The curtain is closing on the frontier days of craft beer in the southeastern United States.
Sierra Nevada Brewing Co.’s 2012 announcement that it would build an East Coast facility in western North Carolina launched the era of craft beer as economic development in both that state and Virginia. The Chico, California-based brewery was followed by other brewers who built production facilities in the two states amid a rapidly growing craft scene that included two local stars that were acquired by Anheuser-Busch InBev (ABI) as part of its High End division.
Six years later, the growth is beginning to slow, leaving a much more stable and entrenched craft-beer market. These structural changes come at a time of general decline for the beer industry.
“People are drinking less beer per capita,” says Bart Watson, chief economist at the Brewers Association. “Total beer volume has been flat since ABI and MillerCoors were formed. They’ve collectively lost 30 million barrels. If it were not for craft, domestic production would be down even more.”
North Carolina, which won the East Coast facilities for Sierra Nevada, New Belgium Brewing Co., and Oskar Blues Brewery, saw the closure of its MillerCoors facility in Eden in 2016.
“I don’t think it’s just shifting deck chairs,” Watson says. “If you weren’t getting these craft-brewing investments, you’d still be seeing the loss of large brewers and wouldn’t be getting the small-brewer growth.”
Fifteen years ago, North Carolina and Virginia were hardly the beer destinations they are today, although both were beginning to loosen their approaches to alcohol. North Carolina’s 2006 “Pop the Cap” law allowed state brewers to make beer with more than 6 percent ABV. Virginia was beginning to market its wineries and authorized the production of whiskey at George Washington’s historic Mount Vernon estate. In 2011, the states unexpectedly found themselves in competition to land Sierra Nevada’s East Coast facility.
Based on geography, wastewater capacity, workforce, and cultural fit, the company chose Mills River, just outside Asheville, North Carolina. It was soon followed into North Carolina by New Belgium Brewing Co. and Oskar Blues Brewery, both of Colorado, which landed in Asheville and Brevard, respectively. New Belgium built on an industrial brownfield previously home to an unlicensed landfill, fairground, and stockyard.
“We wanted to find a place where the life/work balance could be enhanced by its proximity to ample outdoor recreation opportunities,” says New Belgium Asheville VIPer Ambassador Michael Craft. “We also wanted a location that was close enough to town so our employees could bike to work and our guests could visit using some form of sustainable transportation.”
Virginia began aggressively marketing itself as a landing spot for West Coast brewers, eventually landing four breweries: Stone Brewing, which went to Richmond; Green Flash Brewing, which went to Virginia Beach; and Deschutes Brewery and Ballast Point Brewing and Spirits, both of which went to Roanoke.
Roanoke, a small city in mountainous western Virginia, had been shortlisted both for Sierra Nevada and for Stone, which caused it to rethink its marketing approach. “Sierra Nevada was this ‘aha moment’ on the East Coast of waking up to craft beer. And man, did we take advantage of it,” says Beth Doughty, executive director of the Roanoke Regional Partnership, the region’s economic development agency. “We didn’t know what we were doing on Sierra Nevada, and then through the process we realized, ‘Oh my god, water and sewer really matter to these brewers.’ That’s when we started aggressively contacting breweries.”
The Deschutes and Ballast Point announcements both came in 2016 but couldn’t have been more different. News of the Deschutes search leaked months before its decision where to go, which resulted in a social-media campaign and eventually a large press conference to announce that it would indeed build in Roanoke. Ballast Point’s scouting, however, never leaked, and the announcement was made by email from the governor’s office. Deschutes has held street pubs and opened a taproom in downtown Roanoke, but construction of its brewery remains a couple of years away. Ballast Point built in an existing shell building in an industrial park and already is up and running and producing beer.
State governments now clearly saw beer not as a vice but as economic development. As breweries arrived, agencies and elected officials became more sophisticated. Richmond officials wondered, for example, why it had spent $33 million to land Stone, while Roanoke had needed only $8 million in incentives to win Deschutes.
Homegrown breweries were awarded incentives for expansion as well. Take the example of Hardywood Park Craft Brewery, which is about to open a new production facility west of Richmond. Eric McKay and Patrick Murtaugh first opened Hardywood in 2011, landing in Richmond after previously considering Charlotte for the brewery.
“My feeling was that the whole Southeast was a little behind the curve in terms of craft brewing nationally, but it was catching up,” McKay says. “The laws were becoming a lot more favorable. We felt that Richmond had all the makings of a great beer town.”
In 2012, the Virginia General Assembly passed Senate Bill 604, which allowed brewers to sell beer from taprooms without operating a restaurant. The legislation lowered the barriers of entry and sparked a flood of small-scale brewpubs, while also allowing larger brewers to create a destination for their fans.
Hardywood quickly hit capacity and began to explore building a new production facility. Aided by governmental grants and property tax abatements, it eventually selected an industrial park in Goochland County.
The burgeoning craft-beer scene also caught the attention of industry leaders such as AB InBev, which purchased Virginia’s Devils Backbone Brewing Company in 2016 and North Carolina’s Wicked Weed Brewing in 2017.
AB InBev’s 2017 acquisition of Wicked Weed sparked a major backlash, with several brewers pulling out of partnerships with the Asheville brewery and pubs such as Brawley’s Beverage discontinuing sales of its beer. At least forty-four breweries withdrew from its annual invitational competition in Asheville.
Officials at Wicked Weed did not return emails or phone calls requesting comment, but Devils Backbone COO Hayes Humphreys recalled a similar response when Devils Backbone was purchased.
“It sucked in all the ways I knew it would suck,” Humphreys says. “We knew what to expect, but knowing what to expect is not the same as feeling the brunt of it.” Devils Backbone was established in central Virginia in 2008, and four years later built its first production facility near the intersection of Interstates 64 and 81. Devils Backbone Outpost Brewery has continuously expanded ever since, with its original 30-barrel system giving way to a 120-barrel unit as the company churned out growing amounts of beer to satisfy demand.
Since AB InBev acquired the Virginia brewery, that growth has accelerated. In 2017, it expanded its distribution from six to twelve states and added a 52,000-square-foot packaging plant. Beer now flows from the brewery downhill through a 1,300-foot pipeline to the new plant, where a mechanized line fills bottles, and a robotic line packages kegs at a rate five times faster than the previous version.
“This brewery was built in 2012 with the dream of getting to 30,000 barrels in ten years,” Humphreys says. “We did 10,000 our first year and 25,000 in our second year. We’re to the point now where we’re approaching 100,000 barrels in production.” By 2016, however, the company had reached the limits of what it could do with its own financing, and it began to seek new partners. The AB InBev High End acquisition allowed it to continue to grow, rather than just removing the financial risk of operating at the same level, Humprheys says.
Devils Backbone still is growing by double-digit percentages, but its market expansion has slowed amid new friction.
“I think the bubble’s bursting; it just feels different than people thought it would,” Humphreys says. “When I travel around to different cites, in every city there are a couple of breweries that have closed. Multiply that by all the cities, and there’s a lot of churn. Openings are still exceeding closings, but more breweries than anyone realizes are going out of business now.”
The Southeast craft boom of the past several years appears to be coming to a close. Craft beer accounts for a larger percentage of market share than it did five years ago, but the sector has also become more stratified.
With small brewpubs nipping from the bottom and larger brewers pushing from the top, regional craft breweries are getting caught in an increasingly challenging competitive environment in between.
“The number of taprooms opening up across the country has just changed the landscape of restaurants and bars,” says Deschutes President and COO Michael LaLonde. “People can go down to their local craft brewery, know the owner, be able to have a beer. It’s a major change throughout the country. When you’re dealing with that and with large international brewers who have a huge presence at retail, it’s hard for the middle-tier craft brewers to get placements. That’s been pretty tough.”
Watson, the Brewers Association economist, says regional craft brewers are increasingly forming partnerships, networks, and tie-ins to share resources and take advantage of scale in a way that allows them to reduce costs and maximize profit.
“Growth is still in the tail,” Watson says. “It’s already a very fractured market. Some of this will be driven by demographics and consumer preferences. Brewers will still be able to do okay in small local niches, as long as they’re scaled at the right level. That will nip at the business models of regional brewers, and I don’t see the large brewers getting out of this space any time soon. We’re in for more of the same. At some point, something’s got to give.”
Craft beer hasn’t reached the end, to paraphrase Winston Churchill. As he said, “It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Editor's note: This article was written and published before Green Flash closed and sold its Virginia brewery.