It should come as a shock to absolutely no one at this point that B.C.’s craft beer industry is struggling. So far this year we’ve seen brewery closures all across the province: Callister and Andina in Vancouver, Riot Brewing in Chemainus, Studio Brewing in Burnaby, Port Coquitlam’s Boardwalk, New Tradition in Comox…
The list goes on, but you get the idea.
After more than a decade of unprecedented growth things have gotten real for many B.C. craft breweries. Real bad.
So, what the heck is happening, anyways?
The answer, it turns out, is many things. The current woes of the industry are legion, sadly, creating a perfect storm of conditions to make life difficult for B.C. breweries, especially those too stubborn to change. And for craft beer lovers like me and you, that’s not good.
The current crisis has the potential to change B.C. craft beer forever.
And believe it or not, it could be for the better, for beer lovers and beer makers alike.
So, what went wrong?
Business partners Ralf Rosenke and Aly Tomlin opened the doors to Riot Brewing in Chemainus, halfway between Victoria and Nanaimo on Vancouver Island in 2016. The brewery, housed in a brand-new, purpose-built facility, spared no expense, and that commitment to making quality beer was evidenced by the many awards Riot’s beers garnered, including, notably, a gold medal at the 2018 World Beer Cup for their Working Class Hero Dark Mild.
But despite the brewery’s success at award shows and with B.C. craft beer fans, the brewery was struggling.
As a production brewery in a small market, Riot struggled with shipping costs necessary to get its beers to market. Additionally, the lease on their brewery and debt taken on to get Riot up and running soon became an albatross around their necks. Despite repeated financial restructuring, Riot was in the red.
Then bad luck started to plague the brewery. In December 2018, a freak windstorm knocked out power for almost four days during what would have been some of the busiest days of the year for the brewery, with thousands of dollars of product being lost due to the lack of refrigeration.
That led to cash flow issues resulting in Riot significantly scaling back operations in 2019 until new investors were brought on board to give the brewery a much-needed cash injection.
Then came COVID.
Tasting room sales dried up. Shelf space at retail liquor stores became harder to come by as every other brewery pivoted to packaged product.
Riot took out Canada Emergency Business Account Loans, but was ultimately unable to pay them back. The brewery got behind on its rent and the landlord sent bailiffs to seize assets, resulting in Riot closing its doors permanently this past January.
“Since coming out of COVID, it’s been really tough,” Rosenke told 89.7 SUN FM after the brewery closed its doors for good. “You’re grinding every day and trying to keep your head afloat. People can’t afford groceries. Craft beer is a luxury item, so we started seeing a decline in wholesale sales.
“I have a feeling there’s many people in our position, or soon to be in our position.”
A closer look
Riot’s story is far from unique. In recent years, many breweries that found themselves struggling to stay afloat prior to the economic turmoil of COVID are now sinking in its wake.
Skyrocketing commercial lease rates and production costs have resulted in tighter margins for craft breweries, as have labour costs as employers struggle to provide anything close to a living wage for employees.
Interest rates have more than doubled in the past five years, resulting in significant increases in debt financing costs for breweries that hold debt in the form of business loans and mortgages.
And while costs have risen significantly, on the other side of the ledger, sales have decreased sharply.
Ballooning housing costs and inflation have played a significant role in the decline of craft beer sales. When your customer base is paying double the rent they were paying five years ago, but their pay has increased by just a mere fraction of that, if at all, then there’s not a lot of money left over at the end of the month for $20 four-packs of Hazy Milkshake Triple IPA.
As noted earlier, there is also increased competition amongst craft breweries. COVID saw B.C. craft breweries pivoting to retail sales and investing in packaged product. But with close to 250 craft breweries across the province, and only so much shelf space to go around, the market is now saturated.
It all adds up to what could be a pretty bleak outlook for B.C. craft breweries. According to the B.C. Craft Beer Guild, between 10 and 15 per cent of B.C. craft breweries could close permanently this year unless something is done.
But despite all of this, some breweries are thriving and growing.
And what they’re doing is good news for craft beer lovers.
Back to basics… kinda…
While craft beer has been around for more than 40 years in B.C., it didn’t really take off until provincial liquor laws changed in 2013 to allow for craft brewery tasting rooms to be a thing.
For beer lovers, tasting rooms offered an approachable, low-key environment to drink delicious beer in and socialize close to home.
For breweries, they offered the ability to sell their beer on their own terms, to control the experience consumers have when drinking their beer, and to sell their beer at the highest margin possible with the lowest overheads.
What resulted, at least initially, was a massive growth of craft beer, with new breweries opening seemingly monthly. And they took chances! They experimented! They swung for the fences, and while sure, there were some strikeouts, there were just as many home runs.
But 12 years later, all across the province, there has sadly been a proliferation of banal, cookie-cutter tasting rooms offering the same boring beers in the same sterile environment. The same polished concrete floors and uncomfortable stools. The same pepperoni sticks and potato chips. The same pale ale, IPA, stout, and fruited sour. Yawn.
The problem is that many craft brewery tasting rooms and the beers they serve are just plain boring.
There, I said it.
Instead of swinging for the fences, many breweries are content to bunt.
So, is it any wonder that many breweries are seeing their tasting room sales falter?
It seems like when every B.C. craft brewery simultaneously pivoted towards retail sales during COVID, they neglected their tasting room in the process.
Many also stopped innovating. Brewing beer for retail means larger batches, lower margins, and way more work. As a result, craft breweries have far less freedom to get weird and creative and experimental with their beer when the bottom line is so tight. So, they play it safe.
Again: boring.
For craft beer to survive, craft beer needs to rediscover its creative streak. And the place for that to happen, is the tasting room.
What’s working and why
While many B.C. craft breweries have struggled over the past four years, many have also seen success. Jackknife Brewing in Kelowna is one such brewery that has seen modest year-over-year growth over that span. Instead of buying an expensive canning line during COVID, Jackknife expanded its patio and recently added more washrooms in order to increase its capacity. Instead of selling $20 four-packs of tall cans next to all the other $20 four-packs, they kept prices low and offered customers value where they could: in their tasting room.
“Our bread and butter is tasting room sales,” says owner Brad Tomlinson. “Our building is 4,000 square feet, so we’re trying to maximize that.
Now, the Jackknife tasting room isn’t for everyone, what with its heavy-metal-suburban-basement-rec-room-dive-bar aesthetic, its rather esoteric Norwegian-inspired kveik-based beers, and live music events featuring ear-blistering heavy metal and punk bands.
But the people it is for, love it. Like, a lot.
For Tomlinson, staying true to his vision for Jackknife and being genuine with everything he and his team does has been key to ensuring his customers continue to connect with Jackknife. It’s all about authenticity.
“People want everything all the time, so if you go against that, you can run the risk of alienating people,” says Tomlinson. “It’s not the Cactus Club experience, it’s a bit of a dungeon, but we’re leaning into our total vision for Jackknife. And that’s reflected in the beer and the merch and the food and the events we put on. We want to elicit emotion when you come into this place. And we try to do that by being deliberate and trying to keep it true to what we’re doing.
“You have stick to your guns.”
The way forward
Ken Beattie, executive director for the B.C. Craft Brewers Guild, isn’t surprised that Jackknife has been able to grow its business, given its approach. And they’re far from alone, from what he’s seen.
“The breweries that seem to be doing well are the ones spending time and resources on their tasting rooms more,” he says. “The tasting room is still key. That’s your brand identity. The heartbeat of the brand is the tasting room experience. From what I have seen, the people who have done that are doing very well.”
Food and entertainment offerings that are unique and very well done are key, Beattie has observed. Pepperoni sticks and potato chips don’t cut it anymore.
“If you don’t have food in your tasting room, you’re not going to have an easy time,” Beattie notes. “And you need entertainment.”
Ultimately, craft breweries are going to have to work harder to weather the current storm they are facing. Unlike 10 years ago, their simple existence is no longer a guarantee of success. And where they put in that work is just as critical, says Beattie.
Many brewery owners are working harder than they ever have in order to keep labour costs down and stay above water, Beattie has observed. However, that can create another problem: they spend so much time working for the business, they don’t have any time left to work on the business.
Another key component to the long-term success of the B.C. craft beer industry is the tax structure it operates under.
Beattie was part of a federal initiative working with the Canadian Craft Brewers’ Association to review how craft beer is taxed, to better allow smaller breweries the ability to turn a profit.
The B.C. Craft Brewers Guild is currently calling for the federal excise tax to be reduced by 50% on the first 15,000 hL of beer every brewery produces. That would amount to little more than $80,000 in savings annually: a drop in the bucket for macrobrewers like MolsonCoors or AB InBev, but it could be a life-or-death difference for a struggling craft brewery.
Additionally, the B.C. Craft Brewers Guild is in talks with the B.C provincial government to have them review how the B.C. Liquor Distribution Branch determines its mark-up on alcohol.
“It’s been a decade since we’ve looked at the provincial mark-up,” says Beattie. “Everything has changed, the pandemic has come, economic turmoil has come, so we’re meeting with government to ask for them to look at the tax structure. It’s not aligned with where the industry is at today.”
Beattie says the Guild has received positive feedback so far, and is cautiously optimistic.
“[The provincial] government is very supportive. Look at what they’ve done for the wine industry. They understand the impact this industry has on the economy. The economic spinoffs [of craft beer] impact farmers, tourism, trucking companies, retailers.
“I feel we have a strong case.”
The bottom line
Finding success in a crowded market rarely entails doing the exact same thing as everyone else. More often than not, the opposite is true.
Craft beer began as an iconoclastic reaction to the ubiquity of tasteless industrial macro beers. It offered people something different, something exciting and creative, yet still accessible.
But by refusing to take risks and trying to play it safe by appealing to all the people, all the time, craft beer runs the risk of becoming every bit as homogenous as the macro beers it initially rose up against.
For craft beer to survive and thrive, craft breweries need to get back to basics, focus on their tasting rooms, and just get weird with it, man.
And for the love of God, don’t be boring.
