Extraordinary Popular Delusions and the Madness of Crowds is an early study of crowd psychology by Scottish journalist Charles Mackay, first published in 1841.The book was published in three volumes: "National Delusions", "Peculiar Follies", and "Philosophical Delusions". Mackay was an accomplished teller of stories, though he wrote in a journalistic and somewhat sensational style.
The subjects of Mackay's debunking included alchemy, crusades, duels, economic bubbles, fortune-telling, haunted houses, the Drummer of Tedworth, the influence of politics and religion on the shapes of beards and hair, magnetisers (influence of imagination in curing disease), murder through poisoning, prophecies, popular admiration of great thieves, popular follies of great cities, and relics. Present-day writers on economics, such as Michael Lewis and Andrew Tobias, laud the three chapters on economic bubbles. It is as prescient today as it was when it was first published.
"Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper," wrote Mackay.
Now, I am not one much for pessimism. I'm an optimistic guy. But, I believe that the Craft Beverage Business is due for a correction - and it already happening.
When I was younger, we boo-hooed all the evils that Prohibition had brought upon true believers when it came to the destruction of the wines, beers, and spirits industries of the United States. Thousand of breweries and distilleries, and about a thousand wineries, were shuttered. And when we were growing up in the 60s and 70s spirits writers bemoaned the passing of that golden age before Prohibition.
We have never had as many wineries, breweries, and distilleries as we do now. And probably the same can be said for cideries. Many, many of these that sprouted across the land in the last 20 years, especially the brewery industry. The variety available today speaks of the apogee of empire. We are Rome in 117 AD, at the time of Trajan's death.
We are now at the zenith of the Golden Age of the Craft Beverage Boom. We are living on top of a rainbow-hued shiny bubble, that is about to burst. Oh, Ozymandias is waiting for us! For every Boom there is a Bust. And it is coming.
1. Small mom and pops are slowly being wiped out. They just can't compete. There are too many Craft Beverage Businesses to compete against. They are not just competing against their own category, but against all the other categories. There's only so many Craft Beverage dollars the public has to spend. And many of the smaller mom and pops don't have the financial capital to weather the storms. And the costs of good have risen to new levels, so their margins are getting squeezed.
2. Mid-tier businesses and labels are struggling or falling off. The death of Anchor, the struggles of Ballast Point, the struggles of mid-teir wine labels that are being traded back and forth like unwanted Pokemon cards by the major liquor distributors. The beer industry is the biggest harbinger of all. The big boys keep growing.
In a 2020 article by Ron Knox for Slate magazine, he states “Despite the popularity of craft beer, the two global beer titans have managed to maintain their grip on the industry largely by influencing how beer is distributed and what is found on store shelves. Almost 90 percent of beer sold in most places in America is handled by distributors whose primary customer is one of the two big brewers, giving AB InBev and Molson Coors outsize control over which beers appear on bar taps and in retail coolers” (Slate 2020).
What happened to Anchor Brewing, has happened before. The land on which a business sits, and the cost of doing business where it is located, makes it easier to close than to continue. It happened to Piel Bros. and Schaefer in New York City. When Schaefer fell, they were still one of the top ten brewers in the United States. They just couldn't compete anymore, with how much it cost them to operate. In previous cycles, many New York brewers sold their land for considerable gains, and left the industry. And some, with no family to continue their businesses, or with the final idiot son killing it, closed for good. These are all trends which will repeat themselves.
So Mid-tier brewers are being hit on the top of the head by InBev and their getting their feet eaten by the small micro-brewers. A great sign of this is the demise of the beer store. 10-15 years ago, Craft Beer zealots perused the aisles of big beer stores, buying big bottles and six packs of the most obscure beers. And there were beer bars that offered crazy selections from around the globe. They no longer exist as Joshua M. Bernstein explained in the NY Times some time ago. People don't do that anymore. They go to their local micro-brewery.
And now micro-breweries are eating the toes, and feet, and ankles of those mid-tier brewers who rely on store and retail sales (because that's how you get big) but it's getting difficult when that sale really doesn't exist anymore. Hammer on the head. Eaten below. Not a good scenario.
3. Baby Boomers are having troubles selling their dreams. So many Baby Boomers followed their dreams and went into the wine or beer or spirits business. But they are all aging out. It's hard work to run a small to medium sized winery, and the older you get, unless your kids pitch in, or you can afford help, it starts, instead of being uplifting, to wear your old butt down.
The stamina required to rn a Craft Beverage business is immense. It's all consuming, especially if it's successful. As you get older, and starting to lose your energy, as happens in the cycle of life, these businesses can seem like a vampire sucking out your life's blood.
And unless you are willing to walk away (and many can't afford to) selling a fully mature winery is a tough thing. It takes a long time. There are thousands of nut jobs who want to buy your business but can't (so they'll come around and kick the tires until your exhausted). And the value you are seeking probably is way beyond what startup people want to pay. In many cases, it's easier to start a new business (and waaaay cheaper) than to take over someone else's old machinery.
4. Brand loyalty is dead! Today, brand loyalty is relatively non existent - there are just too many choices. Especially, younger generations have way more choice than ever before. When Dominique and I started our winery in Columbia County, NY, we were the only craft beverage business open on a regular basis (Chatham brewing started around the same time, but operated out of a garage, and were opened every other Saturday, but you had to get there in time, before they sold out their small cache of beer.) Today, in Columbia County, there are approximately 24 craft beverage businesses! More than 10 of them are breweries. There are 6 in Hudson alone! And this is not unusual. The next county below has 6 Craft Beverage Businesses. And to the North, the Capital Region is exploding with breweries and distilleries). You don't have to go to the same winery, brewery or distillery every time. It's not that younger generations are bad people. They just have more places to go, and try, and only a limited amount of cash to spend.
5. Ratings generators do not drive sales and magazines have not been able to replace readers, Wine Enthusiast, Wine Spectator, Malt Advocate, and a host of other magazines are not selling the way they used to. Baby Boomers made their publishers rich, because they were the only game in town. Today, there are numerous websites reviewing whiskey, wine, beer. The market is flooded with content. A score of 90 points or higher in Wine Spectator or Robert Parker in the 1980s could sell out a vintage in less than a month! Most younger consumers could give a flying you-know-what about scores today. Industry folks like scores. Suits at big companies like scores. The larger, growing mass of wine, beers, and spirits consumers don't care about scores. They like stories about their beverages. They want to know the story behind what they are drinking. Or in the case of the mass producers, they don't care at all. They never did. They never will. If they like it, and it's inexpensive, they're gonna buy it and drink it.
6. The Foodie Boom is over. Yes, if you're like me, you are still hanging on. But the farm-to-table thing is much smaller than it was 10 years ago. It's not the driving force it was in the food world. Yes, some of it had become part of the everyday. But it's not the driving force in the industry it was years ago. And that includes local beer, wine, spirits. You either make good product or your don't. Yes, the high end producers will tout estate wine or whiskey. Brewers will tell you they work with some local farmers. But by and large, this selling point has become less and less a part of the Craft Beverage story by an large.
7. COVID is over - and so is drinking at home. Sales are medium to small wineries, breweries, and distilleries, that may have thrived during COVID are slowing down. They're not dead. But they are not moving forward.
8. Mistakes. Its an easy business to screw up to begin with. But more importantly, it was a boom, and a bunch of people piled on who maybe shouldn't have. Those people will fall off as well.
Other people have said it before me. The bubble is set to burst. This is a natural cycle. Having just completed our first thorough research of the brewing industry in New York State, The League of New York Beer Historians have seen numerous cycles of boom and bust in the industry that has existed there for more than 400 years. Tennessee too saw it's distilling industry boom and bust, as did Kentucky. In the 1990s, Seagram's was failing, because it couldn't make enough vodka, tequila, and gin. In the meantime, they sold off five of the most historical whiskey distilleries for nothing, because that whiskey cycle had come to an end. Scotland, Ireland, and Kentucky are filled with such stories, ghost distilleries that have been reoutfitted (and some will recloses as well, one can easily assume). In the 1990s, Larry Ebersold was selling off 100,000s of barrels of whiskey (some of them as many as 20 years old) for less than the price of the barrel itself, because his parent company had over paid for Absolute Vodka and his incredible whiskey was just sitting there aging. It is part of the natural life cycle of such industries.
Will the closing and selling off be a national calamity? Maybe not. Call it a bust or call it a correction. But due to retirement or exhaustion, or flat our uncompetitive practices, a whole bunch of businesses that have been hanging on will close. I'm expecting 10-20% That's my guess. But given the massive growth of the industry, I'm figuring at that's somewhere about 1,500 to 3,000 businesses in the next three to five years. Some will be small and inconsequential. Others will be shocks, like Anchor Steam (whom I mourn).