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This is why my brewery shut down

The owners of five breweries that closed or have been put up for sale in the past year explain just what went wrong.
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Since the mid-2000s, opening a brewery has been a pretty solid business decision. Even as the total number of breweries in the U.S. rapidly climbed toward the highest it’s ever been, the failure rate of new brewing operations was near zero. Entrepreneur Magazine even hinted in 2015 that craft beer was as close to a sure thing as an investor could get.

But in recent years, that aura of invincibility has cracked. Craft beer’s decade of double-digit growth finally ended in 2016, with brewing trade group the Brewers Association reporting that craft beer sales had grown just 6.2 percent—less than half the growth reported a year before. Large legacy brewers seem to have felt the brunt of this slowdown, with Bridgeport Brewing Co., Craft Brew Alliance and Stone all announcing staff reductions within the past six months and Speakeasy Ales & Lagers abruptly shutting down in March and reopening under new ownership in May.

The number of new breweries and brewpubs opening has also been dropping since 2014, while the number of closures has been steadily increasing. A total of 97 craft brewers shut down last year, which represents the most closures in roughly a decade. And while the failure rate of breweries still remains incredibly low relative to other industries, those 97 closures represent an increase from 78 in 2015 and 75 the year before. Meanwhile, new brewery openings have been dropping by an average of 3.3 percent each year since peaking in 2014.

So far, 2017 seems to be indicating a similar trend in closures, and even well-established breweries aren’t immune. Valiant Brewing Co. and Branchline Brewing Co. had both been around for four years before the former closed and the latter filed for bankruptcy; On-the-Tracks Brewery and Offbeat Brewing Co. were both six. San Diego’s stalwart Lightning Brewery had just passed a decade in operation before being put up for sale in December.

So the big question: What is going on? Is increased competition causing these closures? Burdensome regulations? Fickle customers? Is the rent just too damn high? And is it even possible to open and operate a successful brewing business anymore?

To find the answers, we called up the folks who own (or owned, rather) several of the breweries that have shuttered in the past year. Here they are, in their own words.

Alejandro Brown, founder of Big Al Brewing in Seattle, Washington (opened August 2008; closed January 2017)

“Ultimately, what led me to close the doors was flattened growth, stagnant growth. I watched the potential for growth just dry out. From my perspective, there are two things feeding into that: the rotator market and the openings of new breweries.

When we first start 8.5 years ago, I believe we were the 86th brewer in the state. We opened with the model of brewing a new beer every month. We had about 30 or 40 bars that bought a keg every month, but as more breweries opened, we saw that dwindle to a keg every other month, then a keg every quarter. I’m in this camp, but there’s a camp that says every beer you drink has to be a discovery. But now there’s 330 breweries in Washington state now. That makes it tough, as a brewer, to have steady keg sales at bars.

Age is another thing. If your brewery is five years old and you’re hanging in the 2,000- to 6,000-barrel range, you’re probably seeing flat to declining sales at this point. We were producing 2,500 barrels at our peak. The craft beer market as a whole is growing every year, but that growth is being taken up by new breweries. If the new breweries are absorbing all that growth, the rest of us are going to be flat.

I think the key to success in this market is having solid retail, if you can build your business around your retail and you can have your taproom full every night, you’re going to be fine. Or if you’re so big and you’re above the 10,000-barrel mark, you might be flat this year but hopefully you’re well above the black. Or if you’re brand new and you’ve hit the ground running with some solid beers, you’re probably going to be fine because everybody loves the new guy. But the real test will come 24, 36 months down the road.

I think a lot of people start breweries because we love beer, and we’re just going to make beer and people are going to love it. It’s not like that anymore. You have to have a plan.”

(Brown landed on his feet and now Odin Brewing Co., a brewery in Tukwila, Washington.)

Jesse Evans, co-founder and CEO of Ale Syndicate in Chicago, Illinois (founded in 2012 as a gypsy brewery, opened as an onsite facility in 2014; closed December 2016*)

“It’s not the bubble’s fault. There was never a lack of demand for the beer. In fact, we had to cut back on distributors at one point. For us, it was really a production restraint. It’s simple math. Overhead was too high for the amount of beer we could produce in the space we had. There were all kinds of things that were always limiting: pump space, floor space, combined with the big cost of the space, the people we work with, and we were also a shared facility hosting several other breweries. That was something we were really passionate about, but these breweries are taking 20 percent of the space but not paying 20 percent of the overhead. We were basically landlocked in a very expensive building.

I learned in this process that whatever money you’re raising, double it. Maybe triple it. We raised a lot of money, but it would’ve taken twice what we raised to make things work. It’s definitely possible to be successful in the current environment, but it’s all about how much money is in your runway. You have to have enough that you can pick up, set up a new building and get it ready as a brewery.

If I could do it over again, first, I’d hire the same people in a split second. That was the heartbreak: losing the people you work with who are your friends. Second, I would never box myself into a space. If you’re in a warehouse, make sure there are contiguous spaces. Make sure there’s room for growth.

Also, what really worked for us was an amazing advisory board. Having that business leadership to balance out that brewing side. There was a big heart portion that led to decisions that may have gone against the business decisions. I enjoy the process of helping out other brewers, but if a brewery isn’t capitalized enough to survive in its own building, they probably shouldn’t be doing it.

It sounds cheesy, but you gotta know when to fold ‘em. That’s incredibly important. I worked hard to make sure I was holding everything together. We were always working, always crazed, and we should’ve said, ‘Hey, it’s time to take a pause and think about how we can do this differently. But it wasn’t until I was forced to physically separate from the business that I realized that.”

*Evans says Ale Syndicate will be back this year, as the brewery is working on an alternating proprietorship with an as-yet-unnamed Chicago brewery.

Ken Lewis, owner of New Riff Distilling and its brewery offshoot, Ei8ht Ball Brewing in Bellevue, Kentucky (opened November 2013; closed March 2017)

“New Riff is primarily a bourbon distillery company. We opened a microbrewery thinking we might be supplying some wort to the distillery. It grew past that and we were having fun with it. But my perspective is that the only breweries that are either very small or very large can succeed now. The choice was either to go big or be gone, and I chose to be gone and focus on the distillery.

I absolutely think a shakeout is coming. I do not believe that you can be anywhere in the middle in terms of size. You have to be small, local, owner-operator with minimal distribution, or you need to be really big and able to afford the dramatic marketing efforts that are going to be necessary in the upcoming battle for shelf space.

As a former retailer, I clearly see that we’re in a period of what is commonly referred to as SKUmageddon. The dogfight—or the war—for shelf space and attention in a world with 5,000-plus breweries is only going to get more brutal. You’re seeing a slowdown in the growth curve that’s almost nonexistent, and that’s already creating incredible competition for space.

The sizing was wrong. We were a 1500-barrel brewery, which is fine for a small, local brewery, but not for a side project to a larger operation like we were. There’s a very bright future for very small, local breweries. I think it’s a dismal future for anyone else.”

Steve Jones, owner of Pateros Creek Brewing Co. in Fort Collins, Colorado (opened 2011; closed April 2017)

“When we opened in 2011, I think we were the eighth brewery to open in Fort Collins, and we were the first ones to come into our block, to really make it something. There wasn’t any real nightlife or a lot of activities happening here. But our current landlord bought block in 2015 and decided they wanted to change the look of the place. As we went down the road, the rent was never negotiable. It was always going to get higher for us. And we’d always struggled with rent already, so to have it go higher wasn’t an option.

Fort Collins has been going through some transitions as well, the entire city. We’re downtown, and downtown has become too big for its britches in a way. There are a lot of bigger companies moving in paying higher rents that us smaller guys just can’t do. We’ve also had a massive growth in breweries just like every other place.

My original business plan was this way, and I changed it all because of the way things were moving. It was more of a nano-style brewery that was open on the weekends and when I needed a bigger batch I’d contract with the bigger brewers. The taproom would be this small neighborhood taproom where people hang out, drink beer, play darts.

We’re selling all of our equipment in order to erase debts and recapitalize. The way we’re going to move forward is to look for contract brewing and keep our beers around in places that sell well for us and try to expand from there.”

Richard Erickson, managing partner of River Mile 38 Brewing Co. in Cathlamet, Washington (opened 2014; put up for sale March 2017)

“We’re in a unique situation. A lot of breweries started with making a profit in mind, growing, distributing beer and cans and all that. Not this one. A bunch of us got together in this small town, in a small county of 4,000 people. Two of my friends were homebrewers, and I talked to them and 12 other people and said, let’s open a brewery at the marina and see if we can bring tourists in. We wanted it to be a cool place to drink beer, hang out and treat it like a clubhouse.

The brewery’s three years old now, and I’m 74, and another investor is 70, and most of the others are 60, and it’s just killing us. This needs to be owned by younger people.

Now there’s a huge following for this brewery in our local area. We’ve had several prospective buyers. And we’ve told them we won’t sell this brewery if it doesn’t stay in the community.

The brewing business is young, but there’s no young people with money. The guys who have the money are old, but they’re not going to be the ones doing the brewing. We actually have several fathers looking at buying this for their sons.

There’s been a trend change. When we opened, there were 185 breweries in the state of Washington; now there’s over 300. There’s plenty of room to grow in beer sales, because craft beer is still capturing the big beer market. The biggest problem is in your distribution channels, and that this whole trend of what’s new and what’s different has taken over. You used to have permanent handles; those days are gone now, because the young drinkers come in and go, ‘What’s new?’ Even in grocery stores. It’s so crazy right now. What we’ve found is that you need a salesman to go out to these bars and restaurants, and give them a little service. It’s a little more difficult to sell out in the market. But taproom sales are as good as they’ve ever been.

You want it? You can walk in and have all the beer that’s in the tanks. You can even have the $250 that’s in the cash register.”

19 Comments

  • Steve Cook says:

    Odin is slightly more than one-year old. Try eight.

    Also, when Al closed his doors, the local brewing community lost a guy who never forgot his roots, and would dispense advice freely to home brewers, along with yeast, and would also help local brew clubs. Glad he landed at Odin.

    • Zach Fowle says:

      Thanks for the correction, Steve. Don’t know how that one got through, but it’s fixed.

    • Rory Downward says:

      Visited Big Al’s a couple of times when business has brought me to Seattle. Always enjoyed it and still wear my Big Al’s work shirt proudly. Sorry to see they needed to close. looking forward to hitting Odin on my next trip.

      • MrWalkaway says:

        So I just finished this article and most of it is crap the underling theme is you you have to work to have a successful brewery! Well no shit! you have to have a plan, you have to have a sales rep, as I always say brewers make beer, sales people make money. They use the market growth of craft beer dropping as an indicator that the market is losing but what they fail to mention is the growth rate didn’t drop it just got moved to a different area (domestics buying craft breweries) the growth rate is still there. I Know I’m up on my soap box and all but I hate when an article comes out and it really says nothing but a bunch of doom and gloom with nothing to back it up!

        • Skip says:

          Interestingly, I don’t see it as doom and gloom. I think there’s a lot of fascinating market knowledge in the interviews – that if you’re going to make money, you’re going to have to “take it to the next level” which means size and winning the SKUmageddon; that the middle sized brewery isn’t going to work out – they’re too big to survive on small margins; that a small guy can still create a niche market and make a good living.

  • Andi S says:

    I had the pleasure of enjoying 8ball brewery for the first time just a few weeks before it closed. They had some really creative brews that I hadn’t found anywhere else. They will be sorely missed. If ever they decide to put out a few limited edition brews they won’t go unnoticed.

  • Hemmerly says:

    Ale Syndicate was a very poorly run brewery. They didn’t have their state brewer license for the last seven months they were operating. When asked by the Chicago Tribune about the license Evans had the following to say; “It’s not my department, so I have to look into that,” Evans said. “I don’t know anything about that.” It is no surprise they had issues staying afloat if they couldn’t even bother to renew the license which allowed their business to operate in the first place.

  • Calipers Chris says:

    You mentioned On The Tracks closing in San Diego county after 6 years, and I have to tell you that it was a miracle they lasted that long. They really had awful stuff when there were so many good choices in the nearby vicinity (including the same parking lot). Since they closed, two new breweries opened across the street that have some excellent beer.

    • Luskus Delph says:

      Excellent article!
      I haven’t been to the breweries specifically mentioned, but I have found that many small breweries (and most brewpubs) where I live in NJ make pretty _dreadful_ beer, so it doesn’t surprise me at all to hear that breweries are closing. Most were/are making beer that resembles beginner homebrew, serving it green, and charging a premium price for their slipshod products.
      However, I continue to support those very few local brewers who did their research and dialed in their processes _before opening_, to make distinctive brews. The problem with “craft beer” is that too many of the breweries opening up like weeds nowadays show very little actual “craft” in the making of their beers, which are no better (and most often , far, far worse) than what I have made in my own home basement since 1971.
      Beer drinkers nowadays seem to be more forgiving of the flaws in the beer they are drinking, have less discerning palates, and are enamored of the novelty of ‘drinking local’. To the few brewers that are truly interested in “getting it right”: keep up the good fight, live long and prosper!
      As far as the ‘bubble’ bursting, I do believe that is a real thing (but is to be expected considering the rate at which new breweries are opening up. They can’t all be gems…and most simply aren’t).

      • Skip says:

        I agree with a lot of what you’re saying. It’s no longer enough to just make beer – you’ve got to actually make *good* beer.

  • Joe Borzyn says:

    Wow, sorry to hear about all the closings, here in Cleveland, Ohio, we have had 5 new breweries open in the last year alone. Local news papers have had articles about the “Bubble bursting”…..

  • Noah says:

    I know Pateros Creek in Fort Collins… I know the rent situation is true, but realistically their beer wasn’t very good. That’s why they failed, not because rent kept going up. There is too much incredible beer being brewed in Fort Collins to brew subpar or even average beer. The Fort Collins Brewery is closing for the same reason, there’s just too much WAY better beer to drink.

    • Robert Boucher says:

      I fully concur with your statement. I read the Pateros Creek section and can see the rent being an issue (former FC resident and in the industry) however the beer was certainly subpar (at best) in a town full of knowledgeable and quality-demanding consumers. A flight was an off-flavor sensory course.

  • The Bushwakker is a brewpub, so this article was of somewhat limited value., and I am thoroughly disappointed that the writers of the article and the organizer of the BA mailing didn’t have enough presence of mind to let the reader know beforehand that it was only about microbreweries. (I’m trying to stifle myself here.)
    Our business dropped by 20% over the past three years> We believe that the main reason is that the provincial resource based economy was booming three years ago and now it’s in recession. Furthermore, three years ago both restaurant chains and independent restaurateurs started planning new outlets to take advantage of the boom. They opened after it was gone and many are now in trouble or have already closed. Several microbreweries have also opened in the province during that time and one is more likely to find a craft beer in a restaurant now but ethic-food restaurants are still oblivious to the changes in the market. We maintain the industry mantra, that in the long term, new entries to the craft sector will grow their own markets.
    The Bushwakker was slow in adjusting to the downturn in traffic, particularly in terms of staffing, but we have now made those adjustments and profits are returning but not to their high three years ago. We anticipate further improvements when a development across the street from us over the next few years will bring roughly 2500 new living units within walking distance and a new streetscape that should also bring more tourists to our front door.

  • Edward W Chainey says:

    A well written article. And we will soon read about even more closings as well.

    I’m afraid as the metaphor is more like “this is the tip of the iceberg” than “the bubble will burst.” Bursting bubbles evoke total deflation and that is not going to happen.

    However, the market cannot support continued growth in skus – whether they be seasonal brews, one-offs, brand extensions, package extensions or new entrants into the marketplace – the shelves are NOT growing along with the number of breweries and brands.

    Even the growth of multi-taps establishments has reached a plateau. After 100 taps the turnover per tap slows meaning people are getting increasingly older beer – not a good thing. The “we want something new every time we go out” crowd is fueling its own future frustration when economics dictate that no new breweries can survive.

    I started homebrewing in 1978 and have been marketing beer for over 33 years at the wholesale level, and I’m seeing a seismic shift – especially among millennials -in purchase behaviors. Strategic Target Marketing (or the similar) is going to be the watchword on the lips of successful beer makers & marketers in the coming decade.

    And those who don’t know what that means will be crying in their beers – or more likely – somebody else’s beer.

  • Breweries can’t sit back and hope their beer will sell itself. It is market driven and borderline entertainment. As a craft beer purist, I was always skeptical about the long term success of a brewery when their social media tauted what food truck was coming, trivia nights, painting classes, yoga and beer, live music. And never anything about their beer. It’s becoming who has the biggest party, and not the best beer. And oh ya, most craft beer consumers are not purists, but 20 something, 30 somethings. If you don’t have a corn hole pit, you’re doomed.

  • James Weber says:

    The breweries will not be able to compete against legal recreational weed. A shake out of biblical proportions is in the offing.

  • John D Navin says:

    In Washington State, Beer is big business with micro breweries popping up in every town, I just had the opportunity to try one of them in Lake Stevens, WA, (Lake Stevens Brewery) couple months ago, a small building brewery that uses the same room as the brewery tasting room with games, trivia night, and with food catering. I walked though the door to a room full of picnic tables and about a dozen patrons, thier beer menu board had lots of styles to choose from, I had thier Amber which tasted very good, my point is with this, I see the local community supported micro breweries are growing in the small towns all around my area, they all become the pride of the town and supported by the local beer drinkers growlers in hand.

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