Within the last month, seven breweries and taprooms in Portland have closed or announced their upcoming closure. Rising costs of operation, change in consumer drinking habits, and the lingering effects of the pandemic have all affected the market. Ezra Johnson-Greenough, founder of the blog The New School Beer, joins us to share what’s happening in Portland’s beer market and to shed light on whether the craft beer bubble has burst.
This transcript was created by a computer and edited by a volunteer.
Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. Seven breweries or tap rooms in the Portland area announced their closures over the last month. That’s according to the blog, New School Beer. Are we in the middle of a pandemic hangover? A burst beer bubble? A craft beer correction? Something else? Ezra Johnson-Greenough founded The New School and he joins us now. Welcome back.
Ezra Johnson-Greenough: Thanks for having me.
Miller: So, each of these seven businesses that you profiled recently, they have their own stories, and I think it’s worth hearing about some of their unique circumstances, before we get to the big, industry-wide questions. So what happened with Pono Brewing?
Johnson-Greenough: Pono Brewing has an interesting model in that they don’t actually have their own brewery. They brew at another brewery, and then sell their beers themselves, but about a year ago, they finally scraped together enough funds to lease a deceased brewery and turn it into a full brew pub restaurant and have their own brewing system. Unfortunately, it didn’t work out, and the costs associated with getting that space operational again, and the slow foot traffic, made them pull the plug.
Miller: Well, before we get to some of the other specific stories, what are the reasons that a beer maker might want to open an actual brew pub, where they would have to deal with all of the other aspects of a retail location, including probably serving food as well, as opposed to just making beer and selling it to bars or restaurants or stores?
Johnson-Greenough: Well, I think there’s two main reasons. Number one is there’s a higher profit margin on them selling their own beer, without paying someone to sell, deliver, distribute their beer, and having less control of how that beer is handled and where it goes and who buys it. Also, there’s just the face-to-face customer interaction, and creating a local space where people can go to find their beers and have that personal relationship.
Miller: Okay, so that was Pono Brewing. What about Ambacht? And this is the only one that’s not actually in Portland, this was in Hillsboro.
Johnson-Greenough: Ambacht is one of those breweries that I consider kind of like one of the old school craft breweries, before craft beer became hip. It was two friends who basically started a glorified home brewery in a warehouse space, but they did really eccentric beers, like Belgian styles brewed with honey, and Jewish inspired beers with matza. They always kept a low-key presence, but back in the early days of craft beer, 2010, 2011, you would see them around town. You’d see them in grocery stores. But they were one of those breweries that didn’t really adapt or stay up with all the current trends, as craft beer became big and much more commercial and trendy.
Miller: What about Sessionable?
Johnson-Greenough: Sessionable is a beer bar, so it’s a tap out. They don’t make their own beer, but they’re on the busy Division strip, and they’ve always been a locals hangout. They originally put their hat on the session beer trend, which means beer that’s under 5% alcohol, that’s meant to be able to drink more of. Unfortunately, that kind of beer has never really been all that popular in the United States. It had its moment around 2015, but these days people are looking for more, and I just didn’t think they saw the foot traffic. They just decided it wasn’t worth it anymore.
Miller: And then there is Washington-based Grains of Wrath, which announced that they’re closing their Portland location, which is on North Williams Avenue. What reasons do they give?
Johnson-Greenough: The reason they gave was that they’re refocusing their efforts in Washington, to a new brewery space that they’re making, that is based on production, so they could sell more kegs and more draft beer. I believe the Portland location was also not experiencing a huge rate of customers coming in, so I think they decided to focus their efforts elsewhere.
Miller: So these are just four very different stories out of the seven that you wrote about recently, all announcing closures within a month. What do you see as some of the parallels here?
Johnson-Greenough: I mean, the biggest one is just that sales have slowed, because of many reasons, but competition is one of them. Just the density, the amount of beer and options, while people are also seeking out other options. All these breweries are facing various unique challenges. There’s all sorts of challenges in the marketplace, but ultimately, most if not all of them could be overcome if sales were where they needed to be.
Miller: When you say competition, where is the competition coming from? Well, let’s start with this: how much of it is other craft breweries, other craft beers?
Johnson-Greenough: I would say it’s a lot of it, especially in Oregon. We went from only around 1,000 breweries to pushing 10,000 breweries in the span of 12 years in the US, and Oregon itself has 318 breweries that we know of, so everyone’s pushing into a crowded marketplace. It seemed like it was only growing, like brewers could do no wrong four or five years ago, to suddenly the market just stabilizing and flattening out. Plus competition from outside of beer as well.
Miller: Like where? What do you think about when you say competition outside of beer?
Johnson-Greenough: Well, I think the younger audience is more interested in beer alternatives. They’re also more health conscious, and the ones that are still into drinking adult beverages are often looking at the greatest bang for their buck, meaning higher alcohol or lower price points, which has turned a lot of people into the spirits industry, where so-called ready-to-drink cocktails, which are basically pre-made canned cocktails, can be purchased at a very low price point compared to how much you would get it for in a bar. Meanwhile, beers that are in larger formats and higher alcohol are selling more. A lot of brewers are trying out different kinds of alcoholic beverage, from hard seltzer to hard tea, hard kombucha, hard sodas. Plus there’s just that whole movement of people decreasing their alcohol intake in general and going non-alcoholic.
Miller: And there have been improvements in non-alcoholic beers in recent years. 20 years ago, there were very few options, and they didn’t really taste like beer. Now, there’s a wide variety of non-alcoholic (NA) beers, some of which actually can taste pretty good. Do you think that’s actually cut into craft beer sales?
Johnson-Greenough: Yes. For one thing, making nonalcoholic beer is much more difficult, and breweries are not necessarily set up well to make non-alcoholic beer and make it well. The profit margin is not as high. It’s more of a numbers game, how much can you make. This is a model that we’re seeing huge national breweries compete in, not that many small local breweries.
Then you have the whole dry January trend, phenomenon. That has really put a hurt on breweries in the month of January, which is typically their slowest month. Normally, when you see the most closures is around January.
Miller: So a movement that, inarguably, is better for societal health, it actually is hitting this industry.
Johnson-Greenough: Yeah. And to be clear, I support people going for non-alcoholic beer, but it’s also just really difficult for the industry. It’s almost its own science, in and of itself, and, unless something greatly changes, that realm is going to be dominated by mega corporations.
Miller: We haven’t actually talked about the pandemic yet, but how much of what we’re talking about can be seen through the lens of a kind of pandemic hangover, in terms of labor and everything that followed?
Johnson-Greenough: A significant amount of it can be blamed on the pandemic, but I ultimately think the pandemic just sped things along and made it harder for craft breweries that we’re already gonna be facing a lot of these challenges. But certainly, pandemic and economic increase in costs has been a huge factor, I think, where people are not going out to breweries as much, or choosing that cheaper, bang-for-your-buck option that I mentioned earlier. Just the cost of malt, hops, packaging, kegs, has skyrocketed since the pandemic, not to mention the bars being closed, so draft beer evaporated and then suddenly came back. Those breweries that all started putting their beer into cans and bottles during COVID lockdowns actually were losing a lot of money, because the margins on selling those packaged beers outside of their own places is much slimmer.
Now the cost of draft beer came back, but the cost of it is up, probably about $2 on average per pint in Oregon, going from an average around $5 to $7 to $8 these days. Brewers have spent the last few years eating a lot of that cost, just trying not to put the consumer into sticker shock and keep people coming in, but the prices keep on going up. They’re still not making the margins, even with the raised costs on the price of beer, which is causing a lot of people to turn to other places to get their beer, or not beer.
Miller: A couple times now you’ve mentioned, including as a reason why a beer maker would want to open their own brew pub, that they make less money when they don’t sell the beer themselves. This gets us to distributors. Can you explain the relationship, and the challenges of the relationships often, between beer makers and distributors?
Johnson-Greenough: Well, distributors are an essential part of what they call a three-tier system, which separates the brewer from the retail establishment, the store or the bar. They’re the middleman. However, at least in Oregon, brewers do not have to go through a distributor. But if you want to sell a lot of beer, if you want to get it into grocery stores, you often have to go through a distributor. There is no option.
It’s often a great relationship; distributors do a lot of great work, but it doesn’t benefit everyone. Especially when you’re not selling a lot of beer, then the percentage that they are taking can really hurt the brewery. Once you’re signed, you sign a contract with the distributor, and once you get into that relationship, it’s like a marriage. It’s very difficult to get out of.
Miller: What about staffing? Has staffing been as big a deal in the brewing industry as it has in other sectors?
Johnson-Greenough: Yes and no. It’s definitely been a huge deal, but I do think breweries have been a little bit more resilient than, say, restaurants, because of the flexibility and needing less staff to run a kitchen. A couple of people can pour beer and run a POS system, especially with the advent and the popularity of QR Codes, but yeah, a lot of breweries were working on, and some are still working on, very few staff to keep their profits up, which were already minimal and sure, that turned off some people from going out.
You mentioned brewers having their own kitchen and food service earlier, but it’s increasingly become a negative to have your own kitchen, to have your own restaurant there, because those costs are so high. The availability of ingredients and the availability of staff has become a burden on the breweries, so many of them have opted not to have food, lease their kitchen space to someone else, so they have to deal with the staffing or have food trucks and all that can be inconsistent as well.
Miller: How much of what we’re talking about, that you’ve noticed just in the Portland area, is mirrored on the national scene?
Johnson-Greenough: I’d say just about all of it is mirrored, but it can be even more intense in Oregon, for better and for worse, because Oregon is arguably the number one place for craft beer in the country. In the last 10 years, a lot of other places have fought for that mantle, but there’s no doubt that this is one of the most mature craft beer industries. The competition is fierce, the overall quality is great, but everyone is facing these challenges in one form or another.
Miller: A lot of the places that you mentioned that are closing are either selling their equipment or saying, ‘hey, we’ve essentially got a turn-key operation; you show up, you take over this business and you can brew your own beer and sell it here.’ Is there demand for that equipment and those spaces?
Johnson-Greenough: Yes. Not as much as there was before the pandemic, but yes, and that really keeps me optimistic for this industry. I know a number of these breweries that were even profiled in that article. I know people that are, companies that are likely taking over a number of them. In that way, it’s similar to the restaurant industry; there’s tons of closures all the time, but there’s pretty much always someone there to take their place. I think when we’re really gonna start getting worried about the craft beer industry is when there is no one to take those spaces. That said, there are spaces and breweries that have been sitting vacant for years too. So it’s not like everyone is being immediately snapped up.
Miller: In a city like Portland, and maybe Bend is the same and in other places in Oregon, but places that have such established markets with so many options for good beer, and so many beer drinkers who pay really close attention to what they’re drinking, is it possible to get by as just a small neighborhood brew pub that doesn’t have some kind of hook?
Johnson-Greenough: It is possible, if you are in the right neighborhood, and you have the right space, and you are smart in your business and your cost, I think it’s actually completely doable. Where you are, what your rent is, is gonna be a huge factor in that. How much staff you have, how much you’re paying for your ingredients, and making dollar over dollar.
When you’re getting breweries that are in downtown, or some of the hipper inner East Side, spaces where those costs are really high, a lot of them do rely somewhat on the distribution selling outside. That’s where people have really found those numbers dropping off or just being extremely variable where, for a couple of years, they’re the hot new thing, and then there’s another new brand, another new brewery that steps in. There’s only a limited amount of shelf space and tap handles to go around. I think some of the smarter breweries have been the ones that are like, ‘ok, we’re not gonna try to grow, we’re not gonna try to get bigger and bigger. We’re just gonna do what we do on a small scale and do it economically and make a living.’ These people aren’t getting rich, but hopefully they can make a living and stay in this industry that they love.
Miller: What advice would you give to a prospective brewer right now? Somebody who actually wants to get into the business?
Johnson-Greenough: Just be really smart about all aspects of the industry, from that location to the quality of beer, to what people are interested in, what they’re drinking now. You need to have some flexibility, you need to have a story, you need to have an identity, you need to have good branding, you have to have good marketing. Basically, this has become a competitive business, and a decade ago, it wasn’t that competitive. People were starting breweries with only limited knowledge on how to home brew. People were coming in from all these other industries. They got tired of their job as an attorney, tired of the job working at Intel, and were like, ‘hey, I like home brewing. I’m gonna start a brewery,’ and they were finding success in it...
Miller: Those days are over, where you could just muddle your way through and succeed?
Johnson-Greenough: Yeah, yeah. They’re learning now, ‘hey, this is a business, this is not all fun.’ I’ve been in this industry for 15 years, and I always saw this coming. Sometimes it astounds me that more breweries didn’t realize we’re gonna get to this saturation point, which is where we are at now. So they can succeed, but it’s much more difficult, and they need to know what they don’t know. Too many of the people know one thing about the industry. They don’t know about the other aspects. They don’t know what good design is, what good marketing is. You need to know what you don’t know, and how to get good at those things.
Miller: Ezra, thanks very much.
Johnson-Greenough: Thank you.
Miller: Ezra Johnson-Greenough is the founder of the blog The New School Beer. He joined us to talk about the closure of some brewpubs in Oregon and the maturation of the Portland beer scene.
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