Going Out Of Business

Last September, one of the breweries in my town, Toledo, OH, closed. Black Cloister Brewing Company had opened its doors in March 2015. It was located in the heart of downtown Toledo, and was one of the many businesses contributing to the vibrancy of our city center. The announcement that it would close was sad news. In closing Black Cloister was not alone. While we do not yet have data for 2019, we do know that in 2018 a total of 213 breweries closed across the United States. Breweries, like other businesses, close for a variety of reasons. These include a poor location, cash flow problems, expanding too quickly and aggressively, etc.

Black Cloister Brewing Company in downtown Toledo closed in September 2019

To examine the closure of craft breweries from a national perspective, I used data available on the website of the Brewers Association. The data I examined was only for craft breweries producing 15,000 barrels of beer or less. So it did not include the so-called Regional Breweries that produce more than 15,000 barrels of beer annually.

As you can see from the first graph below (green bars), the number of breweries that closed increased each year between 2010 and 2018. In 2010, fifty-four breweries closed. In 2018, the number of breweries that closed was two hundred and thirteen. Indeed 2017 and 2018 seem to have been a bad year for breweries. In addition to the 2018 closures, one hundred and ninety-five breweries closed in 2017. These raw numbers suggest that, year after year, breweries are finding it tougher to stay open.

However, part of the reason why the number of breweries closing increased each year was because there were simply more breweries. So to asses whether breweries were finding it harder to survive, we really need to look at the number of breweries closing as a percentage of breweries that existed. For example, there were 1,525 breweries in the United States in 2009. In 2010, fifty-four breweries closed. The fifty-four breweries that closed in 2010 represent 3.5% of the breweries that were open in 2009. Looking at the second graph, it is clear that the year-to-year variation in the percentage of breweries that closed was very small. The percentage ranged from 2.4% in 2012 to 3.6% in 2017. These data show considerably less variability from year to year.

Another way to look at brewery closure rates is to compare them with similar businesses. This, of course, begs the question as to what is a “similar” business. Many craft breweries are, after all, part manufacturer, part bar/restaurant. A 2014 study of 81,000 full-service restaurants over a 20-year period by Tian Lou of the U.S. Bureau of Labor Statistics and Philip B. Stark of the University of California, Berkeley showed that 17% closed within twelve months of opening. The same study found that the median lifespan of restaurants to be approximately 4.5 years. So it seems that craft breweries are faring quite well compared to full-service restaurants. Having said that, it is probably an unfair comparison. Full service restaurants are a mature industry, in contrast to craft breweries which are still in growth mode,

As a geographer, my interest lies in detecting the existence of any spatial patterns in brewery closures. Along with my colleagues Isabelle Nilsson of the University of North Carolina, Charlotte and Oleg Smirnov and Matt Lehnert of the University of Toledo, we examined craft brewery closures in Chicago, IL, Denver, CO, and Portland, OR between the years 2012 and 2016. One of the things we were interested in investigating was whether being geographically isolated versus being part of a cluster of breweries impacted the chances that a brewery would close. There is evidence from a number of different industries that being part of a cluster (a brewery district) is beneficial. To craft beer drinkers, geographic clustering of breweries inside a city is attractive because it makes it easier for them to brewery-hop, and visit several breweries within the space of an afternoon or an evening.

Our study showed that the brewery closures do not appear to occur where a concentration of breweries exist. Rather, they tended to occur in more residential areas, outside of downtowns. Closed breweries had an average of one other brewery within a one mile radius, while those that were still open as of 2016 had an average of 2.5 other breweries surrounding them. Of the breweries in our analysis that closed, 58% had no other breweries within a mile. Of the breweries that remained open, 26% had four or more breweries within a mile, while 9% had ten or more breweries within a mile.

Bakersfield, CA has an evolving brewery district. Source: Bakersfield.com

Whenever a craft brewery closes in a community, it is not unusual for a local newspaper to run a story that asks whether the local market has hit saturation point with respect to the number of craft breweries. Has the craft beer bubble bust is another commonly asked question. In fact, as I was thinking about writing this blog entry the Virginia-Pilot newspaper reported the closure of Coelacanth Brewery in Norfolk, VA. And the story’s headline read, asked the question – Is the craft beer bubble bursting?” It is a question that has been asked for several years now, in markets ranging from Cleveland, OH to Grand Rapids, MI. More often than not, however, the feeling is that in most markets there is still room for growth. In a piece in Crain’s Business Chicago, Dalton Baker wrote about craft brewery closures and declining craft beer sales in the city of Chicago, IL. Baker describes the Chicago craft beer market as mature, a characteristic that it shares with Denver, CO, San Diego, CA, and Seattle, WA. I think there is no doubt that certain markets are nearer saturation than others. On the other hand, there are places where the market is under-served by craft breweries. The city I live in, Toledo, OH is one of them. It has, I believe, significant room for growth.

In a recently published end-of-decade piece published in Forbes, Chris Funari asked a number of brewers to gaze into their crystal ball and share their thoughts on what the next ten years might bring for the craft segment of the brewing industry. Kim Jordan, Co-Founder of New Belgium Brewing believes that industry will experience a shakeout, which will result in a significant number of brewery closures. The net result will be a smaller population of breweries. Daniel Kenary, Co-Founder and CEO of Harpoon Brewery seems to agree. He believes that the recent growth is “unsustainable” and that “the fast money will try to leave as quickly as it entered” . Tom Wilkes, writing in Beer & Brewing, believes that the future may be brighter for breweries at opposite ends of the size spectrum – small breweries and very large breweries. The small ones can focus on the local market and develop a loyal customer basis from the surrounding community, while the very large brewers have the capital to engage in effective marketing and distribution. But those in the middle, who are “attempting to fight for that retail and grocery and tap handles” may find the future challenging.

Of course, as I sit here today the world is in the grip of the Covid-19 (Coronavirus) pandemic. Across the United States, Governors have ordered bars and restaurants to close temporarily as part of the efforts to minimize the spread of the virus and flatten the curve. With their taprooms closed, craft breweries are offering curbside pick-up and home delivery. The impact on sales is potentially devastating. For some breweries, that were already struggling, this represents the final nail in the coffin, and closure has already been announced. Depending upon how long restrictions associated with Covid-19 last, 2020 could be a record year for brewery closures.

Further Reading:

Nilsson, Isabelle, Oleg Smirnov, Neil Reid, and Matthew Lehnert. 2019. To cluster or not to cluster? Spatial determinants of closures in the American craft brewing industry. Papers in Regional Science, Volume 98, Issue No. 4, Pages 1759-1778.

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