The Brewers Association, a trade association representing small and independent American craft brewers, recently released the 2014 data on the United States craft beer industry. For the first-time ever, the craft segment reached double-digit volume share of the marketplace, 11% to be exact.
Based upon the 2014 data, craft brewers produced 22.2 million barrels of beer, experienced an 18% rise in volume, and a witnessed a 22% increase in retail dollar value. The retail dollar value was estimated at $19.6 billion representing 19.3% market share.
In addition, as of the writing of this article, there are now 3,464 total breweries in the United States and 3,418 of those fit within the definition of craft. This represents a net 19% increase year over year from 2013. More importantly, craft breweries now employ 115,469 individuals, up 4.3% from 2013.
In a press release issued by the Brewers Association, Bart Watson, the organizations chief economist, said: “With the total beer market up only 0.5% in 2014, craft brewers are key in keeping the overall industry innovative and growing. This steady growth shows that craft brewing is part of a profound shift in American beer culture, a shift that will help craft brewers achieve their ambitious goal of 20% market share by 2020.”
Watson also went on to say: “Small and independent brewers are deepening their connection to local beer lovers while continuing to create excitement and attract even more appreciators.”
While this production and consumer related data is indicative of greater market adoption by consumers, the growth of the craft beer segment is also starting to be embraced by state and local economic development organizations. Craft breweries are a unique economic development value proposition because this industry creates an intersection point for manufacturing and tourism, something that cannot be said for very many, if any, other industries.
A few years ago, Sierra Nevada, New Belgium, and Oskar Blues began looking for east coast expansion opportunities. Roanoke, Virginia made a serious run at Sierra Nevada putting together an economic development package valued at around $13 million in incentives. Likewise, Philadelphia, Pennsylvania made a similar run at New Belgium.
Roanoke and Philadelphia both lost these craft brewery expansion opportunities as Sierra Nevada and New Belgium decided to locate in Asheville, North Carolina following the lead of Oskar Blues. By landing all three of these craft brewery expansion projects, Asheville firmly staked its claim as a viable and sustainable craft brewery cluster, leading to significant financial investment in manufacturing assets and attracting countless tourists to the area.
Not long after Sierra Nevada, New Belgium, and Oskar Blues invested meaningful capital in the Asheville economy and started hiring new employees, other states and cities began to take notice. From Arizona to Virginia, from parts of California to South Carolina, and a number of other states in between, state legislatures began modernizing beer laws in a way to encourage further development of existing craft brewery ecosystems as well as to attract expansion projects.
In 2014, Stone Brewing Company, a San Diego, California based craft brewery, issued a request for proposals for a $75 million and nearly 300-job east coast expansion project. The site selection process spanned 20 states and took nearly a year to complete. In the end, Richmond, Virginia prevailed and will eventually be the home for the east coast operations of Stone Brewing Company.
Not wanting to lose another craft brewery expansion project like it had in Roanoke with Sierra Nevada, the state and economic development organizations in Virginia sought to accomplish two objectives in trying to lure Stone Brewing Company to Richmond: (1) make fundamental changes to franchise, distribution, and three tier laws in order to make the craft beer segment more competitive relative to other states, and (2) put together a financial incentive package that would assist Stone Brewing Company in the development of its east coast project. The authorization of taprooms was the most critical component of this effort.
Virginia accomplished both of these objectives and ultimately landed Stone Brewing Company. When it is all said and done, Stone Brewing Company will invest $74 million in Richmond and create 288 jobs in the first three years. The company expects to generate $100 million in revenue by the end of year four and eventually reach $100 million in revenue on an annual basis at the Richmond location.
In order to incentivize this development, the City of Richmond is issuing $23 million in bonds for the manufacturing facility, $8 million in bonds for the restaurant and beer garden, and providing $2,000,000 in city grant funds. In furtherance of this effort, the State of Virginia is contributing $5,000,000 from the Governor’s Opportunity Fund and an additional $250,000 from the Governor’s Agriculture and Forestry Industries Development Fund. The Stone Brewing Company facility is expected to come online in 2016.
In October 2014, representatives from Green Flash Brewing Company, another San Diego craft brewery, joined state and local officials in at a groundbreaking and ribbon cutting in Virginia Beach. By the spring 2016, Virginia Beach will be the home to a 100,000-barrel-a-year Green Flash production facility, a 4,000-square-foot tasting room, and one-acre beer garden. The Green Flash project constitutes a $20 million investment and will create at least 40 new jobs for the area.
Most recently, there are rumors swirling that Ballast Point Brewing Company, yet another San Diego based craft brewery, is considering an expansion project in Richmond. Speculation is beginning to brew (pun intended) whether the interest is due exclusively to the economic development incentives Stone Brewing Company received for its project or whether the interest is due to the market demand and the existing ecosystem. My guess is both.
This naturally begs the question: why are states like North Carolina and Virginia crafting policy to incentivize investment in craft breweries? Well, I believe there are three critical reasons for this, two of which I have already mentioned: this is a manufacturing industry and there is a tourism component to it. The third reason I believe states and regions are starting to focus on the craft beer industry is because these businesses help create place.
First, fundamentally craft breweries are manufacturers, a highly coveted target of economic developers. The development, construction, and operation of a craft brewery generally involves significant financial outlays and creates meaningful jobs, two of the most critical end means for economic developers. With the explosive production growth in the craft beer industry and rising demand, more opportunities exist to export these products outside of the borders of a state bringing in new dollars to local communities, another critical objective of economic development.
Second, tourism surrounding craft beer is intensifying in the United States. Places like Asheville, North Carolina and Bend, Oregon have developed niche tourism opportunities around craft beer clusters. This sort of tourism activity has a positive ripple effect with local hotels, restaurants, and retailers as people explore highly unique and local craft beer experiences.
The local component is the final leg of this economic development stool. Craft breweries often locate in higher density areas, adaptively reusing once blighted buildings and become chief placemaking agents of local communities. As people move into denser core cities and communities, a premium is placed on place, that being the intersection of live, work, play, and quality of life experiences. Craft breweries play an instrumental role in placemaking efforts.
My prognostication about economic development and the craft beer industry is I believe you will begin to see more of it. I believe you will begin to see states further amend dated regulatory laws to create more ideal business environments for existing craft breweries while also incentivizing expansion projects. I think you will see the craft beer segment continue to grow as the demand for highly localized, flavorful, and innovative beers increases with each passing year.
Will the craft beer bubble burst? Sure, but I do not think its going to happen anytime soon; so, get out there and support your local breweries and become an advocate for this creative economy industry.
