We have seen brewery numbers increase dramatically and consistently lately. I wanted to look more at what signs might indicate possible market saturation. I believe saturation will happen at some point and it will happen at the local level.
Specifically, I mean that breweries are going to face challenges selling their beer in a particular city but then at the same time they will see opportunity in another city or state. You have to go where your customers are at. Independent breweries are typically local to a city or state and so the market forces for your brewery are going to vary based on your location.
The list below is not a full blown crystal ball but instead provides clues of when the beer market is becoming saturated (no pun intended).
These are some great questions to know if Market Saturation is happening:
- Are the biggest of the small craft brewers expanding into new territory where there is not saturation? NOTE: This is happening right now in many cities. Check out which breweries are doing this and where they are originally from to see which markets are beginning to become saturated.
- Is the population growth in a city or region, stagnant or declining? If your local market isn’t growing and your competition is, it stands to reason that those two forces will collide in the not so distant future as progress toward market saturation is accelerating.
- Has demand for your product leveled off or is it declining? While by itself this does not indicate market saturation, combined with other indicators this could be a defining one.
- Has consolidation by bigger breweries (this doesn’t have to be just the “big guys”, just bigger breweries), increased? Mergers and acquisitions are typically done to establish branding and operational synergies. Put another way, they do this to increase market share and/or reduce costs.
- Is it getting harder to keep your draft accounts with the same amount of sales? For example, is there a restaurant you’ve always been on tap at and now suddenly you’re on a rotating handle? This could be a sign that fighting for tap handles has increased.
- Has price replaced innovation (recipes, branding, etc.) as a key driver of sales. If you suddenly find yourself needing to provide discounts more than before in order to sell the same amount of beer this could be an early sign of market saturation. Especially if you have been in the market for a while and are decently established as a brand.
- Has complementary product sales declined? By complementary products I mean something like if you’re in the hotdog bun business and you see that hotdog sales are declining, you certainly will want to consider the impact on your market. For beer I would consider overall restaurant sales, chip sales (especially potato chips), and pretzels.
- Has substitutional product sales increased? Substitutional products refer to products that could substitute for beer. Wine is a good example, Hard Cider, maybe forms of hard alcohol. These are all perfect examples of indirect substitutions and you can correlate increase of these sales to loss of beer sales but it’s not going to be a 1:1 and there may be other factors at work. Having said that, I would certainly look at these. What’s happening at the bars? Are beer sales in general holding steady, rising, declining?
- Has interest in searches on google declined? You can go to google trends and search for phrases like Craft Beer, or IPA, or your brewery name and look at the trend of those searches over time. This can be very useful as an early indicator of the short-term future demand.
- What is happening with the macro economic climate? Do people have more or less disposable income? There have been studies showing that as the average income of an area increases so does the amount of beer consumption. This means an increase in demand overall. Having said that apparently after a certain income level is reached, demand to drink beer slows because of substation with other more expensive alcoholic drinks. Are the amount of restaurants and bars in your area increasing, remaining stable or declining? If you rely on taps in your area to sell your beer, you’ll want to know the rate of increase of your competition and the growth rate of where you will sell your beer. For example, in Seattle there’s lots of talk of restaurants closing at an alarming rate. A little investigation should reveal why they are closing which help you gauge the severity of that.
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