Gazing Into My Crystal Ball

You see this book? This book tells the future.

As we wrap up what can only be described as a very successful Virginia Craft Beer Month, I’m going to take this last Saturday in August as an opportunity to put on my soothsayer hat and prognosticate a little bit. This is my estimation of the current craft beer industry in Virginia, as well as what I see in the future of Virginia craft beer.

Bear in mind these are only my predictions and do not represent any inside knowledge. I also do not have any divining powers so I've not been given an advantage to be doing these sorts of things. I one day hope to find the sports almanac from Back to the Future 2 so I can make millions betting on current sports events, but even if I had already found it, it would not help us here.

I think it’s safe to say that craft beer is officially booming in Virginia. Nearly 100% growth over the last three years is certainly exciting; if not a sign that something serious is happening here. Many in the industry forecast that Virginia’s brewery total will double again in the next two years.  We may not be Colorado or California, but we’re absolutely on the rise, and our future is brighter than theirs.

I say that because Virginia, particularly Northern Virginia, is also going through a population increase, mostly due to increased employment opportunities, and more people equals more beer drinkers, equals the need for more breweries.

People like to talk about saturation points and ceilings, and they point to the national brewery total being higher than it ever has been in America (over 3,000) as the reason. But that comparison is not as solid as you might think. The volume of beer produced is holding steady as the number of breweries increases, which means that new smaller breweries are taking away market share from existing larger breweries. We see this in the fact that the overall beer industry is shrinking, and AB-InBev and SABMillerCoors are reporting losses, while craft breweries are reporting roughly 10% growth annually.

It’s also important to point out that the national brewery totals of yesteryear, which we assume were based on demand at the time, were centered on a much smaller population than we have now. This steers us back to my point from a few paragraphs ago – as Virginia’s population continues to grow, the need for more local brew increases too.

I love that taste!

But why does it have to be local brew?

Technically, it doesn't. Larger craft breweries have dominated the national landscape for decades, shipping their delicious craft beer to the four corners of the States and filling a void in areas where no craft beer was being made. Those times have changed, in that virtually every metropolitan area has multiple local craft brewers to choose from and that void no longer exists. It doesn't stop the Sierra Nevadas and Sam Adams of the world from selling their beer in far off markets, but it does shrink those far off markets due to lack of available shelf space and tap handles.

Not to mention that this new generation of craft beer drinkers tends to gravitate toward products that are made locally and with healthier ingredients, like organic and natural alternatives. As more and more local breweries open, the local market strengthens and the idea to drink local brew solidifies in the mind of the consumer. Call it civic pride, or maybe it’s simply that people like to see and hang out with the brewers that make their beer.

The local craft brewery tap room is becoming a very popular place to hang out, both for people who live and work in the area, as well as being a destination for craft-beer obsessed people like myself. Customers like the atmosphere, the beer, the events that are held, the food trucks that pull up and sell their wares, but most of all, they like to drink beer with the people that made the beer while sitting in the brewery itself.

Delicious Virginia beer on draught

The local brewers are doing what the national-level craft brewers did 30 years ago – building a strong connection to their local communities and selling them beer. Only now, local brewers are able to grow faster due to an established marketplace and social media fueling the word of mouth advertising that drives craft beer.

And the local grocery stores and restaurants are getting the point too… and providing more shelf space and tap handles to the local craft beer scene, because it sells. If anything, the surge in local Virginia breweries and limited (although expanding) shelf space and tap handles will spell more trouble for national brewers than it will for the local guys.

But eventually, and it might happen soon, the limited available shelf space and tap handles will cause demand for the local craft beer that fills those points of sale to dwindle. Most of the local breweries that have opened in the last few years in Virginia have been the smallish to medium-sized production lines that focus their efforts on selling kegs to local bars/restaurants, with a few larger operations that also sell packaged beer to grocery stores and other retails points of sale. The reality is that while that level of production and distribution allows a brewer to sell more, and make more money, it also takes a lot of control away from the producer of the beer, and places it in the hands of distributors, wholesalers and retailers. I predict that the number of new brewing operations that utilize this surging brewery business model will start to decrease in Virginia during the next year or so, and be replaced by…

Mad Fox is one of only a few brewpubs in Northern VA

Brewpubs. The brewpub is an under served business model in certain parts of Virginia, particularly Northern Virginia. Brewpubs are a great way to make and sell beer because you control the point of sale almost exclusively. It also attracts beer people and non-beer people alike because of the food, so you have a broader audience to sell to – more customers equal more money.

But brewpubs also cost a fortune to open and run, which is why most local small business brewers avoid them.

But the local craft beer scene in Virginia has seen so much success over an extended period of time that before too much longer, the big-time investors are going to take interest. It’s already beginning to happen. These folks are going to see craft beer as an investment that they can make a fortune off of, and they will line up out the door to give brewers money to start one of these money makers. Obviously, that kind of relationship with boards of investors and ownership groups will be a colossal headache, but if the food is good and the location is right, the beer will sell… we've already seen that local people like their local beer, and they need a place to eat too. My suspicion is that a healthy chunk of the future breweries in Virginia will be brewpubs who don’t have to sell their beer to third parties… they can sell directly to the consumer on a large scale. Look for these guys to start popping up in the next two to five years.

Crooked Run is a nano-brewery in Leesburg

Of course, a smaller and easier to open operation that allows the brewer to control their own point of sale is the nano-brewery… another business model that is becoming quite popular. A nano functions more like a local pub that makes its own beer on site. You could also characterize it as a brewery tap room – selling beer by pints, flights and growlers but not making enough beer to sell to third party points of sale. You can’t make as much money doing it this way, but it costs less money too and affords a brewer to make delicious beer without the hassle that comes with larger operations. Look for nano-breweries to make up the bulk of the next wave of Virginia breweries… probably in the next two years.

And lastly, we have to consider the farm-brewery, which is now completely legal in the commonwealth. A farm-brewery functions exactly like a vineyard/winery in that it is usually off the beaten trail and a destination for most patrons. Farm-breweries tend to make smaller quantities of beer and have fewer customers, but they focus their attention on being an event location for wedding parties, class reunions, etc, complete with nice outdoor areas, live music, catered food, friendly folks and sometimes great views. They usually package some of their beer or sell kegs to retailers as well. There aren't many of these currently in existence, but it’s another business model I see gaining some steam in the next few years in Virginia.

Overall, the future of Virginia craft beer is bright… brighter than most states. Our laws are favorable, our customers are thirsty and our marketplace has never been more exciting. I predict that as Virginia’s breweries double in size over the next two to five years, we should expect to see some different business models catch up to the existing and ever-popular production brewery model, with a focus on local community-centered operations that bring more delicious Virginia beer to more customers!

Here’s to craft-brewed happiness… Cheers!