Craft breweries buck the monopoly trend

Mounting evidence of widespread industry consolidation has many worried about the future health of the American economy. Excessive industry concentration can have negative effects on innovationjob creation, wages, and productivity—hallmarks of competitive markets with many startup companies.

But, there is at least one intriguing exception to this trend: microbreweries.

Derek Thompson raised this issue last week in The Atlantic, demonstrating a sharp increase in total brewery employment since 2010, pointing to small brewers as the driver of that growth, and positing reasons for why this has occurred, including: shifting consumer tastes (microbreweries produce better tasting beer) and long-standing industry regulation (which separates production, distribution, and retail).

What the article doesn’t do is quantify the magnitude of this trend. So, I dug into Census Bureau data to find out—looking at brewery industry business counts and employment by firm size. The data are available from 2000-2015, and I generated estimates for 2016 and 2017 using a more current benchmark series from the Department of Labor.

To begin, the chart below shows the level of employment at U.S. breweries between 2000 and 2015, with estimates for 2016 and 2017.

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As the chart shows, employment at breweries increased sharply after 2010, from 25,000 employees to 45,000 employees by 2015 and an estimated 62,000 by 2017—or gains of 71 percent and 137 percent, respectively.

The next chart shows employment at breweries by firm employment size (i.e., enterprise wide size, not the size of a particular location in the case of multi-location enterprises).

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Two key trends can be seen. To begin, the growth in industry employment coincides with sharp increases in employment at the smallest breweries—as businesses with fewer than 100 employees saw increases in the hundreds of percent. Breweries with more than 100 but fewer than 500 employees also saw sizeable gains, and what is likely be an increase of nearly 200 percent over five years.

Employment at the largest breweries, on the other hand, has shown a steady decline since 2000 when the data first become available. That year, breweries with more than 500 employees accounted for 23,000 employees or 73 percent of the industry total. By 2015 that share fell to 39 percent and by 2017 it is estimated to have fallen to 24 percent of total brewery employment in the United States.

The table below provides some summary statistics for these series.

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To summarize, the significant growth of breweries since 2010 has been driven almost entirely by small ones, which saw the number of employees increase in the hundreds of percent over a very short period of time. Employment at the largest breweries has been on a steady decline since at least 2000.

Let me make a word of caution before concluding that microbreweries are overtaking the major brewing houses—there is evidence that suggests although firms and employment at small breweries are on the rise, the share of industry revenue going to the largest breweries remains substantial.

Consider two data points. In 2002 (the earliest year such data are available), breweries with more than 500 employees accounted for 92 percent of industry revenue. Compare that with 2012 (the latest year such data are available), when breweries with 500 or more employees accounted for 88 percent of industry revenue. In other words, revenue share for large breweries held relatively flat even as their share of employment fell by more than a quarter during this same period. Large breweries are maintaining market share by increasing productivity while cutting employment.

We don't know what has occurred since 2012 on the revenue front, but it will be worth watching to see what these revenue figures look like in a few years when the data for 2017 are released—as the key period of acceleration appears to occur in the years following 2012.

Even so, this analysis is both and intriguing and calls for further study of the “artisan economy.” At minimum, it demonstrates that consumers are interested in craft beers and a boom is underway by suppliers to meet that demand. Microbreweries have become a key source of employment and consumer satisfaction, even if a handful of major conglomerates still capture the sizable majority of market share.