The biggest leap in new microbrewery openings happened between 2013, when more than 300 opened nationwide, and 2014, when more than 600 began operation, according to data from the Brewers Association. It was a frenzy of growth as existing breweries expanded, new breweries opened, and everyone wanted a piece of that red-hot craft-beer action. Many people suspected that the growth couldn’t sustain itself at that pace for long, but it was also increasingly difficult for breweries to forecast for the long haul while capturing as much of that opportunity as possible. No one likes to leave money on the table.
That is one reason why, as the rate of growth and new brewery openings has started to level off in recent years, the number of brewery closings has increased slightly. There are signs of contraction and consolidation throughout the industry, and some breweries are finding themselves overextended and exposed.
Behind the Eight Ball
“Craft brewing is in the midst of a serious shake out, and there’s blood in the water,” says Ken Lewis, founder of Ei8ht Ball Brewing Co. in Newport, Kentucky.
Lewis opened Ei8ht Ball in late 2013 as a division of his New Riff Distilling, which makes whiskey and spirits. The beer brand was well regarded regionally, but Lewis ultimately decided to shutter Ei8ht Ball earlier this year and focus on distillation, citing increased competition and contraction in the mid-level tiers of the craft-brewing industry.
“My personal opinion is that the two ends of the spectrum are going to do just fine,” he says. “That'sthe really big guys who can muster the marketing effort and put boots on the ground to really go at retail and be in multiple states, and then the owner-operated brewpubs and nanos that are very local and tied to their communities.
“But if you’re in the middle, attempting to fight for that retail and grocery space and tap handles, then, man, you’re in trouble,” he says. “We were in that massive middle, and I chose not to make any kind of further investment to try to scale up.”
Lewis sold Ei8ht Ball’s brewing equipment to Braxton Brewing Co., a successful regional brand looking to further cement its presence in northern Kentucky and Cincinnati. Braxton also leased Ei8ht Ball’s former location, where it will operate a pilot brewery called Braxton Labs with taproom-only distribution. It’s a strategy that Lewis views as a sound one in today’s shifting craft-beer landscape.
“Dominate your local market and be successful with it,” he says. “Make a nice living, make great beer, and enjoy yourself, but if a brewery attempts to venture too far out there in this hyper-competitive market, they’re going to get their head handed to them.”
Expansion Isn’t Easy
Speakeasy Ales and Lagers, which opened in San Francisco in 1997, made a big expansion push in 2015, right at the height of the craft-beer boom. The brewery overhauled its packaging and brand image, built a much larger brewhouse and purchased new equipment, began brewing more seasonal and one-off beers, and pushed into new territories.
Speakeasy spokesperson Brian Stechschulte says the expansion was spurred by the brand’s massive growth spurt in 2014, which saw a 38 percent increase in business over the previous year.
“At our peak, we were in fourteen states and about fourteen different countries,” Stechschulte says.
The expansion was also fueled by large bank loans, and when the brewery was unable to make payments or to purchase enough ingredients to meet the growing demand for its beers, the bank called in the loan, and Speakeasy was forced into receivership earlier this year. Editor's note: the brewery re-opened in late 2017.
“It’s going to take some time to write the history of what happened here, but it’s a classic scenario that’s been demonstrated in brewing before, where we simply bit off more than we could chew and afford,” Stechschulte says. “To go from a 36,000-barrel capacity brewery to 80,000 or 90,000 barrels, along with the accompanying amount of money that we spent to do it, was just too great.”
In mid-May, Ces Butner, former owner of Horizon Beverage Co. and a former distributor of Speakeasy brands, bought the brewery’s assets out of receivership with plans to relaunch and reinvigorate the brand locally, at first, and then slowly expand from there. “It’s like starting all over again,” says Butner. “We’re most known and most established is San Francisco and the Bay Area, so we’ve got to get those rolling first, and then we’ll go into the rest of California and back into some of the other areas.” The Speakeasy team is looking forward to starting again with a blank slate, while also benefiting from lesson’s learned.
“In retrospect, a more conservative plan probably would have been a more prudent way to go,” Stechschulte says. “To grow at a more manageable pace that you think is more in line with the reality of where the market is headed. But this industry is changing so quickly. It used to be every couple of years something would change, then every year, and now it seems like it’s month to month.”
When the Creek Runs Dry
For a smaller brewery, no matter how successful, operating on slim margins while reinvesting profits into growth and expansion often means that there’s little left over to weather the unexpected—like when your landlord unexpectedly decides to hike your rent. Steve Jones opened Pateros Creek Brewing Co. in Fort Collins, Colorado, in 2011. The brewery and taproom, located on the north end of Fort Collins’s popular Old Town business core, started off strong, and Pateros Creek’s beers were well received. The bulk of the brewery’s profits went toward purchasing new equipment—including a canning line—in order to increase production and expand distribution.
“We didn’t want to become stagnant, but at the same time we had to be careful in how we grew,” Jones says. “We probably made a few mistakes, like trying to push too hard into bigger markets when we should have held back a little bit and re-evaluated how things were going. But everything was growing so fast, it was hard to tell how things were going to move in the future.”
As the brewery’s debt load increased, so did the competition, and “we were getting lost in a sea of breweries,” Jones says.
Jones decided to sell the canning line, pull his distribution, and refocus efforts on the taproom, “but if you’re already backed up with payments on equipment and other debt and you’re trying to keep the business going when the landlord says that he’s going to raise your rent—it just wasn’t in the cards for us anymore,” he says.
Pateros Creek was given sixty days to vacate the premises, which is not a quick or an easy undertaking for a brewery. Jones auctioned off the brewery’s equipment and focused on moving through his remaining inventory. He also had to be careful in how and when he informed his staff, investors, and customers about the news so that it got out in the right way.
“If we were healthier financially, we might have been able to do something, but even so, they were tripling our rent, which was pretty substantial,” he says. Still, even just a few weeks removed from the process of shutting down the brewery and selling off its equipment, Jones is optimistic about the future of Pateros Creek and is already looking toward a contract brewing arrangement in order to get a few of his core brands back into production.
“I love the punishment,” he says with a chuckle.