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Saturday, March 11, 2017

Lessons From Speakeasy's Closure

Update: I finally had a chance to correct that egregious typo in the title. So many apologies.

Yesterday afternoon, San Francisco's Speakeasy Brewery shuttered their doors. A tweet came out followed by this announcement:
"Speakeasy Ales & Lagers has been forced to immediately cease brewing, packaging, and tap room operations at their San Francisco brewery for an indefinite period of time. Difficulty securing capital investment and outstanding debt obligations led to this difficult and painful decision. The company’s primary creditor will determine the future of the brewery and brand, and no decision or further information is available at this time."

"According to Speakeasy founder and CEO, Forest Gray, 'The brewery has worked with multiple investment banking groups and have had numerous meetings. One fact has become central to the process, and that is the company is financially insolvent and requires new capital to move forward. Whether that will happen is unclear, but I do hope the brewery and brand will persist.'"
It was an unexpected announcement and I haven't seen any description of the particulars, but I think we can infer quite a bit from this:
In 2015, the company announced an ambitious $7.5 million expansion project, financed by Union Bank, that was slated to increase its production capacity from 15,000 barrels to 90,000 barrels. At the time, the company’s products were sold in 14 states and Gray had projected sales of 50,000 barrels.
Speakeasy was a big brewery. In 2015, it was the 86th largest craft brewer--or among the largest 1%. Small breweries close all the time--and have, even during that growth boom in the past few years.  Not every business plan is well-conceived, not every brewery capable of making good beer. But Speakeasy has been around 20 years and understands the business of making and selling beer. 

Some people link this, misleadingly, to 1,200-barrel Valiant Brewing, which also closed last week. But Valiant was founded in 2013, and was a typical closure. Over the past five years, a brewery closes every week in the US on average. Most were small and meh, so we rightly pay no attention. 

Without details, we're left speculating, but Speakeasy fits a pattern we saw--well, just about the time it opened in the late 1990s. That was during the first craft beer "shakeout," which wasn't a shakeout at all, but a flattening of growth that stranded breweries that had overleveraged themselves based on expected steep growth. Any time a brewery expands, whether that's from a nano scale to a seven-barrel system, or the leap that Speakeasy took, there's risk. It's hard to lose when the market is growing at 15%; breweries can exploit whatever level of market they plan on entering. But carrying millions in debt when sales flatten out can end a brewery. 

In the late 1990s, that's exactly what happened. Breweries made the jump to large facilities capable of producing a quarter million barrels just at the moment they flat-lined at sixty thousand. This led ultimately to high-profile failures or buyouts. Here in Oregon, Full Sail, BridgePort, and Portland Brewing all spent the late 90s and early aughts trying to survive expansions. 
Speakeasy will certainly not be the last casualty of the current tightening. Their timing was unfortunate, but far from unique--many breweries of all sizes are looking uneasily at their sales figures and wondering what the future holds. Craft beer plateaued in the late 1990s and didn't start growing again until the mid-aughts. When it did, the industry looked a lot different. If this is a second plateau, it may last for years. If so, Speakeasy is just the first of many failures to come.


  1. 86th and largest 1%? Doesn't that imply at least 8600 breweries? Your point that it's a large brewery still stands of course.

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