As I march north across the 14 Appalachian Trail states, I cross through states that have been pioneers in the brewing movement, and states that have been laggards. While walking there’s plenty of time to ponder the patterns of brewing across the states. I’m a professor of public policy at Georgia Tech – and I once collected a whole bunch of data on beer and innovation for a project that got sidelined… but this is the perfect venue to share some of the things I learned doing this research that might not have otherwise seen the light of day. Interestingly, as I walk north, I’ll walk to more intensive brewing states. The figure below shows the number of breweries per 100k residents of a state, as of 2015. Vermont, New Hampshire, and Maine look like the Mecca of brewing in the US… at least for the Eastern US. To help understand how this came to be, I’m going to give a brief history of beer in America.
The colonial era through late mid 1800s were a time of heavy drinking in the U.S., and by the 1880s there were over 2,000 breweries in the U.S. (Some other time I’ll give a history of beer prior to the 1880s!). From the 1880s until prohibition, the number of breweries gradually declined as local and state temperance movements took hold, and due to technological advances (that I’ll discuss at another time), industry consolidation took place. Still, prior to prohibition, there were over 1,000 breweries in the U.S., and after prohibition over 700 reopened. Yet by 1978, when Jimmy Carter signed the Cranston Act into law, legalizing home brewing, there were just 42 breweries remaining in the United States. This history sets the stage describe the modern era of brewing over the past 40 years, and how the number of breweries has exploded to over 5,000 today, albeit with enormous state and local variation. While I’ll address much of this history another time, here I wanted to touch on the relationship between public policy and innovation in the craft beer industry, and the Appalachian trail – which travels from one the least innovative states (at least historically – Georgia) through some of the most innovative states (North Carolina and Vermont) before arriving at Mt. Katahdin.
The walk across 13 states begins in Georgia – a state that has been a laggard in beer innovation. In 2015 (when I began research for a book on this subject), there were just 0.9 breweries per 100,000 people in Georgia – the very least in the U.S. (tied with Mississippi and Alabama). Above, I show the number of beers offered – per state, in 2015, showing that even in 2015 – well after the craft beer revolution, Georgia offered just 776 distinctive beers, while Pennsylvania and New York were offering over 3,700 beers! (And this includes all the trial beers and specialty seasonal brews).
There are a number of reasons that these places might be laggards. One reason is restrictive policies that prevent innovation in brewing. Home brewing is the ground floor of innovation in brewing- and wasn’t legalized in Georgia until 1993 (well after the craft beer movement was well-underway in California, Oregon, and other places), and Alabama and Mississippi until 2013. Nearly every early craft brewer was first – a home brewer. I’ve been home brewing for over 20 years. I started in my freshman dorm, in college, with a kit called Mr. Beer that I bought at Bed Bath and Beyond, and the schwag that I produced was only drinkable because I was 19 years old. When I was 21, I upgraded to a 5 gallon bucket that I still use today. I’ll talk more about my brewing adventures another day.
The owner of Hop City – Kraig Torres – a homebrewing store in Atlanta that helped spawn most of the major Atlanta area breweries – once told me a story about his attempt to open a craft brewing store in Birmingham Alabama. A couple days before the store was going to open, he was raided, at gunpoint, by Alabama Alcohol Beverage Control, and all his inventory was confiscated. While this event made front page of the Birmingham News, and the state legislature quickly changed the law, Kraig never got back his $7,000 of brewing equipment that was confiscated, and the shock of being raided at gunpoint bothered him many years later when he told me this story. In the three years after homebrewing was legalized in Alabama, 18 new breweries opened, tripling the number of breweries in the state.
Other policy restrictions that prevented innovation in Georgia included a prohibition on retail sales and a prohibition on self-distribution. Many small breweries rely on retail sales – especially in Colorado and other brewing hubs where some breweries exist solely by selling beer direct to customers. It allows them to try out different innovative recipes and sell directly to customers – avoiding costly distribution middlemen. Distributors play a bottleneck in the ecology of beer innovation while sucking up roughly 20% of the revenue. It’s difficult to get shelf space in a supermarket and you’re often limited to a small number of products. You also have to brew at sufficient volume to attract a distributor. While larger breweries might not want to deal with trucks and distribution, smaller breweries that are allowed to self-distribute might rely on direct sales to local bars and restaurants. In the early days of craft beer, Budweiser and other major brewers prevented distributors from servicing craft beers using a Budweiser First policy that was eventually challenged in court and settled (more on that another day!).
There are other weird laws that might prevent the emergence of breweries or prevent innovation. Some states, such as Georgia (or more prominently Utah), had or have regulations on the amount of alcohol that beer can have. Tennessee, until 2017, limited beer produced in state to <6% ABV and required beer stores to have a separate entrances and separate licenses for beer that was below 6% and beer that was above 6%! If you’re limited to brewing <6% (or even worse, 4%) beer, it’s difficult or impossible to brew any number of high gravity styles.
In any case, public policy clearly has an impact on brewing. Below, I’ll share a couple of graphics that have been stashed on my hard drive for way too long. Special thanks to Ross Beppler for helping me put these together many years ago.
Below, I plot the number of breweries in each state against the number of years that a state has legally allowed homebrewing. While the graphical relationship isn’t terribly strong, it’s clear that states that have only allowed home brewing for a couple years have few breweries. Some of this is compounded by states that legalized homebrewing (or at least had no law prohibiting it) for a long period of time before homebrewing was legalized nationally in 1979. The data also suggest that perhaps the time needed for maturity in brewing – to convince someone to take the plunge and open a brewery – doesn’t take 30 years, but indeed takes more than 5:).