About that “North Texas Craft Beer Bubble”

If you hadn’t heard by now, Firewheel Brewing Company in Rockwall, TX closed its doors last weekend. This inevitably lead to some spirited discussion on whether this is the first victim of the “North Texas Craft Beer Bubble” or not.

A perspective.

First, Firewheel is not the first North Texas brewery to close its doors. That sad honor went to Independent Ale Works in Krum, TX way back in August 2014. However, Firewheel is the first one of a considerable size, notoriety and with a decent distribution channel to call it quits. Obviously there is lots of speculation on the possible causes for this closure, but since I have not personally spoken to the only people that know, I am refraining from joining the world of rumors. I want to consider whether there is a “North Texas Craft Beer Bubble” or not.

The Naysayers

Many naysayers will highlight statistics such as the number of breweries per capita in states like Oregon, Colorado, etc. But are those statistics even representative and applicable to Texas ? In the number of breweries per capita, Vermont ranks first with 1.6 breweries per capita. Heck, in that ranking Texas is a miserable 44th with 0.6. Then again, I can drive across Vermont from North to South in about 2 hours, less than the time it takes me to drive to Austin, and it boasts a population of about 630,000 people. They have 40 breweries for that population, all very much within driving distance from each other, for a population 1/10 of the DFW metroplex. So should we expect that we can sustain 400 breweries in DFW ?

Perhaps a better statistic is therefore to look at larger metropolitan areas ? Fellow beer blogger and research guru Andrew Schwab did a really good job of that in an article back in September. Highly recommended reading !

My nagging question however is whether those comparisons are even realistic. Can you compare the consumer in North Texas to one from Oregon, Colorado or Vermont ? Are they the same demographic ? Do they really look for “craft” beer in their consumption pattern ? My position is one that isn’t liked very much as I am one of those that errs on the side of caution in using these comparisons. If all my years in the consumer goods industry have taught me anything, it is that one cannot compare markets without solid demographic backing. Let’s face it. Texas doesn’t (yet) share the same love as folks from Oregon or Colorado. Not for the grassy goods and not for the craft beer.

The Yay-sayers (If that is even a thing)

Those that advocate there is a craft beer bubble about to burst, will highlight the occasional closures, the growing competition for available tap and shelf space. They will recount examples of bad quality or infected beers. Even worse. On occasion, they will actually attack struggling breweries and brewpubs with statements that actually don’t help anyone. They will quote the rapid expansion, currently around 1.7 craft breweries per day across the U.S., to which they exclaim that “It cannot continue like this“.

Although I agree with some of these arguments, not only are they not new, they have been discussed at length for the last several years. There are several excellently written articles lately by some people with may more knowledge of the beer industry than me. Google “Bart Watson”, who is the economist of the Brewers Association, and you will find many of his valuable insights out there. There is actually some numerical evidence out there that seems to indicate that breweries and brewpubs are beating industry success rates quite considerably. In other words, not as many breweries and brewpubs fail as businesses in other areas.

So where do I stand ?

I think we are going to see some fall-out on a variety of fronts driven by three main factors

  1. Quality: For a while breweries could get away with mediocrity. That is no longer the case. To compete, you have to have high quality. Retailers now have the luxury of choice and bad quality will get you booted quickly. Worse. Once you have a stigma of bad quality, few people will come back to try you again (sadly, because I have seen several improve dramatically after 6 months to a year of operation)
  2. Creativity: There seems to be a certain modus operandi in which every brewery has a pretty wide overlapping portfolio with the one a few blocks away. Those that can instill some creativity without producing undrinkable Frankenstein-brews will have the upper hand. In addition, creative limited releases generate interest and therefore clientele. “Think outside the box, but don’t lose sight of the box” is a statement I heard several years ago. Do something new…but remember it still has to be a drinkable beer.
  3. Distribution: As a distributor is flooded with more and more beers without increasing shelf space or tap handles, it becomes more and more difficult for them to get your product at the forefront with a retailer. It has to be the top in items #1 and #2 above to give you an edge over the competition. In addition, managing SKU’s is a nightmare for both distributor and retailer. I wonder how they will be able to keep up with the influx, so I think that slowly they’ll have their choice as well of only picking those with high quality and creativity.

If a brewery can take care of those three,  I think there is definitely still room left in the North Texas beer market. I don’t believe there’s a bubble (yet). Competition is definitely growing, giving consumers, distributors and retailers the luxury of choice. Yet I think there is ample room in North Texas for creative brewers who can consistently deliver high quality beers. Marketed well, these will continue to generate interest and a loyal following. I also have a feeling there will be a higher success rate in the concept of smaller brewpubs in certain “white space” areas around North Texas that focus on the local under served market.

Yes, the occasional brewery or brewpub will fail over the next several years. But I would call that far from a “Bursting Bubble”. I’d call it a consequence of our growing pains.

 

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