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Rob North at Great North Aleworks. Photo by Ryan Lessard.




Beer bubble
Is New Hampshire’s craft brew industry heading toward a collapse?

06/16/16
By Ryan Lessard news@hippopress.com



 During a recent sunny morning, brewer Rob North of Great North Aleworks in Manchester was running around moving large hoses connecting three massive 80-barrel fermenting tanks to the mash tun, a vat of mostly water and steeping grain needed to create the mash. Once the complex starches in the grains are broken down by enzymes into sugars the yeast can later consume to create alcohol, the mash is drained and transferred to a second vat as a sugary liquid known as the wort. The wort is then boiled to sanitize the liquid, and North will add hops to balance the otherwise oversweet flavor. This particular batch is destined to be an IPA, enough to fill 19,200 cans — though some of it will go into kegs.

Throughout this process, North and his quality control manager, John Cataldo, are running up the steel stairs of the mash tun to watch the temperature of the mash, the delicate managing of which is crucial for the enzymes to do their work.
North, who started the company last summer in the far corner of an industrial park, says this is the work that gets him going in the morning.
“We wanted to take advantage of an excellent market and a real boom in craft beer and at the end of the day do something that we truly love,” North said.
But that boom has some folks in the industry worried that the meteoric growth of craft beer may be a fleeting fad or, worse, an economic bubble. 
 
Sustainable growth?
Michael Hauptly-Pierce, the owner and brewer of Litherman’s Limited Brewing in Concord, opened his nanobrewery earlier this spring, but he’s well-connected in the local craft scene and has seen a lot of changes over the years — especially since the state deregulated the industry five years ago. 
“I think before the nanobrew act was passed … we were at about 17 breweries in the state, and that included the big boys like Redhook and Anheuser-Busch,” Hauptly-Pierce said.
There are now about 55 with about 25 more in the works, he said.
“What we’re looking at right now is a tripling in size in five years,” Hauptly-Pierce said.
Brewers see this trend with a mix of excitement and worry.
“There’s some concern about the number of entrants [into the industry],” North said. 
The issue is twofold: the potential for market saturation and bad business plans where small operators spread themselves too thin on distribution, fail to compete on quality or engage in effective marketing.
For this reason, he foresees not a bursting bubble, but a thinning of the field.
“I think it’s inevitable,” Hauptly-Pierce said. 
 
Finding the ceiling
Analysts can only point to other markets to guess at a possible saturation point, and the characteristics of local markets can play a large role in determining it, according to economist Bart Watson with the Brewers Association.
“While clearly there is a theoretical saturation point for the number of breweries, I think in most parts of the country — and this includes New Hampshire — we’re nowhere near it,” Watson said.
Overall beer consumption has remained essentially flat in the U.S., though craft beer has been stealing buyers away from the big macrobrewers like Anheuser-Busch.
So far, the “high end” of the beer industry, which Watson defines as craft beer combined with imports and premiums, has carved out 12 percent of the market share by volume, 21 percent market share by dollars. This means macrobrewers still sell 88 percent of the beer consumed. But the Brewers Association set an aspirational goal of 20 percent market share by volume by 2020.
Beyond that, Watson says the future is unclear. Looking at other markets like wine and coffee, he says it’s not uncommon for high-end segments to reach 30 to 40 percent market share by volume or 40 to 50 percent market share by dollars.
He says saturation defined by the number of breweries rather than volume may be far off so long as the myriad nanobreweries and microbreweries focus on their local communities.
“Breweries that make 1,000 barrels a year, that’s a very small share of the market,” Watson said. 
But much of the growth seen so far has been in a very tightly packed part of the country. Watson says 31 percent of the breweries that opened since 2012 were in the five states that had the most breweries that year and about 70 percent of craft beer production comes from just 10 states.
Still, Watson says if New Hampshire is a market that appreciates craft beer, brewers can reach a high density here. 
“There’s still going to be plenty of niches for them to find,” Watson said.
Vermont had the most breweries per capita with 9.4 breweries per 100,000 drinking-age adults in 2015, compared to 4.5 in New Hampshire. This year’s numbers may end differently, but today New Hampshire is closer to 5.5 and Vermont is about 11.1. 
Meanwhile, in 2013 New Hampshire saw the second-highest per capita beer consumption in the nation with 42.2 gallons per resident consumed on average — probably with the help out-of-staters coming here to buy alcohol. Vermont placed 5th, according to the study by Beer Marketer’s Insights, with 35.9 gallons consumed per resident.
Watson says that’s a sign of how much the Granite State’s craft brew industry can still grow.
“Obviously every state is different, but right next door in Vermont, you can see how extreme the number of breweries can get as the beer culture in a state grows,” Watson said. “New Hampshire is one of the highest beer consumption per capita states in the country and yet has nowhere near as many breweries per capita that we see in neighboring Vermont.”
Watson says Vermont is a good example of a state that not only sells a lot of its beer to its own residents, but has set itself up as a destination for beer tourists from out of state who wish to literally drink life to the lees by trying every beer they can. According to the Vermont Brewers Association, 1.2 million of the 1.6 million brewery visitors they had in 2014 were from out of state. New Hampshire, Watson says, would do well to follow that example, as it would raise the ceiling by expanding the available market even for hyperlocal tasting rooms.
 
Here to stay
So what does a brewer take away from all this? After all, they care more about the growth of their own business than about the industry at large at the end of the day.
Hauptly-Pierce and North both say a lot of it has to do with one’s business models. Hauptly-Pierce is brewing with a small, three-barrel system, but North chose the riskier path, building an operation far larger than most nanobreweries through a combination of savings and financing. He is licensed as a full brewery and contracted with a third-party distributor, Amoskeag Beverages.
“Most do start out much, much smaller,” North admits. 
Only a handful of New Hampshire brewers are operating around this scale, such as Stoneface Brewing in Newington, Henniker Brewing and Kelsen Brewing in Derry.
That’s mainly due to the low barrier of entry for nanobrewers since the law changed, which allows for self-distribution, lower licensing fees and small-volume production. Folks can get into it without going into much debt, if any.
Couple that with a national craft beer craze (the number of new craft breweries in the country grew by 200 percent from 2005 to 2015, from 1,394 to 4,225, according to the Brewers Association, a national craft beer trade group) and it’s unclear how many of New Hampshire’s breweries are going to be here to stay in the long run.
Both the tiny and medium-sized models can work, but each has its challenges. For the bigger operations like Great North, it’s important to build up the local distribution footprint before going too far and crossing state borders. Usually, they can only produce a few varieties (four in their case) so they have to not only pick the right recipe and make it really well, but also stay consistent. That’s why Great North has a fully equipped testing laboratory and beer “library” to check back on old batches to see how they measure up with new ones or how they age.
For smaller nanobreweries, one must spend a lot of time getting the word out, hosting tastings in restaurants and beer stores and the like to attract people to the tasting room.
Some tiny nanobreweries like Canterbury Aleworks shun retail and only sell beer out of their remote tasting room. As a one-barrel system, they rotate through a broader selection of a dozen different varieties, making the experience of visiting special and rare.
Hauptly-Pierce says the hyperlocal approach is the best way for most small breweries to survive and for growth to continue. He sees it as a throwback to the colonial brew pub days, where a loyal customer base from the immediate area frequents the bar for a quick drink or to restock their home supply.
“The people who really embrace their communities are the ones who are going to have their communities embrace them back,” Hauptly-Pierce said. “The people that are coming into my brewery every week are local. They live a mile and a half from the brewery. On their way home from work, they stop in on Friday for a pint.”
The craft industry is showing some signs of slowing nationwide, though Watson says that’s due to the law of large numbers.
“When you have 20 million barrels, you’re going to grow faster than when you have 30 million barrels, as an industry,” Watson said.
In New Hampshire, some 30-odd nanobreweries who may want to take the next step in their own growth by upgrading their license so they can sell pints of beer to patrons (and make more money), rather than just 4-ounce tasting glasses, must pay double their annual licensing fee of $240 and meet the state’s restaurant requirements by offering a number of hot meals approved by the Liquor Commission.
Difficulties in meeting these requirements may end up slowing growth down the road.
Whether it’s over limited demand, competition or inept brewers, Hauptly-Pierce said he expects a shakeup in the near future. 





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