By Michael Agnew, A Perfect Pint
These are busy times for the brewing industry. Growth is happening exponentially, something akin to the inflationary epoch after the big bang when the universe expanded by a factor of 1,078 in a fraction of a second. The Brewers Association, an industry trade group, released figures in June of last year showing that the US had topped 2,100 breweries, the most since 1887. According to a graph that accompanied the announcement, growth since 2009 approaches that of the entire period from 1980 until 2009. The number of breweries in planning, they said, was over 1,300. Given my experience trying to track new breweries in the Midwest, I promise you that 1,300 is an underestimation.
For those who don’t know, I am nearing completion of a guidebook to breweries in four Midwestern states – Minnesota, Wisconsin, Iowa, and Illinois. Although, given all the new breweries that keep popping up, I’m not sure “completion” is the right word to use. By the time I turned in the final manuscript to the publisher, the book was already out of date. Over a period of two years I attempted to visit or interview every brewery in those four states. I began in December 2010 with a list of 165 breweries; by December 2012 it was at 234 and counting.
Contemplating the Saturation Point
There has been considerable speculation on blogs and forums about when the market will hit a point of saturation – that moment when the number of breweries and the volume of product exceeds demand. I don’t think we are near that point. Examining the Brewers Association numbers cited above, the brewery count in 1887 was 2,011. But the US population was only around 60 million, meaning there was one brewery for every 29,835 people. In June 2012 the population was approximately 213 million. A brewery count of 2,126 gives one brewery for every 100,188 people. Also, beer consumption is much higher now than it was then: 30.6 1 gallons per capita in 2012 compared to only 6.6 gallons in 1875 2. I think the nation can support a few more breweries.
Even looking locally we probably haven’t reached a point of saturation. Let’s compare Minnesota to Oregon and Colorado, beer-friendly states with similar populations. Oregon’s estimated population in 2011 was 3,871,859 3. With 165 operating breweries, that’s 23,465 people for every brewery. Colorado has 161 breweries and a population of 5,116,796 3, or 31,781 people per brewery. Minnesota, on the other hand, has only 48 breweries serving 5,344,861 3 people. That’s 124,299 people for every brewery. Think there’s room for more?
While I’m not worried that the industry has reached an ultimate point of saturation, I do have some concern that the rate at which breweries are multiplying may be outpacing the growth of the market. More and more breweries are competing for a slice of a basically stagnant pie. Something has got to give. The first eight months of 2012 saw overall beer sales rise by just 1.9% 4– that’s after two straight years of declines. Sales in the so-called “craft” segment rose 12% in that same period, but still account for only 6% of total beer sales. I don’t have similar sales figures for just the Midwest, but compare 1.9% and 12% national sales growth to a two-year increase of 41% in the number of breweries in the four states I covered. You see the cause of my concern.
Colorado and Oregon didn’t get where they are overnight. Oregon has been at it for 30 years, Colorado for at least 10. They’ve had time to build the market. In Oregon, “craft” beer accounts for something like 30% of sales. I do expect that the share of sales going to small breweries in this region will continue to rise as more and more drinkers for whom good beer has always been a given come of age. But unless it increases quickly, some kind of temporary correction may be inevitable.
The Rise of the Nano
One thing that’s fueling the skyrocketing brewery tally is the arrival of nano-brewing. I define “nano-brewery” as one brewing on a system capable of producing batches of 3 barrels or less. Twenty-one nano-breweries have come online in the region in the last 6 to 8 months, and many more are waiting in the wings. Several others are brewing at levels just barely above my 3-barrel limit.
There are many reasons for people to go the nano route, but the main one is cost. Starting up a moderately-sized brewery – say 15 to 20 barrels – is a half-million dollar proposition. Financing can be difficult to come by these days, particularly if the would-be brewer has no formal training or commercial brewing experience, which is the norm for the nanos. You can get started on the nano scale for roughly the price of a new car: with $35,000 and an 800-square-foot space, you’re off and running.
Some use nano-brewing as a means to build a brand on their way to bigger things. It’s an alternative to the contract brewing route taken by Fulton Brewing and others. Brewing on a tiny scale lets them maintain control of their ingredients and process in a way that contract brewing does not. They can tweak and test recipes while developing a track record for the business. With a proven product the brewer can approach banks and investors for financing. Not a bad plan if you can make it work.
The problem is that it’s virtually impossible – or at least very difficult – to make money at the nano-scale. Anyone familiar with the industry will tell you that beer making is a volume business. With larger scale comes greater efficiency. It takes about the same amount of time to brew 10 gallons as it does to brew 10 barrels, though obviously at 10 gallons the man-hours per barrel are significantly higher. Bigger batches and more sophisticated equipment also bring better utilization of ingredients, energy, and water. Again, this means higher cost for the small-scale brewer. People will say, “It’s all about the beer.” But you have to be able to sustain the business to keep making the beer.
So how do these nano-brewers expect to make it work? Most admit that they don’t expect to give up their day job any time soon. Some cite the higher profit margin that comes with selling beer exclusively from a brewery taproom: it may cost them more to brew the beer, but they realize a bigger profit on every barrel sold. Others wax poetic about staying local and establishing themselves as the neighborhood brewery, only distributing to a small number of nearby accounts. In either case, if the beer meets with even moderate success, they will have to brew constantly to satisfy demand. This is a problem even for bigger brewers – think Surly and their “destination” brewery. An arduous brewing schedule coupled with a full-time job is a sure recipe for burnout.
It’s not impossible to make it as a nano. Worth Brewing Company, just south of the state line in Northwood, Iowa is a case in point. Owner Peter Ausenhus brews 10-gallon batches and sells exclusively from his taproom. He’s managed to survive and make money since 2007, but he admits that his wife’s full-time job helps relieve the pressure. He doesn’t have to support his family on proceeds from the brewery.
Maintaining quality and consistency is another problem that nano-brewers face. It is certainly possible to make great beer on a small scale; it’s much harder to make the same great beer barrel after barrel. This is not to say that big breweries are always consistent, there are good and bad brewers at every level. But the very fact of getting 20 kegs to a batch, as opposed to one keg, makes it far more likely that every keg will taste the same. Not to mention the greater process control that comes with better equipment. For the nano-brewers, attention to quality has got to be job #1.
Quality should be every brewer’s primary goal. There is a saying in the industry that “a rising tide floats all boats.” But there is also fear that one bad apple really will spoil the whole bunch. As breweries continue popping up, an increasing number of slices will have to be cut from a slowly expanding pie. If brewers are to keep the market growing, every consumer experience has to be a good one. As beer drinkers are given more and more choices, those with a lesser-caliber product will likely be the first to fall out.