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How’s the San Diego beer industry doing? It depends who you ask

Stinging small brewery losses undercut reports of economic impact

Miralani brewery 2kids Brewing Co. will close after its sixth anniversary party the last weekend of September.
Miralani brewery 2kids Brewing Co. will close after its sixth anniversary party the last weekend of September.

Last week, the San Diego Brewers Guild revealed that 2018 saw local beer production increase to 1.1 million barrels. The economic numbers likewise continued to rise, with craft beer alone accounting for $848 million in revenue, for six percent growth and an estimated economic impact of $1.2 billion. Through a wide-angle economic lens, things keep looking bright for San Diego beer.

However, there’s a less sunny view to consider. Three days after the report came the news Miramar nanobrewery 2kids Brewing Company would be the latest local brewery to shut its doors, ceasing operations at the conclusion of a sixth anniversary party in the last weekend of September. This follows a yearlong skid among San Diego breweries that saw roughly a dozen shut down, including Intergalactic Brewing, Council Brewing, and Benchmark Brewing.

Many factors contributed to individual closures: increased competition and the rising cost of real estate, energy, water, and labor are a few. What they mainly have in common is a sense of surprise. If public perception is that San Diego beer is perennially on the rise, the loss of small breweries recognized as the plucky soul of local industry suggests otherwise.

“Nobody’s getting rich in beer,” says Rachael Akin, who operated Benchmark with husband and brewer Matt Akin for six years prior to shutting down in June.. While economic growth reports and the billion dollar sale of Ballast Point four years ago propagated the image of a beer gold rush, when Akin speaks with small brewery contemporaries, a different story emerges. “A lot of breweries are struggling,” she says, adding, “There will never be another Ballast Point.”

Led by Stone Brewing’s 400 thousand barrels and Modern Times Beer’s 40 percent growth, the 2018 gains of San Diego’s mid-size, regional breweries, which ship beer out of our market, have been enough to obscure the losses of hyper local brewers producing fewer than two thousand barrels annually. Out of about 145 San Diego beer companies, the county’s largest seven account for nearly two thirds of that 1.1 million barrels.

The closing of successful small brands reveals exactly how narrow the margins of success can be and how little margin for error. Benchmark had been thriving prior to signing with a distributor that jolted business in the wrong direction to the tune of six figures in lost revenue. In the case of 2kids, co-owners Sam and Rob Dufau were feeling optimistic only three months ago.

“It’s been a really good year for us, and we thought maybe this was our chance to grow,” explains Sam Dufau, the nanobrewery’s head brewer. Those plans were dashed, she said, by the 2kids landlord, who informed them to expect a 50 percent increase in rent of their tiny warehouse space when their lease expired this fall. For the married couple, who work full time running the brewery by themselves, the increased overhead was significant enough to make their most successful year in business, their last. “It’s a bummer,” Dufau says, “because it was actually working for us at the lower rental rate. But with that increase, it’s just too much.”

When 2kids first moved into this Miralani Road business park, half the suites were empty. Other breweries followed 2kids to the area, and now the park thrives as part of the Miralani Makers District, with a dozen beverage producers and food purveyors filling all those empty slots. Ironically, the economic impact 2kids helped bring to Miralani will now result in their ouster.

“We are always sad to hear of any local craft brewery shutting down,” says Matt Zirpolo, president, San Diego Brewers Guild and co-owner, Burgeon Beer Co. While acknowledging the difficulty many of its members face in an increasingly competitive climate, he notes the report depicts a slowing of growth over past years, so the primary message is less that everything is rosy, and more that “the craft brewing industry in San Diego County continued to have wide-reaching financial influence throughout the region.” He adds, “Much like national industry trends, our report shows signs that the craft beer sector in San Diego is also maturing and stabilizing.”

Brewers Association chief economist Bart Watson, who follows national trends for the national trade association, suggests the performance of small and mid-sized breweries may not be as mutually impactful as they once were. “If there is a correlation, it’s probably pretty weak,” he says. While national trends have shown regional breweries shrinking with small breweries picking up the slack, he speculates San Diego could be seeing what comes next, as the maturing craft market continues to shake itself out. “With a density beyond that of most places, San Diego may be starting to diverge from national trends,” Watson says, “it really is one of the most mature markets in terms of share, numbers of breweries, etc.”

For the moment, we're left to wonder what a more mature beer market will look like for the future of San Diego nanobrewing.

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Miralani brewery 2kids Brewing Co. will close after its sixth anniversary party the last weekend of September.
Miralani brewery 2kids Brewing Co. will close after its sixth anniversary party the last weekend of September.

Last week, the San Diego Brewers Guild revealed that 2018 saw local beer production increase to 1.1 million barrels. The economic numbers likewise continued to rise, with craft beer alone accounting for $848 million in revenue, for six percent growth and an estimated economic impact of $1.2 billion. Through a wide-angle economic lens, things keep looking bright for San Diego beer.

However, there’s a less sunny view to consider. Three days after the report came the news Miramar nanobrewery 2kids Brewing Company would be the latest local brewery to shut its doors, ceasing operations at the conclusion of a sixth anniversary party in the last weekend of September. This follows a yearlong skid among San Diego breweries that saw roughly a dozen shut down, including Intergalactic Brewing, Council Brewing, and Benchmark Brewing.

Many factors contributed to individual closures: increased competition and the rising cost of real estate, energy, water, and labor are a few. What they mainly have in common is a sense of surprise. If public perception is that San Diego beer is perennially on the rise, the loss of small breweries recognized as the plucky soul of local industry suggests otherwise.

“Nobody’s getting rich in beer,” says Rachael Akin, who operated Benchmark with husband and brewer Matt Akin for six years prior to shutting down in June.. While economic growth reports and the billion dollar sale of Ballast Point four years ago propagated the image of a beer gold rush, when Akin speaks with small brewery contemporaries, a different story emerges. “A lot of breweries are struggling,” she says, adding, “There will never be another Ballast Point.”

Led by Stone Brewing’s 400 thousand barrels and Modern Times Beer’s 40 percent growth, the 2018 gains of San Diego’s mid-size, regional breweries, which ship beer out of our market, have been enough to obscure the losses of hyper local brewers producing fewer than two thousand barrels annually. Out of about 145 San Diego beer companies, the county’s largest seven account for nearly two thirds of that 1.1 million barrels.

The closing of successful small brands reveals exactly how narrow the margins of success can be and how little margin for error. Benchmark had been thriving prior to signing with a distributor that jolted business in the wrong direction to the tune of six figures in lost revenue. In the case of 2kids, co-owners Sam and Rob Dufau were feeling optimistic only three months ago.

“It’s been a really good year for us, and we thought maybe this was our chance to grow,” explains Sam Dufau, the nanobrewery’s head brewer. Those plans were dashed, she said, by the 2kids landlord, who informed them to expect a 50 percent increase in rent of their tiny warehouse space when their lease expired this fall. For the married couple, who work full time running the brewery by themselves, the increased overhead was significant enough to make their most successful year in business, their last. “It’s a bummer,” Dufau says, “because it was actually working for us at the lower rental rate. But with that increase, it’s just too much.”

When 2kids first moved into this Miralani Road business park, half the suites were empty. Other breweries followed 2kids to the area, and now the park thrives as part of the Miralani Makers District, with a dozen beverage producers and food purveyors filling all those empty slots. Ironically, the economic impact 2kids helped bring to Miralani will now result in their ouster.

“We are always sad to hear of any local craft brewery shutting down,” says Matt Zirpolo, president, San Diego Brewers Guild and co-owner, Burgeon Beer Co. While acknowledging the difficulty many of its members face in an increasingly competitive climate, he notes the report depicts a slowing of growth over past years, so the primary message is less that everything is rosy, and more that “the craft brewing industry in San Diego County continued to have wide-reaching financial influence throughout the region.” He adds, “Much like national industry trends, our report shows signs that the craft beer sector in San Diego is also maturing and stabilizing.”

Brewers Association chief economist Bart Watson, who follows national trends for the national trade association, suggests the performance of small and mid-sized breweries may not be as mutually impactful as they once were. “If there is a correlation, it’s probably pretty weak,” he says. While national trends have shown regional breweries shrinking with small breweries picking up the slack, he speculates San Diego could be seeing what comes next, as the maturing craft market continues to shake itself out. “With a density beyond that of most places, San Diego may be starting to diverge from national trends,” Watson says, “it really is one of the most mature markets in terms of share, numbers of breweries, etc.”

For the moment, we're left to wonder what a more mature beer market will look like for the future of San Diego nanobrewing.

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Comments
3

50% increase in rent shouldn’t be legal......it’s driving people out of business....we need more rent control here.

Aug. 23, 2019

What an uninformed and silly comment. Rent is a business cost, as are hops, barley and water, all of which have increased in cost. Is it possible that in 2010 or 2011 that the landlord (whose “business” is real estate btw), made half of what they “should” have made due to the recession and high vacancy? Supply and demand.

Speaking of supply and demand, that’s why this isn't working, not the rent. Everyone thinks they can own a brewery, there’s just too darn many. The market is saturated. There’s only so much shelf space and too much competition. Brewers will have to get creative in order to succeed.

Aug. 25, 2019

Business is business. It's tough out there.

Aug. 25, 2019

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