Bringing Back the American Craft Beer Enterprise

 

There’s been lots of worry about the state of the entrepreneurial American economy recently, especially around net new jobs. Young companies, the primary source of net new jobs, only make up 8 percent of all firms in 2011 (down from 16 percent in late 1970s). While most sectors reflect this national trend, one sector of the economy, craft brewing, has been rapidly growing since the late 1970s.

At the 2015 Invest Midwest conference in Kansas City, John McDonald, CEO of Boulevard Brewing, spoke about the development of Boulevard during the past 26 years. John’s speech and the success of Boulevard inspired me to research the boom of craft brewing throughout the U.S. and what has led to its success.

As of 2014, there are 3,464 breweries across the USA, while back in 1873, there were 4,131 breweries. It may seem like there’s been a gradual decline in brewing in the US, but in reality, the history of brewing in the U.S. has been tumultuous. Prohibition (1920-1933) hit the brewing industry hard, with only the largest breweries remained open by selling non-alcoholic beverages. In 1935, three years after the production and sale of alcohol became legal, only 700 breweries were operating.

The resulting economic and cultural conditions negatively impacted the diversity and number of breweries. For a 30-year period (1958-1988), there were 200 breweries or less in the entire country. Not until the 1990s did we see a sustained growth of breweries in the U.S.

Now, during the last five years, the number of breweries has nearly doubled from 1,813 in 2010 to 3,464 in 2014.

Source: Brewers Association

Home Brewing Law

Prohibition hurt everyone in the brewing industry, especially those who weren’t able to convert production to non-alcoholic beverages (which were mostly small producers). But why, after 56 years of alcohol becoming legal, were there still fewer than 200 breweries in the U.S. in 1989? And what spurred the massive growth since then?

It’s likely that we still had so few breweries in 1989 because of a market dominated by a couple giant breweries, high startup costs, lack of demand and policy impediments. Over that time, one major law has spurred growth. Bill H.R. 1337, signed by Jimmy Carter in 1978, is seen as a catalyst of growth to the industry.

The bill “allows any adult to produce wine and beer for personal and family use.” Although home brewers aren’t able to sell their brew, they’re able to experiment with up to 200 gallons in the household of two adults. This law was passed federally, but left up to each state to decide its own ruling.

In 2013, the last two states (Alabama and Mississippi) made it so that home brewing is legal in all 50 States. The impact of the bill on the craft beer sector is visible when looking at the sector per state and when each state made home brewing legal. The correlation of home brewing and impact of the craft beer sector to each state is strong, as seen in the case of the final two states. Alabama and Mississippi are ranked near the bottom for breweries per capita 47th and 51st respectively and economic impact per capita 50th and 49th, respectively.

National Economic Impact

The growth of this industry has had large effects on the palates of consumers and the economy as a whole. As a whole, the American beer industry contributes $246B to GDP and supports 183,610 jobs directly and 2 million jobs indirectly.

Of that total, the craft brewing industry contributes $33.9B and supports 108,000 jobs directly and 360,000 indirectly. That means that craft breweries (as defined here) represent only 14 percent of the entire beer market, but provide 59.9 percent of the brewery-specific jobs!

This is an impressive impact by the craft beer sector, which barely existed 30 years ago. It’s stunning to see how drastically a policy change can spur economic and cultural growth. To take a closer look, we’ll examine the economic impact of the craft beer sector in Missouri.

Missouri Economic Impact

Back in 1989, when John McDonald started Boulevard Brewing, the only beer that people knew came from the brewery across the state, Anheuser-Busch. Boulevard was one of the first craft breweries in the state, but is now joined by 80 fellow craft breweries.

Of those, 14 of them are located in the Kansas City area, near Boulevard Brewing Company. As with craft brewing across the country, these 80 establishments have made their impact on the Missouri economy, contributing $612.4M to the state’s GDP in 2012.

 

Source: Brewers Association

Conclusion

Craft beer’s astonishing ascent isn’t only due to the passing of bill H.R. 1377, although this bill has played its part. Changes in American drinking culture, customer preferences, and entrepreneurs, like John McDonald, who were determined to provide customers with diverse and high-quality beer are ultimately responsible for the positive perception and the overall success of craft beer across the country. In times of entrepreneurial woe, this sector shows promise of continued growth in number jobs and impact to brewer’s local economy.

In coming posts, I will explore the discussion around the three tier system and how it could impact craft breweries and how just about everyone is getting into “craft beer” these days.

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