Why does “local” matter when it comes to craft beer and beer fests? Part 1: Economics

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It’s American Craft Beer Week–a great time to celebrate locally made beer and locally owned breweries far and wide.

As Communications Director for Brewers of Indiana Guild, I’m often asked two questions while enjoying a beer with friends: 1) “Is there a craft beer bubble?” and 2) “Why does it matter if I buy [insert macro beer name here] instead of a local beer?”

Regarding the first question, for now I’ll just say, “Not really.” As for the second, let’s look at why choosing to buy local matters in this three-part series.

Julia Herz, of the national Brewers Association (the “BA”) and CraftBeer.com, published a post this week putting into context the explosive growth that the “craft” beer industry has experienced in recent years. (I put “craft” in quotes because, in spite of the BA’s definition, many believe the term has lost its original meaning.)

While I highly recommend you read the whole piece, I’ll pull some of the most salient details for the sake of my argument: Given a choice between a mass-produced macro beer or a quality local, opting for the local makes the most sense.

Similarly, why go to a beer fest organized by a for-profit business (which might be from another state) when you can choose to go to one that benefits local organizations?

Reason 1: Economics

I’m no economist. But thankfully, the BA has a very talented one whom we can rely on: Bart Watson.

I asked Bart why local matters.

“Money from the beer value chain is made up of producer-distributor-retailer (and taxes). Where that money goes varies by retail channel, product, etc., but on average, roughly one-third ends up with the producer. When that producer is local, that means the money goes to local workers, investments, businesses, taxes, and more. When that producer isn’t, you still get the value from the other portions, but you simply lose that 1/3 that would have gone to the producer.

When you consider that Indiana now has 127 breweries, that 1/3 is no small sum. Two years ago, when there about 2/3 as many breweries in the state as there are now, the economic impact of craft beer in Indiana was more than $1 billion. A substantial portion of that could easily be lost to behemoth beer brands from out of state if beer consumers don’t buy local.

Granted, that economic impact figure isn’t derived from just the sale of beer alone–many other aspects of the craft beer industry are considered. In other words, your PBR-loving friend isn’t going to single-handedly destroy the local beer movement just because he refuses to buy Workingman’s Pilsner at a show. But cumulatively, those kinds of buying decisions have power.

“Economic impact comes from direct, as well as indirect (suppliers) and induced (additional spending, like when a brewery worker takes his family out to eat) impacts,” Watson explains. “If you have a local producer, you get any indirect and induced impacts off the direct production impact that stay local, and since it’s highly likely that local producers are using other local inputs (this is called a ‘local purchase percentage’ in economic impact studies), those can add up.”

Watson continues: “Even if you don’t care about who makes [a macro beer] because ‘it’s good,’ you probably do care about what the person who does own it does with the money, and what it means for other products that you like because they are equally good.”

When a massive conglomerate buys smaller breweries and incentivizes distributors to carry their products, “by supporting those products, you’re helping to crowd out independent access to market, not just in those purchase cases, but more generally. A dollar spent on [a macro] is a dollar that goes to [the conglomerate] and then potentially goes back to its local distributor to incentivize them not to carry another brand you like.”

If this trend of buyouts continues, it’s feasible that eventually the only brands you’d see on the shelf at your local liquor or grocery store are owned by the conglomerates. In effect, small, locally owned breweries would be pushed out.

In the next post we’ll look at the second reason why supporting local matters: Community. Subscribe to IN Brew News and follow @DrinkIndiana on Twitter for updates.