Excess Capacity Soars
A while back, I saw a statistic in an article I’ve now lost track of. It mentioned how much excess capacity exists in the beer industry. That is, the amount of beer that could be brewed given the time and space within breweries, but isn’t: the days the mash tun is idle, the number of tanks sitting empty. Excess capacity is bad. Brewing is a capital-intensive industry with narrow margins. Breweries do not want to buy, or worse, finance expensive equipment that just sits around. They don’t want to pay leases on space they’re not using. They don’t want to pay staff who have no beer to make.
I reached out to Brewers Association economist Bart Watson about this. He surveys member breweries (which excludes large multinationals) about their businesses, and capacity is one metric he tracks. Click through if you’re interested in his methodology—this is a tricky number to land on, and there is some interpretation involved. Nevertheless, the figure he arrives at is based on a consistent formula, so year-over-year reports show accurate movement. So how are things now?
Below is a table I made of Bart’s statistics. I’ve also included the growth figures for Brewers Association member breweries in the same time period, discussed below. Note that there are no numbers for 2020; he wasn’t able to track capacity figures, and the growth figures were thrown off by Covid.
American breweries are currently at about half their capacity. That’s not good! But it’s actually worse that in looks because growth has been dead flat for three years. Were the industry growing, it would need headspace, so to speak, for future expansion. Here’s Bart:
“When you’re growing rapidly, excess capacity is a good thing so you can keep up with that growth. Athletic has a lot of excess capacity right now with the purchase of that former Ballast Point facility, but no one thinks that’s an issue. So the ratio in the mid-2010s was different because brewers were rapidly growing into it. As I pointed out in 2015, the 2012 and 2014 ratios look the same, but 2014 production was actually bigger than 2012 total capacity.
“So you need to understand the capacity number in the context of its time. If we were growing 18% again right now, even 51% might not be that bad (at 18% you’d use up all that excess capacity in 4 years), but at static or negative growth, it’s a lot worse, because it represents investments that aren’t being utilized.”
I don’t have a lot more to add to this, except to say that if you want to open a brewery in the next few years, you might consider starting a contract brewery or alternating proprietorship. Not only would it save you a ton of money at the outset, but you might be doing another brewery a favor in helping them fill up those tanks.