Last week we learned that Deschutes Brewery laid off 10 percent of its workforce. The company says that business growth fell short of expectations over the past two years, which led to layoffs. Basically, the company geared up for growth that was never realized. The announcement came last week and was reported by the Bend Bulletin.
“We have made the hard decision to reduce staff across sales, marketing and operations by 10 percent to match our sales volume,” Michael LaLonde, Deschutes Brewery CEO and president, told the Bend Bulletin. “This decision was extremely difficult to make, but necessary for the brewery given current market conditions and trends.”
“It’s hard to make a decision like this,” LaLonde said in a followup story in the Bend Bulletin. “We’re grieving quite a lot. We had staffed to grow with the company, so we had added a number of positions to do that.”
Along with this sad news, the company announced it continues to reevaluate its plans for opening an East Coast location in Roanoke, Virginia. As we reported last April, the company had already begun to rethink the East Coast expansion plan. The original plan was quite grand: an estimated $95 million project involving a 49 acre parcel of land.
Deschutes is the 10th largest craft brewery in the country, ranking 20th in overall beer sales by volume (craft and non-craft), according to the Brewer’s Association. In 2017 Deschutes brewed nearly 400,000 barrels.
Is this a sign that the craft beer industry’s bubble is about to burst? Well, that might be an overreaction, though there are always fatalists that interpret news like this as a bad omen for the industry. There are other forces at work here. The industry is certainly undergoing some readjusting and realigning, which isn’t surprising given the fact that nearly 7,000 breweries now bespeckle the country, the large majority of which opened in the past 10 years.
That said, there’s no guaranteeing that the sky is not falling. For the the Deschutes Brewery employees who recently lost their jobs, the health of the industry overall really doesn’t matter. We wish them nothing but luck and hope that the they can find other jobs in the industry.
What Does it Mean?
It is very difficult to wrap your brain around current beer trends in America. More and more breweries continue to open across the country, and overall growth in the craft beer segment continues to rise, while beer sales in the U.S. continue to fall. In 2017, overall beer sales fell by 1.0 percent, but craft beer sales rose by 5.0 percent (dollar sales, not volume sales). Although 5.0 percent growth is nice, it does represent a slow down compared to some previous years.
Economists who keep an eye on the beer business say that they’ve noticed that the slow down is particularly apparent with larger, legacy breweries, the category into which Deschutes Brewery falls. In fact, one local economist echoed this sentiment Bend Bulletin’s report.
There are reasons why the changing beer landscape is impacting these kinds of the larger regional and national craft breweries. Two factors that I recognize immediately involve innovations in packaging and a shift in beer enthusiasts’ tastes.
Compared to years gone by, today it is much more economically feasible for a smaller brewery to package its product and distribute it to retail outlets, like grocery stores, were the beer aisle was previously dominated by larger, regional breweries. This is because of innovations in the industry and because of some other factors, like smaller minimum orders for aluminum cans, among other things.
As more breweries spring up across the country, more people are getting used to drinking local beer. Smaller local breweries are like small boats, they can turn quicker and more often, which allows them to provide consumers with new, different beers. That’s kind of agility appeals to a lot of beer connoisseurs these days. And the aforementioned packaging innovations allow those beer to get to market.
There are a lot of factors at work here, but those are two things that immediately pop into my mind.
Deschutes Brewery does a masterful job of creating amazing beers and keeping themselves relevant in the market, so I mean no disrespect. The beer industry is dynamic and to stay viable companies like Deschutes must be willing and able to adapt. Deschutes is a pretty big ship, and the craft beer industry is now crowded with smaller boats. Deschutes knows this.
In the wake of last week’s news about layoffs, Deschutes Brewery announced that it has invested in a pilot brewing system and intends to start introducing new experimental beers in the fall of 2019. Also, the company will introduce a series of sour beers this coming summer.
“Innovation is really important now in the craft beer industry,” LaLonde told the Bend Bulletin.