Weathering the Storm: Surviving in Today’s Craft Beer Industry

If you haven’t heard, there’s been a lot of beer and cider news that’s broken over the past few weeks in Portland. In fact, the speed at which beer and cider focused enterprises have been shuttered or purchased recently has to be unprecedented in Oregon’s history. Here’s a brief rundown:

• In early October, we learned of some new “strategic partnerships.” Laurelwood Brewing, Aspen Brewing, and Ninkasi Brewing were brought into the fold with Legacy Breweries – a brewery collective financially backed by EPR Properties and Blue Ocean Partners Family Office.
• On October 24th, Lompoc Brewing, a 23 year old craft brewery with three (down from five) locations, announced that their 5th Quadrant and Sidebar locations would close on Tuesday October 29th. Their last location, Oaks Bottom in Sellwood, will remain open as they finish the last of their Lompoc drafts, then transition into a neighborhood pub.
• The following Monday, the Portland location of Rock Bottom Brewery announced it’s closure by simply hanging a sign in the door, marking it’s location as “closed” on Google, and taking down it’s website. It’s Downtown Portland location was open for 25 years.
• That Wednesday, Brewvana, the local beer-tour outfit, announced that they’ve sold a majority stake of their company to City Brew Tours, an established brewery tour company located in multiple cities on the East Coast.
• Thursday saw a triple-whammy in the announcement of Coalition Brewing’s closure, it’s acquisition by a start-up called Gorges Beer, and the revelation that Cider Riot is slated to close this Saturday.
• On Friday, bend based Avid Cider (formerly Atlas), announced the immediate closure of their Pearl District taproom.
• This Monday began with a more positive development, an announcement that Level Beer will be setting up a taproom location in Multnomah Village, slated to open by New Years.

So, what now then?

I started writing this article around ten days ago after the announcement of Lompoc’s closure, yet things snowballed so quickly that I had to stop writing to wait for the storm to die down before knowing where to start again.

There’s a lot more to each story and the why behind each of these happenings, yet for our purposes, it’s more instructive to figure out the “what now?” part of the equation.

I personally believe the large scale production of craft beer has become a less sustainable endeavor than ever before, or at least no longer a goal for smaller breweries to pursue.

More precisely, we now have over 8,000 craft breweries in the U.S. (plus roughly another 3,000 in planning), located in nearly every reasonably sized town across America. As a result, those who do love great beer are seeking out more than a cheap six-pack of liquid amber. They want a cool destination that offers variety, new flavors, entertainment, locally sourced food, low-calorie and gluten free options. In short, a total experience.

One could simply look at Lompoc or Laurelwood and say “well, the brewpub model isn’t working anymore.” Or you could look at Cider Riot’s closure, or Avid’s taproom closing as the decline of Cider. Like most things in life, it just isn’t that black and white.

Last February, after a more protracted series of closures, I attempted to deflate the notion that Portland’s beer industry is over-saturated. I still stand by this assertion, primarily because both the craft beer and cider industries (on the whole and in Oregon) are still growing, yet at a much slower rate.

Is it highly competitive, requiring more attention to detail, and a greater emphasis on the customer experience? Definitely. But once again, these closures and acquisitions are each different in their own way, most boiling down to finances, business practices, dated offerings, and/or staying relevant in a difficult market.

While on The Full Pint Podcast this week, Jeff Alworth points out that Portland is the most mature market in the country – describing the sophistication of beer drinkers here, the sheer number of educated consumers, and the number of older breweries in town.

This concept sums up the tumultuous few weeks we’ve seen. And Alworth continues to ask the question: “who’s going to carry on the legacy of the brewery?” The industry in America doesn’t have the family-business ethos that many breweries in Europe fostered. Today, even their tried and true model is changing, so there’s less likely to be someone there to take on ownership/management when those who own a brewery look to retire.

On the other hand, the vast majority of today’s breweries aren’t pursuing the model handed down from the Adolphus Busch’s or Fredrick Miller’s of yesteryear. Talk to Widmer, Redhook, Ninkasi, BridgePort, Samuel Adams, Dogfish Head, and many more who’ve maintained, returned to, or attempted to bolster business by utilizing the brewpub model and/or creating an innovation program. Yes, having a means by which to reconnect with locals and get first hand feedback about new beers can be invaluable, yet can it also rebuild your brand and assist in regaining relevance in the marketplace? The breweries listed above might tell you that’s just the beginning.

So, once again, there’s not a definitive solution to the problem that’s beginning to plague these locations. Although, maintaining relevance is of great importance, if not the most important thing, but what does that look like or how is it accomplished without completely disenfranchising your existing customer base?

We’re entering uncharted territory since we’ve never had this many breweries in America before, we’ve also never seen such a fractured arrangement of business models pursued to maintain relevance. As a result, I truly believe that each company has to find a solution based upon their existing business model. They need to ask themselves “what does success look like?” Then, “what model do we pursue to maintain relevance?” or more immediately for legacy brewers, “how do we assure survival?”

So let’s dig into this…

Assess the Situation

In short, do what works for where and who you are as a company. If you know your audience (see below) and realize that trivia nights or regular events aren’t going to create steady business or turn-off your regulars, then keep things simple.

If you’re just getting started or have indeed lost your regulars, take a long hard look at why, then work on beer quality or the styles you might be missing. Today’s drinkers are complicated and may want something different, like a seltzer (this is a rabbit hole I’ll dig into another time), cider, or cocktail. Explore the options, get feedback, and never feel comfortable resting on what seems like a sure thing – things are changing quickly and tastes are more varied than ever before.

Who is Your Customer?

If you’re a small town or even a Portland-area brewery, this may not seem a difficult question to answer, though it goes far beyond simple demographics. So the questions brewers need to ask are “how knowledgeable are my customers? Are they more traditional beer consumers, focused on one or two brands, or more promiscuous drinkers, looking something new every time they visit the taproom?”

Of course both can be satisfied if you play your cards right. Why not always have a Lager/Pilsner, (a category that’s seen a huge resurgence the past few years) at least a few IPAs and/or NE IPAs, and mix up the rest of the list (i.e. a Stout/Porter, Saison, Amber/Red/Brown, Imperials, etc.)?

If you focus on beer quality and a regular rotation of new offerings, you have a fighting chance. Even if you’re a larger brewery, distributing more packaged beer than draft, create 2 or 3 quarterly seasonals to keep things fresh, enabling innovation and evolution.

Balance and Brand Identity

You could be the hottest brewery in town and have customers streaming in the door one minute, then it’s crickets for months. Yes, there are definitely seasonal changes that affect taproom traffic, so how do you maintain a steady flow? Many newer breweries have focused on the taproom model – fast rotating drafts, limited/no local packaged beer distribution (on-site sales only), but it doesn’t work for everyone and it may dry up during the colder/darker times of the year.

In short, don’t be afraid to stretch your footprint. Send kegs and cans to the next big town down the road, work with local specialty bottle shops and high-end grocery chains. I totally understand the fear of stale shelf beer, yet if you want to get picky with accounts to ensure your beer is kept cold and not in warm backstock, be choosy. Yet if you don’t send your beer to draft accounts (see Widmer’s innovation program) or don’t can/bottle more of your beer during the “stay at home” months, roughly between September and April, your brand identity can slip as a result.

Find a balance of draft and packaged beer that works and change it up based upon the season.

Finances

This might seem like a self-explanatory notion, yet it can get businesses into trouble before they even open their doors. If you’re taking on raising of capital to start or expand a brewery yourself, be cautious and deliberate, talk with those who’ve done what you’re attempting to do, and be prepared to spend twice as much money as you’ve budgeted for.

Becoming over-leveraged can become a hill too steep to climb. If you’re able to partner with an interested group that can provide capital, this might be your best option. While I’ll never claim to be an expert on financial planning, there are a multitude of avenues you can take, it’s just a matter of ensuring you keep things at a scale that will work for your business plan.

Community

There are plenty of ways to build community as a business:

• Represent and pour your beer at festivals
• Submit your beer to competitions (when able)
• Collaborate with breweries locally and outside of your region
• Schedule tap-takeovers and attend them
• Host events at your location – weekly and/or seasonal
• Work with the lab at a larger brewery to maintain high quality control
• Attend other local brewery events to support their endeavors

Last, but not least, like any small business, be a good steward to the community by raising money for non-profit organizations you support, host their events, and utilize sustainable practices. There are countless ways to work within and build a presence in your neighborhood, it’s just a matter of figuring out what appeals to you and your community.

These are just a few things to keep in mind as you start a brewery, look to expand it, or maintain relevance in an ever complicated industry. In the end, I really believe that those who are able to transition from being a primarily beer-focused operation, into a well-functioning business that brews great beer, are those who are going to succeed and remain successful in this complicated climate.

Those who don’t keep an eye on the ever shifting winds of today’s market or keep a keen focus on day-to-day operations, finances, and fluctuating demand, may indeed find the coming years difficult. I don’t have a crystal ball, but the headwinds many are dealing have become even stronger. Only time can tell how well the beer industry will weather the storm.