Monday, May 30, 2016

5 Forces in the Home Brewing Industry

Five Forces in Home Brewing Industry -  Industry Analysis

Industry Overview
How much interest is there for homebrewing?  The closest industry I identified in IBIS was Craft Beer Production, which often has limited distribution and high price points.  Oddly enough, craft beer is still increasing in popularity among US beer drinkers[1].  One possibility is that, during the recession, there was a consumer shift to drink at home instead of nightclubs and bars to save money.  This shift resulted in the craft beer industry growth of an annualized 10.9% to $3.9 billion during the past five years to include an anticipated growth of 11.9% in 2013[1].  Increasing market acceptance of craft beers have in turn attracted many to try beer and wine brewing at home for themselves.  The American Homebrewers Association (AHA) estimates that 1 million Americans brew beer and make wine at home at least once a year[2].  In addition, the “Brew Your Own,” beer magazine, the #1 selling homebrew magazine estimates that their readers spend over $82 million spent annually on craft and import beer[3].

Areas of Chaos
Regulation and Policy – Although homebrewing is federally legal and is exempt from tax for beer brewed for personal or family use, the 21st Amendment predominantly leaves regulation of alcohol to the states[2].  In 2013, the last two states remaining with laws against homebrewing, Mississippi and Alabama, passed legislation to permit making beer at home[4]. Even though homebrewing is legal for all states, individual laws between states vary widely. Some states have very specific laws that outline exactly what can and cannot be done with homebrew, others are vague[2]. There are laws that limit consumption of homebrew solely to the residence where it was brewed, while other laws allow for transportation to events such as homebrew competitions and club meetings[2].
Price of coarse grains - The price of coarse grains tracks the prices of barley, oats and sorghum. Grain is a major input for beer production, so this driver represents the dominant inputs for craft breweries. Increasing grain prices pushes up production costs, and, in turn, decrease profit. The price of coarse grains is expected to increase during 2013, posing a potential threat to the industry[1].
Price of fruit- The price of fruit affects the profitability of wineries because grapes are a key input in the wine production process. These prices are affected by climatic conditions and the quality and quantity of grapes yielded. The price of fruit is expected to increase during 2013, posing a potential threat to the industry[7].

Industry Drivers
Per capita disposable income - The level of disposable income affects spending on industry products.  When people have more money, they are more likely to consume premium wine and beer at higher price points.  Per capita disposable income is expected to increase slowly during 20131.
Consumer Sentiment Index – As noted above, since income is linked to spending on industry products, the consumers will increasingly look for cheaper alternatives[1].
Per capita alcohol consumption - Alcohol consumption can affect craft beer sales, either positively or negatively. Additionally, consumers' cultural and attitudinal changes can alter demand for beer. For example, many people drink only in moderation due to personal beliefs, which reduces alcohol consumption and ultimately industry revenue. Per capita alcohol consumption is expected to increase slowly during 2013[1].

Industry Trends
Baby boomers (ages 46 to 64), who have fostered growth in wine consumption for the past 30 years, will enter retirement in droves during the next five years. As they adjust to fixed incomes, they will consume their cellar reserves and downsize their purchases by volume and price point.  Millennials (ages 15 to 32), who will become a larger consuming population than boomers, will represent a larger portion of demand, particularly for rogue varieties and wines priced between $7 and $256.  The most popular home brewing magazine BYO, quotes their 96,000 subscribes spend, “over $76 million by readers annually on homebrew supplies and equipment.” [3]
This industry is growing at a much faster pace than the overall economy. New product introductions and increasing market acceptance are propelling this growth. Craft beer's popularity boosted its prominence on many store shelves, which further contributed to growing consumer awareness of homebrewing. Industry value added (IVA), which measures the industry's contribution to the economy, is forecast to rise at an annualized rate of 8.1% in the 10 years to 2018. Meanwhile, GDP is projected to grow at an average annual rate of 2.1% per year[1].

1 “Craft Beer Production.” IBISWorld Industry Report. August 2013.
2 “Talking Points for Homebrew Legalization.” American Homebrewers Association.  Accessed May 2016.
3 “BYO By The Numbers.”  Brew Your Own Magazine.  Accessed May 2016.
4 Groark, V. (2013). Legally brewed. ABA Journal, 99(8), 11.
5 “Craft Brewing Statistics.”  Brewers Association. Accessed  May 2016.
6 “Fruit and Nut Farming in the US.”  IBISWorld Industry Report. October 2012.
7 “Wineries in the US.”  IBISWorld Industry Report. June 2013.

1 comment:

  1. Nice post. As a homebreweer, the price of hops has swung wildly in the pat 10 years. What once cost $5/lb now cost $15/lb. Further, some very popular hops like Amarillo and Simcoe are both expensive and difficult to come by.


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