Craft beer sales have slowed. There have been a few high profile brewery closure announcements. Even AB Inbev is downsizing (layoffs) their so-called High End which is made up of all their craft brewery acquisitions in recent years. This combination has some folks once again contemplating a craft beer bubble, or an industry shakeout. All of these big picture trends hit close to home here in Oregon as well. Obviously 10 Barrel and Hop Valley were sold not too long ago. In-state beer sales have slowed or declined for many of the state’s largest breweries. And a number of Oregon breweries announced they were closing, including Southern Oregon Brewing last year and The Commons this year.
One key way to think about this is that the craft beer market is maturing. Making good/craft/independent/local/etc beer is no longer necessary and sufficient to be a successful brewery. In a mature market, good business decisions and strategies matter more. As we wrote in our beer report last year:
To date, Oregon brewery failures have been relatively few although there have been some and more than the conventional wisdom realizes. The failure rate is approximately 2 percent compared with 8 percent for all Oregon industries combined. In any market, there are companies that do better or worse. In a growing market, the winners clearly outnumber the losers. However as craft beer slows overall, the number of firms struggling or losing market share are likely to increase.
And I think this is what we’re seeing play out a little bit more. Now, I haven’t done all the detailed data work for the past year or two, but I don’t think the actual closure rate has increased much, if at all. However, I do think the brewery closure rate will increase in the coming years. It is likely to converge toward the rates seen in other industries. Currently, the growing and largely successful beer industry is enticing even more breweries to enter. Eventually this will lead to (over)saturation and for closures to rise as a result. Given that consumer trends, size of brewery, location of brewery and the like all play huge roles, I don’t know where exactly the industry is in this process, but it is in there somewhere.
Here in Oregon we’re seeing 4 or 5 brewery closures per year at a 2% rate. The overall closure rate for all industries across the U.S. is 7-7.5% with manufacturing more like 6%. In a different data set, Leisure and Hospitality closures are more like 9%. At these rates we’d be talking about 15-20 brewery closures here in Oregon in any given year. Clearly we’re not there yet, and not even that close.
Bottom Line: A maturing craft beer market has many implications, including the importance of sound business practices. However a handful of high profile closure announcements are not likely indicative of big industry problems. The pace of brewery closures remains considerably low and is likely to rise in the coming years even if the industry has no significant problems.
For more on the current state of the beer industry and on closures, see this The Drinking Classes interview with Bart Watson, chief economist for the Brewers Association.
Addendum: While our office talks about the growth in Oregon’s alcohol cluster and compare it with the software industry, one huge difference in these jobs are wages. Software, on average, is around $90,000 per year, whereas the alcohol cluster overall is about 1/3 of that. Jeff Alworth, author of The Beer Bible and the Beervana blog, wrote recently about brewer wages . Jeff cites some third party numbers saying Assistant Brewers make $30-40,000 per year, Head Brewers $35-47,000 and Brewmasters $40-76,000. These are not too far from industry averages seen here in Oregon (breweries, NAICS 31212, $37,100). Brewing is a growth industry, it is value-added manufacturing, it is traded sector and all that stuff, but as Jeff writes, “these are not terrible salaries, but neither are they going to line a person’s garage with Teslas.” These are also salaries that are in-line with manufacturing and production occupations overall.
