Regional Beer: Pulled at Both Ends







Each year in June, I pour over (pun intended) the BBL production estimates released by the Craft Brewers Association. As an architect serving many breweries, I like to know who is ramping up and which areas are booming or leveling off. After creating some complicated and geeky spreadsheets to help analyze all of the data, 2016 started to look quite different than the 2010-2015 years. For the first time, I was seeing a larger number of breweries state-wide that experienced a bit of a drop in production. Perhaps it was sales, or they were transitioning facilities, or a range of other reasons, but regardless, the amount of “red cells” on the sheet vs. previous years was quite noticeable. Oh no!?!...was this the saturation point of production craft breweries that we heard speculated about at CBC in Portland 2+ years ago? Should we be worried that things are flattening out for Texas craft beer sales? I dug deeper -- and here’s what I found. Everything is going well for most breweries, but there are some BIG exceptions.

After organizing the data by geography (West Texas, East Texas, Dallas/North, Central/Hill Country, San Antonio Metro, Houston Metro, Brazos Valley, Coastal), I broke everything out into some helpful categories, looking to see if there were any apparent regional explanations.


Essentially, production (and hopefully sales!) across the state continued to rise, except for in Houston (more on that below), but there definitely wasn’t the consistent double-digit growth pace we have seen in earlier years. Yet there are a couple of big caveats that should be added in this breakdown.

1.       Shiner, the largest producer in the state, doesn’t fit so nicely into any of the geographic areas I listed above, and they are in their own production stratosphere in comparison to the rest of Texas breweries. They were excluded from this table, but more on Shiner as a regional player to follow.

2.       As referenced in the table notes, two of the largest producers in the state, Revolver and Karbach, were purchased in the past year, and their production was therefore removed from the published 2016 numbers. The exclusion of their BBL put a big dent in Dallas and Houston’s craft brewery output, respectively. If I assumed they each had similar output in 2016, their respective region’s output continues to grow, but at a slower pace than previous years.

Basically, the movement of mega-breweries acquiring large craft breweries in Texas has fundamentally reshaped how the growth of craft beer should be viewed. The state’s growth is still there, but now it’s captured differently. The same is true nationally. For example, the national estimated/reported BBL output for craft dipped less than half of a percent in 2015-2016. Add back likely outputs for the recently acquired breweries in just California and Texas, and that growth jumps to 5%. Having said that, it was clear there were more breweries than in previous years that showed a drop in output. This was offset by the substantial growth of relatively new breweries in each region. We’ll keep our eye on this next year as well.

The trend of 12%, 14%, 15%, 13%, 34% growth over previous years was reversed in 2016 with a total dip of -9% for Texas independent breweries. But add those 2 big breweries back in, and assuming they sustained 2015 BBL output, we get a growth of -2%. Acquisitions by mega-breweries accounted for an estimated 7% of the state’s total output. So why else did we drop from +10% growth if, across the state, we saw healthy growth in each region? The answer lies with the brewery left out of all these tabulations thus far -- Shiner. The drop in Shiner’s output was in and of itself larger than San Antonio Metro, West Texas, East Texas, Coastal, and Brazos Valley's outputs combined!

In late August, the Wall Street Journal ran an article titled “Craft-Beer Glut Starting to Take Its Toll on Sales”. It highlighted the dipping sales of regional breweries like Sierra Nevada and referenced increased competition and the impact of mega-brewer buyouts. Our research in both the Texas and California markets supports the article’s assessment that smaller craft breweries continued to thrive in 2016, however. It appears the success of local breweries is giving regional breweries like Shiner and Sierra Nevada increased competition, particularly outside their own backyards. If I was in Missouri or Colorado, for instance, I would bet local craft lovers have far less reason to choose a Texas or California product than before craft beer’s recent growth.

I’m not an economist or a market analyst; however, we’ve been heavily involved with many types of breweries: big, small, new construction, expansions, production, brewpub, etc. And here’s what I think the takeaway is from this past year: The growth of independent breweries is absolutely still there. While it may not be hyper-aggressive any longer, it’s very successful at the local level. It’s become more diverse. It’s turned itself more to serving smaller markets with better products. Good beer matters more than ever. Great experiences in tasting rooms will matter more in the next wave of growth as people search for points of differentiation in their favorite local beer brands. Yes, the market will show some more dips and closings, but there’s plenty more growth to come. The market is ready for great local breweries that each community can uniquely identify with, especially those that have positioned themselves in strong locations and have the ability to maximize their current assets and facilities, or are creatively eyeing viable expansion plans.