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Brewing Comes Full Circle in America

06/11/2018

From Craft Brewing and Back Again

by Kieran O’Connor (Brewing Techniques - 1996)

This is a three-part article about the growth of craft brewing in America. The first part covers the earliest prominence of beer in the colonies, local breweries, pasteurization, taxation, and tied houses through to the consolidation of the brewing industry up to and culminating with Prohibition.The second part is about the history of craft brewing in America and how it brought brewing out of the dark days of Prohibition up to the modern age of microbreweries, chronicling the demise of small breweries in the face of consolidation. The third and final part covers how craft brewing has reclaimed its place in American brewing history and helped restore beer diversity.

Part I: From Colonial Craft Brewing to the Prohibition Era

hen the first Europeans came to America, the native peoples were already making a type of beer from corn.* The Europeans, however, got straight to work brewing the beers they were used to drinking in their homelands. Many settlers brewed their own beer, some because they wanted to, others because it took too much time and cost too much to import ingredients from Europe for commercial breweries.

More and more commercial breweries were established as the land became more populated and finally became a country. By the mid-1800s practically each town had its own brewery, and many cities had more than one. These breweries served their local area, and people bought beer exclusively from them. Shipping costs made it prohibitive to transport beer from other towns, so local breweries prospered.

Changes in the nation’s transportation infrastructure made shipment of beer cheaper, enabling some local brewers to become regional brewers, selling their beers to larger areas. By 1876, the United States had 2685 breweries, an all-time high. Some of these regional breweries eventually became national breweries, selling their beer all across the country. When this occurred, however, it was at the expense of the local and regional brewers.

By 1976, the United States had only 49 breweries operating 94 plants, and these supplied the entire country. Of these, the top 4 breweries controlled 63% of the industry, and the top 8 controlled 83%. During the 1970s, however, a new movement of microbreweries and brewpubs brought a new wave of brewery start-ups. By 1993, 382 craft breweries† were in operation in the United States, in addition to the larger operations. Although the brewing industry actually grew since 1977, it was not because of the big breweries but rather the smaller breweries, which began to cater to a market of connoisseurs.

How did this process of consolidation occur? What specific reasons explain why a handful of breweries came to dominate the industry? Why did the number of breweries increase in the late 1970s and 1980s? What difficulties did these craft breweries have in opening up shop?

Part I in this series of articles examines the trend from expansion in colonial days and through the mid-1800s to the consolidation of the late 19th century through Prohibition. Part II will discuss the post-Prohibition beer industry, which sets the stage for Part III, the rebirth of craft brewing through the microbrewery and brewpub movement.

†Craft breweries describes those that sell <15,000 bbl/year. Microbreweries sell beer packaged in bottles or kegs. Brewpubs sell beer on premises, on tap, and usually also serve food.

Beer in Early American Culture

The settlers who came to America had a strong tradition of consuming beer and spirits in place of water. It must be remembered that, in the seventeenth century, beer was the universal beverage of Englishmen and those who lived on the Continent. The water was, generally speaking, not to be trusted; by tradition it was considered unwholesome — and with good reason, of course, since contamination of common water supplies was hardly surprising in an age when hygiene was not understood.

A note in one woman’s diary indicated that her husband had given her his beer in exchange for her water because she was sick: “I am sory he should sofer soe much for me he drinks water that I might drink bere”.

Many agricultural workers received a stipend of beer each day. At Harvard, the first president of the college was ousted from office because he failed to provide the students their daily ration of two pints of beer. The college had a brewhouse on campus to provide for these needs. Because brewing was so important and grain so scarce, students could pay their tuition in malted barley. Malt had such worth it was even mentioned in peoples’ wills.

Home brewing was a necessity for most early settlers. Beer was homemade for the same reasons clothes and foodstuffs were homemade: self-sufficiency. And beer was a daily staple, drunk with every meal because it was thought to be healthful. According to David Pieterssen de Vries, a visitor to the English colony at Hartford, “these English live soberly, drink only three times at a meal …”. Evidence that many settlers brewed can be found in property sales notices, which contain references to “property sales including brewhouse”. In addition, home brewing was indirectly supported because “it appears that private brewing did not come under the provisions of the excise law, as long as the beer prepared in the home was not sold”*.

Early home brewers include some from the ranks of the famous. George Washington, James Madison, and Thomas Jefferson were all home brewers. After he left office, Jefferson pursued home brewing with a vigor. Baron cites copies of letters Jefferson wrote looking for corks, bottles, and other brewing equipment.

As the Union grew, so did the number of commercial breweries. Gradually home brewers abandoned brewing in favor of purchasing beer from local breweries. Apparently home brewers switched to local beer, consciously or not, for the same reasons that home bread bakers and home clothes makers did later on: cost, quality, and convenience. As the U.S. agricultural economy grew, barley prices dropped, fueling the incentive for the creation of more breweries.

Tastes and Styles Change, Mid-1800s

Until the 1840s, the prevalent style of beer consumed in the United States was ale, in whatever its form — stout, porter, pale ale, and so forth. This preference can be attributed to two reasons: the contemporary brewing technology, and the drinking habits that the colonists inherited from the British. In 1844, however, a man named Johann Wagner changed U.S. drinking preferences when he brought bottom-fermenting lager yeast from his native Bavaria.

From the 1840s on, lager beer caught on as Americans’ beer of choice. “By the mid-’fifties [1850s] it became possible to see that lager would eventually outsell ale and porter in the United States. The figures reported for Philadelphia in 1857 were 180,000 barrels† of lager manufactured, as contrasted with 170,000 barrels of ale, stout and porter”. According ro Anderson’s From Beer to Eternity, lager has a 90% share of the U.S. beer market today. Although lager’s market share increased, many of the small brewers failed to make the change, which is one of the reasons for the demise of the smaller breweries.

Improved Transportation: Gains … and Losses

Perhaps the most important reason these local brewers went out of business was that some of the brewers in the late 1800s became shipping brewers — those who brewed and shipped beers outside of their local or regional areas. Shipping brewers were the brewers that later became Anheuser-Busch, Stroh’s, Falstaff, Miller, and others. These brewers had the funds to defeat the locals in the chase for market share.

Shipping brewers were companies that “depend[ed] on selling beer in markets reached only by long distance transportation” . Shipping brewers needed to be able to charge a premium price for their beers to cover transportation costs and were able to convince the public that their beers, because they were from so far away, were of a higher quality. The term premium beer had nothing to do with premium ingredients or processing, but rather referred only to the price.* Once the costs of shipping dropped as a result of multi-plant brewing and reduced bottling and canning costs, however, shippers were able to retain the premium price, something that the regional and local brewers had never even been able to establish.

*This mirrors current U.S. law. Home brewers and wine makers may make up to 200 gal of beer without paying excise taxes; only 100 gal is allowed if that person is not the head of household (26 USC Sec. 5674).

†A barrel is 31 gal of beer. It was the old keg size and is used as a yardstick when comparing brewery capacity and production. Since a full 31-gal keg would weigh at least 248 lb (not including the keg itself) a standard keg is now a half barrel (15.5 gal).

Most of the early breweries in the United States did not ship beer beyond a very local market, not only because of shipping costs but also because of the need to keep the beer cold and fresh. Pasteurization was not used until 1873, and beer could not be shipped great distances without the possibility that delaying consumption would cause it harm. During the late 1850s the railroads began their ascendancy, but brewers could not easily make use of their services because of the the hazards of spoilage. This problem was exacerbated by the fact that “Americans preferred a lager closer to the Pilsen than to the Munich type: i.e., a pale, light-bodied, clear and effervescent beer, relatively low in alcoholic content”. Further, low-alcohol beers are more susceptible to infection.

In addition, brewing lager beers requires that they be lagered (stored) at near-freezing temperatures. The Germans achieved the required lagering by using caves. Brewers in the United States used underground caves or dug into the earth. During the summer, these brewers would buy massive quantities of ice to help keep the temperature as low as possible.

The much-prized lager of the era could easily deteriorate if it were not handled properly, during both storage and shipment. Brewers needed on-site warehouses that could maintain low temperatures, even in the summer, and this program required massive amounts of ice. The up-and-coming breweries like Anheuser-Busch shipped their beer great distances by establishing railroad ice houses along their routes. “In 1877 he [Adolphus Busch] was the first brewer to ship his brew in refrigerated rail cars”. Busch later owned his own railroad — the Manufacturer’s Railway Company in St. Louis — to control this aspect of the shipping business. The current Anheuser-Busch Company still owns it.

In total, the new lager beers required more capital investment in refrigerated cars and warehouses and the ice to keep both of these operating. Larger and larger breweries were the only ones that could afford to pay the price. Along with these capital improvements were the employees required to use and maintain them. As refrigeration became non–ice based, mechanics were needed to maintain the refrigerators. Ale brewers, which encompassed many of the smaller breweries, did not require refrigeration for their beers, as long as they didn’t try to ship them too far.

Advent of Pasteurization

One of the most important developments in brewing technology, and in food processing technology, was the advent of pasteurization. Pasteur was involved in the brewing industry because he was trying to determine why some beers became defective and subsequently spoiled. His hypothesis was that spoilage usually occurred because of bacteria entering the beer. His solution was to “steam” the beer by immersing its vessel into a hot water bath (~150 °F) to kill any bacteria.

Pasteurization benefited lager producers for two reasons. First, they were attempting to become shipping brewers and needed to be able to consistently deliver a quality product that consumers would buy. Pasteurization enabled these brewers to reach this goal of sanitation.

Second, pasteurization was one more layer of mechanization that all brewers would have to use if they wished to remain on par with the shipping brewers. Smaller brewers were unable to do this. In addition, if the smaller brewers wanted to remain competitive, they would also have to buy bottling equipment — another expensive capital expenditure. That is why many of them, even after Prohibition, still mainly kegged their beers.

The Tax Man Cometh

Perhaps one of the most unusual, but still important, reasons why the bigger brewers were able to bolster their position in the beer marketplace had to do with the excise tax that was levied on beer. The excise tax created one direct competitive advantage for the larger brewers, and one completely unintended effect.

The Federal Excise Tax on beer was established in August, 1862, and was set at $ 1/bbl. Its purpose was to raise money for the Civil War. In addition to the excise tax, the act provided for commercial breweries’ licensing fees. In time it would have the effect of helping the shipping brewers because they had a higher profit margin on the beers they sold. The shippers made more profit per barrel because of the premium price they received and could more easily absorb the increases in the excise tax.† As time went on and the excise tax increased, this margin would become even greater for the shippers relative to local brewers.

The excise tax provided the larger breweries another advantage relative to the smaller breweries. The tax allowed for an amount of beer wastage that was exempt from the tax; the excise tax was paid up front, but the brewers received a rebate on the tax later on. A figure of 10% wastage was granted when the law took effect; however, this figure was reasonable for lager brewers, but not for the ale brewers who apparently suffered more wastage — and who therefore paid more tax than they should have been obligated to pay. Some of the wastage was due to the fact that ales were not kept cold and were more susceptible to infections.

The other effect of the excise tax was the creation of the United States Brewing Association, which was was founded in response to the adoption of the excise tax. The brewers felt that they needed to have an organization that would lobby for their interests. Baron points out that the United States Brewing Association and the temperance movement share the stage as the first lobbying organizations in the United States.

*According to Elzinga, “There is no convincing evidence that premium beer itself entails significantly higher production costs. According to Burck, Anheuser-Busch’s Busch Bavarian, a popular price brand [lower priced than premium brand], costs 1/2 cent less per bottle to produce than Budweiser, a premium brand”.

†The excise tax, which started at $ 1.00, increased gradually over time. During World War I it jumped to $ 1.50, then to $ 3.00, and then to $ 6.00. During World War II it went from $ 5.00 to $ 7.00. It remained fairly flat at $ 9.00 from 1951 to 1990, at which time it jumped from $ 9.00 to $ 18.00 per barrel; this value includes only the federal excise tax. Various states maintain their own excise taxes.

The brewing organization, however, mainly consisted of the most powerful brewers. Because the most powerful brewers were lager brewers and because many were of German ancestry, the first meetings and the newsletter were published in German.

One of the most unusual problems in the collection of the excise tax was how it was managed when it came to bottles. The government was certain to collect the excise tax because each keg leaving the brewery had to have a stamp over the bung.* If the stamp was not in evidence, the revenue agents would not let the keg leave. Once the keg was tapped the stamp would be destroyed so that it could not be used twice. This practice has carried forward to modern-day liquor and cigarette excise tax stamps.

The difficulty arose when it came to bottling — something the shipping brewers and some local brewers were involved in. To be sure that the Internal Revenue Service collected the tax, the regulations were set up in such a way as to require a brewery to have a completely separate facility for bottling. The kegs were filled with beer, the stamps attached, and then either by hoses attached to the bungs or by other means, the kegs were used to fill empty bottles with beer. For example, “The Pabst Company was filling about 75,000 barrels of beer a year [in 1890] in the racking [bottling] room simply to take them across the street to the bottling house where they were emptied”.

The law stated that the brewery could not bottle the beer in the brewery or warehouse or anywhere on the brewery or warehouse premises. This rule also prohibits washing or storing of bottles, steaming [pasteurization], and all operations connected with bottling. Bottling must be done in a building entirely distinct and separate from, and having no communication with, the brewery or warehouse. This means that the location and arrangement of the brewery or warehouse and the bottlery must be such that it is a physical impossibility to take beet from the former to the latter without carrying the beet over the surface of a street or road which is a public highway and actually and commonly used by the public as a thoroughfare.

Although the method the government insisted upon guaranteed tax collection, it was quite onerous for even large breweries, much less their smaller brethren. Many small breweries could ill afford the completely separate building for bottling or the required stock of kegs used solely for transportation to the bottling company.

Although some breweries had their own bottling houses, many simply contracted other breweries to bottle their beers. Either way it was an added expense that many breweries could not afford as competition increased. This is where the phrase “brewed and bottled” came from. It was meant to show that it was better than beer not bottled by the brewer.

To ease this burden, the head of the Pabst Brewing Company, Captain Frederick Pabst, lobbied Congress to change the law. What he proposed was to have a system of pipes going under the street from the brewhouse to the bottling house. Somewhere along this pipeline would be a gauge that would measure the flow of beer.† When the equivalent of a barrel had passed through the system, the revenue agent had to be handed a canceled tax stamp. This system could be run only when an agent was on the premises to collect the stamps.

Although this improved system eliminated the requirement that a brewery fill the kegs just to subsequently empty them, it still required that the brewery have a separate bottling house.

Many smaller breweries continued to keg their beer, not only because of the costly requirements of the excise tax, but, most important, because most of their trade came from neighborhood taverns. They had less of a need to bottle the beer.

Effects of Foreign Investors

Many of the causes of brewery consolidation cited so far in this article related to improvements in technology. One of the outside causes of U.S. brewery consolidation was the interest of British syndicates in investing in the United States.

In the late 1880s, depression hit Great Britain. Many investors turned to the United States for safer investment opportunities, in such industries as cattle ranching and brewing.* The syndicates’ monies were used to purchase and consolidate breweries. In many cases, however, such ventures were not profitable because consumption of malt beverages was down during this time period.

*A bung was a wooden cork that fit in the side of wooden and metal kegs. Most modern kegs have no bung and are filled through the tapping connections. Genesee Brewing Company (Rochester, New York), however, still uses kegs with bungs in them.

†Today, the system is much the same. For brewpubs, the gauge is put inline before the beer goes out of the taps. Now, however, payment is made directly to the federal government; revenue agents are no longer permanent fixtures at breweries.

Consolidation of U.S. Breweries, 1876–1919

Year

Number of Breweries

1876

2685

1880

2266

1890

1902

1895

1732

1900

1751

1910

1498

1919

1179

The effect of the syndicates, however, was that smaller breweries reacted by trying to consolidate themselves to survive. Baron indicated that he believed that at this time consolidation was a common practice in industry in general, and he points to mergers in “railroads, steel and the like”.

No matter how it is looked at, the figures show the trend toward consolidation (Table I). Some of the lost breweries were very certainly just plain bad businesses, but others disappeared as a result of mergers. Many businesses had put money into new plants and equipment and could not afford to repay the loans.

Tied Houses

One way breweries sold beer with assurance of no competition was to have tied houses. Tied houses (bars or restaurants) were directly owned by the brewery whose beer they sold, or they negotiated exclusive contracts with breweries to feature only their beers. This system locked out many of the smaller brewers who could not afford to put up the sums of money needed either to buy businesses or to establish contracts with the owners. According to a 1950 article in Fortune, Few will deny that the saloon deal laid the foundation for most of the great brewing fortunes in America. A brewer simply went out and captured as many corner locations as he could, then rented or deputized the premises to a saloonkeeper who sold the owner–brewer’s beer exclusively.

Prohibition

Perhaps the largest reduction in breweries in the United States came about during Prohibition. It is interesting to note that one of the pressure points that prohibition-minded groups used was the saloon, pointing to the drunkenness and crime that was associated with the 300,000 saloons in operation at that time. It is somewhat ironic that the larger breweries saw these saloons as cash cows.

In 1919, the year before the Volstead Act took effect, 1179 breweries were in operation in the United States. By 1933, when Franklin D. Roosevelt signed a bill permitting production of “3.2” beer (3.2% alcohol), only 703 breweries remained. Only the strongest breweries survived Prohibition. Many of them attempted to change their product lines. Others simply shut down because they could sell no other products.

The West End Brewing Company in Utica, New York, for example, began selling sodas under the name Utica Club. It also sold many nonalcoholic “near beers” based on the styles that it had previously sold. Many breweries, including West End, made and sold malt extract. It was sold in grocery stores along with explicit instructions on how not to use it to make beer.

Anheuser-Busch Brewing Company of St. Louis sold quite a few products. It made malt extract, near beers, malt beverages, and yeast. Its yeast company soon became one of the largest, outpacing the then industry leader Fleischmann & Company. Most of this yeast was used by home brewers who were using malt extract to make their own beers. According to one member of the Busch family: “If you really want to know, we ended up as the biggest bootlegging supply house in the United States. Every goddamn thing you could think of. Oh, the malt syrup cookies! You could no more eat the malt syrup cookies. They were so bitter”.

Anheuser-Busch also dabbled in other areas, including truck bodies, refrigerated cabinets (for ice cream), ice cream, and real estate. The company also sold many of its then obsolete ice houses and warehouses. It used the money to invest in other real estate holdings. There is a claim in Hernon that Gussie Busch, one of the descendants of the head of the company, even sold the “golden gates” (keg taps) to Al Capone. Capone was running his own illegal breweries and needed a way to tap his kegs, and Busch provided it. At one point someone wanted to report the keg taps as stolen, and Busch said: “We knew that the underworld had taken them. And what the hell, we were selling them”.

*See also The Populist Moment, by Lawrence Goodwyn, for evidence of the reaction to this investment by the Populists, especially the Populists’ Omaha Platform.

†The West End Brewing Company changed its name in 1980 to F.X. Matt’s.

The important thing to note about Prohibition in the United States was that it had greatly reduced the number of operating breweries by the time of repeal. If breweries were unable to expand into other businesses and remain profitable, they would be unable to reestablish themselves afterwards. Many of the breweries ventured into malt extract, yeast, soft drinks, and food products, but many of the smaller breweries just died. These smaller ones lacked the money needed to branch out into other fields: they had been doing enough just to stay alive.

Part II: Brewery Consolidation in the Aftermath of Prohibition

The 703 breweries that began producing beer after Repeal faced a new set of challenges if they wanted to remain in business. Bottling, canning, advertising, new federal and state excise taxes, and government regulation (or lack of it), among other things, all put pressure on the smaller breweries and led to many closings. This article looks at each of these factors and shows how they converged to drive hundreds of small breweries out of business.

Distribution Patterns Take a Dramatic Turn

First, let’s look at the changes Prohibition brought in government regulation and beer distribution channels. As mentioned in Part I of the series, the United States had for years allowed a system of “tied houses,” whereby brewers could own their own distributors and saloons — the whole path from the brewery to the purchaser. The end of Prohibition changed all that. Breweries faced many new regulations on their businesses, including laws regulating their ownership of saloons and distribution sources. No longer would they be allowed to own bars and have them sell only their products — they would have to compete directly with other brewers to get shelf or tap space at a bar.

Birth of the three-tier system: The new rules resulted in the formation of what was called a “three-tier” system. Breweries sold to distributors, and distributors sold to bar owners, who then sold to the consumer. Breweries, distributors, and bars or saloons had to be independently owned, and regulations dictated how much the brewery could give in the way of promotional items to the distributors and bar owners.

Despite high-minded theories of distribution of power, this new competitive system actually served to reduce the number of small brewers in the United States. The small breweries that had been able to sell their beer exclusively now faced large breweries that could drop the price of their beer for a short period of time to drive out the smaller breweries. Further, it caused the field of competition to be increasingly centered on advertising, which many of the smaller breweries could ill afford.

Saloons lose appeal: One of the more significant social changes to come out of Repeal was the popular view of saloons. Whereas before Prohibition saloons had been the place of choice to consume beer, after Repeal they had negative connotations, and many felt an impetus to dissociate themselves from them. Consumers were also beginning to have refrigerators at home, a seemingly small luxury to us but one that had immense impact on the world of the 1930s. No longer would they have to drink at a bar or send someone there for beer.

A look at the statistics for the period bears out this change in preferences. In 1934, 75% of the beer sold was in kegs; in 1936, 66%; in 1938, 55%; and in 1940, 52%. “In 1950, for instance, packaged sales accounted for 85 percent of the total combined sales of A-B [Anheuser-Busch], Schlitz, Pabst, Miller, and Falstaff, whereas, for the rest of the industry this figure was only 68 percent”. By 1991, the total for draft beer was only 11%, down from the 75% of 57 years earlier.

Although some might argue that some of this packaged beer was drunk in bars — and that may certainly have been the case — the point remains that the preference for beer was changing from draft to packaged product, and it is in this area that the larger shipping brewers had a distinct advantage. These larger brewers had both the money and the foresight to invest in high-speed bottling and canning lines; the smaller ones did not.

Douglas Greer points out that television also had a large impact on this transition in preferences, especially after World War II. He states:This new and powerful advertising medium probably provoked an overall increase in outlays, as well as extensive budget reallocations away from the older media. Moreover, it is very probable that a primary cause of the decline in draught-beer sales was television’s supplantation of the neighborhood tavern as a major source of inexpensive entertainment. For this reason the strategic importance of both packaging differentiation and mass advertising, especially that on television, was greatly enhanced.

The Proof Is in the Package

Beer had been bottled for hundreds of years, and when refillable uniform bottles were designed, the bottling process was streamlined and made more efficient. Packaging beer in bottles, however, was still quite costly, because the shippers had to send the beer from its brewery to the target market and then also have the empty bottles and cases shipped back. The weight of the glass and the liquid often resulted in high transportation costs.* “Anheuser-Busch, for example, spent 50 percent more on transportation than on grain between 1933 and 1938”. In the 1930s, the cost per barrel for a shipper to get the beer to a customer was $ 10.87 on average, and for the local brewer it was $ 9.65. Of the $ 10.87 for the shipper, however, production costs were only $ 7.61 — although they had succeeded in recovering production costs, transportation added a troublesome $ 3.26 to the cost of a barrel.

As long as the cost of shipping beer remained relatively constant, it seemed the local brewer, with essentially no transportation costs, could remain competitive with its long distance rival. Two changes, however, caused the local brewer to begin losing market share: the change in taste for packaged beer and the invention of the can.

Local brewers tended to keg their brews because of the expense of bottling equipment. Further, although they might have been able to invest in some packaging equipment, the technology was changing rapidly and smaller brewers tended to keep what they had because they could not afford to constantly upgrade. The result was that the smaller brewers were investing in a losing proposition. As cited above, consumer preference was leaning toward packaged beers, and many of the smaller brewers simply failed to address the trend.

*Water weighs 8 lb/gal. Add to that the weight of the cap, the bottle, and the wooden case that held it all.

Beer in a Can?

The most significant change in packaging technology was the invention of the can. In April 1935, Krueger Beer of Richmond, Virginia, first began selling beer in cans. The advantages of the can were soon realized by other brewers.

Advantages to breweries: Cans allowed no light through, so the beers did not get “light struck.”* Cans weighed much less than bottles, so shipping costs were greatly reduced. Cans were less prone to breakage, so brewers could sell more beer. Cans had a lower “profile” and were smaller, making it easier for them to be shipped, stacked, and moved around in warehouses. Cans could also be pasteurized more quickly because they held heat longer. Further, brewers felt that cans would appeal to consumers because they would only be used once and not be refilled. Consumers noted two more advantages to beer in a can: Cans stayed cold longer, and they required no deposit or return.

*“Light struck,” or “skunked,” refers to the smell and flavor imparted to a beer when it is exposed to sunlight; sunlight hitting hops in beer sets off a chemical reaction that is responsible for this off-flavor. A can blocks out all light, thus eliminating the problem.

The problem for local brewers, however, was that this canning technology was too costly and out of their reach. And because the can was lighter, the cost differential between the shippers’ cost of beer and the locals’ cost of beer was narrowing and would shortly turn in the favor of the shippers. As McGahan points out, Most local breweries could not afford sophisticated new canning equipment. Many lost their cost advantages at point of sale and could not offer a full product line. The small brewers’ best available defense was to attempt to stall marketplace acceptance of the can and to oppose legislation that would have enhanced the larger brewers’ efforts to integrate into packaging.

Will Anderson, author of many brewing-related books, further commented:A strong secondary effect of use of the can was to further strengthen the already strong position of the national giants. Even though they could afford the very latest and most efficient machinery and gained prestige through heavy advertising campaigns, the nationals had one big disadvantage in their constant battle with local and regional brewers — heavier transportation costs. With the arrival of the can, however, shipping charges were lowered substantially and they could compete even more effectively with the local. In fact I would hazard a guess that, if the can had never been invented, there would probably still be several hundred American brewers in operation, instead of the present 70*. (*The number of breweries at the time the book was published (1973).)

Anderson’s last assertion is certainly open to speculation given the gains that the shippers had already made on the locals by this time. Other changes yet to come in the brewing industry also would have undoubtedly had an impact on the number of brewers, regardless of whether the can had been invented. The can and its usage, however, certainly hastened the exit of many marginal operations from the industry. For all the problems they caused for small brewers, it should be noted that cans were more expensive to buy per case. Again, however, the advantage to the local brewer was outpaced by the march of technology; cans were lighter, filled faster, and could “be decorated at the plant where they were made — all of which lead to economies [of scale]” .

Consumer demand: It is also important to note that consumers developed a taste for different types of packaging for their purchases. A brewer could no longer merely package in 12-oz bottles and get by. Consumers demanded, and still demand, a choice of long necks, quarts, ponies or “splits,” cans, kegs, and regular 12-oz bottles. This demand forces brewers to have more than one packaging line for each type of beer, which virtually requires that the brewer be large enough to overcome the costs required to maintain various packaging lines.

Along with the call for different sized containers came the desire to make the beer bottles and cans themselves attractive and appealing to consumers. Breweries had to invest money in labeling and package design, all of which comes out of the bottom line.

With the advent of the can, the availability of home refrigerators, and changing consumer preferences for beer consumption away from bars, the shippers’ fortunes soared. Not only were they selling more beer, but their costs had been reduced by the lightweight can and the corresponding lighter weight bottle.

Competition Developed Ad Nauseum

Competition among the larger brewers heated up, and their spending on advertising increased. From 1949 to 1967, advertising expenditures as a cost per barrel increased from an average of $ 0.31 to $ 1.32, an increase of 430%.

The increase in advertising again caused smaller, more marginal operations to fall out of the industry. The shippers were able to take some of the cost efficiencies they achieved with canning and use them for advertising. The locals could not meet the shippers on price and could not afford to compete with them on advertising. The larger breweries bought out many of the smaller operations, increasing their market share and gaining more profit.

According to Elzinga, The national brewers also have three other advertising advantages: none of their advertising is wasted, whereas regional brewers do not always find media markets (particularly in television) that coincide with their selling territories; their advertising investment is less likely to be lost when a customer moves to another part of the country; and the leading sellers concentrate their advertising on one or two brands while some regional brewers must spread their advertising over a larger number.

Advertising remains today one of the most important factors in selling beer. As of 1990, some $ 560 million per year was spent on beer advertising. As beer analyst Bob Weinberg notes, however, “there is absolutely no evidence to suggest that advertising influences malt beverage demand”. Advertising appears simply to shift consumption of beer from one brewery to another rather than increase overall demand. If this is indeed the case, it makes it even more difficult for smaller breweries to stay afloat with an annual output that sometimes equals one day’s production at Anheuser-Busch. They also simply can’t afford the massive amounts of money now required for advertising.

From Bad to Worse — A Convergence of Overwhelming Challenges

The locals begin to lose the war: By the 1950s, the number of operating breweries had fallen further. The 700 breweries in operation after Repeal dropped to just 390 by the 1950s. The decline was becoming precipitous. Four other factors had a hand in this steady decline: the local excise tax, economies of scale, government action on mergers, and predatory pricing.

Taxes: After Repeal, states were given the “local option” to decide whether or not alcohol would be permitted. Along with this authority, the states were allowed to apply excise taxes to alcohol sold within their borders. Most states immediately seized the opportunity; the taxes varied, but most appeared to be around $ 1.00 per barrel. States could also establish their own regulations on advertising, prices, promotions, and other related issues.

Already groaning under the weight of the federal excise tax, small brewers now facing 50 different systems of regulation and taxation — one for each state — would be inclined to remain small and exist solely within their state borders so as not to deal with this legal nightmare.

Economies of scale: As brewing processes became more equipment-intensive, smaller breweries found it increasingly difficult to compete with the economic efficiencies inherent in large-volume operations. More and more money was needed to produce beer cheaply. According to Pluta,The major causes of the national beer industry oligopoly appear to be economies of scale and product differentiation. Economies of scale, which occur if large plants produce at lower unit costs than small ones, appear to exist in the beer industry where brewing and bottling processes have become increasingly mechanized. The increased capacity attained by many individual breweries over the past 20 years* have forced the closure of numerous small regional producers.

F.X. Matt points out, however, that Genesee Brewing Company (Rochester, New York) has a lower per-barrel cost of production than Anheuser-Busch, in apparent contradiction to the theory of economies of scale. It could be that the costs of production at Anheuser-Busch are lower when advertising expenditures are not taken into account. A further consideration is that Anheuser-Busch’s products are considered “premium” beers and command a “premium” price, whereas Genesee’s are “popular” beers with “popular” prices.

The irony of government protection: Government regulation of mergers, ironically, may also have contributed to the demise of small brewers. After Prohibition, many breweries attempted to purchase smaller, faltering breweries, which would give them plants in various parts of the country and cost savings. The U.S. Justice Department, however, in its enforcement of the Sherman Antitrust Act, blocked these mergers in the spirit of competition.

Keithahn, for one, feels that this fervor on the part of the Justice Department in fact caused consolidation. According to him, these actions prompted growing and already-large breweries to construct new facilities instead from the ground up, resulting in far more efficient operations than ever before. He feels that this “internal expansion” had the opposite effect of hastening consolidation because the larger brewers became even more efficient.*As of 1982.

To illustrate the phenomenon, Norman points out that Falstaff was able to purchase smaller breweries in other markets in that post-Repeal era and almost realized its goal of becoming a national brewer. Because it had purchased inefficient older plants, however, Falstaff in fact ultimately lost out and never did achieve national status. As of 1994, it was ranked the 9th largest brewing company, behind Genesee and the Latrobe Brewing Company (7th and 8th, respectively).

Further, the Justice Department compounded the injury by restricting smaller breweries from combining with each other for the very same reasons. These actions put the smaller breweries in even greater peril, because they could not achieve better economies of scale. Stanley Orenstein points out that even some of the regionals might have survived had they been able to merge.

Predatory pricing: F.X. Matt claims that predatory pricing is one of the major reasons for brewery consolidation. He asserts that the larger brewers may have caused many of the smaller ones to fail because they “targeted” certain areas, dropping the prices for their products to gain market share.

Although he could not document it, he believed that such documentation might yet be found. His claims include the suspicion that Anheuser-Busch and other large breweries put pressure on distributors to drop prices at certain times or face the loss of the relationship. He also believed that “whispering campaigns” against some brands of beer, notably Corona, were instigated by Anheuser-Busch to reduce sales of such beers.

Elzinga, in his 1973 article, points out that “there has been a series of pending private actions by local and regional brewers charging major brewers with unlawful predatory pricing”. He further points out that “most major brewers now produce a popular price brand pegged directly at the price level of the regional brewers. Pabst, in fact, has marketed its major brand at popular prices almost throughout the country since 1962”.

Charles Burck’s article seems to do the best job of explaining how predatory pricing devastates smaller brewers. Anheuser-Busch, which pioneered the idea of beer “price promotion,” might lower its price for a few weeks to wrest market share away from another brewer in a particular area, theoretically prompting beer drinkers to switch to Budweiser or some other Anheuser-Busch product. When the price goes back up, Anheuser-Busch retains some of the competitor’s drinkers, while the competitor sustains the loss of some of its own.

Because of its much slimmer margins than those of Anheuser-Busch, the competitor cannot retaliate. It also cannot raise its prices, because it would not then gain business. More important, whereas the regional brewer may feel the loss in his entire market, Anheuser-Busch, as a national brewer, would be easily able to compensate for the loss in the one small market with gains in others.

“Big brewers claim that they use price promotions only to compete against the lower-priced local and regional beers. ‘If dropping our prices for a weekend destroys one, then I’m sorry,’ says the marketing vice president of a major company. … Such assertions ignore the fact that the national can easily outgun the local or regional brewer by cutting prices on only a small fraction of its total sales volume — probably not much more than 5 percent — first in one market and then in another”.

Regardless of the quality and appeal of the beers themselves, predatory pricing appears to have been the straw that broke the camels back for many small breweries through the 1960s. The larger shipping brewers had the money and the market share to wage effective battle against the smaller brewers. The small brewers would have to rely on new strategies to compete in the new big money game.

Part III: The Microbrewery Revolution

he opening of the New Albion Brewing Company in 1977 in Sonoma, California, is an undisputed milestone in the history of modern American brewing. From that event, the microbrewery phenomenon has spread like a thirst amid wildfire.

From almost 3000 breweries in the mid-1800s to just 390 one century later, the number of breweries operating in the United States dropped precipitously in a clear trend toward consolidation in the hands of a few industrial brewers. These brewers competed vigorously on the grand scale of mass media advertising and price wars, with marginal differences in their products. Since the opening of that first microbrewery in 1977, however, commercial craft brewing has seen unprecedented growth. By the end of 1995, more than 750 regional specialty breweries, microbreweries, and brewpubs were operating nationwide.

Bucking the trend of brewery consolidation and the monotonization of beer styles, this resurgence of microbreweries has led to a fundamental shift in what and how Americans think about beer. Most notably, beer consumers — or a least a significant portion of them — have begun to return to beers that have more flavor and character. For these consumers, the appreciation of flavor and beer’s other attributes has become more important than cost. To meet this demand for stylistically interesting beers, the small breweries emerging in the late 1970s offered locally produced, hand-crafted beers, signaling a comeback for the U.S. craft brewing industry and the diversity it used to represent. In the two decades since New Albion sold its first pint, commercial craft brewing has been transformed from a novelty into the mainstream.

In 1995, 275 new microbreweries and brewpubs opened their doors to the public — or roughly one each working day of the year — and the volume of craft beer produced was over 50% higher than in 1994. According to David Edgar, director of the Institute for Brewing Studies (IBS; Boulder, Colorado), approximately 70% of the new openings were brewpubs and 30% were microbreweries. Fewer than 15 microbreweries went out of business last year, a remarkable success rate for new small businesses.

Despite this unprecedented growth, however, Edgar approaches the industry’s future cautiously — particularly in the glutted regions of California and the mountain West.

“In the East, Southeast, and Midwest, a great amount of opportunity still exists, and we have a ways to go before those regions will teach the saturation level,” Edgar said. “Significant expansion may continue for another year, but it’s doubtful the brewpub and microbrew markets can continue at that same pace forever.”

For the present, though, the market shows no signs immediate slowdown. Whether the U.S. craft brewing industry reaches the market share and prevalence that was typical a century ago remains to be seen.

The Sparks that Ignited the Revolution

Some observers believed that craft brews represent a general trend in modern consumerism. As one authority claimed: It’s part of a general trend among consumers for more distinctive, less homogenous, hand crafted types of products. The population that is aging now has a real connection with standardized products and mass production that led us out of the Depression. Younger consumers don’t think that way. They want finer, more distinctive products.

Others claim that what has caused an increase in demand for craft brewery products was a “rebirth of regional pride and a search for community. … Inundated by news of economic woes and foreign competition, people are more interested in things that are local”.

Some also claim that the success of the craft breweries is attributable to the success of imported beers. Imported beers educated consumers to new styles and tastes and conditioned them to paying higher prices for higher quality products. Craft breweries, because of their small production volumes, could not exploit economies of scale as their bigger competitors could, so their prices had to be higher. Because consumers were willing to pay for these types of beers, craft breweries could fill this niche and go one better by offering beer that was made locally. This combination of high price and specialty marketing based on locale would be the only program that would enable small breweries to survive.

The role of home brewing cannot be neglected as a major contributor to the revival of craft brewing. Home brewing remained illegal after Prohibition because of an apparent oversight in the Repeal language; home winemaking was specifically permitted, but not home brewing. In 1977, President Jimmy Carter signed legislation that finally cleared the books, enabling hobbyists around the country to pursue the craft of brewing fine beers at home.

And pursue it they did. Thanks to the pioneering efforts of notables like Fred Eckhardt, Byron Burch, Scott Birdwell, and Charlie Papazian and the American Homebrewers Association (Boulder, Colorado) and thousands of enthusiastic and talented people, home brewing and classic beers began to make inroads into all corners of American society. Home brewing grew at a phenomenal pace. The most often-quoted estimate of the number of home brewers in the United States puts the number at one million.

Like imports, homebrews showed Americans that there was more to beer than light lagers, thus fueling interest in and demand for stylistically interesting specialty beers. At the same time that home brewing helped spur demand, it also generated a supply of knowledgeable brewers, many of whom were eager to share their passion with the greater world and take their shot at the market.

The first pioneering craft brewers could be divided into two groups: restaurateurs, and those who had previous brewing experience. Because the beer in a brewpub business is largely secondary and complementary to the food, opening a brewpub requires restaurant experience. Opening a microbrewery, on the other hand, requires a mix of entrepreneurial skills and previous brewing experience.

Professional microbrewers tend to rise up from the ranks of home brewers or from jobs held in other, usually larger, breweries. Motivations might include the appeal of selling beer unlike any beer sold in contemporary America, the dream of selling to the public the beers they had successfully made at home, and the prospect of getting in on the ground floor of a new business. Most apparently believe there is money to be made, and many recognize that upscale imported beer drinkers helped to create an appealing market niche; aftet all, these consumers had already expressed a willingness to pay more money for better beer.

Clearing Hurdles in the Pursuit of the Dream

Though the passion was there, state and federal regulations proved to be significant obstacles to the start-up of the new, smaller, craft breweries.

State proscriptions: The first obstacle was the simple question of whether it was legal in yout state. Many states continued to hold onto laws that outright forbade small-scale commercial production and distribution or the sale of food and beer on the same premises on which it was brewed. One by one, however, states began changing their laws. As of this writing, only two states (Mississippi and Montana) still prohibit brewpubs.

BATF: The federal government, especially the Bureau of Alcohol, Tobacco and Firearms (BATF, or ATF), has presented serious challenges to this new segment of the brewing industry. In fact, among the brewers I interviewed, the consensus was that the BATF was indeed their biggest problem.

According to one brewer, the BATF was “not used to dealing with microbreweries” and “there is no set of regulations for micros to follow when applying for a permit to brew.” He said that applications submitted were simply accepted or rejected, with no reasons given. The only thing you could do was to try to change something and resubmit, hoping to latch onto what the BATF was looking for. He said that essentially he had to have the right answer without even knowing the question.

This experience may not be all that surprising given the BATF’s historic role in the brewing industry. Breweries were being closed, not opened, in the period from the 1930s to the 1980s. When the BATF was established in 1933, one of its primary areas of responsibility was collecting the excise taxes imposed on the brewing industry. Approving applications for new breweries is a fairly recent addition to its job description. The microbrewers I interviewed suggested that BATF lawyers don’t fully understand the needs of the industry, especially when it comes to small craft breweries.

The three-tier system: The very three-tier system established after Prohibition to prevent the big breweries from controlling the market and inhibiting trade — the system that had long separated the brewing, distributing, and retailing segments of the beer industry — had become a millstone around the necks of the craft breweries.

These laws, created over 50 years ago, well before the birth of the first modern craft brewery, effectively restricted brewpubs and microbreweries from distributing their own beers. A brewpub is by definition a brewer, distributor, and retailer all in one, a clear violation of the three-tier system. Microbreweries, too, if they were unable to find a distributor to take their beer, could not distribute the beer on their own. Before these businesses could begin to operate, laws had to be changed, painstakingly, state by state.

Nowhere has this struggle been more evident, perhaps, than in the state of Missouri where the fight over microbrewing volume permits led to a protracted statehouse battle between industry giants and craft brewers. The first law to allow for craft brewing in Missouri was passed in 1991 and prohibited small operators from selling more than 2,500 bbl of beer a year.

Soon thereafter, the St. Louis Brewery’s Tom Schlafly attracted the ire of Anheuser-Busch when he launched a campaign to increase the volume limit. Though he would have preferred state lawmakers to adopt the federal maximum of 60,000 bbl, Schlafly pushed for a comparatively modest 17,500 bbl cap. Anheuser-Busch lobbyists pushed back. And in September 1993, the state legislature agreed to a compromise limit of 10,000 bbl/year (4). The St. Louis Brewery is now working to sidestep the new limit by teaming up with contract brewery August Schell in Ulm, Minnesota, who will begin producing the Schlafly beers in bottles by spring of this year.

Licensing: Because the number of breweries in the United States was limited for quite some time, the cost of licensing a brewery had been fixed at a level commensurate with these larger breweries’ ability to pay. But what is affordable for larger breweries is often beyond the reach of their smaller brethren, and the licensing fees were much higher than what most small breweries could afford.

As a reflection of the growing strength of the craft brewing segment of the market, however, more and more states have modified their licensing laws. According to Edgar, licensing is not nearly as problematic as it was a decade ago.

Local health departments: Because beer is a food, small local craft breweries have also had to tangle with their local health departments. And if that weren’t enough, the one brewpub reported that the local sewer district would not initially grant an operating permit for fear the brewery would overtax the system’s resources.

All in all, regulatory difficulties from the federal government down to the smallest jurisdictions have caused, and continue to cause, significant challenges to the start-up and operation of small craft breweries.

Demand Continues to Fuel Craft Beer Production

Despite the obstacles to success, public acceptance and market demand are keeping craft breweries strong in the continually maturing craft brewing market. Far from limited to the conventional markets of restaurants, bars, and grocery store shelves, craft beers are finding — and creating — new matkets and new avenues for promoting their products.

“Beer of the Month” clubs, which send craft beers from different parts of the country to members each month, are a relatively new way to introduce consumers to craft-brewed beer. Though they can be relatively expensive, members get the opportunity to sample beers they cannot normally find in their local stores. Such clubs appear to be good for craft brewing in general, educating consumers to new beers and encouraging them to purchase other craft brews in their local marketplace.

Some restaurants are capitalizing on the interest in home brewing and microbrewing in innovative ways. One of Philadelphia’s brewpubs, for example — the Dock Street Brewing Company — hosts an annual homebrew competition where contestants vie for ribbons for their home-brewed beers. Dock Street has found that business increases drastically during the competitions. The restaurant also holds monthly home brewing classes and finds that its lunch and beer revenues increase markedly. Overall, this craft brewery is attempting to build customer loyalty by making deep connections between brewing and its restaurant business.

Specialty beers are also finding their way into such mainstream venues as baseball stadiums and airports. Gordon Biersch operates a concession at San Francisco’s Candlestick Park, and fresh Rhino Chaser beer is served on tap at its Rhino Chaser pub at the Los Angeles International Airport.

A Proliferation of Styles

One of the most important side effects of the craft brewery revival has been the education of consumers about the vatious styles of beers available. As mentioned in the first installment of this series, lager beers virtually replaced ales by the end of the 19th century. Small breweries were unable to buy the equipment for lagering and therefore could not compete with the larger breweries. Today’s craft breweries, however, more often than not brew ales. Forgotten ale styles such as pale ales, wheats, porters, and stouts have regained popularity. The resurgence in popularity of ales is fortunate for the craft breweries from a financial and operating standpoint — ales require no additional capital for lagering tanks and lagering rooms, and they can be ready to serve in a shorter time, resulting in lower start-up costs and a more responsive cash flow.

Consumers now have more choices than ever before and can select from a wide spectrum of beer styles beyond that of the American light lager style made popular by the big breweries.

State of Craft Brewing Today

Definitions: The brewing industry today is segmented according to size and type of brewing operation. Large breweries are those that brew more than 500,000 bbl/year. Regionals brew 15,000–500,000 bbl/year. Microbreweries brew less than 15,000 bbl/year. Brewpubs are microbreweries that sell food on premises.

Craft beer’s market potential: At 3.8 million bbl of production in 1995, craft brewed beer (including that brewed by regionals) currently represents only about 2.2% of total U.S. beer production. Placed in context to the overall brewing market, however, that number is significant. Table I shows annual production figures for the entire U.S. brewing industry and its various segments and the relative market shares of each. These data show not only impressive growth ovet the past decade, but also acceleration in growth in the past year; preliminary 1995 figures suggest a 52% increase in gross production from 1994 to 1995 for craft brewers, and a disproportionately larger jump in market share.

Table I: Craft Brewers’ Share of Total U.S. Production

 

 

U.S. Production (000 bbl)

 

U.S. Market Share

 

Total

Large

Regional/Contract

Pubs/Micros

Total Craft

Large

Craft

1985*

175,667

175,592

47

28

75

100.0%

0.0%

1990*

190,167

189,532

325

310

635

99.7%

0.3%

1994*

187,170

184,658

1,795

717

2,512

98.7%

1.3%

1995†

176,850

173,031

3,819

97.8%

2.2%

*Data is compiled from the 1995–1996 Brewers Resource Directory, published by the Institute of Brewing Studies (Boulder, Colorado), and Beer Marketers Insights (West Nyack, New York).

†1995 data is estimated (total industry figure courtesy of Beer Marketers Insights, and craft brewing industry figure from the IBS). Total production does not include approximately 1.8 million bbl of malt coolers.

According to one brewery owner, “The potential U.S. market for specialty beers is at least $ 1 billion — or about 10% of the market — compared with about $ 200 million today”. Many observers used to believe that craft breweries would take business away from imported beers, but now it appears that they also take business away from the large national breweries.

Imitation, the highest form of flattery: To maintain their market share, some of the larger industrial breweries have begun to market their own specialty beers. From Anheuser-Busch’s Muenchner to Coors’ Nut Brown Ale, the large breweries are testing markets with specialty beers of varying degrees of authenticity. “Miller’s discovery that flavor matters to beer drinkers may be attributed in part to the success in recent years of regional microbrewers, which sell full-taste premium beers”. The accompanying box shows some of the specialty offerings of the major large breweries; such a list could not have been compiled in 1980.

Some large breweries create separate companies and label their specialty products under those company names. The Genesee Brewing Company of Rochester, New York, for example, created the HighFalls Brewing Co. It operates at the same location and facilities but markets a line of Michael Shea’s craft-style beers — Irish Amber, Black & Tan, and Blonde Lager — and another called JW Dundee’s Honey Brown Lager. The bottles themselves give no indication that the beer is brewed by Genesee Brewing, perhaps to create a craft brewery image.

Contract breweries: Contract brewing is another relatively new phenomenon in which the contract brewery brews a prescribed recipe and delivers the finished product to the client, which then sells it as its own. Clients may be other breweries or even restaurants and hotels. Breweries may contract with others either because they can’t afford to expand (or, as mentioned above, regulations won’t allow for it) or to avoid the cost of owning their own brewery. Restaurants, hotels, and other non-brewing companies are trying to capitalize on the market appeal of craft beers.

Pittsburgh Brewing is one example of the evolving business profile of modern breweries. Struggling with the sales of its own brands, this regional brewery saw that the brands they contract-brewed sold quickly. Catching on to industry marketing trends, they began to market their Iron City Beer as a craft-brewed “burgh thing” and launched a line of specialty beers through a separate Wainwright Brewing Company. The line-up of J.J. Wainwright Evil Eye, Blackjack, and Evil Eye Honey Brown has helped the brewery successfully increase its marker share.

The Brooklyn Brewery is another brewery that had to change the rules to survive. This company owns no brewery; its beers are brewed by F.X. Matt’s brewery in Utica, New York, and shipped to New York City. The labels read, “The Brooklyn Brewery, Utica, NY.”

The arrangement between F.X. Matt and the Brooklyn Brewery is fairly typical of contract breweries and their clients. What is unusual is that the Brooklyn Brewery was then forced to distribute its own beers. None of New York’s large distributors was willing to distribute Brooklyn Brewery beers, effectively locking them out of the market completely. The owners of Brooklyn Brewery countered by starting their own distributorship, and they now distribute their own products under a separate company. In an ironic twist, this company now also distributes most craft-brewed beers in New York City because the large distributors will not handle them.

Training opportunities expand: Aspiring craft brewers are finding more opportunities today to get the training they desire. A few well-known institutions in the United States cater specifically to brewers. The Siebel Institute of Technology in Chicago, the oldest such institution in the country, has weathered the storms of Prohibition and the many changes in the industry since its founding in 1872. In response to the strength of the craft brewing market, new educational institutions are being formed, and many universities are starting to expand their programs to include classes for the brewing industry. The programs span the range from intensive (and expensive) professional development curricula to less expensive short courses offered for both craft and home brewers.

Growth potential: At this time it appears that craft brewing will continue to see unparalleled growth (see box, “A Five-Year Forecast for the U.S. Microbrewing Industry”). Demand for craft products is up, and entrepreneurs are responding to the increase in demand with new and expanded breweries. New microbreweries continue to produce and ship distinctive variations of classic styles, and larger established breweries adapt to the changing conditions by offering craft-style products.

Tracing the Circle

The U.S. brewing industry has undergone many changes since its origins early in the 17th century. It has grown, consolidated, and grown and diversified again.

The consolidation period was marked by variety of distinctive influences. Consumers tastes changed in preference to lagers over ales, and advertising became a powerful tool in creating and reinforcing these and other consumer preferences. Technological developments from the railroad and refrigeration to the discovery of pasteurization and the invention of the can left a clear mark in the brewing industry. The government had no small role in these changes, too, with the imposition of state and federal excise taxes, national prohibition, and Justice Department action on mergers and predatory pricing.

More recently, the return in consumer preference to more full-bodied and full-flavored beers has significantly increased the number of breweries in operation. Although some of the classic regional beers of pre-Prohibition America have been lost forever, microbreweries and brewpubs are poised to continue the return to diversity of beer styles to the commercial beer market while home brewers continue to apply their quiet but significant influences on the tastes of American beer drinkers.

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