Americans drink a lot of beer.
According to the Brewers Association the US beer market had $97 billion in sales in 2007 and Americans bought 211.5 million barrels of beer. This is roughly 22 gallons per person. The US beer market is dominated by a few giant corporations, but a growing share of the market is going to small, niche brewers.
The chart below shows beer brand market shares for 2007 for the top 25 beer brands and our share estimates for the rest of the market. This data comes from a mix of sources with the primary sources Beverage Industry, the Brewers Association and our estimates based on company specific data.
As the chart shows the distribution of beer brand market shares follows a power curve, which is more popularly known as the long tail. The top 10 beer brands combined garnered roughly 56% of all US beer sales in 2007. In the tail there are thousands brands produced by both large and small brewers, most with less than .001% of the market.
Since 1980 the number of US small craft brewers has grown from under 20 with a negligible share of the beer market to over 1400 that combine for an industry revenue share of almost 6%. These firms collectively continue to gain share relative to the global giants. Since 2004 small brewer sales have grown roughly 54% versus less than 5% for large brewers.
So while corporate giants control the vast majority of the beer market, niche players continue to emerge and thrive.
There are several broad trends driving the growth of craft brewer sales, and these trends are also driving the growth of niche businesses in general. These trends include:
1. The growing market segment of customers looking for unique, unusual, personalized or locally produced products. We call this group the emerging buy local coalition and this trend is #5 in our top 10 small business trends for 2008. While this trend description focuses on consumers, industrial buyers are also increasingly looking for goods and services that are customized to meet their specific needs.
2. The use of the Internet to find or be found by people interested in buying niche products. The combination of online search, marketing, social media and the borderless nature of the Internet are combining to greatly increase the addressable market for most niche products. Because of this, niches that were not viable in the past can successfully support niche products and businesses.
3. Technology is reducing the costs of serving niche markets and lowering the barriers to starting niche market businesses. In many industries technology is driving production costs down. These cost reductions are allowing niche businesses to provide products and services at prices that open up new market opportunities. For example, we recently posted on 20X200, an online art gallery with a business model that is viable because of reductions in high quality printing costs allow them to profitably sell prints for $20.
The growth of viable niche market segments creates opportunities for both large and small businesses. But as is the case in the beer market, small businesses are increasingly able to compete and win in niche market segments.