Speaker 1: be
Speaker 1: welcome to the Cascadian beer podcast. My name's Aaron and
Speaker 1: I'm Cascadian. Now. Normally, this time of year, I'll be
Speaker 1: attending the Great American Beer Festival, but unfortunately I couldn't
Speaker 1: attend this year's events and as a part of my
Speaker 1: annual Great American Beer Festival episodes, the segment that I
Speaker 1: get a lot of feedback on is the one where
Speaker 1: we crunched the numbers of the beer industry for the year.
Speaker 1: So I thought I'd released this quick bonus episode so
Speaker 1: we can get a highlight of how the beer industry
Speaker 1: is doing in 2019. And I was very fortunate to
Speaker 1: connect on a call with the chief economist for the
Speaker 1: Brewers Association, Bart Watson.
Speaker 2: My name is Bart Watson, and I'm chief economist at
Speaker 2: the Brewers Association,
Speaker 1: and it's great to see you even though we're talking
Speaker 1: on a VoIP call, because this is kind of become
Speaker 1: an annual thing. Unfortunately, I'm not at great American this
Speaker 1: year
Speaker 1: but still want to talk to you because I kind
Speaker 1: of like these annual reviews of How is the industry
Speaker 1: doing so? General? Let's start overview. How is the beer
Speaker 1: industry looking 2019?
Speaker 2: Well, I think it's harder Thio summarize in a single
Speaker 2: sentence that it used to be a um, you know,
Speaker 2: when you looked at craft brewing for five years ago,
Speaker 2: kind of everything was positive. The number breweries was going up.
Speaker 2: Share was going up. You know, growth was double digits.
Speaker 2: And so in that environment, basically every company was succeeding.
Speaker 2: And I think what we're seeing now is there's a
Speaker 2: little bit of a split personality. There's parts of the markets.
Speaker 2: They're still thriving, small local breweries by and large, doing very,
Speaker 2: very well. We're seeing the number of worries continue to rise,
Speaker 2: you know, across North America. But at the same time,
Speaker 2: slowing growth challenges and distribution means that you know not
Speaker 2: everyone is is feeling that growth equally. And you know,
Speaker 2: certainly it's a more competitive marketplace than we've seen in
Speaker 2: the past, creating challenges for a lot of worries.
Speaker 1: And last year we talked about like those major traditional
Speaker 1: big centres like Portland, Seattle, were seen Berries shut down
Speaker 1: there and not necessarily get replaced. But we're having breweries
Speaker 1: open up in smaller communities. Is that still a thing
Speaker 1: this year, or is it kind of stabilized?
Speaker 2: I think it is still a thing, and you know
Speaker 2: it varies place by place. And any time you're talking
Speaker 2: about national trends, you're gonna get something's wrong in certain
Speaker 2: localities because the dynamics really are locally based now, with
Speaker 2: with so many breweries and and so many of them
Speaker 2: operating locally. But you know, we're still seeing places where
Speaker 2: that that opening and closing rate is closing together. You know,
Speaker 2: Michigan's another example outside of places like Seattle or Portland
Speaker 2: that I think are a little bit better known. And
Speaker 2: we're still seeing that. You know, there were people interested
Speaker 2: in opening, maybe in different localities than traditionally. They would
Speaker 2: have opened, you know, more rural settings or places that
Speaker 2: don't have a brewery. But the trend toward you know,
Speaker 2: some Berries not being refilled. It is continuing, and I
Speaker 2: think that shows the overall competitiveness in the market place.
Speaker 1: And so with that, I guess the number should have asked,
Speaker 1: How many Berries are we now at What's what's What's
Speaker 1: their number?
Speaker 2: You know, as of this moment, it's probably somewhere around
Speaker 2: 7700 Berries nationally, you know, we're still on pace, probably
Speaker 2: for around 1000 Marie's toe open in the U. S.
Speaker 2: You know, Canadian numbers are gonna be scaled by population can.
Speaker 2: It actually has very similar per capita trends in almost
Speaker 2: every regard. Total number, breweries, openings, closings to the U. S.
Speaker 2: But in the U. S. We're gonna see about 1000
Speaker 2: Marie's open this year. Um, and we'll probably see somewhere
Speaker 2: around 300 closings those air a little bit harder to
Speaker 2: track in real time. But we continue to see that
Speaker 2: percentage rate of closings hold steady at about 3% of
Speaker 2: the Berries that are active.
Speaker 1: So what was the main challenge then? From the numbers
Speaker 1: perspective for the brewing industry this year?
Speaker 2: You know, I think it's a big numbers challenge that
Speaker 2: there's still a lot of growth out there. We'll probably
Speaker 2: have a 1,000,000 barrels of growth in the United States.
Speaker 2: That's nothing to Steve's that that's about 1/2 percent of
Speaker 2: the U. S. Beer market, but that's now being split
Speaker 2: between those 7700 breweries so that per brewery growth rate
Speaker 2: is a lot slower, a lot smaller than it was
Speaker 2: in the past. S O. That's the real challenge is
Speaker 2: not the growth opportunity as a whole, but it's the
Speaker 2: growth opportunity on an individual company level when all of
Speaker 2: that growth is getting sliced up in so many ways.
Speaker 2: And I'll steal and do a second part to I think,
Speaker 2: you know, the second number that's challenging is is that
Speaker 2: so much of that growth is accruing to the newest
Speaker 2: breweries and direct at the brewery sales. So they're real
Speaker 2: challenges to Berries that are building their business model on
Speaker 2: on broader distribution at the moment
Speaker 1: and then feed her industries. We were seeing some growth.
Speaker 1: Is there still a lot of growth in the future industries,
Speaker 1: or is that also kind of slow down?
Speaker 2: I think it's slowed a little bit, You know, the
Speaker 2: closing rate hasn't gone up that much. But there's, you know,
Speaker 2: growing secondary market, for instance, for equipment.
Speaker 1: And I think I should gratify their like like feeder
Speaker 1: industries being like grain hops like Justin just general supplies
Speaker 1: or how fear gets made. So
Speaker 2: exactly. And I think we saw a lot of those
Speaker 2: industries experience some of the same challenges that the Breen
Speaker 2: industry did over all that you know, four or five
Speaker 2: years ago, when when things were booming. A lot of
Speaker 2: those industries built out a lot of capacity. And while
Speaker 2: we've still seen growth, a lot of it's been from
Speaker 2: very small breweries, so they haven't maybe used all of
Speaker 2: that capacity. You no demand for hops. Demand for malts.
Speaker 2: Demand for materials continues to grow, but it might not
Speaker 2: be growing at the rate that those supplier industries expected,
Speaker 2: and so that sometimes creates over supplies. Sometimes it just
Speaker 2: means adjustments. So I think they're experiencing the industry the
Speaker 2: same way breweries are where there still opportunities, but their
Speaker 2: fractured You really have to be hitting the right mark. And,
Speaker 2: you know, some companies are struggling in that environment.
Speaker 1: Best state this year, overall performance. Who would that be?
Speaker 2: That's a great question. I mean, we're still seeing a
Speaker 2: lot of growth in in the big population states that,
Speaker 2: you know, per capita wise. We're fairly behind. So, Texas, Florida,
Speaker 2: New York, you know, they're still seeing a lot of
Speaker 2: Marie's open. They're still seeing a lot of growth, you know,
Speaker 2: we see growth all over the country still, so that
Speaker 2: opening rates still fairly evenly distributed based on the patterns
Speaker 2: we've seen in the past, but in absolute terms, it's
Speaker 2: really being driven by, you know, the biggest states and
Speaker 2: a lot of them are still posting pretty strong numbers.
Speaker 1: And then the Pacific Northwest. How are those numbers? Did
Speaker 1: they compare, like in line with the rest of the country?
Speaker 1: Or is it kind of a unique case out here, too?
Speaker 2: I think the Pacific Northwest is, you know, the canary
Speaker 2: in the coal mine. To certain extent, it's always had
Speaker 2: per capital levels of production and Berries that are higher.
Speaker 2: And so we are seeing a little bit slower growth
Speaker 2: in the number of breweries in production growth and the
Speaker 2: Pacific Northwest. Then we're seeing nationally, and that makes sense.
Speaker 2: I mean, you've got markets in the Pacific Northwest where
Speaker 2: your craft is the dominant player. It's got 30 or
Speaker 2: 40 share of the market. That's a plurality of the market.
Speaker 2: It's It's bigger than you know, the large burger shares
Speaker 2: when you take a collectively. Obviously, individual firms aren't and
Speaker 2: so that creates challenges to grow those marketplaces because you're
Speaker 2: growing off such of a large base already. So I
Speaker 2: would say generally the Pacific Northwest is ahead of everyone
Speaker 2: else in terms of absolute numbers and now lagging everyone
Speaker 2: else a little bit in growth numbers.
Speaker 1: All right. And if somebody was to be going through
Speaker 1: the process now of opening a brewery, is there anything
Speaker 1: like you can't really give direct advice. But what are
Speaker 1: some things that, um, that those new brewery should really
Speaker 1: look out for?
Speaker 2: I think any new brewery just really has to think
Speaker 2: about where they fit in this marketplace. Can you actually
Speaker 2: bring something new? And, you know, there are plenty of
Speaker 2: opportunities and lots of places still, so I'm never going
Speaker 2: to discourage someone who's passionate about this, who thinks they
Speaker 2: see an opportunity in the market. But, um, you know,
Speaker 2: I think they have to take a cold hearted look
Speaker 2: at where they're gonna fit in the marketplace. Can they differentiate?
Speaker 2: Can do they do something different? You know, there's a
Speaker 2: lot of choices, you know, Let's take a Seattle or
Speaker 2: Portland or Vancouver. There's lots of great beer in those cities. Um,
Speaker 2: so beyond the you're going to be new. You're gonna
Speaker 2: get that first year where people want to try because
Speaker 2: you're the new kid on the block. But in your
Speaker 2: two or three, what are you gonna do that makes
Speaker 2: you stand out that makes somebody spend their hard earned money?
Speaker 2: Go into your place as opposed to the other brewery
Speaker 2: that's gonna open the year after you and then beyond that,
Speaker 2: You know, when you look at Berea closings, there's a
Speaker 2: lot of reasons Berries closed. A lot of them are
Speaker 2: challenges of any small business. Just running business is hard
Speaker 2: to know, whether it's a brewery or or any kind
Speaker 2: of service, business or manufacturing business. But I would say
Speaker 2: the debt levels you really think about how much money
Speaker 2: you need to raise. And if you don't need to
Speaker 2: raise a ton of money to build a shiny new brewery,
Speaker 2: you know, debt levels and cash flow for the things
Speaker 2: that get the reason to a lot of trouble. So
Speaker 2: that's where you should spend. You know, a couple of
Speaker 2: you know, extra hard are hard nights, you know, going
Speaker 2: through the business model. Really thinking about that capital need
Speaker 2: cause that's where a lot of Marie's get themselves in
Speaker 2: trouble when they borrow more money than they need and
Speaker 2: can't have the cash flow generated toe. Meet those debt levels.
Speaker 1: And then we're recording this before the Great American Beer Festival.
Speaker 1: How are those numbers? Looking for participation again? This year
Speaker 1: is as the groaner is, it is.
Speaker 2: Ah, idiot. And
Speaker 2: I'm still holding steady. You know, we're fairly capped by space. Um,
Speaker 2: you know, I think that the final brewery number is
Speaker 2: gonna be, but, you know, somewhere between seven and 800 breweries,
Speaker 2: you know, we're gonna fill the Colorado Convention Center. We're
Speaker 2: gonna have, you know, nearly 4000 beers. Um, so pretty,
Speaker 2: pretty steady on the competition has grown. We're seeing lots
Speaker 2: of brewers more interested in the competition, I think. Then
Speaker 2: then the past. Partly That's a numbers thing. There's more brewery. So, um,
Speaker 2: if the same percentage of them are interested, then that
Speaker 2: goes up. But I think Barry's also recognized the value
Speaker 2: of something like that. Getting a critical feedback on your beers.
Speaker 2: You know, if you need to stand out, make sure
Speaker 2: making great beer. The G B F judges are as
Speaker 2: good as they come. Um, and to the recognition that
Speaker 2: you know, getting a medal could be one of those things.
Speaker 2: It gives you a little edge in the marketplace. So,
Speaker 2: you know, we're seeing festival hold pretty steady, mostly based
Speaker 2: on space constraints. And and I do think it's, you know,
Speaker 2: it's challenge for brewers toe, you know, send people across
Speaker 2: the country to take that weak, so don't want to
Speaker 2: diminish the cost involved for the brewers. And the competition
Speaker 2: continues to see, you know, increases every year as people
Speaker 2: are more interested in getting their beers judged.
Speaker 1: All right. And then, uh, what What is the favorite
Speaker 1: beer of yours? They're drinking at the moment.
Speaker 2: Um, you know, great question. This time of year, I
Speaker 2: always love Ah, the fresh hot beers we can. We
Speaker 2: can open the can of worms, whether you should say,
Speaker 2: fresh chopper went up, but for fresh, ah, peers. You know,
Speaker 2: to me you're the d true seasonal beer. You get
Speaker 2: him once a year, they come in. One of things
Speaker 2: I always love to is watching them come in with
Speaker 2: the harvest. So you can, you know, the ones that
Speaker 2: are the early harvested ones are gonna be the 1st
Speaker 2: 1 to hit shelves. Um, so I'm seeking those out.
Speaker 2: You know, I try to steer away from naming individual
Speaker 2: beer names. But I did have a field to ferment, um,
Speaker 2: last night, so that's always one of my favorites from
Speaker 2: from Fremont. But there's lots of Berries that do those.
Speaker 2: And if you have one on tap, that's probably what
Speaker 2: I'm gravitating to right now. All right, cool.
Speaker 1: Thank you so much for your time and best of
Speaker 1: luck with the whole week that's about to hit for
Speaker 1: a great American.
Speaker 2: Wonderful. Thanks for having me again.
Speaker 1: Big, thank you. Depart for his time. We recorded that
Speaker 1: just before the Great American Beer Festival. So lots of
Speaker 1: prep going on that week before the event kicked off.
Speaker 1: And hopefully I can attend the Green American Beer Festival
Speaker 1: next year. Really looking forward to it. If you enjoyed
Speaker 1: this episode or think you know somebody that could really
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Speaker 1: Thanks again for listening to this bonus episode. Really do
Speaker 1: appreciate your time and until next time, remember, support your
Speaker 1: local