larger craft brewers. Too many beers and too many breweries. Too few taps. The only way many economists see larger scaling breweries surviving this is to start slashing prices. That means it could be a race to the bottom. But slashing prices is exactly what you’d expect to see happening if breweries consolidated. That is the very fear people had when Elysian and 10 Barrel were bought out.

As much as craft beer relies on diversity, the consolidation of breweries is already happening. Elysian co-founder Joe Bisacca said that the reason he sold to AB/In-Bev was to beat the rush.

“What if 150 decide to go at once?” he said. “Anheuser-Busch is still buying breweries, but they’ll buy like eight.”

As Main Street reports, with nearly 3,500 breweries in the US and more than 2,000 more in planning, we can expect more breweries to be bought up by craft breweries or equity firms across the brewery spectrum.

The sheer number of craft breweries, and the number that could potentially be looking to sell, is part of the problem. Just 10 years ago, there were little more than 1,400 permitted breweries in the U.S. That number has jumped to 3,418, with 2,000 more in the planning stages. About 90% of the breweries in existence make roughly 1,000 barrels or fewer. Meanwhile, while overall craft beer retail sales have grown to $19.6 billion, it’s the larger, upper-tier brewers including Boston Beer, Sierra Nevada, New Belgium and, now, Yuengling that account for much of those sales.

With more than 115,000 jobs to its credit and only 46 of its breweries closing last year, craft beer might be loath to let its presence dwindle. For consumers, that could mean a lot more beer brands under one roof. Craft beer loyalists cringe when they look at ABI’s portfolio, which includes Goose Island, Elysian, 10 Barrel and Blue Point next to Bud, Bud Light, Michelob, Shock Top, Stella Artois, Beck’s, Leffe and Hoegaarden. But there’s a strong chance a big part of craft beer’s 20% market share in 2020 includes bigger craft brewers with portfolios akin to A-B’s.

We’ve already seen a sort of goal post shifting by the Brewers Association when they increased the capacity that defines craft breweries. And craft breweries are only getting bigger. Will the Brewers Association redefine craft brewers again, when the volume and number of larger craft breweries demands it? Will these larger breweries have so much market share that they will have purchased smaller breweries by that time? What will this market look like in 5 years? No doubt there will be more buyouts, more “sellouts” and a slow move away from our current understanding of what defines craft beer. We’ll need to rely on the local small breweries (0 – ~5,000 barrels), which make up 90% of craft breweries, but only 10% of the production, to maintain the diversity craft beer requires to remain strong.