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When engaging an audience, Bell’s Brewery founder Larry Bell loves to proclaim that “we are in the beginning of the end of the beginnings of craft beer.” Though I believe the end of the true beginning of craft beer occurred in 1981, if one is to accept Bell’s pronouncement, I’d argue we entered the beginning of the middle of craft beer on Nov. 5, 2014.
That’s the day Anheuser-Busch InBev (AB InBev) launched a 13-month buying spree that swallowed five American craft breweries whole and showed us without ambiguity that words like “merger” and “acquisition” are what an inconceivable number of breweries will come to rely on to elevate themselves or even survive for the years, decades or centuries to come.
Aug. 10, 2017, marked a related turning point in the trajectory of craft beer: the market bubble we’ve dreaded finally sprang an irreparable leak. Because the disrupter that is small-batch beer has earned itself an irreplaceable place in the mainstream, I don’t believe the bubble will “burst” as feared. But over the course of that week and particularly on that day, an avalanche of events confirmed the very likely possibility that 50-plus years into this noble craft beer experiment, it has officially become a victim of 1) its own success, and 2) a glittering view that its stairway, to borrow some appropriate imagery from Led Zeppelin, could climb ever higher toward heaven.
Put simply, craft beer’s latest round of momentum is crashing up against some ferocious internal and external competition coupled with the lure of cold cash for entrepreneurs who, after slaving for decades to build their versions of the American Dream, still don’t necessarily make enough money to adequately grow their businesses or fill their families’ pockets. If we’d sheltered any doubts before as to how this might play out, the week around Aug. 10 darkly foreshadowed that the middle of craft beer will leave behind significantly more collapse, consolidation and compromise than the mostly folksy enterprise ever did in the beginning.
On that day, this happened:
- Florida darling Funky Buddha Brewery sold out to Constellation Brands, owner of Corona, Modelo and craft acquisition Ballast Point Brewing, plus many others. Buddha founder Ryan Sentz – whose team has spent years lobbying Tallahassee for favorable craft laws – told beer news website Brewbound that he and his partners needed capital to grow production and distribution to meet relentless demand.
- Influential Colorado indie New Belgium Brewing announced that along with some partners it would purchase San Francisco’s Magnolia Brewing, which declared bankruptcy after the construction of a second location caused the 20-year-old brewery more financial harm than good.
- Though there’s no money to follow on this one, it’s worth mentioning that Philadelphian Michael Naessens rocked the region by announcing the closure of his world-famous Eulogy Belgian Tavern, citing a police force unwilling to protect him and his employees from crime. Naessens, who opened Eulogy 15 years ago as one of the nation’s first bars to serve hundreds – if not thousands – of Belgian brews at a time, had previously shuttered his other two beer-centric properties.
- Catching up on some old reading, I learned that Maryland’s DuClaw Brewing, notable for its breakout chocolate peanut butter porter, Sweet Baby Jesus, is looking for an investor or buyer. Brewbound reports that after expanding three times since opening in 1996, DuClaw’s owner, Dave Benfield, needs capital to update the taproom, increase distribution and buy a canning line. The site added that since the expansion, he’s been saddled with 20,000 barrels of excess capacity and recently closed his owner-operated brewpub.In a release that broadly sums up the financial paradox that forces so many 21st century craft brewers to seek outside funding, Benfield said, “We have been able to enter more markets in the past three years than the first 18 years combined, but growing distribution takes time and money, and I am at a point where I either need to pass the baton to someone else or find a partner to help me take DuClaw to the next level.”
Additionally, four U.S. breweries announced their closure that week. Sacramento’s 30-year-old Rubicon Brewing ceased operations, along with nearby American River Brewing, North Carolina’s Tipping Point Brewing and Cincinnati’s Blank Slate Brewing. Rubicon’s owner told The Sacramento Bee that stifling local competition had dried up his cash flow. In covering the story, Brewbound writer Justin Kendall pointed out that Rubicon added an off-site production brewery and tasting room four years ago and improved sales each of last three years. If you add up those seemingly incongruous factors, you can conclude that he probably unveiled his expansion to a public whose attention had become more diffuse than anyone had anticipated when he drew up his plans.
As for the other three breweries, Brewbound reports that American River watched sales decline 2% last year. It sounds like Tipping Point closed its brewpub for mostly non-business related reasons, and we’ll talk about Blank Slate in a minute.
According to the Brewers Association (BA), production in the American craft brewing industry grew by double digits for eight of the ten years leading up to 2015. Last year, that growth slowed to a sobering 6% then slowed again to 5% in the first half of 2017. (I must note, however, that as more craft breweries leave the nest for macro ownership, their statistics get removed from the BA’s counts.) Soaking up the earlier success, the number of functional craft breweries increased by 25% between June 30, 2015 and the same date the following year.
Against this backdrop, each of the occurrences of the week was striking in its own right. Presented together, they manifested as pretty unsettling to much of the beer community, which had heretofore prided itself on its independence first and its collegiality second.
“Every week you look up and see somebody selling out, and every time I see one of these merger or acquisition deals it takes a little bit out of me,” Bell told me when I called to ask if he wanted to update his assessment of the industry in light of recent events. “Times have moved on a little bit farther, at least for those of us who’ve been here a while. We’re starting to see the end of the camaraderie that used to be so much part of what we were doing.”
But if Bell’s “beginning of the end of the beginnings” was marked by the rise of a potentially untenable number of breweries (5,562 as of June 30 and 2,739 more in planning); continuing loss of market share to wine, spirits and maybe marijuana; and everyone from AB InBev to New Belgium to Brooklyn Brewery’s willingness to invest in the little industry that proved it could, the beginning of the middle will be remembered as the era that artisanal brewers struggled to figure out how to work within the confines of a shrinking bubble. So far the solution is found in caving to these intensifying pressures then floundering to define oneself in a world where brewers who once vowed that “corporate beer still sucks” go on to join some of the biggest brewing outfits on the planet.
Tampa, February, 2016 -- Cans of Jai Alai IPA at Cigar City Brewing. Cigar City has joined other... [+]
Dishearteningly, my reaction is increasingly to normalize, even expect, the types of transactions in question. Despite spending years calling Funky Buddha my “happy place” to visit in Florida and preaching its charm to anyone who’d listen, I literally didn’t flinch when I read about its sale to Big Beer. I sort of shrugged off news of the lesser known breweries closing, wincing mainly at the fact that Rubicon shut down after three decades. And I really hate to say it but despite trying many a fine libation at Eulogy, steering tourists in its direction and enjoying a casual friendship with Naessens, I thought, “That’s really a bummer,” but not much more.
Easy come, easy go. It’s business, not personal. And similar clichés. …
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It was an Aug. 10 blog post written by the owner of Blank Slate, which I hadn’t heard of, that impacted me emotionally and plainly exposed the market forces working against independent American breweries in the second decade of the 21st century. Under the headline (and Jim Morrison song lyric) “This is the end … beautiful friend … the end,” founder Scott LaFollette explained why he’d shut down the preceding Monday: “The reason for our closure is pretty simple. We ran out of money. There is no big conspiracy, no secret takeover, no legal troubles or personal issues. We simply don’t have enough cash to keep going.”
Confessing that he’d cried a bunch since making that decision, he admitted that he’d never drawn a salary from the brewery and had been forced to live off his wife for its entire six-year lifespan.
“Keeping the operation afloat has been a struggle every single day of its existence but we made it work...until it didn't,” he writes.
LaFollette accepted his first outside investment in 2015 and used it to buy equipment. However, by the time “everything was in place” at the end of last year, he says, “the brewing landscape had seemingly changed.” A dozen more breweries called the Cincinnati area home, “all better funded than us with nicer taprooms and slicker marketing.” Instead of growing his sales volume as expected, it stagnated and even declined in some territories.
And then came the realization.
“We simply did not have the means to keep up with the ever increasing costs of trying to stand out in a crowd when compared to the next shiny new thing coming down the pike,” he blogs.
I’ve never met LaFollette, visited his brewery or tasted his beers. I don’t know how he operated his business. Nevertheless, his plight can be instructive. As they say, it takes money to make money, and sometimes even the strongest breweries can’t generate enough on their own. Ask Jack McAuliffe, Suzanne Denison or Jane Zimmerman why they shut down New Albion Brewing Co., the first post-Prohibition ground-up independent brewery, after just six years… if you can locate them.
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It’s not terribly difficult to predict which independent breweries may feel compelled to burden themselves with a risky bank loan, solicit investors or sell to employees, venture capitalists or other breweries. Observe which ones can’t meet demand (Funky Buddha, Cigar City Brewing); have recently invested major capital (Magnolia, Victory Brewing); is closing outposts (Pyramid Breweries) still use old equipment (BridgePort Brewing) or beg for a facelift (Magnolia, Moonlight Brewing).
If your favorite brewery’s owner is aging and has been in the game a long time, you may consider asking (politely) about his or her succession plan. Not long ago, Larry Bell named his 30-something daughter as CEO; when he retires, she’ll lead the company. Two of Ken Grossman’s three kids hold top management positions at Sierra Nevada Brewing; they’ll likely share responsibilities if he ever decides to step down. But most founders don’t have the luxury of appropriately aged children who want to inherit the family business, as fun as it may sound.
If supporting independent breweries matters to you -- yes, you -- learn what it means to really do your part. Calling a solid beer a “shelf turd” because it’s not a one-off you can get at the brewery one day a year is not only insulting it’s devastating to most breweries, which rely on steady sales of their flagships to keep the lights on. Sure, enjoy that limited Funky Buddha Snowed In bourbon-barrel aged coconut coffee porter. I sure do.
But as LaFolette cautions, “Just remember that supporting the (breweries) you like means more than just saying ‘I went there once and really liked their beers.’”
And it means proudly stocking your fridge with Sierra Pale Ale or Anchor Steam alongside the hot new double IPA you drove to Vermont to wait in line for.
So, again, will the bubble burst? Again, I say no. The housing bubble burst in 2008, causing the American Dream to go bust for millions of homeowners. But we didn’t stop buying or building houses. That said, like an economic recession whose starting date can only be pinpointed after the fact, those people worrying about the craft crash may not realize the sky has already begun to fall.
Signing off as “Scott LaFollette, Former Proprietor, Janitor and Yeast Farmer,” the founder of Blank Slate Brewing (2011-2017) mournfully concludes his eulogy in a way that any craft brewer with a heart can relate to.
“Although there were many things left undone, many beers left unmade, I am very proud of every single thing that we ever did as a company. Everything we brewed was for the love of the craft above all else,” he writes. “Whether Blank Slate ever exists in a physical nature again is pretty hard to say at this point but it appears that it may live on in people's memories for quite some time and that fills me with a sense of satisfaction that at least we accomplished something worthwhile.”
“I’d say we’re in the end of the beginnings of craft beer,” Bell says in reply to my original question of whether we’ve moved past the beginning of the end of the beginnings. “I think that beginning phase is pretty much over.”
Magnolia’s Dave McClean told SFGate.com on Friday, August 11, "There are breweries trying out what seems like different version of, 'How can we mature as an industry and deal with these challenges while still maintaining a soul?' "
Most would agree that along with fiduciary responsibilities to their companies, Bell, McLean and their colleagues do carry a moral responsibility to act in accordance to the ethical standards set by committed pioneers and newcomers whose fortunes have sadly vanished on the vagaries of the whispering economic wind. However, here at the beginning of the middle of craft beer, as we consider our deflating bubble, there’s no way to deny that philosophy and hard work can get a brewing entrepreneur only so far when money, and only money, can buy the stairs they need to build their stairways to heaven.
** Coda: As if to illustrate the point, on August 23, Brewbound reported that less than three years after breaking ground on a much larger, $7.5 million facility, Tallgrass Brewing, Kansas’ largest indie brewery, is cutting nine beers from its lineup and eliminating and consolidating job positions.
To quote the site, “‘Our growth rates in 2011, ’12 and ’13 were just insane,’ Gill told Brewbound. ‘In 2014, we couldn’t make enough beer.’
But growth peaked in 2015 as production topped out just under 22,000 barrels. In 2016, due to increased competition in the company’s core markets … sales declined to 19,500 barrels, Gill said.
‘This is a scary time for smaller regional breweries,’ he said. ‘In craft beer, at the level of what Tallgrass is trying to do it, it’s no longer a game for some guys who loved homebrewing and just figured it out along the way. There’s a lot more to it now with these market dynamics.’”
