The following is a guest article submitted by Mike Hinkley, Co-owner of Green Flash Brewing Co. on the current state and future of the beer industry.
How big is the jump from being a small brewer with a tasting room to a successful brewery with its products in distribution? Let’s start with the beer. If the beer is less than spectacular, it will be impossible. And even if the beer is spectacular, it’s still a huge leap—like jumping over the Grand Canyon. The marketplace is far more difficult to compete within now than at any time I’ve seen and it’s only getting tougher. To be fair, it may have been harder in the early days of Sierra Nevada and Anchor Brewing, because those fledgling companies were blazing trails. But back then, there was also little competition and macrobrew giants didn’t know (or care) about craft. And there’s no doubt about the hardships of the late ‘90s microbrew crash, as demand for craft beer dried up and overcapacity drove prices down. Even with all that, today’s brewers of all sizes are entering what just may be the toughest and most competitive era ever for selling beer.
When my wife and I started Green Flash Brewing Co. in 2002, our world was so much different. The most glaring difference between then and now is the fact there are so many more breweries today. But that’s really just the result of the bigger change, which is the way craft beer has taken off. After the crash of the late ‘90s, craft remained relatively flat until things began to pick up around 2008. Since then, the popularity of craft beer has risen to levels we could scarcely have imagined. As a result of this boom, the major grocery chains have opened their doors to craft breweries on an unprecedented level. It has been an amazing time and Green Flash has benefited as much as anybody.
During that same period of growth, tasting rooms have become the major, and in some cases, the only source of actual profitable operations for start-up breweries. Early on for us, the tasting room was a nice source of additional revenue and a good way to connect with customers, but it was nowhere near the profit-center that it is today. Back in the day, without access to grocery chains and without a tasting room cash-machine, a brewery had to go into the broad market and grow its brand to survive. Common thinking was that a brewery could break even at 5,000-to-10,000 barrels per year. That proved to be the case for us and many other craft brewery owners from that era who I’ve swapped stories with.
Now we are in the golden age of craft. Tasting room sales are great, the broad market has expanded and the chains can provide volume sales. There are breweries in nearly every neighborhood. Some of San Diego County’s start-ups are building brands with legs in the marketplace and some are crushing it in their tasting rooms, while the best of the previous generation breweries are selling their beers across the country and around the world. It is an amazing time.
But with all of our success, Wall Street has taken notice and come a-knockin’. Now, half of the 50 largest craft breweries either belong to a macro or have private-equity company ownership. Those breweries now have essentially unlimited resources with which to grow and are all concerned with craft market share, something that was never a concern of any brewer smaller than Samuel Adams (Boston Beer Co.) before. “Wall Street Craft” is going to battle over market share with their newly acquired craft breweries, army of MBAs and unlimited resources, so we all best buckle our seatbelts.
Tasting rooms continue to supply the small brewer with staying power. Beyond the revenue, it is where such operations develop their most important connection with customers. But the broad market has never been more crowded, complex and costly to navigate. Chain buyers have stopped taking everything and anything new and local because some don’t sell through fast enough and they have trouble picking the winners across such large geography. Simply put, Wall Street Craft will dominate in the chains, but leave a little room for independents and locals.
In order push past the walls of a tasting room, a brewery has to make consistently spectacular beer, constantly innovate, build their brand and create an organization to support it—all at the same time. This has always been true, but now a brewer has to do it in an incredibly crowded and complex marketplace against tougher and tougher competitors armed with more and more resources. That brewer has to do it while the cost of business continues to rise simultaneous to flat prices. That brewer has to do it while everybody and their brother-in-law are all trying to do nearly the exact same thing at the exact same time.
There is no doubt that some of the Wall Street Craft brands will thrive and grow into the “Super Craft” brands of tomorrow. Some will simply die in that environment and disappear. The best of “Independent Craft” will survive and thrive—some nationally, some regionally and some locally—but what about the little guy trying to make the jump to the big leagues across that analogous Grand Canyon? Can any start-up entering the industry at this point ever expect to make that seemingly impossible leap, or has the book been slammed shut on that chapter of the American craft beer story?