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The Changing Face of the Beer Industry
Craft beer’s 401K
In the early 1980s, American craft beer pioneers dreamt of nothing more than producing a few beers that broke through the monotony of humdrum, mainstream lagers. They were a group of men and women who had traveled through Europe and had their eyes and mouths opened by local beers, or who had ventured to brew their own beers. For these early entrepreneurs, the future was uncertain, but filled with hopes of building a few-hundred- or even thousand-barrel brewery.
Fast-forward two decades, and things have changed beyond anyone’s greatest expectations. Once top of the pops, America’s largest breweries are now reeling on their back heels; once considered little more than a gimmick, craft beer has enjoyed startling success.
As the beer industry has aged, it’s both matured and evolved. From slow infancy to its turbulent teens, the industry is now experiencing the complications of adulthood. What started as a fun experiment for some has led to some pretty high stakes. Hobbyist basement systems costing a few hundred or thousand dollars have been succeeded by gleaming new brewhouses costing a few hundred thousand: The craft beer business is hardly just fun and games.
Times are changing quickly in the American beer marketplace, and they’re not going to slow down anytime soon. In response to double-digit growth, breweries recently producing 10-15,000 barrels per year suddenly produce 75,000 barrels per year, and have tank space capacity for many times more. To meet market expectations and changes, these brewers have traded sore backs for aching pocketbooks.
We are thankful that times are good right now and that despite a weak economy and financial hardships, craft brewers are not yet seeing a reversion to old buying habits. But the nature of the industry itself is also changing in other ways. Many craft beer pioneers are now elder industry statesmen. Fritz Maytag bought Anchor Brewing 43 years ago; Ken Grossman started Sierra Nevada 28 years ago; Jim Koch toted his briefcase from bar to bar 24 years ago. Beyond these well-known figures, many founders of regional breweries have been toiling in the brewhouse, glad-handing distributors, and hawking product every weekend at beer festivals for more than 20 years now. For these hard-working individuals, vacations are few and downtime almost nonexistent.
And as with any other hard-driving profession, it eventually wears you down. Between high debt levels and decades spent building up their companies and employees—not to mention the disappointment that would be felt by their loyal customers they’ve worked so hard to gain—these brewery owners can’t just walk away. And so we must look to a future that surely holds corporate shakeups and one where change will be a constant.
The Old Dominion Brewing Company of Ashburn, Va., for example, is representative of stories we will continue to hear. Founded by Jerry Bailey and other investors in 1989, the brewery was a pioneer in the mid-Atlantic region. After nearly two decades of work, however, Bailey and others were ready to leave the business. They tried for years to sell to other craft brewery owners, but with no success. Then, in 2007, they sold Old Dominion to Coastal Brewing, a joint partnership between the Fordham Brewing Company and Anheuser-Busch. After making a run at it for a year, the group recently announced it will close the brewery’s pub, and Old Dominion’s future operations as a stand-alone brewery remain in question.
The Old Dominion case, while extreme, is a cautionary tale for the industry and consumers alike. Craft breweries are run by people, not corporations, and these folks can’t continue in this tough business forever. Shareholders eventually want their initial investments back, owners want to retire, and if they don’t have kids ready to take over the business, endgame options remain limited. Consolidation, either with other craft breweries or with larger brewing corporations, will likely be the norm, not the exception. And while we can all appreciate how far craft beer has come since its early days, it’s worth contemplating the business realities that lie ahead. ■