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Craft beer craze boosts California economy

By Caroline Davis | 19 Mar 2013

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Nick Armstrong of Armstrong Brewing Co. fills a tasting glass with the Bitter & Withholding Stout, one of several beers on tap at the brewery’s tasting room in South San Francisco. (Caroline Davis/Peninsula Press)

A biotech fermentation researcher walks into a bar.

That sounds like the start to a bad joke. But it’s actually the story of Nick Armstrong, founder of Bay Area craft brewing newbie, Armstrong Brewing Co.

Genentech employee by day, brewer by night, Armstrong started brewing at home several years ago and since then has expanded from a modest three-gallon setup in his kitchen to a bare-boned 900-square-foot facility.

Armstrong and his co-founders, Pat Hinterberger and Ben Colombo, held the grand opening of their beer tasting room in a South San Francisco industrial park a couple of weeks ago to great fanfare amongst Armstrong’s colleagues from Genentech, one of the leading Bay Area biotechnology companies.

While many small businesses are struggling to stay afloat in a down economy, it’s a hoppier story for the craft brewing industry.

Craft brewing has continued to see strong growth in the U.S. over the past several years. Which is surprising, given the decrease in national beer sales across the board. In 2011, sales were down an estimated 1.3 percent by volume and 1.2 percent in 2010, which could be explained by a struggling economy and consumers’ increasing penchant for more flavorful craft beers.

Whatever the reason, it doesn’t appear to affect craft brewing.

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A chalkboard at Armstrong Brewing Co. lists the available beers on tap and also what patrons can expect to taste soon, including the Chocolate Cherry Stout. (Caroline Davis/Peninsula Press)

The number of craft breweries in America has grown from just eight in 1980 to 537 in 1994, according to the Brewer’s Association, which represents the majority of brewing companies in the U.S. Today nearly 2,300 craft breweries are at work, with another 1,300 in the planning stages.

Unlike the larger scale U.S. brewing production facilities, which are increasingly automated, craft brewing is a much more hands-on process. That’s good news for the 7.7 percent of Americans who are still unemployed.

“It’s kind of funny, we pride ourselves because we’re terribly inefficient because it takes a lot of employees to make craft beer,” said Tom McCormick, executive director for the California Craft Brewers Association, a non-profit trade group representing the craft brewing industry in California. “You walk into a craft brewery like Sierra Nevada, and it’s teeming with people.”

Across the U.S., craft brewing provides for nearly 104,000 jobs, according to numbers the Brewer’s Association compiled.

In California, approximately 22,000 people work in craft brewing, accounting for well over $500 million in wages. Craft breweries contributed over $3 billion to the California economy in 2011.

Those numbers may seem relatively small, when you take into account the profits posted by some of the big names of the brewing world, like MillerCoors and Anheuser-Busch InBev. Approximately 90 percent of domestic beer is dominated by just these two companies.

But McCormick said, “It’s nice to have an industry in California that’s growing in a down economy.”

The Bay Area alone is home to 58 craft breweries like Armstrong’s. Craft brewers are, by definition, small, independent and traditional, producing less than six million barrels of beer annually, as determined by the Brewer’s Association.

Although Colorado residents may disagree, the Golden State is the birthplace of the craft brew movement, starting with Anchor Steam Brewing Co. in San Francisco, whose roots can be traced back to the 1870s. In the 1960s a young Stanford University graduate, Fritz Maytag, rescued the brewing company from bankruptcy and started bottling the beer.

But the renaissance of American craft brewing emerged with the New Albion Brewery in Sonoma, founded by a homebrewing enthusiast in 1976. Although the brewery went out of business after six years, New Albion helped inspire hundreds of homebrewers to start breweries in the 1980s.

The emergence of Sierra Nevada Brewing Co. in Chico, and then Lagunitas Brewing in Petaluma, have continued to popularize the California craft brewing movement since then.

In a 2011 “Top 50 Craft Beers” list released by the Brewer’s Association last year, California craft breweries claimed 12 of the spots, with Sierra, Anchor Steam and Lagunitas ranking in the top 25.

While the craft brewing numbers for 2012 have not been released yet, the Brewer’s Association is already speaking confidently about the results.

“In a testament to this phenomenon, you’re going to continue to see double digit growth from craft brewers,” predicted Julia Herz, Craft Brew Program Director for the Brewer’s Association.

So why are consumers so craft-beer crazy? Part of it comes down to consumer desire for affordability in a down economy.

“During the difficult economy, craft beer picks up consumers,” McCormick said. “If you go out to dinner and order a fairly good wine by the glass or a cocktail, it’s quite expensive.”

“Yet you can get a pint of some of the best beer, literally, in the world for just about $5.50.”

It’s not surprising then that the recent San Francisco Beer Week, February 8-17, drew massive crowds.

Bay Area craft beer lovers lined up at their choice of 400 events across San Francisco and the surrounding area to grab a taste from their favorite craft brewers.

They seemed particularly enthusiastic about Russian River Brewing Company’s triple IPA beer, Pliny the Younger, which Boston’s Beer Advocate magazine ranked “Best Beer in the World.”

When I headed over for a taste of Russian River’s golden nectar during happy hour at the Rose and Crown, a popular British pub in Palo Alto, the bartender said the beer had already sold out at 2 p.m. Liquid lunches abound for the Silicon Valley crowd.

“People still drink even when times are tough,” said Russian River’s Co-Owner, Natalie Cilurzo in an email. “Craft beer is part of the ‘locavore’ movement, and people seem to be supporting local businesses more and more. Brewpubs and craft beer bars are great places for people to socialize for not a lot of money.”

The locavore movement – “localvore” in some regions – is made up of people who are interested in sustainable living, whether its eating food or drinking beers that are locally produced.

For consumers who have been cutting back on eating out, Herz argued that it’s an affordable luxury — one that’s easily attainable.

The localization of beer is a major factor in bolstering consumer interest in and appreciation of craft brewing. Herz said that on average, the majority of Americans live within 10 miles of a brewery.

So how long will it be before the industry plateaus? Herz hopes no time soon, if at all.

“There’s no sign of a slow down,” she said. “There’s more demand than supply. The name of the game is that the segment is going to continue to grow.”

For the veterans of the brewing industry, the continued growth is only part of the excitement.

Breweries are now more innovative than they used to be. In the early years of brewing, every beer was a light, flavorless lager. Craft brewing shops are now experimenting with varieties – fruity beers, coffee beers, chocolate beers and beyond.

“I’ve been in the industry since 1982 and I’ve seen a lot of changes,” McCormick said. “I’m amazed about how, even today, the new breweries are doing unique and innovative things.”

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