Today is a great day for Part 2 of the State of the Industry report, which like the temperatures outside, will probably be by far the coldest part of this segment.
We are going to piggyback off of the first segment of this article about the ever changing landscape of the craft beer world. Now that we have covered some of the bases as to why this is happening at the moment, we are going to move on to what is going to happen over the next couple of years in the industry.
In general, taprooms that are making high-quality beers are thriving, whereas breweries where the beer leaves a little or a lot to be desired are struggling. A lot of the closures coming up in the near future will help reset the market. This is not always the case though, some breweries that are or were making high-quality beer will go or have gone out of business due to a variety of factors, mismanagement, overextending themselves on expansion ideas, not understanding the market and opening in areas where they can’t do enough volume to be sustainable are all reasons that this happens.
For every one brewery that goes out of business that leaves you scratching your head and saying how did they go out of business? There will be 10 that close, where you go okay that closure makes sense. The beer will always reign supreme in a brewery, and making bad beer will help you shut your doors even faster in the constantly changing landscape of craft beer.
With rising prices, people are going to be less likely to spend $8 to $10 dollars on a bad pint of beer just because it is locally brewed. 10 years ago, you could get away with making subpar beer, people didn’t have the amount of options for locally brewed beer that they have now. 10 or 15 years ago in Michigan, if you opened a small town brewery, there might not have been another brewery within an hour drive of your facility. There was usually little or no competition in the area, and everyone was thriving, regardless of the quality of your beer.
Now with just around 400 breweries in the state of Michigan, there are plenty of other local places where you can get high quality beer for the same price. Breweries are not a new, fresh idea anymore, almost every town in America seemingly has a brewery now. Getting by with bad beer is a much trickier proposition these days.
Another big contributing factor as to why a lot of breweries will continue shutting their doors over the next couple of years, too many places got tied up into the supposed glitz and glamour of the distribution side of things. Quite a few breweries have gotten in too deep with distributors and signed bad contracts where they have completely over extended themselves in the market. Everyone saw dollar signs and instead of growing organically and naturally, they decided to dump way too much money and time into a very competitive market where 99% of the shelf space is occupied by well established breweries and national brand names that are hard to compete with.
Steve’s small town brewing company, with limited resources and a small following, has no business dumping millions into a production facility to try and compete for shelf space with places like Bell’s, Founders, Sierra Nevada, Great Lakes, etc. These breweries have seemingly endless amounts of money to spend on these endeavors, whereas Steve’s has a nice following but spent way too much money playing a game that he has no chance of winning. Steve’s getting into this endeavor was the equivalent of a local tee ball team thinking they can compete against the New York Yankees.
If distribution is your goal in the future, start small, do cans and growlers out of your taproom. Maybe go around and self-distribute to local bars and liquor stores, gain a following organically and naturally. Then maybe down the road, expansion will be necessary and warranted. Remember this, Larry Bell started Bell’s Brewing Company out of a 15 gallon soup kettle, and it took 40 years to get to be the behemoth that it is today. Had he dumped 10 million dollars into a production facility in 1986, Bell’s never would not exist at all anymore and would not have become what it is today.
Probably the biggest factors that will lead to the downfall of a lot of breweries over the next few years is mismanagement and not understanding the brewing industry. There are too many people in the industry these days that hopped in thinking that the industry was a fun way to make a ton of money and drink all the beer that they want.
Over the years, I have heard too many brewery owners saying that owning a brewery is their “retirement plan”. If you got into the brewing industry thinking that owning a brewery was a solid retirement plan and that you could just sit back and watch money pile up with no real effort at all on your part, I hope that this downturn in the industry is a wake up call to you.
As with any industry, if you are not willing to work hard and make sacrifices, you will never succeed. If you own or manage a brewery and are thinking that it is just a jolly good time drinking beer and your only job is to sit around talking to customers and drink beer, there are plenty of breweries that are no longer with us that followed that model of operation.
The owners in this industry that are successful are essentially working 24 hours a day, 7 days a week, they are the first people to arrive and the last to leave on a daily basis and even that is not enough in some cases. The craft beverage industry has to be your life, you have to have a passion for it in order to succeed. Successful owners and managers are constantly engaged in their brewery and its operation, if a problem arises they are always on call. They are never “too busy” to address concerns at their business.
If you are a brewery owner or manager you need to constantly be networking with people in and around the industry in order to have a chance for your brewery to be successful. You have to attend all trade shows, beer events, anything beer related to help get your name and your product out there for more people to see. Sitting around and posting on social media that you released a new beer is not enough engagement or promotion to make your brewery successful and sustainable in the long term.
Over the next few years as the industry corrects itself, the places that will still be around and making beer will have a lot of the components mentioned in this segment working in the right direction for them. We are not operating in 2015 anymore where all you had to have was beer on tap to be successful. 95% of the breweries that will still be around in the next 5 years will have great beer, engaged owners, will constantly be rotating and changing products, a very small or no distribution footprint and a very community focused business model.
In the next segment of this article, I will touch on the future of the industry and talk about the things that will help make breweries successful in the future. Until then, Cheers!
#cheers #brewery #brewerylife #drinklocal #craftbeer #michiganbeer #stateoftheindustry #beer #beerlovers
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