I’ve led this column many, many times with breathless news about the robust state of the craft beer economy. This week is not that.
Some watchers of the industry have said that something between a bloodletting and a minor market correction was coming, and the headlines the last six weeks or so bear that out. The question is where 2018 will fall on that spectrum.
Summit Brewing of St. Paul, Minnesota, laid off about a dozen of its 100 or so employees in the final week of 2017, the Minneapolis Star Tribune reported. The reductions came after the 31-year-old Summit posted an 11 percent decline in production, to about 115,000 barrels. That’s not good when you have production capacity for 180,000 barrels, which means employees and expensive equipment sitting idle.
Summit lost a major contract brewing client this year and in mid-2017 withdrew from distribution deals in six states — Pennsylvania, Ohio, Illinois, Indiana, Nebraska and Michigan — to focus sales on Minnesota, Wisconsin, Iowa and North and South Dakota, which accounted for 97 percent of sales anyway.
Mendocino Brewing Co., which was a pioneer in craft brewing in one of the cradles of the craft beer movement, closed abruptly in early January, an unceremonious end to 30-plus years of history. Mendocino’s brewpub opened in the Northern California town of, no joke, Hopland in 1983, becoming the first brewpub in California and just the second in the U.S. You might remember Mendocino because it sold its beer in Wisconsin — Red Tail Ale and its other labels featured stately portraits of birds — though it’s been years since I’ve seen a six-pack on local shelves. Its website indicates it was still at least trying to sell beer in 37 states at the time of its demise, but not Wisconsin.
Smuttynose Brewing of Hampton, New Hampshire, which was founded in 1994 and sells beer in 26 states, including Wisconsin, is putting itself up for auction. The company opened a state-of-the-art, environmentally friendly new brewery in 2014, but production declined 8 percent in 2016 and 27 percent last year, Brewbound reported, leaving less than half of the brewery’s 75,000-barrel capacity utilized.
“The company’s financial models were based on 20 years of consistent growth but the explosion of microbreweries has led to changing dynamics in the marketplace,” Smuttynose owner Peter Egelston said in a press release announcing the sale that summarized the jitters of thousands of brewery investors from coast to coast. “This dramatic shift occurred just as Smuttynose committed to a major infrastructure investment with the construction of the new production facility.”
Green Flash Brewing, the San Diego brewer that expanded aggressively and built a brewery in Virginia to become literally a national craft brand, announced it was laying off 15 percent of its workforce — 33 employees — and pulling back sales from 32 states, including Wisconsin. Green Flash founder Mike Hinkley told Brewbound that the company’s 18 remaining, mostly coastal states represent 82 percent of the company’s sales. Green Flash opened its Virginia Beach brewery, capable of producing 100,000 barrels when fully built out, early last year. The company told Brewbound it would finish 2017 with production roughly close to its 2016 figure of 91,000 barrels.
All told, that’s a lot of beer people out of work and beer drinkers with fewer choices. And at least on the surface, that’s bad.
But aside from Mendocino — let’s pour out an amber ale in dated packaging for them — these are breweries that will go on. Just not here, or there.
Now, I was not a business major in college, but the Summit and Green Flash contractions seem like pretty sound moves. If I could simplify my business by cutting a few employees and still deliver my beer to, in Summit’s case, 97 percent of my customers, I would.
The common thread to all of these moves is overexpansion. In 2013, when Summit built its $13 million brewery, it was running out of beer for its thirsty markets. It expanded to meet that demand, but apparently added too much stainless steel, square footage and employees.
From the brewery side, it’s tough to know what overexpansion looks like, especially when you’re drawing up plans for that new brewery and your sales team is telling you they’re turning away would-be customers.
But from our consumer side of things, it’s easy. It looks exactly like Green Flash’s beer the last two or three years: Long-ago packaged-on dates and dusty bottles, which is especially problematic with a hop-forward portfolio like Green Flash’s.
When the brewery arrived in Wisconsin in early 2013, I wrote a glowing review of Rayon Vert, Green Flash’s outstanding Belgian-style pale ale that was discontinued a year later. It was by far the most distinctive Green Flash beer, and in its absence I lost interest in the Green Flash portfolio. (By the time Rayon Vert came back last year, rebranded in a 750-milliliter bottle as Baroque Belgique, it was too late.) It didn’t help the brewery that this was exactly the time that so many other breweries that distributed to Wisconsin were catching up to Green Flash with their own quality hop-forward beers.
But there’s a larger factor that makes the notion of building a 50-state, or even a 15-state craft brewery in 2018 a very tall order: We’re drinking local.
The opening line to that 2013 Green Flash column was this: “Even with all the great beer being made in Wisconsin, I still get excited when I see a brewery selling its beer on local shelves for the first time.”
Oof, “Gangnam Style” might have aged better than that statement. It was true then because the breweries that were breaking into this market were usually bringing something distinctive — something no Wisconsin brewery excelled at. For Green Flash, then, I thought it was West Coast IPA; Rayon Vert was a surprise. For Deschutes, it was Black Butte Porter. For Ballast Point, it was Sculpin. Closer to home, there’s Surly with Furious, Revolution with Anti-Hero, Half Acre with Daisy Cutter and Pony, Boulevard with Tank 7.
These are all great beers, many of them gold standards of their styles. But the cumulative effect is that every possible niche is filled — and that’s to say nothing about the beers I really drink the most of: New Glarus, Karben4, Ale Asylum, 3 Sheeps, Central Waters, Lakefront, O’so, and on and on.
So by the time Harpoon, from out east, got here in late 2015, or Bear Republic came back, from out west, their good-to-very-good beer just didn’t matter. We’re 10 deep in very-good-to-great out-of-state beer in nearly every style. And we’re 20 deep in good-to-very-good beer from in-state breweries you just like more because you’ve visited the taproom or your friend knows someone who works there. Or, you know, you’re just going to go to Rockhound or Next Door or Parched Eagle because it’s REALLY local. And you know what, the beer is really good there, too.
So, no, I don’t think these are the first tremors of a reckoning for craft breweries. The Brewers Association’s benchmark numbers won’t come out for a few months, but data from Beer Marketers Insights show craft brewers shipped about 4 percent more beer last year than they did in 2016 — slower growth than we’ve seen the previous few years but not a scary number by any means.
What it is is a return to the way industries usually operate, with winners and losers based on the merits of the way the business is run. If you overextend your operation and find yourself with excess capacity, you’ll have to contract, rather than run into the green field in front of you and expand to Wisconsin and a couple other states.
And you’ll have to really compete here now, not only with national names like Sierra Nevada and Goose Island, and regional brewers like Founders and Surly, but with ever more brewpubs and taprooms that offer a personal touch — Lone Girl, Viking and Lucky’s 1313 — and newer breweries on growth trajectories like Good City, Brewing Projekt and Third Space.
So, so long, Green Flash. I’ll see you when I visit California.