Craft Beer and the Coming Recession

  Craft Beer and the Coming Recession by Daniel Pische In recent years, there has been no shortage of articles and interviews on the continued expansion of the craft beer industry. While the market continues to expand, an area of increasing attention has been the struggles of well-established brands such as Green Flash and Smuttynose. As more breweries open and the number of closures begin to edge higher each year, I can’t escape this question: what happens when the current competitive environment intersects with an economic recession? As a reference point, let’s take a look at the current period of economic expansion that began after the end of the Great Recession. The Great Recession lasted from December 2007 through June 2009, and was followed by a period of economic expansion that has extended to present day. At the end of 2010, the first full year of recovery following the recession, an estimated 1,759 breweries were in operation in the United States. By the end of 2018, there are an estimated 7,000 breweries operating, a near 300% increase from 2010. I pose this macroview of the economy as perspective for the next question. What happens when the next recession hits and the associated economic pressures are placed back on consumers? As of February 2019, the current period of economic expansion is entering its 116th month. The longest period of economic expansion to date is 120 months. This is not to say that the next recession heralds doom for the craft beer industry, rather that it would amplify challenges already present. Between the ever-growing number of breweries and increased capacity at many prominent of producers, competition comes from the bottom, the sides, and the top. The bottom represents new, up-and-coming breweries who are looking to carve out their footprint. The sides represents the out-of-market breweries whose increasing capacity will require them to expand into new markets. Finally, the top represents larger breweries already in market with greater production capacity and capital. Regardless of how strong the economy or a specific industry is, any business owner can confirm that even if times are good, they are never easy. As we enter 2019, I believe there are measures that can be taken now to help the business for whatever challenges lay ahead. Finding your Place Amongst Parity: We live in a golden age when it comes to the availability of excellent beer. Prior to moving to Miami in late 2016, I use to live down the street from the Beer Temple in Chicago, IL. My work takes me back to Chicago regularly, and every time I stop in at the Beer Temple, I am amazed at the selection of beers just sitting on the shelves. For me, coming back to Chicago and visiting bottle shops is like stepping out of a 2016 timewarp. Just a few short years ago, I remember seeing Facebook posts about new bottle releases and then jetting out of my office to try and beat out the enterprising entrepreneurs following the trucks around the city. Today, those beers and many that are better can be found on shelves, with not a truck chaser in sight. I believe the simple reason for this is the volume of quality beers seeing distribution. Coupled with the limited offerings available as brewery only releases, there is no shortage of quality offerings in most communities. This parity is a major factor in the squeeze being felt by breweries across the country. In this landscape, where does your brewery fit in? As more breweries open and the number of available beers available increases, I believe this question becomes even more important. While some breweries focus primarily on specialty offerings, you have to ask where a $40 barrel aged sour or stout fits, when people are more mindful of their spending. As nationally-distributed breweries can offer a comparable product at half the price, what impact does that have on a more price-conscious customer base? If customers focus more on price point, does the brewery have the ability to adjust offerings to accommodate those changes? In a crowded marketplace, I believe narrowly-focused breweries are at risk. When breweries such as Hill Farmstead and Side Project have determined that selling pilsners and hazy IPAs is necessary, that is something to take note of. Focus on the Customer Experience: When it comes to limited beer releases, lines are a reality, but hours-long lines are a choice. In a landscape of increasing competition and market parity, customers will inevitably come around to this fact. In 2018, there was no shortage of stories about beer releases with overnight lines, with some even receiving local news coverage. What happens when consumers begin to ask why this sale was not conducted in a manner more respectful of their time? Justly or unjustly, breweries who are fortunate enough to have to deal with considerable demand for their limited releases will be judged on how they manage the sale process. While I often believe this criticism to be misplaced, it remains nonetheless, and must be managed accordingly. In reviewing the ways that bottle releases were run in 2018, I would like to highlight two breweries who did excellent job in terms of the experience they brought to their events and regular releases. In-demand breweries are in a difficult position, as they have to both manage their production of product as well as the expectations of the market. For this review, I will consider a pair of breweries who have done an excellent job of managing releases on a local level, as well as a market level. Voodoo Brewing (Meadville, PA) has built a nationally recognized brewery in Western Pennsylvania. Combining their production facility in Meadville with satellites spread throughout the state, Voodoo has built a loyal following, as well as national attention for their Barrel Room Collection. I find their management of the Barrel Room Collection to be beautifully simple. With seemingly no advance notice, Voodoo will release bottles periodically throughout the year, with pickup options…


May 2019
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