Anchor Brewing’s Retraction and Beer’s New Pessimism
Prodded by Dave Infante’s tenacious reporting, Anchor Brewing’s parent company Sapporo announced it was scrapping Anchor’s beloved Christmas Ale this year, and added a far bigger announcement along the way: they were immediately pulling Anchor out of national distribution and selling it only in California.
I’ve been thinking about what this means, and as I considered the stream of industry news I’ve been seeing lately, it hit me: breweries are no longer bullish about beer’s future. They’re making decisions based on assumptions that sales will be hard to find. Craft, once a growth segment, has been in decline for months, joining the rest of the beer market (except imports like Sapporo, which are doing great). Think about the calculation Sapporo confronted: Californians buy two-thirds of Anchor’s production; the other 49 states buy just 30%. If you’re Sapporo, you have to decide if those 49 states represent a huge opportunity, or a major drag on the bottom line. If you’re optimistic about where the craft segment is headed, you invest in national sales; if you’re pessimistic, it makes a lot more sense to retrench to California than trying to prop up a national network with small margins.
In choosing to retrench, Sapporo’s decision is yet further evidence that we’ve entered the era of pessimism. That’s not necessarily a bad thing.
One of the great perks in writing about beer is that I can make cost-free predictions. As hot takes are a low-value coin in my realm, offering the occasional provocation is actually good for my bottom line (if not my reputation). But breweries have no such luxury. They have real skin in the game and literally every decision they make is guided by a sense of where their business will be in a year or two or five.
In 2017, when Sapporo acquired Anchor, breweries looked to the future and saw sunny skies. If they were at capacity and needed a new tank or wanted to scale up to a grain silo to save money on malt, they chose to invest. They figured if they expanded capacity, they’d grow.
A kind of optimism prevailed even during Covid. Their present-tense weather wasn’t just cloudy, it was raining fire. But when they looked ahead, they saw a return to normalcy, which meant a generally optimistic approach. We saw very few breweries use the hard times as an opportunity to exit the market. They continued to upgrade equipment and expand their retail locations. Had the industry as a whole been more pessimistic, we’d have seen more conservative decisions, and more closures.
That’s all changing. At the end of 2022, ten-year-old Sasquatch Brewing closed in Portland. The brewery was apparently solvent, but the owners were just exhausted. They had gotten through Covid, but things didn’t snap back. It was tough sledding and they didn’t see any prospect for change. On a more granular level, I hear breweries talk a lot more about efficiencies and cost-savings than they do opportunities and expansions. I see people using that dreaded corporate phrase “right-sizing” as they scale back like Anchor did. If you look at the beer news and ask, “when brewery X made this decision, did it signal optimism or pessimism about the future?”, it’s clear pessimism is more plausible in most cases. Portland is a very tight market and often a harbinger for the industry. I count six Portland-area closures in the past year, which is right about 10%. That’s still low for business, but high for craft beer. (That would be around a thousand brewery closures a year nationally.)
This isn’t actually a bad thing. Every industry goes through cycles of growth and retraction. Those industries become especially vulnerable when their expectations are at odds with reality. Craft beer as a segment could do with a reorientation towards quality, consistency, and solid business fundamentals. That’s what happened twenty years ago during the last down cycle in craft beer. The companies that emerged from that retraction were well-run and made good, consistent beer.
To go back to Anchor. Had Sapporo dug in with the 50-state strategy, the brewery, which had already shed more than a quarter of its volume in five years, might have been in jeopardy. It could be that the best course to save the brewery was accepting the world as it is and focusing on protecting the core business rather than making a bet on the world as they’d hoped it would be. In tough times, pessimism can be a good thing.