When Steve Hindy started Brooklyn Brewery in the borough's Williamsburg neighborhood in 1984, it didn't have a tasting room like most breweries do today.

"Nobody wanted to come to this part of Brooklyn," Hindy says.

He and his partners reached customers the old-fashioned way--hitting the pavement to stock bars and spread the word. At the time, they didn't have a lot of competition--but in 10 years that would all change. By 1996 the market was flooded with microbrewers and the industry experienced what's known as "The Shakeout." Some breweries went out of business, some sold to competitors and only the strong survived.

In a recent article for the Daily Beast about craft beer's next "looming crisis," Lu Bryson reports that a another slim down may be on the horizon. Craft beer surpassed 12 percent of total beer volume in the U.S. in 2015--from less than four percent 10 years prior. Double-digit sales growth (12.8 percent in 2015) is unlikely to sustain year-over-year, and yet in 2015 three new breweries opened per week. The market is flooded with outlandish flavors (raspberry IPA, anyone?), which Bryson opines is an indication that brands are scrambling to stand out from the crowd.

Beer's gray market

But perhaps the most important point he makes is that category sales are likely underreported because tracking services don't count sales made in breweries' tasting rooms. These sales are especially profitable because they don't involve a middle-man retailer, and Hindy says they are a fundamental part of new microbrewers' business.

"I'm not expecting the number of breweries to decline," says Hindy. "Most will make beer and sell it at the brewery, and that's their whole business."

An estimated 20 percent of sales could currently be in tasting rooms (and unaccounted for in the industry), consultant David "Bump" Williams told Bryson. And Williams says for small breweries, on-site sales might be the only outlet.

A reckoning, of sorts

All of this makes it seem that craft beer could have more in common with the restaurant industry than, say, the soda industry. Selling to a hyperlocal market also allows microbrewers to avoid the difficulties of widespread wholesale distribution.

"There's a real learning curve when you go from making beer in the kitchen to making beer in a brewery," Hindy says. "It takes time to get the skills to make beer that will last six to eight months." He says that's where the weeding out process happens among young breweries. Those who have a good product but can't hack it with retail distribution will continue to only sell on-site.

And that's fine since, as Hindy points out, brewers rarely get into the business to make money. For most, it's a passion project. "The beer industry has always captivated dreamers," Hindy says. And he doesn't think they are going anywhere.

Published on: Aug 22, 2016