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Deschutes Brewery is rethinking its plan to open an East Coast brewery

 

According to a report in the Roanoke Times, Deschutes Brewery is considering delaying or scaling back plans for a new brewery on  the East Coast. Back in 2016, after months of shopping around and courting local communities, the Oregon-based company announced that it had chosen Roanoke, Virginia as its East Coast home. The $95 million project was anticipated to employ 108 people in its first phase. The groundbreaking was planned for 2019.

Citing a change in market conditions, Deschutes now says that they are going to pause and reconsider the scale of its expansion. This decision came about one month before Deschutes was scheduled to close the deal on the purchase of 49 acres of land for the new facility.

On Monday, Deschutes CEO Michael LaLonde announced that the company saw a single-digit dip in its overall sales for the first time last year. As has been widely reported, although the overall craft beer industry continues to grow, some of the larger players have endured diminished sales.

According to an official statement from LaLonde, which the Roanoke Times cited, “Deschutes must act with adjustments of our own with regard to the scale and timing of our investments.”

Maybe they are adjusting the plan. Maybe they are scaling it back. Maybe they are abandoning it altogether. Time will tell.

Many people will look at this as another sign that the sky is falling. That the craft beer bubble is bursting. That the beer industry is about to regress back into the stone age or, worse yet, the Keystone age.

What I see is that some companies have maybe bitten off more than they can chew. Consider San Diego’s Green Flash Brewing, which recently found itself in bankruptcy, basically, because of its desire to take over the world. (Read about it here). The company recently had to cease operations at its 58,000 sq. ft. Virginia Beach production facility and release 43 employees. That facility just opened in late 2016. The company reported that it had taken on too much debt with the expansion. Now, after a new round of investors have jumped on board, Green Flash has massively retracted its business and plans to return to distributing its beer primarily west of the Rockies.

Remain Calm!

There are all sorts of negative terms thrown around these days regarding the health of the craft beer business. Words like saturation, over-crowding, and so on. I will not pretend to know what tomorrow looks like for the beer industry, but unlike a lot of people, I do not think we are teetering on the brink of disaster.

Here is what I do know for certain. Given the current state of the craft beer world, if I were a larger, regional player like Deschutes Brewery, I would be very careful about plans for big expansion. I think opening a huge new facility on the opposite coast of the continent qualifies as big expansion.

It seems to me that the craft beer industry is not shrinking or imploding; rather, it is retracting in on itself, with consumers favoring more local products. It’s getting denser, but not wider. Though the growth has slowed to a reasonable rate, the number of consumers reaching for craft beer continues to rise.  What I see is more people drinking craft beer, but less people drinking “big” craft beer. Everyone has their own definition of “big,” but it is a fact that breweries like Boston Beer, New Belgium, Sierra Nevada, and Deschutes have seen declining sales as more and more smaller-than-them craft breweries open up across the nation.

There was a time not too long ago when people in certain parts of the country had to rely on breweries from other parts of the country to provide them with good beer. At the end of 2007, there were 1,511 breweries in the U.S. At the end of 2017, there were 6,372 breweries in the U.S. Virtually every region of the country now has its own great breweries. That theory works on a smaller scale, too. In Seattle, every neighborhood now has at least one brewery to call its own.

The Old Dominion (that’s Virginia’s nickname) has plenty of its own breweries. How verily they would support a West Coast brewery remains to be seen. That brewery may be considered a carpetbagger.

In my opinion, which is no more valid than anyone else’s, when I look at the future I see more local breweries and less regional and national breweries. Maybe that’s just wishful thinking. After all, I started the Washington Beer Blog and not the World Beer Blog. I like to drink local. Am I alone?

As I said, I do not pretend that my opinions are anything more than my opinions. I do not pretend to know what the future holds. That said, to my thinking, this news from Deschutes was expected. I would have been worried about Deschutes if they had not reconsidered the plan. If I were them, I would stop thinking about the East Coast. I would focus on how to stay relevant in the places where Deschutes is already supported. I would focus on maintaining and growing market share in existing markets. I know that doesn’t sound as sexy, and it probably doesn’t offer he same opportunity of great financial returns, but it seems wise.

The craft beer industry is in its adolescence. Remember what that was like? It is adjusting. It is maturing. The smartest breweries will tread very carefully as we move forward. The others will fall by the wayside. It’s evolution.

As always, I am curious to hear what other people think.

 



5 comments

  1. Deschutes is a great local beer growth story. I would hate to see them overextend themselves. Thanks for the thoughtful commentary, Kendall!

  2. I think you’re totally spot-on with your analysis that people are drinking more local micro-brews. I don’t mean this to disparage some of the larger craft brewers (your Deschutes, Red Hook, even Elysian), but at some point on a personal level I’m looking for more variety and different choices. In some sense, I’ve “been there done that” with a lot of Deschutes, and while I still buy it from time to time (and never turn my nose up at one), it’s not my go-to.

    I’d love to see some of the bigger brewers using their store presence to offer a more rotating selection of their beers. If it’s new, and looks good, I’ll buy it.

  3. So much of this rings true with my evolution as a beer drinker. In the 80’s it was not easy to find a tasty local beer…I remember getting R.E.M. fan club info identifying regional tasty beers, probably based on their extensive touring. It was not a long list, but one I would take with me just to try and seek out something special.
    Now, I can’t keep up with all the new flavors and trends. It gets exhausting at times.

    One thing, among many, I love about Deschutes is they stay true to many of their year round beers (Black Butte Porter is one I can rely on) so I know what I’m getting. And then they experiment with interesting styles. I don’t see Deschutes as a big brewery jumping on the next big trend. Though, as you eluded to Kendall, the next big trend in Beer may be to try and be as hyper local as possible. Give me Skagit Malt, Yakima Hops, yeast carried on the wind off the Cascades, water from here, made and served by someone I know. If Deschutes embraces this trend, I would wholeheartedly support it and I would look forward to visiting them in Bend or Portland any time I was nearby.
    And I’ll drink an Abyss or Dissedent at home whenever the mood strikes.

  4. Hyper-local may be the way of the future, but I do not necessarily think larger regional players like Deschutes are doomed. Not at all. I don’t think there’s room for another Deschutes in the PNW. I don’t think young breweries should have that dream. As I stated, I think regional and larger breweries need to be very careful about expansion. Finally, I think Deschutes makes damn fine beer, that’s for sure.

  5. There’s a number of larger breweries with eyes on national distribution or near it that might be falling short of the mark. Watching some of the new expansions like Founders not meeting their projections is pretty telling.

    I think it’s even tough to be a semi-regional brewery. I’m really curious how Fremont will fare outside of Washington. That new brewery has a lot of capacity and the neighboring states are quite taking up the slack yet.

    I think Georgetown and Reuben’s found their comfort zones and only expand within reason. Each expansion gets exponentially more costly and has a chance of failure that can really disappoint the money lenders.

    From my vantage, really engaging your local community and expanding organically is the only way forward.

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