Posted by: Josh Lehner | January 9, 2020

Friday Beer Thoughts and One Last 2020s Prediction: Closures

One last prediction for the 2020s: Oregon will see more brewery closures. In fact we are likely to see a dozen or more closures every year in the decade ahead. This is mostly due to the fact that Oregon has seen considerable growth in the number of breweries in the past 10-15 years. More breweries means more potential closures.

Statistics show that running a business is hard. About 20% of new companies fail within their first year. Only 50% survive more than 5 years. Clearly, start-ups face long odds and successful firms have overcome a lot.

That said, as our office has shown before, Oregon’s brewery closure rate is about half that of the overall economy. Regardless of whether the closure rate remains very low, or it rises to match the average closure rate, Oregon will see more breweries fold in the coming decade, which brings us to this edition of the Graph of the Week.

These projections are based on business survival rates by age of firm. There is not a ton of variation in these survival rates when looking at Oregon versus the U.S. or by specific sector. Any sort of sensitivity analysis I did here does not yield significantly different results.

The chart above shows 3 scenarios based on different assumptions. The bottom end of the error bars assumes Oregon breweries continue to close at half the rate of all businesses. The top end of the error bars assumes Oregon brewery closures jump overnight from low closure rates to average closure rates based on the age of the business. The blue bars are a middle scenario where over the course of a handful of years, the Oregon brewery closure rate, especially for established breweries, gradually rises until it matches the overall average closure rate.

As one can see, under any of these scenarios, the number of Oregon brewery closures in the decade ahead will increase. However there are at least two other factors in play here when discussing the health of the Oregon beer industry overall.

We know that the industry is growing slower and feeling more stress. Breweries that rely on tap handles and grocery store shelf space are feeling the biggest impacts. Aaron Brussat over at the New School has a rundown of closures in 2019. While the number of brewery closures last year is in-line with recent years, the pain is felt more broadly with a few cideries, beer bars, bottle shops and the like also closing. See Beervana Buzz’s Pete Dunlop who continues to be on the forefront of discussing these trends and underlying issues within the industry. Now, none of the projections above incorporate any sort of industry correction or potential bubble, so there is certainly downside risks to outlook if either of those happen to materialize.

Finally, closures are just one end of the pipe. Brewery openings in Oregon continue to outnumber closures, so the industry overall is growing. To date, even with the hand wringing, we have yet to see any real increases in the brewery closure rate, which is what matters for industry health. There is always a given amount of churn in the economy. So far it is quite low for Oregon breweries. A reasonable outlook would call for this closure rate and the amount of churn to increase in the decade ahead. This should be expected, even if there are no broader industry issues or concerns.


Responses

  1. […] Source: Friday Beer Thoughts and One Last 2020s Prediction: Closures | Oregon Office of Economic Analysis […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: