«Switzerland, a land of brewers» was the title of an article in the Swiss-German newspaper “Der Bund”. The article was built around the fact that by now more than 1000 breweries are registered at the Swiss customs authority. As in pretty much every newspaper article about this topic it also mentioned that this number means Switzerland has the highest brewery density per capita in the world. Considering each and every person in Switzerland “only” drinks 54 liters of beer a year, this sounds like an awful lot if not too many breweries.
This is at least the point of view of our national broadcaster SRF. In May this year the radio show “Input” was titled: «Craft Beer – wann läuft das Fass über» (Craft Beer – when is it too much?). The message: There will soon be a correction in the Swiss brewing scene. Shortly after this prediction an unprecedented number of local Swiss breweries closed down their business for economic reasons or went bankrupt. The list includes but is not limited to: 523, a popular and in the craft beer scene highly respected brewery from Bern, Brasserie Haldemann from Fribourg, the brewery Baselbieter Bier and just recently Lozärner Bier AG as well as Em Basler sy Bier-Idee GmbH.
This raises the question if the craft brewery boom Switzerland has seen in the last few years is coming to an abrupt halt. Are 1000 breweries too many for the small Swiss market? High time for a deep dive into the Swiss brewing market.
Hundreds of nano and pico breweries
So, little Switzerland has the highest brewery density of the world! Only, 1000 breweries in Switzerland are not the same as 1000 breweries in other countries. In fact, the Swiss market is full of small and tiny breweries. Small breweries are called micro-breweries. According to the US Brewers Association this includes breweries with an output of up to 1,76 million liters per year. This is of course not really a fair comparison as the US has 328 million inhabitants, Switzerland only 8,5 million, hence 38,6 times less. Therefore, Switzerland’s beer market is 38,6 times smaller than the US beer market. However, 1,76 million liters divided by 38,6 still equals a production of 45’600 liters of beer per year.
In Switzerland breweries need to be registered with the customs authorities if they produce more than 400 liters of beer a year. Or if they want to sell or share what they make – even if they are below this limit. However, 400 liters, or 4 hectoliters are way less than 456 hectoliters. According to the Swiss authorities there are only 79 breweries in Switzerland that produce more than 500 hectoliters of beer a year. All other breweries don’t even qualify as micro-breweries per Brewers Association definition but are so called nano breweries or belong to the even smaller category of pico breweries.
To add a couple more numbers about the Swiss brewing market: In 2017 568 of 869 registered breweries (that’s 65%) had an output below 20 hectoliters. All these nano and pico breweries together produce less than 2% of the Swiss beer output. Or in other words: The biggest 51 breweries produce 99% of the output in Switzerland. Or even more extreme: the biggest 10 breweries still produce 90% of the Swiss beer (see the “der Bund” article linked above). So, this means that most breweries in the official statistic hardly contribute to the overall beer output of all the Swiss breweries.
Three reasons why there will not be a real correction
The nano and pico breweries are the reason for Switzerland’s high brewery density. Does this now mean we’ll soon see many of them shutting down their businesses, as the SRF report suggested?
Let’s first look at the reasons why a market correction occurs: In an unregulated market this happens if revenues can’t cover costs anymore. For example, if prices decline because the demand is lower than the supply.
If the number of breweries continues to increase like it did, this seems to be a likely scenario. Especially as beer consumption is stagnating or has been decreasing in recent years. That’s probably also the thinking behind the prediction SRF made. And it isn’t wrong. Furthermore, some breweries like White Frontier or La Nébuleuse have increased their capacity over the last couple of years – due to a higher demand for craft beer.
If this results in a general over capacity, it will lead to a certain pressure on prices. But for three reasons this doesn’t necessary lead to a decrease in the number of breweries in the official statistics.
First: Breweries that have an output of only a couple of hectoliters a year are run as a hobby, not to sustain anyone’s life. Instead of paying full salaries you make a couple of bucks on the side. Hence, as revenues don’t need to cover payrolls, there will not be a market correction at this level as long as these nano-breweries are not professionalized. Sure, some folks with registered breweries will quit their hobby, but that’s not something that will garner much public attention. Maybe not even the Swiss custom authorities will be notiefied.
The second point has already been mentioned above: The increased demand in craft beer. Although the development is slow, it’s likely that traditional lager breweries will be the ones losing market share to the new players. And because the market share of craft beer is still in the very low percentages in Switzerland, there is still a lot of growth potential. And with increasing demand, more and more small craft breweries will be able to survive. To compare: The US beer market is also decreasing, minus 1% in 2017, but craft beer consumption increased by 5% in the same year.
The third reason is that also in other markets the number of breweries is increasing every year. In the US where the trend towards craft beer is still not at its end, the number of craft breweries is still growing. After a short dip in the early 2000 the number of breweries in the US has more than tripled over the last 10 years. In 2017 over 1000 micro-breweries and brewpubs opened but only 165 closed their businesses. So, the Swiss market still offers a huge potential for new players.
And three reasons, why a correction can’t be avoided
These seem to be enough to argue against a bigger market correction (which would mean 15-20% of the breweries closing). However, there are also some good reasons why we could see such a correction in the near future. As seen with the end of 523 and Baselbieter Brauerei, I think the breweries that will be under the most pressure are the ones that have already professionalized and are somewhere between nano and micro, in regards to their output.
Clearly the high salaries in Switzerland are a reason for this. Brewing itself is time consuming. If you add manual or only semi-automated bottling, labeling and packaging, it is very difficult to cover the costs and be profitable, even if you can charge a premium price for craft beer, compared to mass produced lagers.
A second reason are the high investments needed when increasing production capacity. On the one hand, beer production offers high economies of scale. This means that the workload doesn’t increase as much if you double, triple or multiply the brewery’s capacity. On the other hand, fully automated brewing vessels are very costly and bring along the need for additional investments like bottling, labeling and packaging roads. And off course, the additional fermentation and storage tanks also increase the demand for space and hence increase cost for rent. But the really difficult part is to acquire the capital needed to purchase all the new equipment. There, only a few will successfully do so.
And even if this obstacle is cleared, there is a third one standing in the way of growth. Doubling your production also means that you need to double your sale. But shelf space with Swiss retailers is very limited. Yes, Coop and Manor have increased their craft beer range in the last couple of years. But only a handful of Swiss breweries were able to get a Swiss-wide presence. And for craft beer shops it is often easier to get UK beers from an importer than a Swiss beer from a nano-brewery, as the latter doesn’t have a distributer. Furthermore, selling to bars and restaurants is equally difficult because long-term-contracts tie them to certain breweries that financed their taps and interior in return.
The craft beer trend will continue
For all these reasons above, we will have to get used to news that beloved or locally rooted breweries will close their business. At the same time, the wave of newly founded breweries will not break too soon. The ever-increasing number of craft beer festivals, shops and beer hikes shows, that the trend towards a bigger beer variety will continue. Yes, the new players will have to tackle the above-mentioned challenges but this will hardly lead to a collapse of the craft beer market. Up until now there are hardly any taprooms (as the one at White Frontier) or brewpubs (like the one from Bear’n’Stein). Both of these business models should prove to be successful, as they are one possible way to have higher margins, solve the distribution challenge and go around the old players at the same time. That is at least my prediction. The time will show if I’m right or wrong.