Surviving the Stress Test

In recent months, Portland has taken the lead in a new brewing category (one in which locals would prefer to finish last): closures. Breweries have shut down (BridgePort, Alameda, Burnside), brewery pubs have closed (Widmer, Lompoc), and other pubs are in their final days (Growler Guys, Steinhaus). When a big closure happens, local media reach out and ask me if it signals something larger in the beer world. Surely there must be an explanation that links all this bad news?

Not exactly. What lesson can we take from BridgePort’s failure—a brewery that was collapsing even back when the industry was expanding 10-15% a year? Or Widmer, which is part of a company with over $200 million in sales and one of the hottest brands in America (Kona)? Or Burnside, which purportedly had an issue with its lease? The one Portland closure that might fit a convenient storyline is Alameda’s—a middle-aged brewery with a fusty lineup of beers and a dated pub. 

No, with apologies to Tolstoy, successful breweries are all alike, but each failing brewery fails in its own way. Instead of trying to find a thread that links individual brewery closures, I like to think of what we’re seeing as a stress test. For only the second period in its history, the craft beer segment is experiencing flat or negative growth. It’s not catastrophic; the market for domestic lagers is in actual long-term contraction. The market for craft beer is merely soft. That raises the profile of a number of trends and events that didn’t seem significant in that decade of double-digit growth:

  • The skyrocketing number of breweries puts a big premium on retail placement, and;

  • Creates downward pressure on sales prices;

  • Consolidation among wholesalers creates a bottleneck in getting to market, especially for smaller breweries;

  • The fragmentation of the drinks market, the current popularity of flavored malt beverages, and;

  • The decline in drinking overall;

  • Possible pressure from cannabis;

  • A flat market in which growth for one brewery happens at the expense of another;

  • Rising costs due to tariffs, real estate, labor, and ingredients.

This non-exhaustive list doesn’t describe an imminent market crash. Most of these were present three years ago, when the craft segment was expanding. But combined with the flat sales, they make the business of selling beer a lot harder. This is the stress test. In 2014, sales were so robust that breweries could rebound from substantial mistakes. The prospect of future growth made taking on debt less risky. It made running in the red seem like a temporary setback.

That’s no longer the case. The breweries that failed in Portland in 2018-2019 wouldn’t have in 2014. All the pressures I’ve described have laid bare problems businesses could afford to ignore in fatter times—but which are now fatal. Conversely, the ones that manage to survive this period of soft sales will be those breweries that have tight operations, low debt, and solid bases.

(And I do think it’s just a period. Nationally, the craft segment is just 15% of the overall beer market. Even assuming further contraction in the market, it’s hard to imagine craft not ultimately adding millions of barrels as mass market lagers decline in popularity. We’re not at peak craft yet.)

What connects the failures of breweries is not their individual circumstances, but vulnerabilities experienced as a result of this current stress test. Hundreds of breweries will fail that test in the coming couple years (more if the slow times persist). But the remaining breweries will be stronger and more stable when the next cycle of growth arrives.