Craft beer, after astounding growth, suffers from growing pains
Jason Notte is a freelance writer based in Portland, Ore. His writing has appeared in The New York Times Follow him on Twitter @Notteham.

Craft beer, after astounding growth, suffers from growing pains

There are no exceptions in the beer industry.

Craft beer is not immune to the business concerns of larger, non-craft brewers. The supply side of the home-brewing industry is similarly vulnerable to an evolving beer industry and the consequences of large-scale business decisions. “Big beer,” craft beer and home brewing fit into convenient little niches of varying social import, but their ledgers look remarkably similar.

There’s been no better reminder of those truths than what’s transpired since Labor Day. At this time last year, Lagunitas Brewing Co. of Petaluma, Calif., sold a 50% stake to Heineken for $500 million. At about the same time, Ballast Point Brewing Co. of San Diego sold itself to Constellation Brands STZ, +1.29%  for $1 billion. Through much of the past year, the overarching beer industry narrative has related to acquisitions by Anheuser-Busch InBev BUD, +0.65% MillerCoors and private-equity interests. However, as U.S. brewery numbers grew beyond 4,700 and U.S. beer sales slumped 0.2%, those acquisitions represented a narrow view of the beer industry’s continued maturation.

That picture broadened considerably earlier this month when Craft Brew Alliance’sRedhook brand announced layoffs at the Redhook brewery in Woodinville, Wash. While CBA mentioned its intent to move Redhook brewing operations to its expanded Widmer Brothers facility in Portland after renewing its Master Distributor Agreement with Anheuser-Busch InBev in August, it failed to mention that the lease of its Woodinville facility to Pabst Brewing Co. wasn’t coming close to meeting that plant’s capacity. As a result, up to 20 jobs were lost.

It comes as no consolation to the workers whose jobs disappeared, but cuts like that tend to happen amid a restructuring of this scale. Despite efforts to reposition and reinvigorate Redhook, which first appeared in Seattle in 1982, Redhook production has dropped by nearly 30,000 barrels since 2013 and lost 16.7% of its production in 2015 alone. While Craft Brew Alliance has bolstered its Kona brand and made brewery investments in both Hawaii and Portland, Ore., it leased the Woodinville brewery to Pabst with the hope of filling production capacity and, potentially, selling the brewery outright in 2018 to complete a regional restructuring plan.

Pabst didn’t quite meet that demand, which left the Woodinville brewery operating at 30% capacity. That’s the risk assumed during that kind of consolidation, which Portland-based beer writer and historian Pete Dunlop explains in greater detail. It’s also similar to what MillerCoors experienced when it realized it had one brewery (and about 349 jobs) too many. The company’s brewery in Eden, N.C., was sandwiched between a growing brewery in Shenandoah, Va., and a larger, market-dominating brewery in Albany, Ga.

When we last checked in with Stone, co-founder and CEO-emeritus Greg Koch was discussing Stone’s plans to for a new taproom in Napa, new breweries in Berlin and Richmond, Va., a spinoff of his Arrogant Bastard brand (including a pilsner that seemed like the “fizzy yellow beer” he once mocked) and a new $100 million brewery-funding venture called True Craft. A month after our discussion, it was revealed that Stone had received $90 million from private-equity firm VMG Partners — which focuses off food and beverage industry investments — and would be lending its name to a hotel.

Unfortunately, the next time we checked in with Stone, it was to confirm rumors that the brewery had laid off dozens of workers. In a statement sent to me minutes after the initial reports of layoffs, current Stone CEO Dominic Engels pointed to “an unforeseen slowdown in our consistent growth and changes in the craft beer landscape” as reasons behind Stone’s decision to “restructure our staff.” Though he blames that slower growth on “the onset of greater pressures from Big Beer as a result of their acquisition strategies, and the further proliferation of small, hyper-local breweries,” all of the above also makes it difficult to proceed with unfettered expansion without taking measures to shore up the bottom line.

However, much like any other brewer, Anheuser-Busch InBev and MillerCoors face stumbles along the way. Even after owning Chicago’s Goose Island for five years, Anheuser-Busch InBev had to issue refunds to customers after batches of Bourbon County Brand Stout from Goose Island’s recently expanded barrel warehouse developed “off flavors” from a bacterial infection. It was embarrassing for Anheuser-Busch InBev — which touts its quality assurance among the benefits of its brewery acquisitions — but it’s an issue craft beer brewers can relate to all too well. Earlier this month, Goose Island’s Chicago neighbor Revolution Brewing announced that it was recalling 10,000 barrels of various beer styles after they developed similarly “off” flavors.

All of the above isn’t the sign of a craft beer bubble, the end of the home-brewing party or even the decline of the U.S. beer industry in general. If anything, it all begrudgingly recognizes that the players in all tiers of the beer industry have found themselves in the same predicament: Running a business in an environment where constant growth isn’t a given and where big decisions are often followed by unintended fallout.




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