The continuing shuffle of acquisitions, mergers, and reorganization in the craft-beer industry has been a consistent attention grabber in recent years, as larger brewers seek means to grow their operations exponentially, smaller breweries consider their limited exit strategies, and big beer looks for a foothold in craft.
“You can’t help but notice the consolidation pressures,” says Doug Dayhoff, president of Indiana-based Upland Brewing Co., when asked to prognosticate on what we might see in the near future.
“There are some basic laws of business gravity that the brewing industry will ultimately conform to, one of which is that you can’t have an unlimited number of beers available for sale in the off-premise world and that those retailers have to have a return on their investment,” he says. “So, to the extent you’re going to be a packaging and distributing brewery, there is a finite universe of opportunity. Consumers will buy way more craft beer ten years from now than they do today—that’s the exciting part—but the laws of economics still apply.
“On the brewpub side, I think that’s much more flexible and unbound by the finite amount of space. If you’re producing great beers and you do a really good job with customer service, I think there’s always room for another great brewpub. Those are businesses that are not nearly as capital intensive as trying to build the infrastructure of a regional packaging brewery.
“The old adage that you should be able to see your market from the roof of your brewery is still pretty good,” he continues. “There will be very few breweries who are able to sell their broad product lines very far away from their home territory.”
Jay Goodwin, cofounder and head brewer at The Rare Barrel in Berkeley, California, also anticipates less movement among larger distributing breweries and more opportunity at the local level.
“As the number of craft brewers grows, I feel like we’re running out of open spots for the number of wholesale, large regional brewers that the United States can support,” he says. “So the new craft brewers are more likely going to be the neighborhood or the county brewery—someone who’s local and keeps distribution within fifty miles or so of the brewery.
“And those brewers, especially, are going to need to sell as much of their beer as possible directly to the consumer in order to survive and have that business model make any sense at all.”
Firestone Walker Cofounder David Walker, who last year brokered a major merger with Duvel Moortgat USA, foresees the craft-beer industry maturing into something that resembles the diversity of the American wine industry.
“Just as with the American wine market, there will continue to be consolidations and there will continue to be more and more independent brewers, especially on a local and regional level,” Walker says. “I don’t think [craft] is going to disintegrate or morph into something that we can’t recognize. It will have the same heart and the same goals, but it will just get bigger and more diverse.”
Like it or not, he also anticipates incremental degrees of separation between larger regional craft brewers and local breweries in terms of how they’re organized and represented.
“Currently one of the great, satisfying things about the craft-beer movement is that we all speak with one voice, which is the Brewers Association,” he says. “We argue a lot, but ultimately we speak with one voice. I’d hate to see that change, but it’s certainly changed in the wine industry.”
Jester King Founder Jeffrey Stuffings operates his farmhouse brewery on a bucolic patch of land in Texas Hill Country, where he distributes a large portion of his beer directly from the tasting room, much like a small winery.
“I’ve always looked to the wine industry as an example,” Stuffings says. “Last I looked, there were about 7,500 wineries in the United States, and only a relatively small number of them distribute beyond their own [state], county, or their own tasting room. I see beer going that way as well. There will definitely be regional players, but I think there will be fewer of them, and breweries will focus on a specific geographical location and individual tasting rooms.”
While the majority of new breweries and breweries-in-planning are built around that local model, there are plenty of ambitious owners with designs on becoming the next big brewer. But the potential for great reward comes with great risk.
“It’s easy to get caught up with all the potential that you could be the next half-million-barrel brand, but there are definitely going to be some losers in that game,” says The Bruery Founder Patrick Rue. “The constant growth can’t go on forever, and the brewery buyouts are probably going to slow down.
“I see a lot of brewers just being happy with where they are,” Rue says. “It’s kind of like musical chairs: Can you grow to that perfect point to where, when the industry growth slows, you’re going to have the right debt load and the right capacity to do what you do and succeed in the market?”
Greg Engert purchases beer for fifteen different venues as beer director for the Neighborhood Restaurant Group, as well as produces beer at Bluejacket, a Washington, D.C.–based bar, restaurant, and brewery. He wonders why more brewery owners aren’t pursuing a more niche, local market.
“It’s kind of surprising that there are so many production breweries coming out, especially as some of these classic production breweries are doubling down and building two or three other breweries themselves,” he says.
“I know it’s not easy to run restaurants and bars, believe me, but people will never, ever get tired of going to a brewpub and drinking the beers made within those walls,” Engert says. “And there’s such a higher profit margin for beers you brew and sell on-site versus the production method, where you’re creating huge volumes of beers at very low margins and then heading into a scene that is increasingly beyond crowded to try to get shelf space and tap space.
“It’s going to be interesting to see what happens, but I think there will always be room for smaller local breweries that make outstanding beer.”
Perhaps no brewery epitomizes the idea of staying small, even when faced with intense demand, as much as The Alchemist (Waterbury, Vermont). Founder John Kimmich is adamant about his reasons for holding production of its flagship beer, Heady Topper, to 9,000 barrels annually and its distribution to Vermont.
“Isn’t that the best? When you find something that’s great and you can’t get it all the time? Doesn’t that make it that much more special?” asks Kimmich. “That’s what drew people to craft beer in the first place, that idea that it was a local beer and different from everything else.
“Now you see these craft brewers who are having success, expanding, and opening other breweries in distant places so they can cover that part of the country, and that’s fine,” he says.
Just don’t expect The Alchemist to change its business model any time soon.
“We’re not Budweiser,” Kimmich says. “Why would you ever expect us to act like it?”