Is Houston’s Brewery Scene Saturated?

Like the rest of the U.S., Houston has seen a well-documented brewery boom over the past few years. The Houston metro area (defined here, and throughout this post referred to as “Houston” (even though I personally cringe whenever I hear people carelessly refer to Houston’s suburbs as “Houston”)) went from 8 breweries at the end of 2011 to 45 at the end of 2017.

And that pace has been accelerating: Of today’s active TABC licenses in Houston, more than half of them were issued in the last three years. This includes several breweries that have yet to come on-line, indicating that the wave of brewery openings is still coming in.

TABC license count

This growth has paralleled the rest of the state and [by considerable lag] the rest of the country, where the number of breweries has gone from 2,000 in 2011 to 5,600 (+2,700 in planning) in mid-2017. As such, the question of, “Can we handle more breweries?”, has been addressed at every level, in every city, and by every beer journalist several times over. (Bart Watson, Chief Economist for the Brewers Association, is constantly digging into this.)

However, this has not stopped the question from being posed, especially in Houston. A new brewery opens, and a common reaction is something like: “Wow! Another brewery in Houston! Look at this fierce, cut-throat competition! I bet the other breweries aren’t happy about this! One would be crazy to open another brewery in this city!” This opinion is understandable, but I think it’s naïve. Let me explain.

The breweries opening today are drastically different than those 8 breweries in 2011, principally in terms of their size and distribution aim. In 2011, it was essentially illegal for a brewery to sell its beer directly to customers through its tasting room. The brewery’s only available channel was to sell through distribution (including self-distribution), where profit margins are significantly lower than direct sales: The brewery receives 20-30% of the price you pay at a retailer. Thus, in order to be a viable business, the brewery had to be big. Today, with the ability to operate a tasting room, a brewery can open with a fraction of the capital and overhead, and require a much smaller market than the big, distribution-focused breweries required pre-2013.

Even with a wave of breweries now operating in this newer image, I believe many of our Houston beer drinkers are still most familiar with Saint Arnold, Houston’s O.G. craft brewery. As such, when they see a new brewery open, they assume it must achieve a Saint Arnold-ish scale to survive. And if a brewery that size were cropping up every other month in Houston, I would agree this growth would be 2 Fast, 2 Furious. However, as an example of the scale of these newer, taproom-focused breweries, ours produces roughly 1% as much beer as Saint Arnold, and that may one day reach 1.5%.

One thing that often surprises people is that we think more breweries opening in the area is a good thing, and I think many other brewers share this sentiment. And it’s not just because we like drinking more local beer – we actually think it’s good for our business. Craft is still a small segment in Houston, and local craft is much smaller. The more craft breweries making good beer, the more people realize how great local craft beer is.

We even like the idea of breweries opening up within blocks from our location – it creates a destination for people, a great example being Ballard in Seattle, with 11 thriving breweries in 5 square miles. It’s common we have people coming into our brewery that aren’t familiar with our neighborhood, and when they’re ready to make a move, we’re happy to direct them to our neighboring breweries (and bars / restos). Further, when we’re in need of help, we’ve got neighbors with similar equipment, supplies, and skills to call upon. And we have great places to drink after / during work.

But how many is too many? Even if we’re dealing with small, neighborhood breweries and a growing market for local craft beer, that market must have some limit. I’m generally enthused about new breweries opening up, but if, on my two-mile commute today, I saw 30 breweries under construction, my territorial animal instincts would probably kick in.

One way to analyze this question is to use an analogy with a city in another state. Los Angeles (the metro area defined here) is twice Houston’s size, but both cities are sprawling metropolitan areas with humid climates, low air quality, and bad traffic. Using LA also portrays a more conservative estimate of demand than, say, Denver or San Diego, where the local beer scenes have flourished for well-over a decade. So, how many breweries per capita is LA currently supporting, and how does that compare to Houston?

brewery density

While LA is twice the size of Houston, it has thrice the number of operating breweries. It boasts 1.07 breweries per capita, whereas Houston has 0.66. LA also has 42 breweries in planning, lending strong support to the notion that its current breweries are easily finding demand. This means Houston may still have room to grow. In fact, to catch up to LA’s current level of saturation, Houston would need 27 breweries.

BPC

It turns out that Houston has 28 breweries in planning. If they all opened tomorrow, we would be on par with LA, except for the fact that LA also has more breweries opening, and Houston’s population is growing even faster than LA’s.

So, we think the Houston market is primed for more local craft breweries, and we think it’s a good thing for beer drinkers and local craft brewers alike. But it’s not a good thing for everyone. Houston, LA, and every other city in the country is experiencing this shift to more local craft breweries. As Bart Watson points out, 83% of the U.S. population now lives within 10 miles of a craft brewery.

It’s not hard to imagine what this means for large craft beer brands that must rely on markets outside their home turf to pay their bills. Take your beer into a market 200 or 2000 miles away, and you’ll probably find dozens of indigenous breweries selling fresh, delicious beer into that market. And the locals should buy your beer instead because… why? It’s definitely less fresh and probably less relevant. It might be cheaper, but at a difference of $1 per pint or $2 per 6-pack, who cares?

Maybe it’s a very special liquid, the likes of which no other brewery can produce. There are good examples of this, particularly in the realm of sour ales and spontaneous fermentations. Unfortunately, most large craft breweries were not built to produce these specialty products, but rather to produce a handful of core brands, many of which are in rapid decline.

The cracks started to show in late 2016 when large and ever-expanding Stone Brewing Company unexpectedly announced it was laying off 5% of its workforce, citing competition from Big Beer on one end and “hyper-local” breweries on the other. This month, IPA pioneer Green Flash announced it was pulling distribution from 33 states and eliminating 15% of its workforce. Such restructuring is an understandable effort to adapt to new market conditions, especially when considering the alternative: foreclosure, which Smuttynose Brewing announced last week for its 32,000 sq. ft., 75,000 barrel facility in New Hampshire — a state-of-the-art facility that was running at 50% capacity. The lead lender managing the foreclosure and upcoming auction offered his diagnosis: “It’s not the facility. It’s not the management. It is a change in what happened with 4,000 new entrants to the microbrew business.”

While I still believe that this wave is good for local craft breweries, it does not come without consequence for us. Standards of quality and pressure to innovate will continue to rise. “Local craft beer” will become a norm rather than a differentiator. Shelf space, tap wall space, and social media attention “space” will become increasingly crowded. These factors, and others, have vast implications for how we manage our brewery. So vast that I’ll need another blog post to cover it. Stay tuned…

2 thoughts on “Is Houston’s Brewery Scene Saturated?

  1. There are just too many craft breweries out there (both nationwide and Houston-based), and each craft brewery produces too many different varieties. I think we’ve reached Peak Craft Brew. Several years ago, just here in Houston, we passed a threshold after which any new brewery is just white noise. It seems like the business model for new breweries is to try to get big enough that they get bought out by a big national brand, the way Karbach did with AB InBev. That’s soulless. Houston now has 52 craft breweries. 52. We’re a big city, but we’re not that big that we need that many. The situation is exacerbated by the fact that every craft brewery has a whole slew of varieties, so that the varieties themselves become white noise. They’re doing very little to differentiate themselves from each other, so they’re stepping all over each other’s toes. Practically everyone makes a pale ale, a pils, some kind of wheat beer, oh, yeah, and now most of them have to do a Kolsche (and I’ve had real Kolsche in Cologne, sorry US breweries, none of you match the likes of Fruh), etc. Every craft brewery tries to be everything to every beer drinker. Jack of all trades is master of none. It would have been better if the breweries had each carved out a niche, stay focused on one style of brewing do one thing very well, have maybe 4 varieties that are available all year, max, plus one seasonal at a time. St. Arnold offers 12 year round beers, THREE of which are IPAs, and two amberish English style ales that aren’t that different from each other. And that’s not including the 7 seasonals they put out, or the limited releases (Divine reserves, Icon, Bishop’s Barrel). And I’ve noticed, as they grow, their quality is starting to slip.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s