March | April 2017

The Macroeconomics of Microbreweries

Craft Beer Makers May be Small, but They Boost Jobs, State Revenues

By Jennifer Ginn, CSG Associate Editor
Although they live on opposite sides of the country, Oscar Wong and Van Havig had similar problems when they were in college. They both liked beer and neither one could afford it.
“I like to joke around and say I got into home brewing for the Canadian reason,” said Havig, who attended college in Portland, Ore. “In Canada, beer taxes are really high, (so they brew their own). In the late ’80s, I was a graduate student at the time and I had no money. I liked to drink good beer and I couldn’t afford it.”
Wong was an engineering graduate student at Notre Dame when he and a friend began home brewing.
“In grad school, we were not very well off and we did not want to cut back on our beer,” Wong said. “We had to eat, so we couldn’t cut back on food that much. … It (home brewing) is a lot less expensive and it wasn’t very good, but it still had alcohol in it.”
It’s safe to say that both men have gotten better at brewing beer since their college days. Havig is co-owner of Gigantic Brewing in Portland. Wong is owner of Highland Brewing in Asheville, N.C. They’re beer lovers, entrepreneurs and job creators—just the kind of people more policymakers are hoping to find in their own states.

Weathering the Storm

With the country still recovering from the Great Recession, beer sales declined by 1.3 percent overall in 2011, according to the Brewers Association, an organization dedicated to protecting small and independent American brewers. Craft beer, however, has been a different matter. In 2011, sales of craft beer rose 13 percent by volume and 15 percent by dollars as compared to 2010.
According to the Brewers Association, craft brewers are ones that produce less than 6 million barrels of beer a year, with less than 25 percent of the company owned or controlled by a large alcohol producer or brewer.
Business for craft brewers is good, said Paul Gatza, director of the Brewers Association.
“This year, we’re seeing a record number of breweries opening, (the most) since Prohibition was lifted,” Gatza said. “It looks like we’re seeing breweries opening about one a day on average now. We’ve gone from 1,500 (breweries) seven or eight years ago; right now, we’re closing in on 2,300. Things are definitely booming.”
Those breweries also can mean big business for states. Craft brewers provided almost 104,000 jobs and created $8.7 billion in retail sales across the country in 2011. According to state brewing associations, craft brewing contributed $3 billion in total economic impact in California in 2011. In Texas, it generated almost $76 million in sales and $16 million in state and local tax revenue.
Here’s how three states—all in different stages of development—are trying to maximize the potential of craft beer within their borders.

Portland—Still Going Strong

Craft beer, in Portland, is big business.
“We’ve got over 120 brewing companies in Oregon, operating over 150 facilities,” said Nathan Buehler, marketing and communications manager for Business Oregon, the state’s business development department. “Portland itself has 51, more than any other city in the world. It really started in the ’80s, when brewing made a comeback and people started to appreciate craft beer as a craft.”
Craft brewers have been setting up shop in Portland for almost 30 years.
Buehler said Portland became home to a beer culture for a number of reasons. Oregon and Washington are the nation’s biggest producers of hops—the grain that gives beer its bitter bite.
Portland’s live-off-the-land and buy-local attitude also have helped craft brewing thrive, Buehler said.
“I live in northeast Portland,” he said. “I’ve got three brewpubs within a 20 block radius. That’s just an average neighborhood that I live in. Now you’re really seeing restaurants adding on brewing facilities to make a unique product. … It’s truly become this unique craft.”
Havig, of Gigantic Brewing, said his company started brewing in April 2012 and already has sales of about $70,000 a month. Although craft breweries typically are fairly small, he said, they’re good employers.
“Craft is what I like to call delightfully inefficient,” Havig said. “There’s a lot of tiny producers, all have really inefficient brewing processes. With those delightfully inefficient processes, we require a lot of people, a lot of time and lot of materials and we produce really interesting $5 bottles of beer. … These are good, solid, family-wage jobs.”
Brian Butenschoen, executive director of the Oregon Brewers Guild, said the state has done two things that have helped brewers to thrive. Oregon has a low excise tax and the state legislature passed a beer pub law in 1985, which lets breweries sell their product over a bar. That law went into effect Oct. 31, 1985, Butenschoen said, and the first brewpub opened later that year. Now, Oregon is home to more than 200 brewpubs.
Havig said small producers also thrive in Oregon because of strict regulations on alcohol producers and distributors. Producers can’t give bar owners so much as a coaster, which is designed to give all brewers a fair shot at entering the market.
“It’s the right kind of regulation,” he said. “It’s the kind of regulation that guarantees a level playing field. We’re selling beer based on our merit.”

Asheville, N.C.—The Up and Comer has named Asheville, N.C., Beer City USA four years in a row. Wong, of Highland Brewing, was the first legal brewer in the area since Prohibition when he set up shop in 1994 in the basement of a pizza place.
Wong had sold his design business in Charlotte, N.C., and was looking to retire to his mountain home in Asheville when he was introduced to an award-winning brewer with a business proposition. Now, his company produces about 1 million gallons of craft beer each year and employs 38 people.
“One of the advantages (to Asheville), I tell people we get first crack at the water up here in the mountains,” he said. “I would like to think I had this grand plan. In actual fact, a lot of it was just good luck. To quote my mother, ‘Son, you’re above average intelligence, you’re quite lazy, but you’re very lucky.’”
Highland may have been the first brewery, but it wasn’t the last. Sierra Nevada and New Belgium—two of the largest craft brewers—are building new plants in Asheville. Sam Powers, economic development director for the city of Asheville, said each company will be investing $150 million to $175 million and will be employing 150 people.
Powers said one of the reasons why brewers are attracted to Asheville is because of its location near the Biltmore Estate, the Great Smoky Mountains and the Blue Ridge Parkway. The town—which has a population of just under 85,000—gets 10 million visitors each year.
The city, local businesses and independent groups also have highlighted the city’s beer culture. They have beer festivals, a beer week, an Oktoberfest, the BrewGrass festival and the indoor Winter Warmer Beer Festival. The state even has gotten into the act, Powers said. A new fermentation sciences program is being developed at Appalachian State University to ensure a steady workforce. Local community colleges are developing a 2-plus-2 program that prepares students for the fermentation program.
Wong said although alcohol laws can be peculiar, that doesn’t matter as much as how fast the system moves. He canceled plans to build his plant in another town because it took too long to get approval; the cost of building supplies rose dramatically while he was waiting.
“One of the primary rules (for attracting businesses) is a streamlined regulatory system,” Wong said. “In other words, it doesn’t matter what the rules are. They should be clear and they shouldn’t be hung up in committee. Once somebody decides to go ahead, businesses really have a very difficult time waiting.”

Alabama—Paving the Way

In the past four years, the Alabama legislature has passed a variety of bills that make it easier for craft breweries to succeed. In 2009, the limit on alcohol by volume content in beer was raised from 6 percent to 13.9 percent; craft brews often contain more alcohol than other beers. In 2011, the Brewery Modernization Act made it easier for breweries to set up brewpubs. And in 2012, the container size limit for beer was raised from 16 ounces to 25.4 ounces.
Advocating for each of these measures was Free the Hops, a nonprofit, consumer-driven organization dedicated to bringing high-quality beer to Alabama. Danner Kline, founder of Free the Hops, said the past four years have been instrumental to the increase of craft breweries from one in 2009 to eight in 2012.
“All of these things combined took the environment from being extremely hostile towards brewing to being quite friendly towards brewing,” Kline said.
Dan Roberts, executive director of the Alabama Brewers Guild, said there was some opposition to changing the state’s alcohol laws.
“The main opposition we had to some of these changes definitely had a religious component to it,” Roberts said. “It really wasn’t as strong as you might think. We’re not talking about selling beer on Sunday with these laws. We’re not talking about anything that gets more people to drink.”
Alabama Sen. Bill Holtzclaw was one of the sponsors of Senate Bill 192, the Brewery Modernization Act. He said the bill was about letting a burgeoning industry grow.
“This falls into deregulation of an industry,” Holtzclaw said. “It’s not creating anything new. … This was going to enable a niche market of a segment to expand.
“At the end of the day, we have entrepreneurs who are willing to step out there. They’re doing something they love, they’re doing something in the community they love and they’re making an investment. It’s a win-win for everybody.”