Things May Be Bad, But Brewers Remain Optimistic
This is Will Jaquiss from Meanwhile Brewing in Austin. I chose this photo because he was smiling, not because I interviewed him for this post (I didn’t).
As we head into the new year, the beer news is as grim as it has been in decades. According to Brewers Association economist Bart Watson, it looks like craft breweries will be down for the year, possibly as much as 5%. Brewery closures still haven’t approached the worst fears during the pandemic, they’re up noticeably—over 200 at least, compared to 71 last year. Looking forward, the BA predicts fewer openings and more closures. At a more granular level, an Oregon state economist, Erik Knoder, looked at the brewing industry in Oregon. As of November this year, employment in Oregon breweries is still 27% lower than it’s pre-pandemic baseline.
Many of you are familiar with these developments, and folks like Kate Bernot and Jessica Infante have done excellent work documenting the challenges to the brewing industry. Yet ndustry reports can’t capture what it’s like at the brewery level, and that matters. Breweries come in a lot of different sizes and configurations, and they ply their trade in places with different cultures and laws. Their experiences aren’t uniform.
A common phenomenon happens when people form an opinion about aggregate news, and we never hear from individuals. It leads to weird findings: people often rate the economy as bad but report they’re doing great; they complain about crime, even without knowing any victims. Is a similar thing at play in the beer industry? A couple weeks ago, I reached out to about forty breweries across the country and asked them how it was going, and whether their experiences reflected what we’re seeing in the news. I heard back from over a dozen breweries in six states in the West, East Coast, and South (my Midwest correspondents failed me!). They ranged from a brewpub selling less than a thousand barrels to very large regional breweries. It included those who focused on draft, those who sold more in cans, and included a couple of niche breweries. In other words, it’s a decent cross-section.
As expected, their experiences were different. Some were doing well, others okay, some not so great. And within those experiences were fascinating details that deepened my sense of what it’s like on the ground. Below I’ll try to capture some of that wisdom (though collectively they sent me nearly 7,000 words of info, far more than I can summarize.) I told breweries they could go on the record or just reply on background, and about three-quarters preferred to be anonymous. For the sake of simplicity, I’ve decided to leave everyone nameless. I’ve edited the responses for spelling and grammar, but quoted material is otherwise verbatim.
Shared Concerns
Much of what folks mentioned overlapped or supported what others said. Most breweries who replied to my query acknowledged the rolling series of challenges in the industry over the past year. One small brewery mentioned paying 72 cents a pound for Weyermann’s Bohemian Pils in March 2021, which jumped to 93 cents by last July, and as we were exchanging emails, learned it was going up to $1.01. That was a 40% increase in less than two years, they noted, and they weren’t able to raise their prices anywhere near that in response. Another middle-sized brewery detailed various cost hikes: “Cardboard is up 40%, glass up 35%, aluminum cans up 30%, PakTech up 30%, chemicals, gasses, malt all up between 20-30%, [and] labor costs up 25% since 2020.” That brewery increased their taproom prices from $6 to $7 in two years, and their package price went from $11 to $12. A large brewery added, “With cost of goods inflation up around 18%, we look forward to a 2% price increase this spring.”
Since experiences of breweries depend a lot on their size, I try to give some sense of that throughout this post. Here's what I mean:
Small: 0-2500 barrels
Small- to middle-sized: 2500-5000
Middle-sized: 5k-50k
Middle- to large-sized: 50k-100k (none in my sample)
Large: 100k+
Despite this bad news, only a quarter said volumes were down (some compared to 2019 volumes, some to 2021), and most said they were flat. Interestingly, two had growth years, trajectories they expect to continue. Was there a pattern? Not really. Both the breweries that were in growth mode looked pretty typical: one, a middle-sized brewery, was package-dominant, but with several healthy taproom/pubs. The other was similar, except that it’s a small-to middle-sized brewery, and draft-forward, selling in its three retail outlets. The breweries that were down were all over the map: a small brewpub, a small- to middle-sized brewery with balanced draft/package mix, and a middle-sized brewery tilted to package sales.
None of the breweries that responded were in a dire state. Keep in mind, this is far from a scientific survey, and the people who responded to me were self-selected. If one of the breweries I reached out to had been in big trouble, I wouldn’t have expected a reply. Indeed, after detailing their challenges, many included a note of optimism. “Given the state of the industry, flat growth feels okay,” one wrote, adding they felt confident about weathering the current headwinds.
Finally, another big comment many mentioned was the shift happening with packaged sales. Distributors are consolidating their portfolio and scaling back the range of beers they order. Big breweries haven’t raised prices much, and one respondent noted this tethered craft brewers from raising their prices very much. Part of the squeeze is other products (seltzers, canned cocktails, etc), part of it is proliferating breweries, and part is a focus on larger breweries and clear strong-selling products. Some version of this challenge is something almost every brewery mentioned.
The Draft Crisis
On a Saturday evening in mid-December, I visited Ecliptic with friends. We arrived at around 6:30, and the crowd was good, though the pub wasn’t full. Yet by the time Ecliptic shut the doors at 9pm (!), we were one of only two tables left. This experience is apparently not characteristic of everywhere. A middle-sized brewery from the southern US said taproom volumes were headed upward. But in some regions, draft is down. “There are definitely less people in the seats of our [taprooms],” one small brewery told me. Another, from a middle-sized brewery, said, “I remain concerned about the fact that draft/on premise sales have never really bounced back to pre-pandemic levels.” Another middle-sized brewery pegged their draft sales as about 85% pre-pandemic levels. Finally, a brewpub reported that things were coming back, but erratically. They seem to be doing well now, but the fall months were terrible.
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What accounts for this? A lot, according to one of those worried breweries: “increased competition between breweries, fewer total retail locations, fewer tap lines at those locations, non-beer products replacing beer on bar/restaurant menus, consumers drinking less on premise, and pint costs having a chilling effect that reduces total onsite consumption.”
Going back to my experience at Ecliptic, I think something more fundamental might be at play. It’s early enough that we don’t have enough evidence of whether it’s a permanent change or what its causes might be. But one small- to middle-sized brewery pointed to the way Covid began de-personalizing the pubgoing experience, and how they see it as an example of why people are increasingly staying out of pubs. “For instance, a lot of places that used to have table service pre-Covid have permanently evolved into this customer-does-all-the-work, QR code service. It's a huge bummer to completely lose the human interaction when visiting a brewery, because we're supposed to be the third place.”
Other Issues
Some comments were unique, but insightful. A small brewery reflected back to the start of the pandemic and how the strategies breweries were developing in the past were ill-fitted to current realities. “Making decisions on growth, hiring, capitol expenditures, etc are often made well before they are implemented. The biggest example of that is when regional craft breweries spent a ton on expansions in the 2012-2016 range and now have to fill tanks with seltzers and RTDs because of those capacity expansions.”
Two breweries mentioned the delay effect of Covid troubles that are coming home to breweries now that government funds have dried up. A middle-sized brewery: “I believe many of businesses in and out of beverage and hospitality were propped up with Covid money are are now seeing a dramatic decrease in profits, to moving into loss territories.” Another middle-sized brewery: “Businesses and consumers received a lot of stimulus and forgivable loans in mid-2020, and it appears those funds have sustained them alike until this past summer.”
It’s amazing how much package size and type have dictated success and failure over the years. One large brewery mentioned that it’s time for another round: “A lot of that is just finding the correct packaging formats and pricing/margin for our brands to keep profitability up. 19.2oz cans have become the new battlefield (or race to the bottom depending on how you look at it) and it’s interesting to see how that is playing out.”
One industry veteran from a middle-sized brewery expressed fear about the future of the industry like they’ve never experienced. Yet, in the next paragraph shifted to the positive: “The work that's going on in yeast development is absolutely phenomenal and tremendously exciting. I can see yeast, a long time ‘irrelevant’ ingredient in beer, becoming talked about as much as hops were back in the heyday of West Coast IPA.”
Finally, it’s important to acknowledge how hard the past three years have been for folks in the beer industry. Two of the people who responded mentioned wrestling with serious mental health issues during this period. (Both were moving through and feeling better.) I asked if the business was still fun and exciting, and most of the people said it was, even with all the challenges. But I gathered there are far more anxieties crowding the picture. One middle-sized brewery put it this way:
“Ownership is becoming more business-focused, and less focused on the passion and excitement. Increasing focus on the bottom line is adding stresses to brewers, and limiting innovation, which is what has driven brewers throughout the history of craft beer. I am very scared about the craft beer industry right now. I've been involved with this business for a long time, and the excitement and the camaraderie are shrinking as the stresses grow.”
Another middle-sized brewery added: “I think for most industry people, the really fun stuff is getting to travel, going to events, doing collaborations, etc. When money gets tight, those are usually the first things to get the axe.”
I’ll leave you with a last comment that seems to capture the optimistic-yet-anxious mood of the people I heard from: “And lastly, I will add that each and every time I hear of a brewery closing, I get that panicked feeling in my stomach and have to go dig into our finances just to quadruple check that I'm not missing anything. And overall, I don't think that I am, but there's a heavy dose of the Debbie downer mood out there these days…so fingers crossed, I guess!”