Where is the Craft Beer Market Headed?

The craft beer market has been heavily influenced by a change in preference for these less recognized beers. There has been a significant increase in demand for craft beer in general in the past five ten years. Independent and small beer producers accounted for 24.5 million barrels two years ago.  This production was a 13 percent rise in volume and led to a 16 percent increase in retail dollar value. Then in 2016, the sales of craft beer increased by 6.2% and saw a 10% dollar sales growth. After examining these statistics, it is evident that this market has seen growth in its demand. This increase in sales is due to more consumers purchasing craft beer and the firms in the market producing more output. The firms currently in the market are experiencing positive economic profit, shown by the increasing number of firms. Brewers and other individuals outside the market are entering to take advantage of this profit.

It is evident that the craft beer market is on the rise. Craft beer sales by volume have seen a substantial increase, as well as growth in the number and size of craft breweries. The origin of this growth is ambiguous, but the increase in demand has played an important role. In the late 1990s, there was a boom in the craft beer market segment. Allaboutbeer.com reported that “between 1985 and 1997, volume of craft beer was up 40 to 60 percent” . The craft beer market today experienced very similar growth in the late 90s, but it did not continue. In 1997, the percent growth in sales dropped to 1 percent. Some craft beer breweries stopped production, some sold their firm to larger companies, and some remained in the market. Demand and profits decreased, so firms exited the market.

This situation in the past has pushed many consumers and observers of the market to wonder if the recent demand growth will slow soon as well. If demand growth is close to its peak then the craft beer producers may see a loss of profits after demand begins to decrease. A huge concern is the rapid investment in established and new firms. A disappearance of demand growth for craft beer over the next few years combined with continued investment on the supply side could be harmful for many new craft breweries. Without demand to match the increasing number of firms, these new breweries will be forced to exit the market. The past shows that the demand will dictate the status of the craft beer market.

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