Craft brewing is no more likely to crash and quickly disappear than the restaurant or movie industries, despite seemingly dark times where fans may lose their favorite local brewery.
Once upon a time (also known as the late 1990s to early 2000s), the Texas craft beer industry lived on an economic bubble. Commercial growth outstripped the market and that bubble tragically burst, and many good breweries closed. Craft beer fans were very sad, and have since cried Bubble! every time a craft brewery experiences trouble or is forced to close.
This idea happened once. There is no more “bubble,” nor is another one likely.
The past four to six weeks have been rough for some breweries and craft beer consumers in North Texas. At least four local breweries have been forced to close entirely (Ash & Ember Brewing, Big Spray Brewing, Shannon Brewing, Walking Beam Brewing), with one (Pegasus City Brewery) closing their original taproom to consolidate operations at their downtown location. Likewise, the longstanding craft beer bar Strangeways announced its closure after 12 years of championing the craft beer market in Dallas. Similar nervous whispers can be heard creeping from the Austin and Houston markets, as well as on a national scale in some cases. Admittedly, this is a lot of bad news saturating social media for weeks at a time.
But the domestic craft beer industry has grown and matured these past decades into a legitimate commercial industry, fully integrated into the consumer food and drink sector both locally and across the country. Dedicated craft beer bars have seen a decline because restaurants with 20 to 40 (or more) craft taps are no longer rare. Breweries continue to make advances in the state legislature that open new revenue opportunities and make Texas more competitive compared to other states.
Craft brewing is no more likely to crash and quickly disappear than the restaurant or movie industries, despite seemingly dark times where fans may lose their favorite local brewery. (Never mind that in this same timeframe, six new craft breweries opened locally.) The craft beer market will vary up and down, it will experience financial spikes and dips, but there simply is no more overextension or oversaturation (“bubble”) to burst.
This idea happened once. There is no more “bubble,” nor is another one likely.
So what is going on in the North Texas craft beer scene? Closures are rare but not nonexistent, and a cluster of many so close together does raise questions both about the industry and the economy in general. Examining these events with a slightly cooler head does reveal some real-world truths behind the panic.
Economic Recalibration
From a macroeconomic view, October has historically been a volatile month for the financial sector dating back to the stock market crash of 1929 and again in 1987. With the end of the third quarter and beginning of Q4 on October 1st, some experts refer to this as the “recalibration effect.” Investors and financial institutions are looking ahead to their end-of-year results, and may be forced to make significant adjustments to their portfolios to reach their stated goals by January of the new year. The subsequent high-volume trading can generate some financial turbulence, which may endanger businesses that may already be at risk of failing.
Buying or Selling a Business
October is the best time of the year to buy or sell a business, in part for the same reason listed above. Buying a struggling business at the start of Q4 allows months for deals and paperwork to be finalized prior to the new tax year starting on January 1st, with related profit/loss booked on the current year rather than rolling over to the next. From a struggling brewery standpoint, this allows for resolution and complete liquidation of assets to clear that same tax timeframe and begin the new year without lingering financial issues.
Declining Sales, Rising Inflation, Pandemic Woes
From a more direct perspective, several low-level financial forces are still working against small businesses that may push some to the financial edge at any time during the year. Consumers in general are purchasing less craft beer than in previous years as alcohol alternatives continue to cut into craft beer sales nationally. Prices for brewing ingredients—grain, hops, yeast—continue to rise dramatically, as do the prices of brewing equipment, packaging supplies (aluminum), labor and rent.
Add to these financial forces the end of summer and its related focus away from vacation and tourism more to “normal” life, and all sorts of consumer and service industries take a hit this time of year. Consumers shift their spending habits to back-to-school, family events and preparations for the approaching holiday season. Also bear in mind the local weather of the past year to date, with months of summer drought conditions for North Texas and the associated utility bills and wear and tear on property maintenance.
And as much as we would like to forget the COVID-19 virus and its widespread effects on society, public health and economics, the pandemic (Public Health Emergency) was only declared officially “over” in May of this year by the World Health Organization. These effects linger even today, straining businesses with unanticipated expenses and possibly lower sales than projected, and any financial assistance (federal or private) may be ending or coming due.
This message is not meant to minimize the pain that comes with the failure of any craft brewery, local or otherwise. For those personally involved, this is a financial crisis that can significantly affect their lives and livelihoods. But stepping back for a wider perspective, these events are not a bubble but just unfortunate waves in a wider ocean that is (hopefully) fairly steady for the foreseeable future. PH
