WHY IT MATTERS

In many ways, these closures epitomize key challenges of today’s industry. It’s become increasingly difficult for some breweries to remain culturally and fiscally viable and manage distribution in a time when own-premise sales drive more growth than ever—now about 12% of Brewers Association-defined “craft” volume.

“For these mid-sized breweries that deal heavily with distribution, it’s a tough market right now,” says Paul Leone, executive director of the New York State Brewers Association. “Shelf space has not increased, tap handle space has not increased, but more breweries have entered the market, making it challenging for breweries that rely on distribution.”

Younger businesses with the advantage of understanding today's market and models to succeed aren't afraid to jump in, however. Leone notes that a new brewery opens every 8-10 days in New York, and 2019 is likely to have around 50 openings and single-digit closings, the same as last year.

In Cazenovia, it appears that Empire Brewing Company owner David Katleski took on too much at the wrong time, opening a 42,000-square-foot brewery and tasting room that cost $6 million. According to Syracuse.com, those moves made it the sixth-largest brewery, the fourth-largest Brewers Association-defined "craft" brewery, and the largest farm brewery in New York State when it opened in 2016.

As is the story with many other American breweries, competition got the best of Empire. The number of breweries in the state has grown by approximately 200 since 2016, with about a third of the 458 total spread across the Upstate corridor that stretches roughly from Buffalo to Albany, depending on who you ask. Ironically, Katleski was pivotal in helping this come to pass—he worked to modernize New York's beer laws to encourage growth in farm breweries.

"Sometimes I look at how hard I fought to give brewers in New York all these incredible rights to expand and compete in the way that America was founded on," he said in 2016. "Then there's other days when it's like: Be careful what you wish for!"

Katleski's brewing operations slumped mightily last year in total production, and Empire’s total sales in grocery, convenience, and other chain stores also nosedived. According to IRI, a market research firm that compiles scan data from these stores, the Empire family of brands was down 19% in the most recent 52-week period in New York, and had sold just 54% of 2018's total through two-thirds of this year.

All this put Empire in the position of owing millions to at least 12 different creditors. Some relief will come from the $3.25-million sale of Empire Farm Brewery's taproom and other assets.

CB Craft Brewers’ cash-flow problem stems from the loss of its contract business, which it seems the company needed to rely on more heavily as drinkers showed waning interest in CB’s own beer. Owner Mike Alcorn told the Democrat & Chronicle that his flagship beer, Caged Alpha Monkey IPA, was selling half of last year's volume across package and draft. In IRI tracking, the brewery's entire family of beers had decreased sales in New York by 37% in chain stores in the most recent 52-week period, and had barely sold 50% of last year's output at 2019's two-thirds mark.

As noted by the D&C, CB’s home and two closest counties now have about 50 breweries. That’s a far cry from 1997, when CB was just the second craft brewery in Monroe County and became a pipeline for talent that spread across competing local businesses. Add these factors compounded on an inability to sell its own beer, and CB was set up for a fall.

Aided by expansion, Empire's full array of brands hit a record high in New York State IRI sales in 2017, but fell precipitously since. CB's portfolio peaked in 2015, decreasing by 43% in the following three years.

"It's a competitive market out there, and even when you're known for your IPA, every new brewery is coming out with a new IPA that's localized and everybody is excited about it," says Ithaca Beer's Dan Mitchell. "All of this has taken a major effect on the wholesaler networks. Maybe not in our immediate home market, but as soon as you go out a little, we become 1% at best of [a distributor’s] business.”

The challenge of packaged sales, along with the unexpected installation of Ithaca Beer’s pH equalization system, was cause for a 3,400-BBL decline in 2018. These levels have stabilized, Mitchell says, but the brewery’s current output of about 20,000 BBLs is still significantly lower than its peak of almost 25,000 BBLs in 2015. Some level of comfort could come from a proposed tax abatement restructure, which would save the brewery about $484,000 in taxes over the next five years, but that plan would still have Ithaca Beer paying back its required money over a longer period of time.

A public hearing to discuss the proposal is set for Sept. 6, and any decision would require approval from local government.

Mitchell, who says his company has paid about $24 million in payroll over the last 20 years, and provides $80,000–$90,000 of property taxes each year on top of any sales and income tax paid to Ithaca and Tompkins County, views this relief as necessary. Without assistance, he fears he'll have to shed jobs, something that larger breweries from Summit Brewing Co. and Stone Brewing, to Ballast Point Brewing Company and more have faced in recent years.

In many cases, slumping sales and unforeseen expenses act as a weight that drags down businesses.

To lighten the burden, Mitchell and his team have worked to release more new brands and new package styles, including Ithaca Beer’s popular Box of Hops IPA variety pack. He’s also aware of the value of driving foot traffic to his restaurant and taproom while relying on his flagship Flower Power IPA to keep distributors happy. That beer reflects 60%–70% of production, depending on time of year, but has seen a decline in New York’s IRI chain stores by 9% in the most recent 52-week period.

“There are so many more small breweries creating so many new brands that our consumer is now looking for something new,” he says. “The traditional model was that you once tried to run with one horse, and that was always Flower Power, but business models have changed.”

And that seems to be the rub for these three breweries, which are only the newest examples in a growing list of longer-tenured companies facing necessary change. The factors that got these businesses to this point—reliable flagships, distribution, less local competition—have now changed drastically. If 85% of legal drinking-age adults live within 10 miles of a brewery at a time when more people are patronizing those locations directly instead of buying from stores, breweries relying on models that worked years ago will likely find themselves in a vulnerable position.