In the last month, Portsmouth, New Hampshire’s Smuttynose Brewing Co. and San Diego, California’s Green Flash Brewing have been sold at auction prompting many to suggest that there is a bubble in the beer industry and it is about to burst. There was a previous shakeout in the mid-1990s and the fact that around half of the breweries operating in the United States today are less than five years old is cited as evidence of that bubble.
Looking at both of these companies progressions from founding to sale indicate rapid growth and a belief by their leadership that those rates of growth would continue unabated are the source of these companies’ financial woes. This seems particularly true in the case of Green Flash which bought a local competitor in 2015, opened an East Coast production facility in 2016, and announced plans to reopen a space once used by another brewer in Nebraska in 2017. In the cases of both companies, banks holding their loans lost confidence in their abilities to pay when reality did not measure up to projections. Both companies currently say they will continue to operate in some capacity.
I don’t see these events as a bubble about to burst, rather a reflection of the changing nature of the beer industry. Like with food, there has been a growing movement to source things locally when possible. As a result, smaller brewers have turned to a taproom business model whereby most, if not all, of the beer produced is sold at the taproom either by the glass or in take-home packages like growlers and crowlers. The days of being a production-only brewer are fading as competition for tap handle space and shelf space in the on-premise and off-premise environments have become harder to attain and maintain.
Going a route that does not require a distribution relationship can be much more profitable for a small brewery as well. Examining the website of a large national liquor chain finds that a ½ barrel keg of beer retails for $89-$249, depending on brand, with most priced in the $150-170 range. That ½ barrel has seen a 25-30% mark up at both the retail and wholesale levels. This means a ½ barrel keg in that average price range brings the brewery about $100 in revenue. In a taproom the approximately 120 pints or 160 twelve-ounce pours contained in that keg which can generate $600-800 of revenue at $5 per pour. These numbers make it no surprise that many established packaging breweries have also added taprooms where they are allowed.
Well-run taprooms can also become fixtures of their communities by being what sociologist Ray Oldenburg called “a third place.” According to Oldenburg, home is your first place, work your second; a third place is an informal public location where community members gather. Third places serve a variety of functions, not the least of which is giving the community a sense of identity and uniqueness.
While unfortunate for those directly involved, the hard times of a couple of mid-sized players in the beer world do not spell tough times for everyone. If brewers commit to their communities and are pragmatic about growth, there is a lot of success to be had.
Looking at both of these companies progressions from founding to sale indicate rapid growth and a belief by their leadership that those rates of growth would continue unabated are the source of these companies’ financial woes. This seems particularly true in the case of Green Flash which bought a local competitor in 2015, opened an East Coast production facility in 2016, and announced plans to reopen a space once used by another brewer in Nebraska in 2017. In the cases of both companies, banks holding their loans lost confidence in their abilities to pay when reality did not measure up to projections. Both companies currently say they will continue to operate in some capacity.
I don’t see these events as a bubble about to burst, rather a reflection of the changing nature of the beer industry. Like with food, there has been a growing movement to source things locally when possible. As a result, smaller brewers have turned to a taproom business model whereby most, if not all, of the beer produced is sold at the taproom either by the glass or in take-home packages like growlers and crowlers. The days of being a production-only brewer are fading as competition for tap handle space and shelf space in the on-premise and off-premise environments have become harder to attain and maintain.
Going a route that does not require a distribution relationship can be much more profitable for a small brewery as well. Examining the website of a large national liquor chain finds that a ½ barrel keg of beer retails for $89-$249, depending on brand, with most priced in the $150-170 range. That ½ barrel has seen a 25-30% mark up at both the retail and wholesale levels. This means a ½ barrel keg in that average price range brings the brewery about $100 in revenue. In a taproom the approximately 120 pints or 160 twelve-ounce pours contained in that keg which can generate $600-800 of revenue at $5 per pour. These numbers make it no surprise that many established packaging breweries have also added taprooms where they are allowed.
Well-run taprooms can also become fixtures of their communities by being what sociologist Ray Oldenburg called “a third place.” According to Oldenburg, home is your first place, work your second; a third place is an informal public location where community members gather. Third places serve a variety of functions, not the least of which is giving the community a sense of identity and uniqueness.
While unfortunate for those directly involved, the hard times of a couple of mid-sized players in the beer world do not spell tough times for everyone. If brewers commit to their communities and are pragmatic about growth, there is a lot of success to be had.
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