This is a story of how dramatic change comes to a business — specifically America’s $100 billion beer industry.
The words used to describe it vary: revolution, explosion, or massive. But there is no doubting the tremendous growth in the craft beer industry — which boosted production 18 percent during the first six months of 2014, compared to the previous year — is disruptive and has executives at large domestic brands such as Miller, Budweiser and Coors concerned, even though craft beer is only around 10 percent of the overall beer market.
The change can be seen nationally from the hops farmer in Yakima, Wash., who is planting more specialty crops to keep up with the popularity of hoppy beers, to the metal fabricator in Beaverton, Ore., which has orders for new tanks, to the South Carolina lawyer who hopes to lure well-known craft brewers to his state where some supermarkets still do not sell beer on Sunday.
And it can be especially seen along California’s North Coast, a major epicenter of the nation’s craft brewing industry with eight of the 50 largest, from San Jose to Eureka. Some are seeing annual growth rates from 30 percent to as much as 50 percent, and are making plans. Big plans.
Tony Magee, founder and owner of Lagunitas Brewing Co. in Petaluma, intends to play a leading role. Lagunitas, the nation’s fifth-largest craft brewer, this summer opened up its second production facility in a shuttered steel mill on Chicago’s southwest side, complete with a taproom that is generating tremendous buzz.
The new facility will produce about 120,000 barrels this year out of a total 600,000 for the company, equal to about 18.6 million gallons, said Ron Linenbusch, company spokesman. At capacity, the Chicago plant next summer will be able to do 1.2 million barrels, while the plant in Petaluma will max out between 700,000 and 750,000 — not bad for a company that started out on borrowed money in 1993 in Marin County and survived a marijuana bust back in its early days.
During an interview this summer, Magee glanced at his smartphone and read news that Anheuser-Busch Cos. — the “King of Beers” now owned by a Belgian and Brazilian multinational — had opened a new high-end U.S. business unit. His eyes perked up when he read that Anheuser-Busch CEO Luiz Fernando Edmond believes his company has “tremendous opportunity to grow in this segment.”
“You can call this capitulation,” said Magee, known for his rambling Twitter feed and iconoclastic nature. “Now they are playing on our turf.”
While some may dismiss Magee’s bravado, many people in the industry don’t think he is that far off the mark. It’s not a matter of if craft brewers will take a major chunk of the U.S. beer market, but when, and by how much, and who will survive in an industry that had 2,822 domestic breweries in 2013.
It is realistic to expect craft beer will eventually take as much of 40 percent of domestic market, according to beer executives and analysts. Magee said he could see 50 percent within 10 years.
“There is no question the craft beer category has exploded and that momentum is really carrying it all the way through 2015,” said Ross Colbert, global strategist for beverages at Rabobank International, which does business with large international brewers.