Craft beer sales have slowed. There have been a few high-profile brewery closure announcements. Even Anheuser-Busch InBev is downsizing (layoffs) their so-called High End, which is made up of all of its 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 Brewing and Hop Valley Brewing were sold not too long ago. And in-state beer sales have slowed or declined for many of the state’s largest breweries. Additionally, a number of Oregon breweries announced they were closing, including Southern Oregon Brewing Co. in 2016 and The Commons Brewery last 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 the Oregon Office of Economic Analysis wrote in our beer report last year:
To date, Oregon brewery failures have been relatively few, although there have been some and more than many may realize. 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.
I think this is what we’re seeing play out a little bit. Now I haven’t done all of 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’s 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 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’s in there somewhere.
Here in Oregon, we’re seeing four or five brewery closures per year at a 2-percent rate. The overall closure rate for all industries across the U.S. is 7 to 7.5 percent, with manufacturing more like 6 percent. In a different data set, leisure and hospitality closures are around 9 percent. At these rates, we’d be talking about 15 to 20 brewery closures in the state 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.
Addendum: While our office talks about the growth in Oregon’s alcohol cluster and compares it with the software industry, one huge difference in these jobs are wages. Software, on average, pays around $90,000 per year, whereas the alcohol cluster overall is about one-third of that. Jeff Alworth, author of “The Beer Bible” and the “Beervana” blog, wrote recently about brewer wages. Alworth cited some third-party numbers, saying assistant brewers make $30,000 to $40,000 per year, head brewers $35,000 to $47,000 and brewmasters $40,000 to $76,000. These are not too far from industry averages seen in Oregon (breweries, NAICS 31212, $37,100). Brewing is a growth industry, it’s value-added manufacturing, it’s traded sector. 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. •