Notes from Nashville, Part 1: The 2018 CBC and the State of the Industry address

Photo: Brian Brown/Beer in Big D.

The shifting sands of the craft beer landscape were a topic of much discussion last week, as industry players met for the Brewers Association's (BA) annual Craft Brewers Conference in Nashville, Tennessee. Key issues at hand included the inevitable economic slowdown, a subject that gave rise to conversations on how current and future breweries can best position themselves for the coming headwinds.

Speaking on the "State of the Industry," Bart Watson, chief economist for the BA, detailed declines in pricing and volume growth, while also providing perspective on the outlook going forward.

"Total beer was down 1% in 2017, whereas the craft market was up 5% by production volume," said Watson. "Looking at growth over time, we had double digit growth rates for six out of ten years, but we've settled into a longer-term growth pattern in the mid-single digits. That might be disappointing, but I think this is more realistic as a long-term growth rate and is something we should come to expect."

Slower growth is one reason 2017 saw an uptick in closings, with 165 such events being the highest number seen in the modern craft era. That's less than 3% of the entire industry, though, and less than the nearly 5% closure rate observed in North Texas alone (three closings out 65 local brewing operations during 2017).

Despite these closures, Watson pointed out that there are still a lot of people looking to open a brewery. The BA recorded 997 openings in 2017, bringing the total number of breweries operating all or part of last year to 6266. And, more are coming. Based on TTB data from the end of Q1 2018, there are nearly 9200 active brewing permits in the U.S.

So, how best to compete in such a crowded market? A panel of industry veterans offered their two cents on how to maintain focus in the face of the craft beer headwinds.

• Eric Ottoway, CEO of Brooklyn Brewery: "It's not headwinds, it's reality. Until about two years ago, we were living in la la land. It didn't matter what you did, you opened your doors and grew 25% a year automatically. That's not reality. Now, reality is settling in and all of us have to [realize] we've got businesses to run."


• Laura Bell, CEO of Bell's Brewery: "As we start to look at the shift in the industry, we remind ourselves is that it's not enough to be a great brewer. The headwinds are forcing us to be really good business people and to really think about business from a strategic planning perspective versus just making great beer."


• Chris Cramer, CEO & co-founder of Karl Strauss Brewing Co.: "We've been around long enough to see down cycles before. One of the things we learned from the 1990s is that you have to have a strong business plan, you have to have capital sufficiency, and you have to focus on those things that make you important to your core customers."


• Natalie Cilurzo, co-founder and president of Russian River Brewing Co.: "Pay attention to what your customers are asking for and what your employees are saying. If you're making beer that you like to drink and it isn't selling, it doesn't matter. If you're employees can't get behind it, they aren't going to help promote your business and sell your product to customers."


• David Walker, co-founder of Firestone Walker Brewing Co.: "This is not a job, it's a lifestyle, and there are real sacrifices to make. Everybody in the chain needs to be engaged. People you work with, your wholesalers, your retailers and your consumers. It's a little bit of a religion. And if you're not ready for that I would disengage right now. You need to know you are. You need a plan. If you haven't got 2019 in the bag by Memorial Day of 2018, you're reacting rather than being proactive. You need to be positive. Don't diminish others to elevate your brand. Focus on yourself, focus on the beers you make, your story and what you're trying to do."

Adding to those insights, Watson was joined by Paul Gatza, director of the BA, in suggesting that brewers need to find ways to differentiate. Along those lines, Gatza talked about digging into what beer drinkers are thinking. These days, it's not just about drinking the beer anymore. It's about the experience, and if brewers can find ways to elevate the experience (what's new, what's different, blur the lines, blending of beverage categories, macro trends), that may be a way to innovate.

Watson added that brewpubs are one type of place where "experiences" tend to occur. Not only that, great beer plus great food can be a differentiator in a competitive market. It's a thought process that certainly applies to the Dallas-Fort Worth area, considering production breweries outnumber brewpubs in the region more than two-to-one.

Either way, no matter how breweries choose to battle the headwinds, it's all about finding ways to stay in the race. And, like it or not, as David Walker suggests, it's going to be a survival of the fittest.

"I love to run, and there's nothing better than a good hill in a race to sort people out," said Walker. "We're just hitting a hill at the moment. When we get to the other side, we're going to be running next to the people we should be running next to. It's just a natural evolution."

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More metrics:

On being the shiny new penny: Breweries opening since 2014 grew up to 50% in 2017, while breweries that opened in 2013 or earlier grew only about 1%. The message: things are great while your brewery is the shiny new penny, but once the gleam wears off, you'll need to make sound business decisions if planning to be around for the long haul.

Production not reaching capacity: New data introduced tracks the gap between production capacity and actual production. As for how wide the gap is today, the industry would have to grow 5% a year for 12 years to reach capacity. The message: when making expansion decisions, think about whether there are better ways to spend your money in the short term (e.g. quality control, invest in your people).

Style trends: Hoppy styles (IPA, DIPA, Session IPA, Fruit IPA, American Pale Ale) accounted for more than 75% of growth in 2017, with lighter styles (blonde ale, cream ale, kölsch, pilsner, wheat ale) leading among the remaining 25%.