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Wednesday, November 7, 2018

Runaway Growth and the Craft Beer Bubble

At some point, you start wondering when the next shoe will drop. The hypercompetitive craft beer industry, which had experienced dynamic, runaway growth for nearly a decade, is clearly entering a contraction phase. The bubble may not be bursting, but it is under intense pressure.

Signs of a slowdown began to appear a year ago, with the closures of Lompoc's Hedge House and Widmer's Gasthaus pub. Months later, General Distributing sold to Columbia, a move precipitated largely by perceived instability and a lack of confidence in where the market was headed.

More recently, we've seen additional evidence of turmoil. Lompoc Tavern closed. Seven Brides closed its pub in Silverton. Two Kilts closed in Sherwood. Then Alameda Brewing closed. Yesterday, Portland Brewing announced the abrupt closure of its underperforming pub in northwest Portland.

Alongside all this, we learned this past Friday that Brian Butenschoen is out as executive director of the Oregon Brewers Guild. Butenschoen had served as the leader of that organization since 2005. As of this moment, neither Butenschoen nor anyone at the Guild has explained what happened, beyond the typical canned statement saying they agreed to go their separate ways.

Forget Butenschoen for a minute. That situation may or may not be related to the big picture. When I was interviewed for what became PDX Brew City in 2014, I was asked if I thought there was a bubble forming in craft beer. Of course there was a bubble forming, I said. Whenever I've watched that film as part of an audience, I've heard smug laughter behind that comment.

But it was clear to me at the time that the brewery count was growing faster than demand at virtually every level. There were about 2000 craft-centric breweries in the United States in 2011. By the end of 2013, 2,420. By the end of 2015, 4,544. By the end of 2017, 6,266. By the end of this year, we'll have about 7,000, with 9,000 more in planning. These are crazy numbers.

Portland and Oregon brewery numbers essentially mirrored what was happening nationally. Oregon had 124 breweries in 2011, according the Brewers Association. By 2013, we had 181. By 2015, 228. By the end of 2017, 266. Portland stayed in step. It had about 40 breweries in 2011. Today, the city is home to 77, with 117 in the metro area, according to Oregon Brewers Guild stats.

My assumption back in 2014 was that the insane growth would compromise the entire industry. There's only so much shelf space and so many tap handles to chase. I always figured intense competition would create chaos and price wars that would affect everyone.

Some of that has happened or is happening. But the larger emerging theme is that older breweries and those that have quality issues or poor management or a lack of innovation are struggling or failing. Making good beer is definitely a requirement in the current marketplace, but not the only one.

When I said a bubble was forming, a friend suggested the result would be different than I imagined. He said places that make bad or mediocre beer would be driven out and replaced by those that make good beer. He was right, of course, though I still contend good beer isn't the only thing you need.

Getting back to Butenschoen's situation, he had been director of the Guild for 13 years. That's an eternity. He rode the wave of craft beer's golden age, a time when the industry could seemingly do no wrong. But things have flipped and the industry now faces a new set of challenges.

There are more than 250 breweries in Oregon today, most of them small. The Guild is tasked with serving the needs of the many, as opposed to the needs of the huge and the few. That means collaborating and cooperating with all kinds of operatives across a wide spectrum.

"It's a new world we're experiencing right now in beer," says a reliable industry source. "Everybody knows it. Oregon needs effective leadership if we're going to stay strong in craft. Maybe the Guild felt Brian wasn't the right guy to lead it through the emerging challenges."

Regardless of what's going at the Guild, the industry definitely needs strong leadership to help it navigate the turbulent waters ahead. The era of runaway growth is closing, to be replaced by a period of consolidation and contraction. At least for now.

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