To me, the interesting thing is trying to understand why we observe such a stark decline in the number of breweries for 100 years and then a rapid increase over the last three or more decades. Some insights from others' research include:
- Before 1900, the minimum efficient scale had been quite small with average cost rising sharply. Most cities supported multiple breweries and, because the product spoiled quickly, most breweries only served a single city.
- In the late 19th century, the geographic scope of the market increased when spoilage was reduced due to increased adoption of pasteurization, refrigerated rail cars, and national marketing. This led less efficient competitors to lose out to more efficient producers in neighboring cities.
- Throughout the early 20th century, innovations in the canning process led to even greater scale economies. This also broadened the market because patrons could purchase for home consumption rather than at a bar.
- Until the late 1970s, home brewing was illegal at the federal level. With legalization came rapid experimentation and the development of the requisite skills among enthusiasts. This led to the founding of a few new breweries and a rapid expansion in variety - both in types of beer and in perceived quality. It was learned that yuppie beer consumers would pay a large premium for this variety.
- Craft breweries were initially tiny compared to the national brands with 2,000 generating a collective 5% share of the market until the 21st century. Again, before the turn of the 21st century, these were predominately local operations with few shipments beyond the city that was home to the craft brewer. It appears that the quality premium more than compensated for the absence of scale economies.
- Currently, over 4,000 craft brewers have over 11% share and a few brands, like Sam Adams and Sierra Nevada, have become national brands.
- The trick for these brewers is balancing any dis-economies of scope (Sam Adams brews about 50 varieties) with scale economies from national branding so as to achieve scale economies and not degrade the perceived quality.