Craft breweries, in this snapshot in time, are fairly stable businesses, at least when you compare their success rates versus typical business success rates, and especially against the somewhat adjacent bar and restaurant industries. We’ve covered the topic before, and here’s a nugget from that link to backup what I just typed (this is a quote from everyone’s favorite economist, Bart Watson of the Brewers Association):
Here are the long term figures. Based on the 2013 data, 51.5 percent of the brewpubs and 76 percent of the microbreweries that have opened in the modern era (since 1980) are still open (so failure rates of 48.5 percent and 24 percent respectively). At first glance, this is a remarkable success story, far higher than rates for comparable industries/new businesses. One of the best studies I have seen on the restaurant industry found a 60 percent failure rate over a three-year period. These numbers also hint at the added complexity of running a brewpub, which essentially means running two businesses plus the synergies between them.
Those are some seriously impressive numbers, but as Watson said later on, those historical rates are a “guarantee of nothing.” There will be peaks and valleys for each individual business and the industry at large, regardless of if it’s still a more stable industry by comparison to others. A great feature on 2 Tones Brewing from the Columbus Dispatch made us think of that “guarantee of nothing” section, in which Watson posits:
“New entrants will have to work harder than ever to differentiate — particularly in places that already have a high density of breweries,” said Watson (when we asked for his latest insights). “I still agree with the statement that, for a while, openings actually created more opportunities — by introducing beer lovers to the concept of fully-flavored local beer and growing the market — but there are certainly some signs that era is ending in certain markets and that competition is increasing.”
The feature on 2 Tones in the Dispatch reads like so many features that could be written on the 5,000+ craft breweries out there — long-time best friends who won some homebrew competitions and wanted to try their hand as a commercial operation. They hammered out a killer business plan, snagged a small business loan and started to brew while keeping their day jobs.
Sound familiar? (half of audience nods)
The part that is unfamiliar — at least as far as publicized stories during this boom go — is the unmet expectations. From the article:
2 Tones has 25 to 30 accounts, the business plan called for 40 to 50 by the end of the first year.
“We’ve gotten into some pretty good bars, but I hoped to get into a few more,” Hill said. “I knew it would be a challenge, but it feels like you are bothering people to sell your beer.”
McKeivier acknowledged that he thought their beer would sell itself to some degree.
“I was expecting more enthusiasm for a small startup,” he said. “There is a lot of competition out there, and I hate pressuring people; it’s not fun.”
The two haven’t made a dime this year. The closest 2 Tones came to breaking even in a month was October, which included a triumphant string of days at Circleville’s Pumpkin Show, where they went through 10 kegs.
We are definitely of the mind that there is room for a ton more breweries in the country. As Watson put it in that article “I still think we have a lot of run room nationally. There are over 8,000 wineries in the United States, and Americans drink a lot more beer than wine.”
But the 2 Tones anecdote might illustrate three things. 1) The obvious point that competition is just crazy now and getting crazier; 2) Timing is everything — you have to wonder what the 2 Tones story would have been if they launched in 2014 and established themselves; 3) Maybe distribution-focused business models are even tougher to make successful in 2017, at least in certain saturated markets.
The Dispatch article touches on that final takeaway:
“It is the whole push-pull dynamic,” said Mary MacDonald, executive director of the Ohio Craft Brewers Association. “Is it easier to pull them in to you or to push the beer out to them?”
For small operations, pulling is far easier than pushing, MacDonald said.
Brewpubs and taprooms are a better bet because they draw people in to try something new, build local brand recognition, and have better margins than selling kegs to bars.
“Taprooms are vital,” Davis said. “Especially for upstarts.”
McKeivier knows this and is plotting a move into a bigger space with a taproom, but he needs to staunch the financial bleeding first. That’s hard to do when you’ve made just 78 barrels of beer.
Bottom line, the beer business is still a business, so it is tough. But we still think 2 Tones is pulling through this over the long term. Ohio has 189 craft breweries open — 39 opened in 2016 while only two closed. We aren’t ones to bet against those stats just yet, or the power of a couple of friends, a brewhouse and a dream.