Tag Archives: New Belgium Brewing

Craft Beer and the Anxiety Economy

On a recent trip to my local grocery store I picked up a 6-pack of Run Wild IPA. I drink a lot of IPAs, so this was not a particularly unusual choice. Except that it was – this particular IPA was non-alcoholic. It was brewed by Athletic Brewing Co. If you are unfamiliar with Athletic Brewing Co., they started out in Stratford, CT in 2017. They grew quickly and today are the 13th largest craft brewery in the country – quite impressive for a brewery whose beer is all non-alcoholic. Such has been their success that they closed down their Stratford brewery and opened new ones in Milford, CT and San Diego, CA. Their success is indicative of the growing popularity of non- and low-alcohol beer in the United States. In 2021, sales of non-alcoholic beer increased by nearly 32%, while sales of low-alcohol beer grew by 4.5%. The Alcohol and Tobacco Tax and Trade Bureau defines a non-alcoholic beer as one that contains less than 0,5% of alcohol by volume. So, what was I doing, purchasing a non-alcoholic beer? Well, recently, I have been consuming quite a few of the IPAs from New Belgium’s Voodoo Ranger series. Those I have been drinking have generally come in at around 9% ABV. Personally, a couple of these are sufficient for me in one sitting, so I thought that having a non-alcoholic option for my third and fourth beer might not be a bad idea. An added bonus, if you are trying to watch your calorie count, is that Run Wild IPA only has 65 calories.

Enjoying a Run Wild IPA from Athletic Brewing Co.

After I purchased my Athletic 6-pack I was surfing the internet when I came across an NPR article on the increased popularity of non-alcoholic beers. As I was scrolling through it, a term that I had never heard before – the “anxiety economy” – caught my attention. According to NPR, the anxiety economy is a catch-all label for “for a set of products — like meditation apps, squishy stress balls, self-help books and online psychiatry services — that are benefiting from increasing numbers of folks striving for lower levels of anxiety and better physical and mental health.” Apparently, anxiety, or at least awareness of it, is on the rise and a whole industry has evolved to meet the needs of those suffering from it. A 2018 study by the American Psychiatric Association found that the national anxiety score (which ranges from 0-100) stood at 51, a five-point increase over the previous year. In particular, Americans were anxious about their health, safety and finances. And this was before the onset of COVID-19. Not surprisingly, the COVID-19 pandemic pushed anxiety levels to new heights. Of course, it’s not just Americans who suffer from anxiety. In Great Britain, around 30% of the population experience an anxiety disorder at some point during their lifetime. Certain groups of people are more likely to experience anxiety than others. For example, people of color tend to be more anxious than Caucasians, people on Medicaid are more anxious than people with private insurance, and Millennials are more anxious than Baby Boomer or Gen-Xers.

The above referenced survey by the American Psychiatric Association found that personal health was a common source of anxiety. In recent years, health consciousness has been a key driver of the growing popularity of non- and low-alcohol beer. A new survey by Nielsen found that close to a third of consumers seek out healthier options – including beer – when they go grocery shopping.  Worldwide, the market for non-alcoholic beer which stood at $22 billion in 2022, is expected to rise to $40 billion in 2032. Folks seeking out non-alcoholic beer are part of what some have termed the “Sober Curious Movement“, while Mark Meek, CEO of IWSR Drinks Market Analysis refers to it as a “moderation trend“. Beer dominates the non/low alcohol segment, accounting for over 90% of sales. An indicator that non-alcoholic beer is becoming increasingly mainstream was the recent announcement that JetBlue would become the first major US airline to offer its passengers non-alcoholic beer. Starting this month (May 2023) JetBlue passengers will be able to enjoy an Upside Dawn Golden Ale while enjoying the view at 30,000 feet. The beer is brewed by (you’ve guessed it) Athletic Brewing Co.

Every year, after the excesses of the holiday season, we have “Dry January”, a month when consumers of alcohol are encouraged to abstain. Dry January has its origins in the United Kingdom and is the brainchild of Alcohol Health Alliance UK, who actually trademarked the term in 2014. Interestingly, Finland introduced the idea of “Sober January” in 1942 as part of its war effort against the Soviet Union.

Not everyone is necessarily onboard with low- and non-alcoholic beer. In a very thoughtful essay for Slate.com, Ian Lecklitner confesses to having a growing vendetta against non-alcoholic beverages. He cites several issues around non-alcoholic drinks, suggesting that they may not be the panacea that they appear. For former alcoholics, the smell (of hops for example) can have a triggering effect. Yet, according to one observer, “those recovering from alcohol addiction are clearly in the target market for non-alcoholic beverages.” Lecklitner makes clear his disdain for an industry that he accuses of “profiting off of addiction’.

While I prefer to not enter into the ethics of non-alcoholic beer, I will say that the latter have improved considerably in recent years. I can recall drinking the occasional O’Doul’s in years past and being singularly unimpressed. As one writer observed, “brewers are now making non-alcoholic beers that are packed with flavor, thanks to new technology and techniques that are reinventing a category that once felt like purgatory.” Apparently, this is due to a raft of innovations such as vacuum evaporation, filtration etc., which allow brewers to extract alcohol from the beer while retaining much of the beer’s intended flavor. It is certainly nice to have a tasty option when, for whatever reason, more alcohol (or any alcohol) is not desired.

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.

Craft Brewing And Industry 4.0

In my last blog entry I wrote about a recent trip I made to Budapest, Hungary. I was there attending the annual conference of the International Geographic Union Commission on the Dynamics of Economic Spaces. The theme of the conference was Rethinking Economic Geography in the Era of the Fourth Industrial Revolution: Manufacturing, Entrepreneurship, Employment and Industry 4.0. My presentation at the conference was about the applicability of Industry 4.0 methods to the craft brewing industry.

So what is Industry 4.0? Put in historical context Industry 4.0 is referred to, by many, as the fourth industrial revolution (see diagram below). It is in fact, a “general term for networked, digitized production; machines and products are seen as networked and intelligent components that can exchange data locally, globally and among companies.” The different parts of an Industry 4.0 manufacturing system include the Internet of Things (IoT), big data, artificial intelligence, automation of processes with robots, 3D printing, and artificial intelligence (AI). For example, the Internet of Things (whereby machines connect and communicate with each other) permits manufacturers to use sensors that collect real time data on manufacturing processes. These data, in conjunction with powerful analytical techniques, can provide manufacturers with insights into inefficiencies in their manufacturing processes. Acting upon these data and analysis allows manufacturers to realize increased levels of productivity. In short an Industry 4.0 factory is a smart factory.

The four stages of the evolution of manufacturing
Source: Machines4u.com

While concepts such as the Internet of Things and big data might seem a million miles away from making craft beer, there are, in fact, several examples of breweries utilizing Industry 4.0 technologies. These include New Belgium Brewing who have production breweries in Fort Collins,Co and Asheville, NC. A major problem that New Belgium faced was unscheduled downtime on their bottling line. This meant that the brewery was not bottling as much beer as it could. To address the problem, New Belgium utilized what is known as a Manufacturing Execution System (MES). An MES is a computerized system which allows manufacturers to “track and document the transformation of raw materials to finished goods. MES provides information that helps manufacturing decision makers understand how current conditions on the plant floor can be optimized to improve production output.” The MES allowed New Belgium to identify the sources and number of downtime events. They were then able to take steps to remedy them. Downtime fell by 50%, and there was a significant increase in bottling efficiency. As a result, the number of cases of beer being produced per week increased from ~150,000 to ~200,000. All of this was achieved without any new capital investments.

While New Belgium is a relatively large craft brewer (the 4th largest in the United States), Industry 4.0 methods have been utilized by smaller craft breweries. Take Sugar Creek Brewing Company of Charlotte, NC. Opened in 2014, Sugar Creek specialize in Belgian-style ales. Annually, the brewery produces ~5,000 barrels of beer. When Sugar Creek realized that they were losing $30,000 a month due to excessive foaming they knew something had to be done. Excessive foam in bottles coming off the bottling line was a particular problem. Somewhere between 10% and 13% of a batch of beer was being wasted. The brewery turned to IBM and Bosch for help. Sensors were installed on the production line and the generated data were analyzed. The analysis showed that the excessive foam was created as a result of imbalances in pressure and temperature as the beer went from tank to tank on the bottling line. Armed with this new knowledge, Sugar Creek were able to make adjustments that solved the problem and reduced waste. An added bonus was more controlled and precise fermentations which resulted in better flavored beer. A short video explaining how Sugar Creek benefitted from Industry 4.0 technologies can be viewed here.

Sugar Creek Brewing Company of Charlotte, NC have utilized Industry 4.0 technologies

The two examples above clearly demonstrate the benefits of Industry 4.0 to the craft brewing industry. In addition to New Belgium and Sugar Creek, there are other craft breweries that are using Industry 4.0 technologies. These include Deschutes Brewery of Bend, OR and Tröegs Brewing of Hershey, PA. In reality though, I wonder about how many craft brewers are in a position to take advantage of Industry 4.0 technologies. Most craft brewers are quite small. Many, for example, do not have their own bottling or canning equipment, and so utilize the services of mobile canning companies. As one observer noted, “the use of sensors throughout the premises would seem appropriate in larger facilities. Smaller microbreweries would specifically struggle with the adoption of this advancement, due to height of cost. Smaller locations might not possess the space large enough to see any success either.“ While Industry 4.0 technologies may not become widespread in the craft brewing industry, those breweries that are able to utilize them are likely to realize unforeseen and unprecedented improvements in efficiency and productivity.