Craft Beer 101: Entrepreneurship and Beer

Release Date
September 24, 2015

Topic

Free Markets and Capitalism Government Regulations Sharing Economy
Description

There are more than 2,000 breweries in the United States, and craft beer has been continually increasing in popularity. Is the craft beer scene today the best it’s ever been?
The short answer: no. In 1870 there were about 4,000 breweries in the U.S. Today there are only about 2,800, which means that Ulysses S. Grant had more options for beer than you do today. In fact, today’s craft brew “revolution” is less a revolution and more a comeback.
Why has there been a renaissance for craft beer? A combination of technological change, consumer preferences, and the resilience of the entrepreneur. It’s cheaper and easier for brewers to get the brewing equipment they need than it was 50 years ago. Not only are the products being made more efficiently, but it’s also easier for brewers to share the equipment today than it was 40 or 50 years ago.
Why have consumer preference changed? It probably has a lot to do with the deregulation of home brewing in 1970. Before 1970, it wasn’t legal to brew beer at home. In the 1970s the federal government and many state governments made it legal to make home brew, which opened up a lot of people’s eyes to the possibilities of craft beer beyond the Millers and Buds of the world.
What does entrepreneurial resilience have to do with it? An entrepreneur selling craft beer has to overcome a three-tier distribution system to go from brewing her beer to selling to to the consumer. Selling your beer is a lot more difficult than just giving it away.

Bottling Up Innovation in Craft Brewing (paper): Christopher Koopman and Matthew MItchell review the barriers and challenges for craft brewers. 
Tax Bites (article): A breakdown of how much of goods’ prices are from taxes. 
Trouble Brewing for Craft Beer (article): Christopher Koopman and Matthew Mitchell explain how regulations negatively affect craft beer brewers. 

Peter :                               Chris, there’s Craft Beer everywhere. Here on tap, I was just at a Craft Beer festival. There’s just tons of Craft Beer. What’s going on? Is this the best it’s ever been?
Christopher:                    No, this is not the best it’s ever been. Actually, 1870 there were about 4,000 breweries in the United States. Today there’s about 2,800 so to give you some perspective, Ulysses S. Grant had more options in his choices of beer than you do today. This isn’t exactly a Craft Brew revolution that hasn’t ever been seen. This is more a comeback. This is a U-shape in terms of the number of breweries we have.
Peter :                               What happened? Why is there this resurgence or this renaissance in Craft Beer?
Christopher:                    I think its a story of technological change, changing consumer preferences, and ultimately it’s a story of the resilience of the entrepreneur. It’s cheaper today for a brewer to get his hands on the equipment than it was, let’s say, 50 years ago. This has to do with the products are being manufactured in a more efficient way but also the idea that the collaborative economy has made it easier for brewers to share the equipment among one another in a way that wasn’t available, let’s say, 40 or 50 years ago.
Peter :                               So it’s like [brewber 00:01:41] ba dum bum ch. Chris, tell me why consumer preferences have changed.
Christopher:                    I would attribute a lot of this to do with the deregulation of home brewing in the 1970s. In the late 1970’s the Federal Government and a lot of State Governments over time have made it legal for you to brew at home.
Peter :                               It wasn’t legal before 1970?
Christopher:                    It was not legal before 1970 and actually it continues to be illegal for you to even own the equipment to distill spirits today but, in the 1970s they made it legal for you to home brew and it actually opened a lot of people’s eyes to the idea that the Millers and the Buds of the world is not the par excellence of brewing. The Craft brews we have today are really an outgrowth of that idea.
Peter :                               Entrepreneurial resilience, what’s that about?
Christopher:                    I think really the Craft Brew renissance that we’re seeing is the result of entrepreneurs overcoming things like the three-tier system that stand in the way of them brewing their beer and getting it into your hands. A lot of the regulations are built on this idea that somehow doing it for free is good, but doing it for money somehow is bad. When you try to sell your beer, they make it much more difficult than if you were to just give your beer away. Really this is the idea that someone has taken their hobby, again, from the home brewing deregulation in the 1970s and turning it into a profit opportunity for them to make money off of selling you their beer.