The State of Oregon Beer – A 2016 Craft Beer Market Report
“I’ll be surprised if the city can handle forty-plus breweries and brewpubs sustainably,” wrote Ben Edmunds in his 2010 column for The New School. This was just before he would help open Breakside Brewery in Northeast Portland. He might be shocked to learn then that there would be 69 breweries in Portland proper six years later. While his nightmares of a Portland Beer Apocalypse did not quite come true, there are some signs the apocalypse just may be arriving by bus rather than Uber.
According to experts, craft beer growth is slowing nationwide, and even here in Beervana. A report from the Oregon Office of Economic Analysis by Josh Leshner detailed the slower outlook at the annual Oregon Brewers Guild meeting in Portland a few weeks ago. It does not help that there is heavy competition in Portland for creative office users, competing for real estate with teardown developers and marijuana grow operations. Not to mention, there are major increases in pricing for space in what are seen as the ‘cool’ neighborhoods, according to John C. Lee of of JLL real estate investors that specializes in brewery site location.
Even the Brewers Association’s chief economist, Bart Watson, says, “It’s pretty clear that craft brewing has experienced a slowdown in 2016.”
Still, it’s not like the sky is falling. Craft beer is still growing, just not at the double digit pace it once was. Watson writes in the Nov/Dec. 2016 issue of The New Brewery, “the pace of expansion isn’t what it used to be. With an increased number of brewers competing for that smaller set of incremental barrels, across-the-board growth is harder than ever to achieve for individual companies.”
It makes sense that some underdeveloped markets that have not come close to reaching brewery saturation are not going to have the struggles a relatively mature market like Oregon does. Still, people have been talking about market saturation in Portland since we founded The New School in 2010, and that was just the beginning. Referring to Ben Edmunds’s article again, he supposed, “When it comes to talking about market saturation, there are really three basic responses. The optimist argues that the craft beer market, in Portland and elsewhere, will continue to grow. Since we don’t know the full size of the ‘craft beer pie,’ it’s silly to talk of the market as finite. In this scenario, breweries that don’t succeed lose because of internal mismanagement, poor planning, or inferior quality. This is the sunny side of capitalist theory. It is also nonsense.” This has actually turned out to be true, I think. Many of the breweries Ben mentioned in that article that were brand new or just opening at the time are now gone and were not the ones that were doing bang up business and good beer. For every one that closed, three more took its place. Breakside Brewery itself, where Ben is the Brewmaster, has turned out to be the big leader in the new breweries that opened since that original article. The counter argument Ben pointed out back in 2010 is, “a second theory argues that there is a saturation point for the market, but that it remains far away. If Portland can handle forty Thai restaurants, why not forty breweries?” That is an argument I have always made, but that Ben was not sold on at the time, writing that it “ignores the difference in cost in starting a brewery than a small Thai restaurant. It may be right, but I personally am more skeptical.” But that is a reason we are seeing more breweries open without a kitchen, or at least without the much more costly fryer and hood required for many pub staples like burgers and fries. The problem is there is room for local breweries in neighborhoods that are underserved, but finding buildings that are affordable and meet the needs of plumbing, piping, and installing a brewhouse severely limits the options.
John C. Lee, Vice President at JLL, talks about a new technique startups are employing to counter that issue. “A successful strategy that some are implementing is to open tasting room(s) in ‘cool’ neighborhoods, but keep production space in more industrial spaces like Milwaukie and Airport Way.”
In Josh Lehner’s remarks from the Oregon Office of Economic Analysis, he states, “for these smaller breweries, I think the outlook is bright. The brewpub model works.”
But what about the new or growing breweries adding production spaces to pump out enough beer to become regional players? They rely on supermarket shelf placement and an increasingly competitive and dwindling supply of regular tap handles. The theory a few years ago was that if a brewery is going to grow, it needs to grow quickly because the demand is there. It used to be that if a brewery was not selling all of its beer locally, it could ship some to Washington or Idaho, where the thirst for craft beer was not satiated. This is still the way of doing things. Lehner says medium and large craft breweries should be taking their beer out of state. “There is just too much competition and market saturation to be able to reach large production numbers by relying solely on Oregon consumers.”
A good example: Stickmen Brewery, which is opening a 30bbl production facility in Hillsboro, but is not selling enough beer to even crack Oregon’s top 100 breweries. The model is similar to Rogue’s approach to exporting. According to Lehner, the Pacific Rim is where to go, as about half of Oregon beer exports go to Canada, 17 percent to Japan, and about 5 percent each to China and South Korea.
But how long can this strategy last? With the boom of craft breweries, many of these markets now have their own local producers, which they support first over outside brands. For instance, Washington and California breweries have had a historically hard time selling their beer in Oregon, while Japan and China are fascinated with Oregon brews. How long until they have more than enough of their own local beers?
Let’s take a look at the Oregon Liquor Control Commission’s report on taxable barrels sold by Oregon breweries in the state. As usual, this only supplies a limited window, as it does not account for out-of-state sales, but I still think it can tell us a lot. Here are a few thoughts on the top 15:
- The biggest story is the fall of an Oregon brewing giant in Bridgeport Brewing Co. Often referred to as Oregon’s oldest brewery, it was one of the pioneers of IPAs before they were popular. The local legend sold nearly half as much beer this year in Oregon as it did in 2013. The slide started a while ago, but it dropped an astounding quarter of that 50% just this year. Ouch.
- Deschutes Brewery remains the largest Oregon brewery after overtaking Craft Brew Alliance in 2013; however, its in-state sales have been dipping ever since. I wouldn’t worry much, though; the brewery is focusing on national growth, adding new states to its distribution push all the time ahead of opening a Virginia production brewery.
- Ninkasi Brewing is bouncing back from last year’s down-turn on in-state sales. It remains a solid #3 in Oregon, though the next largest is beginning to nip at its heels.
- 10 Barrel seems to be spending that Anheuser-Busch money well, perhaps showing the most growth of any Oregon brewery in in-state sales. So much for that theory of boycotting 10 Barrel for selling out to Budweiser. The brewery clocks in as 4th largest brewery in Oregon by in-state sales.
- Boneyard Beer continues to be solid, with incremental growth of a couple thousand more barrels this year, placing it as the 8th largest brewer in state.
- Hop Valley is using that Miller buyout money to keep growing, not by leaps yet, holding on to its spot as the state’s 5th largest.
- Rogue Ales and Full Sail Brewing have reclaimed a small amount of what they had dipped, up a few thousand barrels over last year.
- Goodlife Brewing continues to silently kick ass, but it’s hard to tell what its growth is, because the brewery doesn’t often report the numbers monthly as it should. But as of October 2016 it is the 10th largest brewer in Oregon.
- Breakside Brewery continues to be on a solid, quickly growing pace, adding three to four thousand barrels in the state to go from 14th largest to 12th, and it may overtake Fort George by the time the December reports come out to claim #11.
- Fort George Brewery continues to be a large player, picking up about 3,000 barrels more than last year.
- Laurelwood more than doubled its annual production, jumping from 24th in the state to the 15th. Likely that’s mostly due to the new contract brewing and bottling deal with Full Sail Brewing.
- Pelican Brewing has picked up around 40%, going from 18th in Oregon to 14th, no doubt due to the new Tillamook production facility, Cannon Beach brewpub, and new 6-packs, variety packs, and more.
How much do these numbers matter when breweries are sending more of their beer out of state or abroad? I still think they are important, and are becoming even more vital as the local beer movement continues to prosper. Competition in outside markets is going to continue to be much stiffer. It’s a bad sign if you can’t sell your beer in your home market, i.e. Rogue. You can also expect to see fewer breweries opening in general, and those that do open won’t often have full-service kitchens or production breweries, while those that opened in the aughts or earlier are going to have to spend more time trying to remain fresh and relevant.