Flameout: Breweries Come and Go, Even in a Growing Market

Feature by | Dec 2014 | Issue #95

Illustration by Lily Padula

The Shenandoah Valley wasn’t sure what to make of Calhoun’s back in 1998.

Brewmaster Eric Plowman’s operation was a curiosity in rural Harrisonburg, where feed towers form the skyline and brass turkeys stand sentinel on the edge of town. Poultry farmers stopped in to admire the shiny 10-barrel system behind the bar, gawking as students from the state college walked out with 2-liter brown “jugs” of the brewery’s Smokin’ Scottish Ale, which took gold at the 2004 Great American Beer Festival.

Things are different now, of course. The town of 50,000 will have multiple breweries by the end of the year, the newest, Pale Fire, launching with a hoppy Pale Ale and an American-style hoppy Saison. The town also has two serious beer bars including Capital Ale House, a 100-tap pub occupying Plowman’s former space. Despite helping usher the modern era of beer into a region that now includes breweries like the acclaimed Devils Backbone, Calhoun’s closed in 2011, joining the almost 50 percent of brewpubs that have drained their fermenters for good in the last three decades.

Ask Plowman about it, though, and he’ll tell you he was one of the lucky ones. “I had a really good run,” he says. “But it’s a tough business.”

There’s no question beer is still growing. At the end of July, Brewers Association economist Bart Watson counted 3,084 breweries in operation around the country, with another 1,500 or so licensed but not yet brewing. At first glance, the numbers suggest a thriving industry. While the majority of restaurants—studies suggest anywhere from 57 to 90 percent—fail within three years, more than half of the brewpubs, and an impressive 76 percent of breweries that opened after 1980, are still in business today.

But those statistics are buoyed by the explosion of new breweries in the last three years. When you remove them from the equation, slightly better than half of breweries and brewpubs make it. And consider this: If those figures hold true for the 836 new breweries the BA counts between 2010 and 2013, approximately 350 will close by 2016. It’s a shocking number that makes sense after asking the people behind recently shuttered breweries about the challenges they faced.

The Law Won
Before he went pro, Sam Sorrells spent two decades as a homebrewer. It’s a hobby he took up when homebrewing was still illegal in his native Mississippi. Then, in May of 2013, after years of encouragement from friends and four years at a brewpub—but without a dollar of outside investment—Sorrells opened Gordon Creek, Mississippi’s eighth craft brewery. In August of 2014, that number dropped back to seven.

“We had X amount of dollars and when that was gone, it was time to close up shop,” he says. “I’ve heard people say, ‘If you go in with an exit strategy you’re not all in.’ I don’t think that’s true. You have a business plan and part of that business plan is when to get out. We were undercapitalized, but if we’d had more money it would have just put off the inevitable.”

Sorrells is thoughtful on this topic—he works in IT, and never quit his day job for the brewery. He also has a pretty good idea what went wrong, starting with Mississippi’s laws, which, he says, favor large outsiders.

In Mississippi, like many states, a three-tiered system keeps makers, distributors and sellers separate. The latest push for change was rejected by the state legislature earlier this year, meaning breweries still can’t sell their own beer on site, by far the most profitable avenue. Breweries in Mississippi also can’t sell directly to bars, leaving them at the mercy of distributors. Gordon Creek was in Hattiesburg, 90 miles from the state’s largest city, Jackson, and the Gulf Coast tourist enclaves.

“We really needed Jackson and the Coast. Both distributors there put us off because they had guys like New Belgium coming to town,” Sorrells claims. “They don’t have to carry our beer, they can pick us up at their discretion. If I could have just driven down there and sold our kegs, we’d still be in business.”

If there were taps to be had, that is. Not long ago, a local bar or restaurant was probably willing to take a risk on kegs from a hometown brewer. But with seven other craft breweries in Mississippi and established West Coast brands moving in, Sorrells found no room. “Local doesn’t mean what it used to mean, and a lot of people are thinking craft is as good as local,” he says. “I wish it was more like England, where beer is very local. It only travels about 100 miles, that’s it. They’re not trying to take over the world.”

Part of the problem, Sorrells says, is that larger craft breweries have more products than ever before—collaborations, barrel-aged variations and riffs on the IPA. Sam Adams currently has 50 beers in its catalog. Companies like Stone, Sierra Nevada, Widmer and Deschutes all have a dozen or more. “To a little guy, those midsize guys, New Belgium, they look pretty big to me,” he says.

Say No to Nano
Brian Lethcoe still hasn’t made peace with his experience opening Nibble Bit Tabby Brewery on the gritty edge of Los Angeles in 2010. The brewery closed a year later after bitter feuds with his business partner, constant struggles with the city and the challenges of scaling his homebrew recipes up to commercial batches. Three years later Lethcoe is still looking for full-time work and is more than a little jaded.

“I’ve thought about it a lot, and there’s three reasons I figure kill breweries: bad business partnerships, bureaucracy and not putting out a good product,” he says. “A bad product will kill it every time.”

Lethcoe started homebrewing in 1994 to fuel his college parties, and decided to open his own place because other breweries weren’t hiring. After launching Nibble Bit Tabby, his biggest problem, he says, was his business partner, who he describes as “very difficult to work with.” Then there was the city health department, which didn’t seem to know much about making beer, but wanted to offer lots of input. Finally, there were the brewing challenges.

“It’s an unbelievable amount of work compared to homebrewing,” he says. “All the bad habits you develop as a homebrewer, you’re going to carry those through to commercial brewing unless someone breaks you of that. People romanticize it, but when it comes down to it it’s work, and it’s a business that has to be profitable.”

Today, he frequently gets people from his homebrew club who’ve thought about going commercial with a nano. As an unpaid consultant, he’s heard business plans involving 16-hour brew days to move three batches through a small system and other seemingly unworkable scenarios. “Everything they’re saying, I did,” he says. “People get this blind eye to it and they think some magical thing is going to happen. You tell them the truth and they don’t want to hear it.”

And even if they are successful, thriving urban breweries can cause other problems for themselves. Urban planners who want to draw people to beleaguered neighborhoods prize brewpubs, and first-wave beer businesses like Great Lakes in Cleveland and Harpoon in Boston are cited as models. But there can be a cost. Brooklyn Brewery’s founder Steve Hindy has said he worries his company will be forced from its home in the now hip Williamsburg neighborhood, telling USA Today that Brooklyn “sowed the seeds of our own demise.”

Across the East River, rising rent forced Manhattan’s Chelsea Brewing to shutter at the end of its 20-year lease, signed in 1994 when the neighborhood was industrial and the nearby High Line was slated for demolition. It’s currently looking for a new location in an outer borough.

A Brewing Tree
All told, Eric Plowman is pretty happy with how things worked out. For 13 years he lived his dream of brewing beer, then sold his space to a Richmond-based taproom chain that replaced Calhoun’s with a fancy beer bar that has a dress code and an $8 pretzel imported from Germany. “I always loved brewing beer, but with a brewpub business model you have to also run a restaurant,” he says. “Everyone should run a restaurant—for a year. They’ll understand it takes a very special kind of person to do that.”

Plowman has moved on, launching a new project called Hardside Cider in the countryside outside town. “It reminds me of beer when I got into it,” he says. “It’s still very new, and small, and everyone helps everyone.”

And his influence continues at Pale Fire, opening a few blocks away from his old space. The company is a partnership between Jamie Long, a former lead brewer at Flying Dog, who went to the Siebel Institute, and Tim Brady, who was Plowman’s assistant at Calhoun’s for seven years before moving into sales for a Virginia distributor. They say Pale Fire has one big advantage: a new state law allowing breweries to operate tasting rooms and sell pints.

“I think they saw how well that works with wine so they allowed brewers to do it,” says Brady. “It’s been a total game changer. We don’t have to run a restaurant and can focus on brewing, which is what we want to do.”