The Lindy Effect and The Future of Beer

In today’s world, we’re constantly being inundated with “newness”. It seems like every day, there’s a new startup or company coming up with a technology to improve how we do things. Despite how much media hype there is around these new technologies, it’s hard to know which ones have lasting power and which will fall by the wayside.

When looking at something new, a mental heuristic I find really helpful is examining it through the lens of the Lindy Effect. Those who have read Nassim Taleb’s The Black Swan and Antifragile are already familiar with the Lindy Effect. If you haven’t, here’s a brief summary (though you should still go read the books):

The Lindy Effect refers to the life expectancy of non-perishable things, like ideas or technology. Basically, the rule states that the longer something has been around, the longer it will be around.

An easy way to grasp this concept is to compare two successful books, one old – say, The Bible and one new – like Fifty Shades of Grey. The Bible has been around for about two thousand years while Fifty Shades has only been around for a handful of years. Which book is more likely to still be around in a hundred or a thousand years? Obviously The Bible. This concept applies to more than just books though – it applies to anything. Technology, media, transportation – everything. Something which survives a long time has, by definition, gone through the crucible of time…and survived. That bodes very well for its future survivability.

While not true 100% of the time, the Lindy Effect can be a useful tool for predicting which new technologies or ideas will survive and which are just blips on the radar. A great example of this is the butter vs margarine debate. For literally thousands of years, humans have consumed butter. Then, for a brief stint during the twentieth century, humans were told butter was bad for them and many people switched to margarine. But as is becoming readily apparent, butter isn’t nearly as bad as once thought and margarine may literally kill you. And accordingly, butter has made a comeback. Which is more likely to be around in a hundred years?

Thanks to what I do for a living, I’ve been thinking about the current state of the beer industry and looking at it through the “Lindy Lens”. I’ve made a series of predictions with explanations below that arise from following the Lindy Effect to its logical conclusions in the beer realm:

We Are Nowhere Near “Peak Saturation” For Breweries

One thing we hear quite often in the beer industry is that since there are so many breweries now, there’s no room for new ones to open up. But this idea of there being “so many” or “too many” breweries is only true if you look at it from the twentieth century lens. Compared to 1970, there are a lot more breweries today. There were only 138 U.S. breweries in 1970; there are 5,301 in the U.S. in 2016. So yes, that’s quite a jump.

The Zoomed Out Numbers

But let’s take a longer view. Here are some comparative U.S. brewery numbers between 1870 and 2016:

1870

Population: 38,558,371

Breweries: 3,286

People per Brewery: 11,734

2016

Population: 323,100,000

Breweries: 5,301

People per Brewery: 60,951

The numbers above show that brewery density is nowhere near what it was back in the 1870s.

The Key Takeaway and Prediction

Based on the numbers above, you may think I’m predicting that there will be ~30,000 breweries in the U.S. That isn’t what I’m saying. But there is still plenty of room to grow.

The key thing to remember about breweries in the 1800s is that refrigeration basically didn’t exist. This meant that transporting beer around the country was extremely difficult, and often not really feasible. The result of this was that national brands were difficult to build and beer was produced locally out of necessity. Bars, restaurants, pubs – many of them made their own house beer.

After the rise of refrigeration and more importantly, Prohibition (more on that in a future post), mega-breweries became the norm and small breweries all but died out.

I believe we’re headed more towards a neighborhood brewery type of environment. There’s an increasing push for local production and ingredients in many industries, not just beer. Neighborhood breweries not only produce their beer locally, but they provide a community meeting ground. Entrepreneurs, like Donovan Bailey at Down The Road Brewery in Massachusetts are noticing this and building their taprooms to reflect that reality.

Using the Lindy effect here, I think the proliferation of small, locally relevant breweries is here to stay and the domination of mega-breweries in the twentieth century is going to be viewed as a historical abnormality. Perhaps a bold prediction, perhaps not.

Ales Will Continue To Gain Market Share Over Lagers

If you’re a beer drinker, chances are you’re accustomed to drinking lager. Budweiser, Miller, Coors, Heineken, Yuengling, Asahi, Kingfisher, Peroni, and dozens more – these mega-brands are all lagers.

A Historical Abnormality: The Massive Popularity of Lagers

Viewed through a longer timeframe (~10,000 years, which is roughly the timeline of known beer history), lagers are a huge abnormality. The main reason for this again goes back to refrigeration. Lagers require lower temperatures for fermentation, making them very difficult to produce in a “natural” environment without refrigeration technology.

Getting a bit technical here, all beer is either a lager or an ale. Lager is produced via bottom-fermenting yeast while ale is produced via top-fermenting yeast. Lager sales currently make up 85% or more (!) of the beer market.

While lagers are not going away completely (after all, who doesn’t love a crisp lager on a hot summer day?) they are experiencing a steep decline. Even the United Kingdom, which has had a massive love affair with European-style lagers over the past fifty years, has seen their lager sales fall over 8% during this decade alone.

What’s Replacing Lager Sales?

What is taking the place of lager sales is ale. Ale is a broad category. Stouts, IPAs, Porters, Hefeweizens, Pale Ales are all ales. And historically, ales made up the vast majority of beer sales. In fact, until the 1500s, lager wasn’t even a thing (though this is now in dispute, but only by another 500 years or so). This means that for 90+% of the history of beer, ales were the only game in town. It wasn’t until the late 1800s that lagers became mainstream. And lagers have dominated for only 1.4% of the history of beer.

What Does Lindy Say About This?

I predict that ale sales will continue to make inroads against lagers and one day, may make up the majority of beer sales. This could be true even in a lager-dominated country like the United States. Please note that I’m not saying lagers won’t be a thing in the future, just that their sales will be more proportional to the overload breadth of beer styles as opposed to a massive dominator. Once someone has experienced the possibilities with beer, such as the roasted maltiness of a delicious stout or the citrusy, crisp hoppy flavor of a well-made IPA, there is not much chance of them drinking lagers 100% of the time. Their lager consumption may reduce to 20-30% of their beer consumption, which is still a significant chunk but nowhere near what it currently is.

This trend isn’t hidden from large beer companies (all of whom dominate via lagers) and has led (at least in part) to an acquisition spree in the industry.

Malty Beer Sales Will Grow vs Hoppy Beers

In recent years, IPAs (India Pale Ales) have been all the rage in craft beer. For example, in 2015, U.S. sales of IPAs rose 50% YoY (!) compared to 20% YoY growth for the overall craft beer segment (which is still massive growth). Once again however, this is a major historical abnormality.

The (Brief) History of India Pale Ale

The India Pale Ale beer style is, perhaps confusingly, not from India. It is from England.

Hops, one of the key ingredients in beer, are a natural preservative. In the era before rapid transportation and mass-scale refrigeration (there’s refrigeration again), adding additional quantities of hops was the way to ensure that beer would survive long journeys. One of England’s most distant colonies was India – hence the extra-hop beer variety being christened India Pale Ale (presumably to distinguish it from regular Pale Ale).

Hops Are a Relatively New Beer Innovation

The first known reference to hops in beer didn’t come until 736 AD, which means that for the first 87.36% of beer’s history, it was brewed completely without hops. Instead, other bittering agents and herbs were used. Yet hops were so successful in preservation that brewers were compelled to use them.

However, it wasn’t until the German Purity Laws of 1516 that hops in beer became codified as a standard main ingredient. I have huge issues with German Purity Laws but…that rant requires a whole different post.

Here To Stay or a Historical Anomaly?

Hops have been around long enough in beer that I don’t think there’s any chance of them going away completely. I wouldn’t even call them a historical anomaly. However, I will say the growth in sales of hoppy beers relative to malty beers may be an anomaly.

The Comeback of Malty Beers

Malty beers, or beers where the grain taste dominates over the hop taste, have begun to make a comeback. Appropriately, the comeback appears to have begun in the United Kingdom, ironically where the IPA originated. Many of London’s brewers are once again regularly brewing porters, a beautiful egalitarian style of beer which had originated in London but all but died out in the 1970s and 1980s.

Bittering Agents Other Than Hops Will Increase in Popularity

Before the advent of hops, beers were preserved using a variety of herbs. Alternative bittering agents included wormwood (the active ingredient in absinthe), mugwort, dandelion, juniper, and other ingredients.

This may be a bit controversial to talk about but beer historically had effects beyond just alcohol. Beer had been used as a hallucinogen, depressant, stimulant, and anything else you can imagine. With loosening drug laws (particularly around marijuana in the United States), one could easily imagine psychoactive beers increasing in popularity.

To make matters even more interesting, marijuana and hop plants are both part of the Cannabinaceae family. I’ll let your mind make the connections there.

Final Thoughts

While the Lindy Effect isn’t a perfect heuristic for predicting the future (spoiler alert: nothing is), it can be a useful and fun thought experiment for thinking about which current trends are here to stay and which won’t last long.

If you have thoughts or comments on these predictions, please let me know on Twitter or in the comments below. And if you’re interested in creating your own customized and/or personalized craft beer, please reach out to us at the Unlimited Brewing website.