A brewpub is a specific type of microbrewery that sells its product on site, often accompanied by a restaurant. This is not a revolutionary idea in the beer industry, in fact, it is the origin story of the industry. Before the Industrial Revolution launched the world into the era of globalization, beer was usually brewed in small quantities by the taverns that sold it. Today, brewpubs are experiencing a resurgence as the popularity of craft beer grows.The future of brewpubs seems promising as beer consumption returns to its roots, but growth may be held back by the very nature of microbrewery.
Prohibition radically altered the entire beer industry in many ways, and one of those was the disintegration of the production-to-consumption chain. The 21st Amendment created a three-tier structure, where breweries could only ship their product to an independent distributor who would then distribute the product to the retailers, where the beer could finally reach the consumer. Brewpubs can circumvent this via individual state laws. In Idaho, for example, brewers that produce less than 30,000 barrels per year can sell directly to consumers.
These laws have created a resurgence in brewpubs, and in 2013, they produced 955,599 barrels of beer, which amounts to 5.3% of craft beer production. However, this is still just a drop in the bucket of total domestic beer production. What is the future of this market segment? Will it continue to eat away at the macrobrewer’s share, or is it merely a fad of a consumerist population with growing levels of expendable income?
It appears that the most likely scenario is a continued slow growth in production and market share. Brewpubs are held back by their small market size. They are mostly local businesses, and their market only extends as far as people are willing to drive to drink a unique brand of beer. As is the case with an overwhelming majority of microbrewers, the marketing expenditures for a brewpub are minimal, sometimes nonexistent. These brewpubs cannot reach consumers in distant markets, and even if they could, those consumers are unlikely to make the trip to the brewpubs. Another strategy of expansion is franchising, but this is only a viable option until the firm loses its microbrewery status, and is unable to make direct contact with the consumer. These legal issues will continue to be addressed as brewpubs continue to expand their production.
Due to these aforementioned legal concerns, the only viable option to expansion is the introduction of new firms into the market. This is a capital-intensive, slow-moving process, so a rapid growth of production and capture of market share is unlikely.
Instead, brewpubs’ hopes for continued growth relies on their largest demographic group, millennials. Beer is a normal good, so as this generation of consumers advance in their careers and see their levels of disposable income rise, more of them can be expected to enter the consumption market, and existing customers will consume more.