Craft breweries riding out growing pains
Four years ago, the 13 craft breweries in central Ohio were growing at such a clip that Eric Bean, the owner of Columbus Brewing Co., said, “I feel like beer is just falling off the trucks.”
The suds stay on the trucks these days, though they are still flowing at the region’s more than four dozen breweries.
“The falling-off-the-truck part has come to an end,” said Bean, whose company is the largest craft beer maker in central Ohio, “We continue to grow, but we are fighting to get it.”
There are now about 50 craft breweries in central Ohio, after the latest, Somewhere in Particular, opened this month.
At the same time, one of the city’s brewery pioneers, Four String Brewing Co., shut its doors, raising questions about whether the industry is due for a shakeout.
“Based on everything we see on a national level,” Bean said, “we are going to still see some aggressive openings, but we are also going to see some closings.”
Craft beer is no longer a venture for amateurs or fortune seekers looking for the next big thing. It already is a big thing, and like a tree, it continues to get bigger even as some of its branches break.
Through the first six months of the year, U.S. craft breweries produced 5 percent more beer than during the same period the previous year, according to Bart Watson, chief economist of the Brewers’ Association. Overall, beer, which includes craft, was down about 1 percent as mass brands like Budweiser and Miller continue to see their market share shrink.
Though craft is still growing, it is uneven, with the smallest breweries seeing the biggest gains. In Watson’s data, the craft breweries facing the stiffest headwinds are the biggest ones. National brands, like Sierra Nevada, Samuel Adams and Stone, struggle to maintain momentum while local and regional breweries, like Bean’s Columbus Brewing are still finding growth.
“Generally, things get tougher the larger and more widely distributed you are,” Watson said in a report.
Though overall volume growth has slowed from double to single digits, breweries continue to open at historic rates. As of June 30, there were 6,655 breweries in the U.S., compared to 5,562 at the same point in 2017. Close to 3,000 breweries are in some stage of planning, according to Watson. By any measure, there are more breweries open in the U.S. today than at any other time, even before Prohibition.
“The data demonstrate that 2018 is on pace to have the highest number of brewery openings, and closings, to date,” Watson said. “However, even as breweries close, openings continue to far outpace the number that shutter.”
About 3 percent of breweries closed in 2017, he said. This year, it looks to be a little higher, at 3 to 4 percent.
Ohio follows the national trend. The Ohio Craft Brewers Association estimates that 292 Ohio breweries operate today, and there is a chance the state will hit 300 by the end of the year. The OCBA’s number is higher than other estimates because it counts every brewery license, even when several licenses are held by one brewery.
Ohio’s brewery count, according to the Brewers’ Association, a national trade group for craft beer, has grown from 45 in 2011 to 225 in 2017. Ohio ranks fifth nationally in production of craft beer, thanks to big operations like Samuel Adams in Cincinnati and Great Lakes in Cleveland, but Ohio is just 23rd in breweries per capita. That suggests that there is plenty of room to grow at a local level.
To get an idea of what a mature craft beer market might look like, Oregon, with a population of just 4.1 million (Ohio’s population is 11.6 million), has 281 breweries, with 117 in the Portland region alone. The Portland area is a little bigger than Columbus by population, 2.4 million compared to 2 million, and its craft beer heritage is deeper.
Central Ohio’s other peer cities, such as Austin, Texas, and Nashville, Tennessee, have fewer breweries, following the trend that Southern states have remained years behind the Midwest in the craft beer boom. Austin touts 34 breweries in its region and Nashville has about two dozen, well below central Ohio’s 50 breweries.
Craft beer industry veteran Jason Davis, who has worked for Sierra Nevada and Columbus Brewing and now works for Braxton Brewing in Covington, Ky., believes the industry is stronger than ever, but the days of streaking past growth projections are gone.
“You’re going to have some form of settling in the market,” Davis said, “it has been irrational exuberance for too long.”
Davis and others believe fewer small breweries will make the jump to regional or national size. The path to be the next Rhinegeist, a Cincinnati brewery whose beers can found just about everywhere now, might not exist any longer. There simply isn’t any shelf space in stores to sell new beers alongside those from hundreds of other established breweries.
“Distribution is tough now,” Davis said, “and worse by the second.”
So what does a craft brewery do? Stay in your lane, according to Fred Lee, owner of Actual Brewing Co., which is still in its original location in a seedy industrial park near the John Glenn Columbus International Airport.
“We continue to grow and expand and keep our heads down and focus on what we are doing,” Lee said. “I want it to be stable and sustainable, so we’ve tried to limit growth to a predictable rate. We could have grown more if we wanted to, but it could have hurt us.”
Rapid expansion has hurt several large craft brewers, such as Green Flash and Stone, which moved from regional to national, and sometimes international, stature. The investment in new breweries, tanks and people right when distribution growth hit a wall left some players with too much debt to service and too much capacity.
The taproom model, which Actual has stuck to, has provided a better platform for small breweries, said Justin Hemminger, spokesman for the Ohio Craft Brewers Association.
“The small neighborhood brewery model, the taproom-driven model, has the most traction at this point,” he said. “It is more profitable to sell your own beer in your own place.”
BrewDog, the Scottish craft brewer that planted its U.S. headquarters and brewery in Canal Winchester, knows this better than anyone else. The company distributes its beers to stores in several states, but its major business model is opening its own bars and pubs, such as the three it operates in central Ohio. The bars move a wide range of its own beers (along with a few others). It’s a model that made BrewDog the largest craft brewer in Europe, and it now has dozens of bars around the globe.
“With Millennials and Gen Z caring about the story behind their food and beverage, craft beer still has an opportunity at the local/ regional level and taprooms are a good growth option,” said Tim Powell, vice president at Q1 Consulting and a food service industry expert. “I think craft breweries still have a lot of top-line growth potential.”
Bean sees promise in the taproom model, too. Columbus Brewing will add a taproom soon and also has plans for a brewpub. Actual will open a brewpub in Clintonville by the end of the year, giving it another, and more visible, spot to sell its beers.
“The taproom is the most important thing,” Lee said. “It is more important than ever. We have a lot of opportunities for revenue in the taproom and brewpub.”
Craft breweries have also become much more professional as they found growth the past few years. Columbus Brewing had 10 employees when it moved into its new space on the West Side three years ago. “Now, we’re headed to 40,” Bean said. Many of the breweries have begun to operate labs, bought better equipment and ingredients, and added positions like chief financial officers.
“I don’t think any of us realized how hard this was going to be,” Bean said. “This went from a small operation to a significant company very quickly.”
Though it isn’t as simple as it used to be, craft beer is still all about a good time, or at least it should be, Lee said. Growth and expansion, just to chase a number, shouldn’t be anyone’s end game.
“I could sell out, but I want to do things that I want to do,” Lee said. “It’s a business, but some of it has to be what you want to do. The fun stuff has to be taken into account.”