The Maturing Craft Beer Market

I don’t follow these things closely but I was surprised by a recent front page article in the local rag: Bankruptcy: How did Weyerbacher Brewing get to this point?

Weyerbacher seemed to be on a path to success (since 1995…fairly early in the game) and was growing faster than a few dozen other local microbreweries. Sales of approximately $6 - $7 million annually.

In 2014 they invested in equipment to expand their output by 4x at a cost of around $2 million. All the while, 2014 - 2018, the number of “Craft Breweries” doubled nationwide as growth slowed to approx. 4% per year by volume. There’re now 350+ craft breweries just in PA. Larger producers have been sucking up labels and flooding the supply chain of larger retailers and distributors. At the same time, smaller local microbreweries have been competing for a “market buzz” advantage with a limited niche/craft demographic.

So a solid employee-owned company making quality products, found itself with $2 million debt, stagnant sales and the need to fold or reorganize. They appear to have charted a hopeful path back to solvency, including more retail tap rooms, diversification with a micro-distiller partnership, and contract brewing arrangements. It will require giving up control of the company to “investors” (reportedly all lined up)…and their requisite pound of flesh.

Sales and growth opportunities won’t be so easy in a maturing industry. Sign of things to come in the beer marketplace?

RT

Rick can speak better on this topic, but yes the craft beer industry is maturing and competition is fierce, resulting in brewery sales and closures, even in the beer Mecca of Portland, OR. Many Old craft stalwarts are facing declining sales as customers chase the new and novel, AB buys up craft labels and distribution channels, and many of the newer craft breweries could not make the leap to a solid business due to mediocre beer, bad business decisions, lack of distribution, or some combination of those factors.

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Old news in our market. We’ve had a number of breweries close in Portland in the last year, and there are many more out there on life-support. Generally too much debt, and too much concern about growing fast along with not enough focus on making great beer. Combine that with a number of irrational competitors and it’s a tough market.

There are very few breweries run by people who have a real clue about business, and there are plenty of lenders out there that are more than happy to lend you enough to get yourself into real trouble.

The official press release was that they were expecting double digit growth with their pumpkin beers for a number of years and that didn’t pan out, reading between the lines I think the 2 million dollar expansion back in 2014 coupled with intense competition from smaller and larger breweries led to the current sale and BK.

Cheers,

Bud

Expecting double digit growth with pumpkin beers for a number of years proves the point made in Rick’s second paragraph

Richard, you mention employee owned? Did the founders do an ESOP to take cash off the table but funded it with debt to the ESOP repaid by the company? This has caused major issues for companies in the past. I’m under the impressions a lot of breweries have done this.

Breweries can’t make their existence based on the fetish of just one beer. Beer drinkers are incredibly finicky, and the instant a beer goes from rare to common is the moment they stop craving it. The miost important thing a brewery can do is satisfy the market that supports EVERYTHING they do, not just the hot takes on Ratebeer. Makes New Glarus staying in Wisconsin look like the stroke of genius it really is.

I suppose it seems overly simplistic but I’ve found that, over the last 20 years or so, there’s been so much capital available that new or emerging business models multiply like rabbits and their life span is way shorter than in decades past. It’s just over-supply. Witness soft serve ice cream/yogurt… and now I see it happening with poke shops. 5 years ago there were none around here, then it grew to maybe 35-40. Just last week I noticed that my my three favorite ones had turned up DOA. I can’t see how craft beer could be much different, especially with the hard startup costs involved.

Goodbeerhunting.com story

"At its peak in 2014, Weyerbacher sold an estimated 19,500 BBLs, but has struggled to tread water since. Due to lack of funding, Lampe told Brewbound the company made only 11,000 BBLs last year, but is hoping to get back to around 16,000 in 2019, a production level where Weyerbacher resided in 2016 and 2017.

Sales in IRI-tracked grocery, convenience, and other stores haven’t shown much promise over the same time period, hitting a high in 2015 and losing about 16% of volume through the end of 2018. Those sales were led by Merry Monks, a 9.3% ABV Tripel, which sold about three times as much in those stores than #2 Blithering Idiot, an 11.1% ABV Barleywine.

That alone may clue you into broader issues for the brewery, which once relied on its Imperial Pumpkin Ale as a top-three brand. Meanwhile, that beer still finished 2018 as Weyerbacher’s #4 in IRI stores, notable considering that style of beer has been declining in popularity for years.

Weyerbacher has been around for 24 years, and it’s nothing new for a brewery of that age to struggle, though its size is still pretty small compared to peers that are also having a hard time. Weyerbacher’s hopeful solution feels decidedly modern, at least."

RT

P.S. Jdavis: Huh? I’m a wine geek who enjoys an occasional beer (typically nothing above 7 -8% abv nor pumpkin anything). I’ve got a modicum of small business knowledge and was surprised to learn about a local “stalwart” hitting the skids.

A number of breweries have done this that I can think of. In our market, Full Sail did this a number of years ago and recently had to sell out to a private equity firm. Modern Times did this, and now has a negative net worth of more than $10 million.

One of the more popular models in brewing over the last couple of years has been to grow as fast as possible and then sell out to a larger player (most valuations are based on sales). Unfortunately AB-Inbev doesn’t seem to be buying anymore, Constellation had a major hiccup with Ballast Point, and Heineken stubbed their toe with Lagunitas. Fast growth is usually correlated with a decline in beer quality, so the initial growth is often followed by a loss of sales. Add to this the fact that most breweries seem to be under-capitalized so any growth is strictly debt fueled and you have a recipe for disaster.

I’ve been told that there are more than a few breweries for sale in the Pacific NW, many of whom currently have ongoing operating losses. Without buyers (and why would you?), 2019-20 could be a period of significant shake-out in the brewing business.

Rick,
What was the “major hiccup” with Constellation’s acquisition of Ballast Point?

Presumably that they MASSIVELY overpaid for a brand with assumptions of massive future growth that does not appear to be in the cards, and is likely on the decline.

Scott hit it. BTW, Modern Times is pricing their stock offering at the same multiple as the original Ballast Point purchase, despite the fact that Constellation has now written down it value by 20%.

Stumbled on an estimate that PA produces more craft beer by volume than any other State. CA is #2. OR is #9. There’re 7 - 8 craft breweries within 10 miles of my house…and I live in the relative “sticks” compared to Philadelphia or the Lehigh Valley. A number of them are quite good IMHO. It’s hard to imagine how they’ll survive the competition. The local supermarkets started selling beer a couple of years ago (antiquated PA laws)…and every microbrewer is fighting to get their cans on shelves. I’d love to see more but those shelves are also full of:

Ballast Point
Blue Moon
Founders
Goose Island
Kona
Lagunitas
Magic Hat
Terrapin
etc.

I try hard to buy small/local but it isn’t easy to tell unless you know the specific producers.

RT

I don’t know any beer fans that would look for real craft beer at a large grocery chain. In many states the large chains will charge for shelf space (Oregon doesn’t allow this for beer and wine), and the large breweries will buy up all the space. Large chains also have a national or regional manager that needs to approve the product before it hits the shelf. The last thing that I’m going to do is send my beer to f*cking Cincinnati so a Kroger rep can taste it. By the time that gets done, the beer is sold out. So what ends up at the big stores is more “crafty” than real craft.

The really good and cutting edge stuff is gong to be at a bottle shop or maybe a specialty grocery store.

From a craft beer perspective, the best sale is when a customer buys a pint in your Tap Room. The return on this is significantly better than kegs or packaged product. For us, packaged and kegged beer has similar returns. The packaged is slightly better, but a lot more working capital built into it. We sell a lot more kegged beer than packaged beer, but we don’t sell in the large chains…

Rick, for now…the big chains don’t have a lock on the local supermarkets. There are also a limited number of markets and gas stations with beer/wine licenses, usually with a separate cash register and a limit on the amount that can be sold at any one time (i.e.: 2 six packs max). Like I said, antiquated system.

I’m not sure how the local micro-breweries get their products placed on the local grocery shelves…but they somehow do. Maybe only a handful of offerings…compared to 90%+ big brand stuff. But it’s there…for now.

The three local breweries I prefer (Free Will, Funk’s and Sly Fox) all have some placement, but they’ve invested a lot in their tap-rooms and clearly favor that business. Kyle Funk is a bike racer. I’ll have to chat with him about the dynamics of supermarket placement.

RT

Exactly.

You know we sometimes think that our system in Oregon is antiquated, but yours is medieval in comparison!

I am sure that’s largely because of Yuengling (craft - ha!). They also seem not to be counting Boston Beer Company in the Massachusetts total, which might change the #1 spot, but again, “craft” in name only. PA does have a LOT of breweries, though.

Some chain grocery stores may give individual locations a certain amount of free reign, often depending on each manager and how hard they push. There are a couple Piggly Wigglys in Myrtle Beach, most of which are pedestrian, but one is loaded with spectacular hard to get stuff. Here in Charlottesville there are three Krogers within 5 miles of each other and all three have different personalities.
Another problem with chain stores is they will view the rate of sales for ALL beer the same, be it crap lager or craft lager. They will discount the nice beer with a long shelf life equally fast. May sound good at first to the consumer, but an irresponsibly low price at one place ($3 less than what they even sell it for at the brewery per 6pack) can hurt sales throughout a territory. Makes competing stores not want to represent anything there, further decreasing sales and damaging the brand. Lots of breweries have lost the race to the bottom of the pricing wars.