Local craft beer market shows signs of maturing

The abrupt closure of Powder Keg Brewing Company earlier this month may have been a shock to its Niwot neighbors, but industry insiders have seen the signs of a plateau in the craft beer market for a while. After years of red-hot growth in brewery openings and sales volume, the demand for new craft beer is leveling off and brewers are starting to feel the pinch as consumers increasingly spend their recreational dollars elsewhere.

“Absolutely, the market is tightening,” Odyssey Beerwerks’ Jeff Tureson said about the current craft brewing landscape. Tureson is Hops Sales Honcho at the six-year-old Arvada brewery, and has more than 30 years’ experience in the liquor distribution business. “I’ve been in this industry since New Belgium and Odell started in the 80s, and I’ve seen its cyclical nature for quite a while. People get different tastes.”

According to the Boulder-based Brewers Association (BA), a non-profit trade association for “small and independent” brewers, craft beer production rose about five percent between June 2016 and June 2017, down from an eight-percent increase during the prior period, but nowhere near the near 20 percent growth seen in the 2012-2014 period. While it is not time to panic—after all, the industry is still growing, just more slowly—slowing market conditions do not leave much room for error for small brewers like Powder Keg.

“Naively, when we first started five years ago, we thought we’d make great beer and people would come from all around the area to be in our well-designed tasting room,” Powder Keg Head Brewmaster Phil Joyce said in an earlier interview with the Courier. “But, as time went on and the market became saturated with more openings of brew pubs and establishments, people were more likely to head to their local watering hole.”

Bootstrap Brewing’s Leslie Kaczeus of Niwot had similar thoughts about current economic conditions, and said that many brewers are finding innovative ways to shore up their business models and win return customers. Kaczeus and husband Steve opened a second Bootstrap location in the former Longmont Times Call printing plant last year.

“Acquiring shelf space in liquor stores and getting permanent tap handles is becoming more competitive with all of the breweries that opened in recent years,” she said. “Store owners are going to have to make smart business decisions to move out products that don’t sell well and replace them with those that do which will definitely affect breweries that don’t have high quality products.”

David Lewis of the Brewhop Trolley is still very optimistic about the local industry, even with Powder Keg’s closure. Last month, his company announced plans to add stops at locations in Niwot and Gunbarrel, in addition to the usual Longmont loop. The new Brewhop Tour, which is scheduled to launch sometime in April, will depart from the Tasty Weasel Tap Room on Sunset Street and stop at Beyond the Mountain Brewing, Asher Brewing, Avery Brewing, Finkel & Garf Brewing, Vindication Brewing, Gunbarrel Brewing, and Bootstrap Brewing.

“With one closing, three new breweries have or will be opening up soon,” he said. “With Brewmented opening up next to SKEYE Brewery, Primitive Beer in Prospect and Collision Brewing off of Hwy 119 east of Longmont are all opening up soon.”

Supporting Lewis’ rosy view is the industry’s defiance of traditional economic models over the last several years. Economists have long been predicting a correction in the craft beer market that has never materialized. Statistically, the craft beer industry still seems to be on firm footing, especially here in Colorado, where it delivers the highest economic impact in the nation, at a whopping $734.34 per capita according to BA’s website.

At the end of 2016, there were an estimated 334 total craft breweries in the state (second only to California), including five of the 50 largest (New Belgium, CANarchy [Oskar Blues], Odell, Left Hand, Avery). Nationwide, there are more than 5,500 operating breweries in the U.S., and another 2,739 in various stages of planning. Craft beer sales now account for about 12 percent of the total domestic beer market, up from just 5.7 percent in 2011. Even as sales growth slowed between 2016 and 2017, more than 900 new breweries opened, while fewer than 100 shut their doors.

That makes it hard to argue against Joyce’s point about market saturation, however, especially in the Niwot/Gunbarrel corridor. Since organic brewer Asher Brewing Company opened on Nautilus Court in 2009, five others have joined it. First came Niwot’s Bootstrap Brewing Company in 2012, followed by Vindication Brewing Co., opened in 2013 by former Shepherd of the Hills pastor Marty Lettow on Winchester Circle.

In 2014, father-and-son operated Finkle & Garf Brewing Co. opened on Spine Road (as did Powder Keg on Second Avenue in Niwot). Gunbarrel Brewing, another Winchester Circle location, opened in summer 2017, followed by Beyond the Mountain Brewing, located on Longbow in Gunbarrel, which opened its doors last December.

If that weren’t enough, regional craft brewer Avery Brewing Co. relocated from Arapahoe Street in Boulder to a 95,000 square-foot facility on Nautilus Court in 2015, with a spacious taproom and restaurant.

There are a few reasons the industrial areas of Gunbarrel have proved a popular location for small craft brewers. Commercial and reclaimed manufacturing spaces generally offer the necessary square footage and infrastructure (water and sewer systems) to house and operate a brewing operation, and typically cost less per square-foot to rent than a retail or restaurant property. These areas are typically less congested than downtown areas (especially Boulder), and there is also usually ample parking. Tureson also believes that an established regional brewer such as Avery provides gravity for the smaller establishments in its Gunbarrel orbit.

“Avery is a destination,” he said. “That can add to your foot-traffic, and that’s why a bunch of them opened around New Belgium and Odell back in the day.”

Tureson pointed to other downward pressures on craft beer demand that have emerged lately, including the rise of craft spirit distillers, such as Longtucky Spirits, and the legalization of marijuana, though the case for the latter isn’t that clear cut. President Trump’s pending steel and aluminum tariffs will also take a bite out of industry revenues, especially for smaller brewers who might have trouble absorbing the estimated penny per can price increase.

Tureson stopped short of predicting doom for the industry as a whole, but said there are changes afoot, especially in packaging and distribution. For example, the tariff could drive brewers back to glass bottling or out of packaged channels altogether.

“What you’re probably going to see is not so many closures, but less distribution,” he said. “A lot of these breweries are just going to go to taproom only.”

While research from the BA suggests that taprooms are often a stronger profit center for breweries, due to higher margins on premise sales, relying almost exclusively on such a model may have hurt Powder Keg.

“Another factor was that we weren’t able to justify the cost of selling our beer to other bars so that they could make a good margin and we couldn’t sell our beer at a loss,” Joyce said earlier.

For Kaczeus and other local brewers fighting the same battle, the tightening market has forced them to be inventive, and not just with their products.

“The brewing industry has always been very collaborative but we are definitely seeing more creativity with breweries cohabitating, merging, and sharing volume purchases of expensive ingredients,” Kaczeus said.

Meanwhile, Tureson and Odyssey Beerwerks are rethinking their packaging.

“We’re trying to intrigue the drinker that went to college and loved craft beer, but has maybe moved on,” Tureson said. “We want to entice them back into drinking beer instead of whiskey.”