More recently there has been ongoing debate of some sort of craft beer bubble bursting in PA. Many local and national publications have been producing content on whether or not craft beer is dying in a response to craft breweries announcing their closures. As a result we have decided to dive into the subject, run the data, and get a better picture of the state of Pennsylvania craft beer as 2023 comes to an end.

It is no secret that craft beer volume production has gone flat in PA. The Brewers Association report found that 2022 saw close to 100,000 less barrels of beer produced as compared to 2021.

With flat volume production also comes a fair share of closures. There is only so much craft beer to go around, and if more breweries are making less beer, an impact will be felt. The full data hasn’t been run yet, but if we look back at our own reporting we see that 11 breweries closed in all of 2022 as compared to 23 closures by the end of October of 2023. That equates to roughly 1 closure per month in 2022 vs 2.3 closures per month in 2023.

So why has 2023 seen an uptick of closures? There’s a lot of reasons for a business to close. Cost of goods, increased competition, lack of succession planning and more play into the equation. But what we think stands out the most is the higher than normal number of craft beer openings from roughly 5 to 6 years ago.

If you look at the data, in 2017 and 2018 over 70 net new breweries opened each year. That means more than 140 new breweries opened only 5 years ago. Those years are overwhelmingly the largest openings of craft breweries that Pennsylvania has ever seen. Compare that to 6 years prior in 2011 where only 88 breweries operated in PA. In just 5 years the state went through a historic boom of a more than 200% increase in new breweries.

So, the question still remains, what has caused an uptick of closures in 2023? Below we look at a few of the major factors.

What Goes Up Must Come Down

No hospitality industry can sustain the kind of growth the PA craft beer industry has seen for the long haul. The restaurant industry notoriously has an 80% fail rate after 5 years of business. If you apply that fail rate to the 140+ breweries that opened during that time, you’d be looking at close to 100+ breweries closing their doors in 2022 and 2023. However, we aren’t seeing those numbers. As of this writing the fail rate for the brewing industry is closer to 10%, a full 70% away from its industry counterpart.

But the point remains. If you are going to have a year or two of larger than normal growth you are going to see an impact many years later in the opposite direction. Five years removed from this “craft beer boom” and you are starting to see a standard fail rate at play. Is it really a bubble burst or is just a natural fail rate?

Cost Of Goods

An area that has hurt many small businesses is the amount it costs to make a pint of beer as compared to 5 years ago. In 2022 the US inflation rate was hovering around 8%. You compare that to 2017 when it was around 2%. The fact of the matter is that the cost of ingredients to make a beer was eating away at businesses bottom lines much more than during the “craft beer boom.” A small business can only sustain this for so long before difficult decisions have to be made.

Increased Competition

The “2017/2018 craft beer boom” (as we will call it) was a different climate. When breweries were opening during that time there was not nearly the competition in craft alternatives that there are now. Seltzers, Ready To Drink (RTD) cocktails, and hard sodas/ teas occupied a small amount of market share all those years ago.

According to Statista, the hard seltzer market share was 496 million dollars in 2018. Compare that to 4.6 billion in 2021. That is an increase of over 800%. The truth of the matter is that there is more external competition for your customers dollars.

Is It All Bad?

While the numbers of closings in the state may be on the rise, it is far exceeded by the number of new openings and expansions. The truth of the matter is that if you only focus on the closings it is easy to paint a morbid picture of the state of craft beer. We find it important to look at the bigger picture. During the same time as the 23 closings in Pennsylvania, there were 47 breweries who either announced an opening or expansion. While the outlook may look dark for one business, this does not mean the same for all businesses.

Conclusion

So where does that leave us? There is no doubt that brewery closures are on the rise. Consider all the factors mentioned above and times are tough for the brewing industry right now. But is it the sign of some bubble burst, or market adjustments after years of historic growth?

In our humble opinion the truth of the matter is that due to the larger than normal number of breweries that opened during the 2017/2018 boom, a “righting of the ship” was always coming. The number of net new breweries opening 5 years ago was more than double any year before or after. A larger than normal number of openings will almost always result in a larger than normal number of closures many years later.

At the end of the day just riding a wave of popularity and excitement isn’t enough to run a sustainable business. Marketing, sales, quality control and more go into successful craft beer business ownership to survive difficult times. This notion that small businesses could cash in on a booming market and not be prepared for difficulties as they arise is just not a sustainable business model. And that has been what we are seeing in 2023. Cost of ingredients, increased competition, market fatigue all play into why a business may close its doors. But the truth of the matter is that while these factors are not ideal, the idea that an increase of brewery closures would not be consistent with a “bubble burst”. Rather we are of the belief that it is a market adjustment during lean times coming off a boom of so many years ago.

The data shows that breweries are still working as much as ever to either open or expand. Economic conditions may have changed, but the dream of small business ownership remains strong. The number of breweries operating in Pennsylvania remains as high as ever. To suggest a sort of “bubble burst” ignores these facts. In addition, it also ignores that we live in a different world as compared to so many years ago. There is absolutely no doubt that times are tougher for the industry, but those that make it to the other side will be much better off for it. And so will we as craft beer drinkers.