Published in Economic Times and Review
Spring, 2003
By Eric McKay
Introduction
In the past 120 years, America’s brewing industry has grown dramatically during five major periods of transformation. The early
beer industry was characterized by a large number of firms operating throughout the country and producing only enough beer to
serve local markets defined the American brewing industry. Transformation began in the 1800s when, breweries consolidated and
became more geographically concentrated due to improved transportation and innovations in production techniques. Acquisition
of larger portions of market share by a few firms and overall industry growth came to a halt in 1919 when the United States
government enacted Prohibition. Despite 14 years of Prohibition, the brewing industry demonstrated surprising resilience when
alcohol was legalized in 1933. During the post-prohibition era, a decreasing number of breweries amassed increasing portions of
market share, leading eventually to the development of an oligopoly. Finally, small, local breweries experienced a rebirth in the
1980s by producing unique craft beers. This paper explains the reasons for changes in brewing industry organization over the past
120 years and discusses the economic implications of these changes.
Pre-Prohibition Trends
In 1879, the number of breweries in America reached an all time peak of 2,520, with neighborhood breweries operating in nearly
every urbanized area. Almost 700 breweries operated in New York and Pennsylvania alone. As noted in an 1880 publication,
George Ehret’s Hell Gate Brewery, the largest producer of beer in America at the time, “made only about 1.5% of the country’s
beer,” revealing that even large breweries produced a relatively small portion of the total market share. A period of major change
in the brewing industry began in 1880, coinciding with major development in the train system and advances in mechanization of
brewing that enabled more efficient large-scale production of beer.
From 1880 until 1920 the number of breweries in America steadily decreased, but the quantity of beer produced drastically rose.
The expansion of the railroad system in the northern states fueled this trend. New railroad routes provided a relatively inexpensive
method of shipping and drastically expanded the distribution radius for firms that were previously limited to horse-drawn
carriages. The new potential for a broader market instigated breweries located along railroad routes to develop more efficient
production techniques. By mechanizing certain steps of the brewing and packaging process, innovative breweries increased output
and decreased costs. Certain firms developed comparative advantages in production and distribution, and as they grew, many
small breweries collapsed. As a result, a smaller number of firms in the industry produced increasing quantities of beer, as
illustrated in Graph 1 below.
Innovative industrialists developed new techniques for more efficient brewing, however, breweries without access to railroads
produced more beer than their local markets demanded, and in turn, they failed. While the latest technology was adopted almost
universally, only breweries in certain regions truly benefited. Milwaukee became known as the Brewing Capital of the World, for
its location along a major railroad route provided a larger market for the city’s breweries. Furthermore, proximity to major barley
producing regions in Illinois and parts of Wisconsin, and substantial natural water sources ensured that Milwaukee breweries faced
minimal raw material costs. Milwaukee’s nearness to Lake Michigan’s icehouses also helped to reduce distribution costs, as
substantial quantities of ice were required to cool freight trains full of beer. With a relatively small population compared to
Chicago, Milwaukee aligned their focus toward long distance distribution immediately after the Great Chicago Fire of 1871, which
“boosted sales of Milwaukee breweries enormously.” The conversion of Milwaukee breweries to “nationally-minded”
organizations gave these firms a head start on their competitors. According to Thomas C. Cochran’s 1948 book, “once begun,
the strategy of long-distance shipping did not cease for Milwaukee’s brewers until their beer was being sold in every corner of
America.”
Prohibition
The ratification of Prohibition in 1919 came as no surprise to Americans for during the previous 30 years the Temperance
movement against alcohol consumption had developed into a national force. Groups such as the Anti-Saloon League and the
Women’s Christian Temperance Union formed in the late 1800s to fight drunkenness. Their campaign, which started as blockades
at regional taverns, entered the political realm in 1915. In 1919, after years of heated debates over an appropriate course of
action, politicians enacted Prohibition, the 18th Amendment to The Constitution.
Breweries and beer drinkers alike were furious that the bill illegalized beer, as the “Prohibition Amendment itself made no reference
to alcohol content, citing only ‘intoxicating liquors for beverages purposes’ being illegal.” Anti-prohibitionists argued that due to
the low alcohol content in beer compared to whiskey and other hard alcohol, beer should be exempt from the new legislation.
Jacob Ruppert, a New York beer tycoon, the owner of the New York Yankees, and an anti-prohibitionist leader, argued to the
Supreme Court that “beer that contained 2.75 percent alcohol or less could not be considered intoxicating.” Further inciting the
American public, inelastic demand for alcohol and ease of fermentation with common ingredients gave rise to bootleggers, a new
breed of criminal who became rich, powerful, and dangerous. Crime rates startled politicians, and lawmakers began to rethink
their 1919 decision. Despite fierce opposition from the brewing industry and increased crime due to bootlegging, Prohibition
spanned 14 years.
While a huge number of breweries collapsed or bailed out of the business during Prohibition, some found refuge through
production of non-alcoholic goods. Several breweries took advantage of a new demand for a malted barley-syrup that could be
used to make home-brewed beer. They also utilized existing machines to produce “near-beer,” a beer with lower than 0.05%
alcohol. These “near-beers” never became widely popular, as those who sought alcohol were usually able to attain it without too
much hassle. High crime rates and the associated failure in enforcing anti-alcohol laws, combined with the steady opposition to the
legislature, led to the repeal of Prohibition in 1933.
Post-Prohibition
In 1933, America’s brewing industry experienced rebirth, characterized by the strong firms getting stronger, and the weak firms
dying out. Existing breweries produced at full capacity, while new breweries sprouted up across the nation. The number of
American breweries immediately exploded to a 23-year high, a figure that would not be repeated for another fifty years. Graph 2
shows that after an over-zealous rebirth in the brewing industry during the year following the repeal of Prohibition, the pre-
prohibition trend of decreasing numbers of breweries producing increasing quantities of beer continued. Breweries no longer relied
on trains as their primary means of distribution. According to the Brewer’s Almanac, by 1935, over 75% of breweries did not rely
on trains for distribution. Trucks revolutionized the brewing industry, as they could travel far beyond the limited reach of
railroads.
The largest breweries strategically expanded brewery and distributor locations to enable nationwide distribution of beer. This trend
of consolidation continued through the 50s and slowed until 1966, when federal courts finally took action to prevent breweries
from breaking anti-trust laws. As huge breweries acquired and built additional production and distribution sites, the significance of
beer company location became unclear. Five beer companies from Golden, Colorado, St. Louis, Missouri, and Milwaukee,
Wisconsin, built new production facilities across the nation to further expand distribution. The combined market share of the
largest breweries grew steadily, and at the end of World War II market share began skyrocketing at unprecedented rates.
An Emerging Oligopoly
From 1944-1945, tens of thousands of American soldiers returned to their homeland, providing the brewing industry with an
impressive demand for low-priced beer. In an industry where economies of scale now gave significant cost advantages to large
scale production, the biggest breweries began to swiftly drown-out smaller competitors and drastically increase market share. The
consolidation era following Prohibition created the “Big Five” breweries: Anheuser-Busch, Miller Brewing Company, Adolph
Coors, Schlitz, and Pabst. As illustrated in Graph 3, these five firms steadily gained market share from 1950 through 1980.
The government first intervened to prevent the largest breweries from further consolidation through mergers and acquisitions in
1966. A. M. McGahan’s article, “The Emergence of the National Brewing Oligopoly” argues that policy implementation was too
late to prevent an oligopoly in the market. The nation-wide recognition and brand loyalty earned by the “big five” breweries
created momentum, and these firms demonstrated that consolidation was no longer necessary to gain market share. By 1980, the
combined production of the “big five” breweries accounted for 75 percent of all domestic beer produced. The top ten largest
breweries produced 93 percent of the nation’s beer.
The Rebirth of Micro Breweries
In 1984, a newborn demand for unique, flavorful “specialty beers” served as the driving force behind microbrewery growth. For
the first time since Prohibition, small-scale breweries began to sprout up nationwide. An early 1984 tally counted only 83
operating breweries, the lowest figure in over 120 years. That figure sprang up to 1,800 by 2001, due largely to the booming
success of “microbreweries” or “brewpubs” designed to service local markets. Unlike the mid-scale brewers drowned out of the
market by the industry leaders in previous decades, microbreweries do not aim to compete with the low cost brands produced by
the “big five.” Instead, they focus their small-scale production on niche markets. In a sense, microbreweries have uncovered a
hidden demand for unique, high-priced beers. Just as clothing and automobile industries have created “luxury” sectors, so too has
the beer industry. According to the Beer Institute’s 2001 State of the Industry address, “Microbreweries and brewpubs account
for this increase [in number of domestic brewers], and their presence has helped the industry’s long tradition as a dynamic part of
the American economy.” Microbreweries seem to be the newest form of growth in an ever evolving national industry.
Conclusion
The American beer industry has grown tremendously during five major stages of development. The introduction of new
mechanized brewing techniques and the expansion of America’s railroad system in the late 1800s started a trend of fewer
breweries producing more beer, while a national brewing capital developed in Milwaukee. The “noble experiment” of Prohibition
paused beer production for over 14 years, a time in which small breweries collapsed, and the largest ones barely survived by
producing non-alcoholic food products. Major consolidation by large brewers characterized the electrifying recovery of the beer
industry following Prohibition. From the 1950s to the 1980s, the five largest breweries in the nation formed an oligopoly in the
market, claiming more than 75% of domestic beer production. Finally, from the 1980s until today the reappearance of a huge
number of small, local breweries producing specialty beers has added a dimension to the brewing industry. Economic theory
argues that an oligopoly in the brewing industry could unfairly block entry to the market by smaller firms. However, the recent
growth of microbreweries provides evidence that the government need not regulate to ensure a healthy market. Over the past 120
years, the American brewing business has grown significantly while effectively avoiding problems with economic inefficiency or anti-
trade conspiracy; therefore future public intervention should not be necessary to maintain the hearty industry.
Works Cited:
A.M. McGahan, “The Emergence of the National Brewing Oligopoly”, Business History Review 65 (Summer 1991): 229-284.
Brewer’s Almanac, www.beerinstitute.org/brewalmanac.htm.
“Brewing in America in 1879”, www.beerhistory.com/library.
Carl H. Miller, “We Want Beer: Prohibition And the Will to Imbibe”, www.beerhistory.com/library/holdings/prohibition_1.shtml.
“Chronology of the American Brewing Industry”, American Brewery History Page, www.beerhistory.com.
F.W. Salem, “Beer, Its History and Its Economic Value as a National Beverege.” Hartford: F.W. Salem & Co., 1880.
“Production of U.S. Breweries 1863-1994”, www.beerhistory.com/library.
“Shakeout In the Brewing Industry”, www.beerhistory.com.
“State of the Industry – Industry Growth Pauses”, 2001, www.beerinstitute.org.
“The British Are Coming”, www.beerhistory.com.
“Why Milwaukee?”, www.beerhistory.com.
Works Consulted:
Anheuser-Busch Annual Report, 2001.
Dale P. Van Wieren, American Breweries II, 1995.
Greg Smith, “The Chicago Beer Riots”, www.beerhistory.com.
“Miller History”, Communications Department Brochure, Miller Brewing Co., Fall, 1991. www.beerinstitute.com.
“Top 10 U.S. Brewers in 1997”, www.beerhistory.com.
Spring, 2003
By Eric McKay
Introduction
In the past 120 years, America’s brewing industry has grown dramatically during five major periods of transformation. The early
beer industry was characterized by a large number of firms operating throughout the country and producing only enough beer to
serve local markets defined the American brewing industry. Transformation began in the 1800s when, breweries consolidated and
became more geographically concentrated due to improved transportation and innovations in production techniques. Acquisition
of larger portions of market share by a few firms and overall industry growth came to a halt in 1919 when the United States
government enacted Prohibition. Despite 14 years of Prohibition, the brewing industry demonstrated surprising resilience when
alcohol was legalized in 1933. During the post-prohibition era, a decreasing number of breweries amassed increasing portions of
market share, leading eventually to the development of an oligopoly. Finally, small, local breweries experienced a rebirth in the
1980s by producing unique craft beers. This paper explains the reasons for changes in brewing industry organization over the past
120 years and discusses the economic implications of these changes.
Pre-Prohibition Trends
In 1879, the number of breweries in America reached an all time peak of 2,520, with neighborhood breweries operating in nearly
every urbanized area. Almost 700 breweries operated in New York and Pennsylvania alone. As noted in an 1880 publication,
George Ehret’s Hell Gate Brewery, the largest producer of beer in America at the time, “made only about 1.5% of the country’s
beer,” revealing that even large breweries produced a relatively small portion of the total market share. A period of major change
in the brewing industry began in 1880, coinciding with major development in the train system and advances in mechanization of
brewing that enabled more efficient large-scale production of beer.
From 1880 until 1920 the number of breweries in America steadily decreased, but the quantity of beer produced drastically rose.
The expansion of the railroad system in the northern states fueled this trend. New railroad routes provided a relatively inexpensive
method of shipping and drastically expanded the distribution radius for firms that were previously limited to horse-drawn
carriages. The new potential for a broader market instigated breweries located along railroad routes to develop more efficient
production techniques. By mechanizing certain steps of the brewing and packaging process, innovative breweries increased output
and decreased costs. Certain firms developed comparative advantages in production and distribution, and as they grew, many
small breweries collapsed. As a result, a smaller number of firms in the industry produced increasing quantities of beer, as
illustrated in Graph 1 below.
Innovative industrialists developed new techniques for more efficient brewing, however, breweries without access to railroads
produced more beer than their local markets demanded, and in turn, they failed. While the latest technology was adopted almost
universally, only breweries in certain regions truly benefited. Milwaukee became known as the Brewing Capital of the World, for
its location along a major railroad route provided a larger market for the city’s breweries. Furthermore, proximity to major barley
producing regions in Illinois and parts of Wisconsin, and substantial natural water sources ensured that Milwaukee breweries faced
minimal raw material costs. Milwaukee’s nearness to Lake Michigan’s icehouses also helped to reduce distribution costs, as
substantial quantities of ice were required to cool freight trains full of beer. With a relatively small population compared to
Chicago, Milwaukee aligned their focus toward long distance distribution immediately after the Great Chicago Fire of 1871, which
“boosted sales of Milwaukee breweries enormously.” The conversion of Milwaukee breweries to “nationally-minded”
organizations gave these firms a head start on their competitors. According to Thomas C. Cochran’s 1948 book, “once begun,
the strategy of long-distance shipping did not cease for Milwaukee’s brewers until their beer was being sold in every corner of
America.”
Prohibition
The ratification of Prohibition in 1919 came as no surprise to Americans for during the previous 30 years the Temperance
movement against alcohol consumption had developed into a national force. Groups such as the Anti-Saloon League and the
Women’s Christian Temperance Union formed in the late 1800s to fight drunkenness. Their campaign, which started as blockades
at regional taverns, entered the political realm in 1915. In 1919, after years of heated debates over an appropriate course of
action, politicians enacted Prohibition, the 18th Amendment to The Constitution.
Breweries and beer drinkers alike were furious that the bill illegalized beer, as the “Prohibition Amendment itself made no reference
to alcohol content, citing only ‘intoxicating liquors for beverages purposes’ being illegal.” Anti-prohibitionists argued that due to
the low alcohol content in beer compared to whiskey and other hard alcohol, beer should be exempt from the new legislation.
Jacob Ruppert, a New York beer tycoon, the owner of the New York Yankees, and an anti-prohibitionist leader, argued to the
Supreme Court that “beer that contained 2.75 percent alcohol or less could not be considered intoxicating.” Further inciting the
American public, inelastic demand for alcohol and ease of fermentation with common ingredients gave rise to bootleggers, a new
breed of criminal who became rich, powerful, and dangerous. Crime rates startled politicians, and lawmakers began to rethink
their 1919 decision. Despite fierce opposition from the brewing industry and increased crime due to bootlegging, Prohibition
spanned 14 years.
While a huge number of breweries collapsed or bailed out of the business during Prohibition, some found refuge through
production of non-alcoholic goods. Several breweries took advantage of a new demand for a malted barley-syrup that could be
used to make home-brewed beer. They also utilized existing machines to produce “near-beer,” a beer with lower than 0.05%
alcohol. These “near-beers” never became widely popular, as those who sought alcohol were usually able to attain it without too
much hassle. High crime rates and the associated failure in enforcing anti-alcohol laws, combined with the steady opposition to the
legislature, led to the repeal of Prohibition in 1933.
Post-Prohibition
In 1933, America’s brewing industry experienced rebirth, characterized by the strong firms getting stronger, and the weak firms
dying out. Existing breweries produced at full capacity, while new breweries sprouted up across the nation. The number of
American breweries immediately exploded to a 23-year high, a figure that would not be repeated for another fifty years. Graph 2
shows that after an over-zealous rebirth in the brewing industry during the year following the repeal of Prohibition, the pre-
prohibition trend of decreasing numbers of breweries producing increasing quantities of beer continued. Breweries no longer relied
on trains as their primary means of distribution. According to the Brewer’s Almanac, by 1935, over 75% of breweries did not rely
on trains for distribution. Trucks revolutionized the brewing industry, as they could travel far beyond the limited reach of
railroads.
The largest breweries strategically expanded brewery and distributor locations to enable nationwide distribution of beer. This trend
of consolidation continued through the 50s and slowed until 1966, when federal courts finally took action to prevent breweries
from breaking anti-trust laws. As huge breweries acquired and built additional production and distribution sites, the significance of
beer company location became unclear. Five beer companies from Golden, Colorado, St. Louis, Missouri, and Milwaukee,
Wisconsin, built new production facilities across the nation to further expand distribution. The combined market share of the
largest breweries grew steadily, and at the end of World War II market share began skyrocketing at unprecedented rates.
An Emerging Oligopoly
From 1944-1945, tens of thousands of American soldiers returned to their homeland, providing the brewing industry with an
impressive demand for low-priced beer. In an industry where economies of scale now gave significant cost advantages to large
scale production, the biggest breweries began to swiftly drown-out smaller competitors and drastically increase market share. The
consolidation era following Prohibition created the “Big Five” breweries: Anheuser-Busch, Miller Brewing Company, Adolph
Coors, Schlitz, and Pabst. As illustrated in Graph 3, these five firms steadily gained market share from 1950 through 1980.
The government first intervened to prevent the largest breweries from further consolidation through mergers and acquisitions in
1966. A. M. McGahan’s article, “The Emergence of the National Brewing Oligopoly” argues that policy implementation was too
late to prevent an oligopoly in the market. The nation-wide recognition and brand loyalty earned by the “big five” breweries
created momentum, and these firms demonstrated that consolidation was no longer necessary to gain market share. By 1980, the
combined production of the “big five” breweries accounted for 75 percent of all domestic beer produced. The top ten largest
breweries produced 93 percent of the nation’s beer.
The Rebirth of Micro Breweries
In 1984, a newborn demand for unique, flavorful “specialty beers” served as the driving force behind microbrewery growth. For
the first time since Prohibition, small-scale breweries began to sprout up nationwide. An early 1984 tally counted only 83
operating breweries, the lowest figure in over 120 years. That figure sprang up to 1,800 by 2001, due largely to the booming
success of “microbreweries” or “brewpubs” designed to service local markets. Unlike the mid-scale brewers drowned out of the
market by the industry leaders in previous decades, microbreweries do not aim to compete with the low cost brands produced by
the “big five.” Instead, they focus their small-scale production on niche markets. In a sense, microbreweries have uncovered a
hidden demand for unique, high-priced beers. Just as clothing and automobile industries have created “luxury” sectors, so too has
the beer industry. According to the Beer Institute’s 2001 State of the Industry address, “Microbreweries and brewpubs account
for this increase [in number of domestic brewers], and their presence has helped the industry’s long tradition as a dynamic part of
the American economy.” Microbreweries seem to be the newest form of growth in an ever evolving national industry.
Conclusion
The American beer industry has grown tremendously during five major stages of development. The introduction of new
mechanized brewing techniques and the expansion of America’s railroad system in the late 1800s started a trend of fewer
breweries producing more beer, while a national brewing capital developed in Milwaukee. The “noble experiment” of Prohibition
paused beer production for over 14 years, a time in which small breweries collapsed, and the largest ones barely survived by
producing non-alcoholic food products. Major consolidation by large brewers characterized the electrifying recovery of the beer
industry following Prohibition. From the 1950s to the 1980s, the five largest breweries in the nation formed an oligopoly in the
market, claiming more than 75% of domestic beer production. Finally, from the 1980s until today the reappearance of a huge
number of small, local breweries producing specialty beers has added a dimension to the brewing industry. Economic theory
argues that an oligopoly in the brewing industry could unfairly block entry to the market by smaller firms. However, the recent
growth of microbreweries provides evidence that the government need not regulate to ensure a healthy market. Over the past 120
years, the American brewing business has grown significantly while effectively avoiding problems with economic inefficiency or anti-
trade conspiracy; therefore future public intervention should not be necessary to maintain the hearty industry.
Works Cited:
A.M. McGahan, “The Emergence of the National Brewing Oligopoly”, Business History Review 65 (Summer 1991): 229-284.
Brewer’s Almanac, www.beerinstitute.org/brewalmanac.htm.
“Brewing in America in 1879”, www.beerhistory.com/library.
Carl H. Miller, “We Want Beer: Prohibition And the Will to Imbibe”, www.beerhistory.com/library/holdings/prohibition_1.shtml.
“Chronology of the American Brewing Industry”, American Brewery History Page, www.beerhistory.com.
F.W. Salem, “Beer, Its History and Its Economic Value as a National Beverege.” Hartford: F.W. Salem & Co., 1880.
“Production of U.S. Breweries 1863-1994”, www.beerhistory.com/library.
“Shakeout In the Brewing Industry”, www.beerhistory.com.
“State of the Industry – Industry Growth Pauses”, 2001, www.beerinstitute.org.
“The British Are Coming”, www.beerhistory.com.
“Why Milwaukee?”, www.beerhistory.com.
Works Consulted:
Anheuser-Busch Annual Report, 2001.
Dale P. Van Wieren, American Breweries II, 1995.
Greg Smith, “The Chicago Beer Riots”, www.beerhistory.com.
“Miller History”, Communications Department Brochure, Miller Brewing Co., Fall, 1991. www.beerinstitute.com.
“Top 10 U.S. Brewers in 1997”, www.beerhistory.com.
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