Los Angeles Is in the Midst of a Craft Beer Boom. Is a Bust on the Way?

As L.A.’s craft beer drinkers get more sophisticated, new breweries must follow suit

You could throw a rock in the Arts District right now and you’d hit a brand new brewery. There’s Mumford Brewing and Boomtown Brewery, both of which opened in the last few months. Arts District Brewing, a 17,000-square-foot brewpub, opened just last weekend. And another jumbo operation, Iron Triangle Brewing, promises to open its doors by the end of the year. That’s just the Arts District. Across the river in Boyle Heights, breweries are popping up like vegans in Malibu.

In fact, more than half of all licenses to brew in the Los Angeles region have been given out in the past two years. The more the merrier, right? Gut reaction: absolutely! Cold economist brain reaction: It’s complicated.

As any market—in this case the Los Angeles regional craft beer market—grows up, that market becomes more difficult to navigate. Which means that breweries getting in the game now are in a different world than breweries that launched just two or three years ago.

First, there’s more competition than before. And as competition grows, you can expect many breweries to bite it early on, says Patrick Emerson, an economist at Oregon State University. “There will be increased competition, and this competition will result in weaker breweries exiting the market because of poor relative product quality or lack of business acumen,” he says.

Lynn Weaver, who launched her brewery, Three Weavers, in Inglewood in late 2014 says that business savvy will be key to success in Los Angeles. “My concern right now is not that we’re in a beer bubble, it’s that the breweries opening up need a financial reality check,” Weaver says. She says that if you’re just building your Los Angeles brewing business now, you have to go big. Economies of scale (the idea that the bigger you are, the less expensive everything becomes) will get you access to the supermarket set—if you can bottle right away, grocery chains like Ralphs and Vons can stock your beer ($$$). But going big at the outset will cost you. “New breweries need three times as much money as they think they need to get started now,” Weaver says.

Emerson agrees: “There is incredible pressure on breweries to grow and [that] suggests that in the end, there might be only a few breweries.”

But what about the little guy? The intrepid home brewer who wants to bring his or her signature beer to the increasingly-sophisticated Angeleno palate? “There’s going to be less room for that guy,” Michael McCullough, economist at Cal Poly, says. He says there isn’t much wiggle room for trial and error in a saturated market. Los Angeles isn’t quite saturated yet, but the window for the little guy is quickly closing.

About market saturation: The good news is that there are plenty of beer drinkers to go around. Supply is certainly going up, but demand for craft beer has skyrocketed as well with no sign of leveling off. A bubble this is not.

“The number one driver of brewery creation is population,” McCullough says. And if that population is into trying new things, any foodie culture will thrive, he says. Angelenos are an adventurous, hungry bunch, so there’s plenty of room for breweries that can offer quality, exciting beers.

Lynn Weaver puts it this way: “Consumers are more educated now. They don’t want mediocre beer. There’s going to be room here for high-quality stuff.” She says she wants everyone to succeed. But people looking to open breweries are going to have to be real about what it now takes to succeed here in Los Angeles.