On Second Thought . . .

. . . I’m not sure the “Comment of the Week” is such a great idea, because all of the comments I get are either smart, funny, thoughtful, or all three. Evidence: This truly thoughtful (and much appreciated) comment a few days ago from Matt Dunn.

I agree with what you’re saying here. I’m interested to see how Greg Koch deals with the slowing of organic growth in 20 years, when (if) Stone is making 1,000,000+ bbl a year, which I don’t think is a stretch. Though I think there are other, better reasons why firms have a grow-grow-grow mentality.

Yes, it has to do with the fact that entrepreneurs are motivated, driven, ambitious creatures, but there are real market forces that cause market shares to grow, consolidation to occur, and oligopolies to develop.

For example, as costs of raw materials and shipping rise due to various reasons, firms do not want to increase the price of their product to make up the increase in cost. Rather, they scale up to get better economies of scale. In fact, it’s generally a good idea to be as big as possible to absorb typical cost fluctuations.

The recent hop shortage is a great example that should be fresh in everyone’s mind. Bigger brewers that were able to pre-buy bigger lots of hops could and will continue to be able to absorb fluctuations in hop prices better than smaller brewers.

Anita McGahan’s 1991 article in Harvard Business Review (which I’m sure you know about) is a great account of how market and socio-cultural forces shaped the American beer industry in the 20th century. It’s not like AB and Pabst and Ballantine sat down in 1904 and said we’re going to be a soulless giant corporation in fifty years, here is a our long term soulless strategic plan.

Tremblay and Tremblay’s book also gives a great overview of the market forces at work from a more formal standpoint with less historical consideration. There is no reason to expect craft beer to be any different. We see it over and over again in the history of beer, from the introduction of hopped beer to England in the 15th and 16th century, the advent of porter in the 18th and early 19th centuries, pure-culture lager brewing in the late 19th century, and post-prohibition brewing in the US- there are strong trends in growth of market share, consolidation, and the development of oligopolies. Most industries besides brewing show these same patterns. There is no reason to expect craft beer to be substantially different.

I agree with you and just wanted to throw this out there. I just started teaching a history of beer class after a year hiatus and I’m fired up about it again.

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