Periodically, the Brewer’s Association releases statements that I find a little bit suspect. This is mostly because they’re a lobbying group and their purpose is being optimistic about craft beer. I’m all for defending your own interest. After all, does it not say in the Talmud, “If I am not for myself, then who will be for me?” Good advice.

The thing is this: You should always be skeptical of an overwhelmingly positive statement released by a lobbying group’s staff economist. This should be self-evident, especially when it’s released as a PR move. I don’t mean to be an Agnew style nattering nabob of negativism, but I’d like to comb through some of the points that are being made in today’s BA press release, titled The Craft Beer (Non) Bubble.

The first thing that should be pointed out is that the graph representing the non-bubble argument is entirely misleading. For the obvious reason that it dwarfs the scale of the growth of craft breweries in the United States, the economist has chosen to compare the current situation of craft breweries in the United States with the NASDAQ dot com boom of the late 1990’s. This is nonsensical because the NASDAQ chart represents a monetary increment rather than a number of companies. Additionally, the Dotcom bubble may have subsequently depressed the NASDAQ, but it’s relatively clear from the graph that the market had stabilized by month 31 or so. Given that the chart runs from October 1998 to June 2004, and that the market seems to have stabilized from that bubble by approximately June of 2001, I think we have to attribute the subsequent drop in the market to an alternate cause. Probably it has something to do with the events of September 11, 2001. At any rate, the graph is bogus. If you listed the number of NASDAQ member companies, it would make more sense as a comparison but it wouldn’t prove anything.

So, the BA staff economist is representing the number of breweries in terms of monetary value on a non realistic timeline. The graph is irrelevant.

Secondly, “Everyone should stop talking and/or worrying about the number of breweries.” This is apparently because that number includes Brewpubs. This is a pointless obfuscation of the problem which conflicts data the BA has issued previously. According to the BA’s own stats, the number of brewpubs operating in 2011 was 1068. In 2012, 1132. By June, it was 1165. Those are increases of approximately 6%, year over year. That’s not really the massive expansion that he makes it out to be. Comparatively, 315 microbreweries opened between 2011 and 2012. As of June 2013, there were another 107, bringing the total to 1221. According to the BA itself, there are 1250 American breweries in planning. You’re realistically looking at an approximate 100% increase in breweries between 2011 and 2016. Isn’t that worrying? Think about how many additional brands that will create.

The answer provided to this issue? Don’t think about it. The numbers don’t matter. Until we know how much beer they’re making, it’s irrelevant. Never mind that this interpretation doesn’t jibe with the widely touted information on expansion that is frequently used to point out the segment’s expansion.

Thirdly, “It is much more relevant to talk about capacity and/or market share.” His points on capacity are essentially unassailable because they contain no concrete numerical information about volume being produced.  Market share on the other hand:

“That leads us to market share.  How long can craft keep gobbling up share points at the rate of 1 or 2 points a year?  The answer: as long as the consumer demand for full-flavored beer continues, and it shows no signs of slowing.  The craft revolution isn’t just built on innovative businesses, it stems primarily from a changing set of consumer preferences away from light adjunct lagers and toward full-flavored beers for more occasions.  Some of this demand is being met by new brands from large brewers, but market statistics continue to show that the vast majority is being met by local craft brewers.”

Essentially, everything will be fine as long as the consumer keeps wanting what they’re selling. They will continue to expand in market share as long as consumers want fuller flavoured beers. The fact that large brewers are now producing fuller flavored beers to compete seems rather less reassuring than it is intended to be. That seems like it could be a growth limiting factor and it is hand waved away.

What if, he goes on to say, everyone who drinks craft beer drank an extra craft beer a month? Well, that’d be a 2.7% market share bump right there. If they drank an extra beer a week, it’d be 11.7% market share to the good. Well, brother, that’s a whole lot of if in a country whose per capita consumption has been declining steadily for years.

All of this, he continues, is based on the quality of beers made by new breweries. If everything remains of high quality, everything will be fine. Define what the hell you mean by high quality, and maybe you’d have a cogent argument. As it stands, we get this:

Brewers that enter a more crowded market without high quality beers that differentiate them from the field will soon discover the harsh realities of the sector: increasingly crowded shelf-space, existing competitors with greater access to capital and/or technical knowledge, and global players that are increasingly carrying full-flavored, locally-targeted brands of their own.

Just for my own edification, would you please point out how brewers that enter a crowded market WITH high quality beers will not suffer from exactly the same problems of overcrowding and competition from all of the other companies in the market that are doing more or less the same thing? How is it any different, especially when you’re not defining what you mean by high quality? This is what you call developing a narrative structure. If you find in a few years that we are in a bubble and that things are not going well, we’re set up to blame the “low quality” of new entrants to the market. Suddenly, there’s a scapegoat, just in case. The staggeringly obvious thing is that there are 1250 new breweries in planning and they will begin to exist in short order. There is already in place a mechanism to blame them should things go bad.

He finishes by comparing breweries to restaurants. Again with the apples and oranges NASDAQ strategy.

Think again about restaurants, how many close every year – does that mean we are in a restaurant bubble?

Total logical fallacy. A moderately sized restaurant might do 300 covers a day. It feeds people in a local catchment area. A restaurant does not attempt to ship its steak au poivre to another state. Even in the case of chain restaurants like McDonald’s, they have to produce the food on site. That is in no way similar to a brewery.

Finally, it is worth noting that as craft develops further, a more mature market means that volume growth will inevitably slow and some entrants will fail.  But, slowing growth or a rising rate of closings doesn’t mean a bubble has burst.  At a certain point, a growing base means that 10 or 15% volume growth becomes more and more difficult, as the same percentage rate requires a greater growth in barrels produced every year.

This is not wrong, but notice how it expertly manages to cushion expectations. He acknowledges that a contraction is coming, but downplays the term bubble. This release is more or less an exercise in semantics. It’s an attempt to control the message by shrinking the expectation of growth that the Brewers Association’s numbers bear out. It is at best a caveat.