State ranks 9th nationally for industry’s economic impact
GRAND RAPIDS — As the craft beer industry continues to grow, it’s contributing to more economic activity in Michigan, both within the sector and its expanding supply chain.
Michigan ranks ninth nationally with $2.09 billion in total economic impact for the craft beer sector in 2016, according to new statistics released by the Brewers Association, the Boulder, Colo.-based trade association for independent craft breweries. The sector’s overall economic impact in the state grew 13 percent from 2014, the last year the association updated its statistics.
Last year also marked the first time the impact from Michigan’s craft brewing industry cracked the $2 billion mark, a level that adds to the growing sector’s relevance in the state’s economy, according to brewery executives.
“I’ve been screaming for attention for 20 years, but no one listened to me for 15 years. Only in the last five years has anyone actually considered it (the craft brewing industry) something significant,” said Jason Spaulding, cofounder of Grand Rapids-based Brewery Vivant. “Politicians pay attention and it’s the job creation and the tourism part that I think is huge.”
Scott Newman-Bale, a partner at Bellaire-based Short’s Brewing Co., agrees that the industry’s impact helps keep craft breweries in the conversation in Lansing.
The sector’s growth also gives the state some cover, in that agencies and politicians can hold up the industry’s success as proof of the state’s positive business climate, he said.
“People like to be … in the same discussion as craft breweries because we’re very engaging to the public,” Newman-Bale said. “And I can go to the legislators and be like, ‘You know what, I don’t have any money but what I can do is put you in front of the people who you want to be in front of anyway. Isn’t that what you need the money for in the first place?’”
Since the industry has benefited from tax breaks and various state economic incentives, its growth also helps the state demonstrate that its tools are working as expected, he said.
“I think (the increasing economic impact) is definitely very important for the future of the industry because no industry is the darling child forever,” Newman-Bale said. “And obviously it’s the darling child because it has great promise. I think it continues our clout by showing that the trust that was put in us to begin with is still paying off.”
While the craft brewing industry is dominated by small players in the state and nationally, the sector’s overall growth and highly competitive nature has driven companies to become more sophisticated on the business side as well.
Breweries that distribute their beers widely outside of their own taprooms have had to add sales and marketing staff to get in front of retailers, bars and restaurants in order to compete for the ever-cramped shelf space and for tap handles.
At the same time, breweries have to add more staff in the brewing operations, particularly for more advanced positions like lab technicians who help ensure the products going out the door meet rigid quality standards, Spaulding said.
“It’s just getting more advanced and I think it’s probably because the beer market’s advancing,” he said. “They’re bringing experts in from the outside, so I think it’s just as the breweries are growing, they’re creating more high-paying jobs as they get more sophisticated. It’s just creating more sophisticated infrastructure.”
That trend showed up in the Brewers Association data, which found the average annual wage in the industry was $45,870 last year, up 18.5 percent from two years earlier. Overall, Michigan craft brewers paid out more than $662 million in wages and employed the equivalent of 14,440 full-time workers, according to the data.
Spaulding points to the competitive retail environment as driving the need for more higher-paid sales staff, in particular.
“We’ve doubled our sales force, so we’re working harder to sell the same amount of beer,” he said. “Our wholesale sales have stayed kind of the same for the last three years, but we’re working harder to maintain that. It’s a little bit of a new reality for brewers.”
According to Newman-Bale, the growth in wages could also be a sign of an aging industry in which pay is starting to fall more in line with experience.
“When we opened the brewery, everyone was young and really there not to make money but to have a good time. Now the industry’s aging and the average age, I believe, of a brewery employee is rising, and obviously that changes the purpose of why people are working,” he said. “It’s becoming professional. It’s a real job nowadays.
“In our early 20s, we didn’t need much money — there wasn’t as much money. Now as the number of brewing companies is growing and aging, then naturally people will start to get paid what’s probably appropriate in the first place.”
According to new U.S. Bureau of Labor Statistics data on breweries (which do not include companies licensed as brewpubs), Michigan ranks tenth nationally in terms of the average employment per establishment with 23 workers.
In the national data, Michigan was one of two states in the top 10 — the other being Pennsylvania — that did not have a large-scale production brewery operated by Anheuser-Busch LLC or MillerCoors.
However, the Brewers Association statistics actually showed a 2-percent dip in employment among Michigan’s craft breweries from 2014 to 2016.
While the data offer a snapshot of the industry in Michigan, the updated statistics do not include the economic contributions from Grand Rapids-based Founders Brewing Co. — the state’s second-largest brewer and a top 20 brewery nationwide — because it no longer fits the Brewers Association’s definition for an independent craft brewery.
Founders sold a 30-percent stake to non-craft brewer Mahou San Miguel Group of Spain in late 2014. The association’s threshold for non-craft ownership is 25 percent.
Stripping Founders out of the mix likely skewed the state craft brewing industry jobs numbers, sources told MiBiz. Even so, adding in the 470 people Founders employed last year would bring employment growth only to about 1 percent statewide.
Newman-Bale at Short’s Brewing thinks the slowing jobs numbers could be an anomaly or possibly a symptom of the leveling off in the industry’s growth spurt. Craft beer production increased 6 percent last year, the industry’s slowest pace of growth since 2011, according to the Brewers Association.
“When growth slows I think it allows people to reassess and kind of clean up some of the cracks and become more efficient,” he said. “Our production’s up 25 percent in the last year, and our employee base is the same or up a couple of people. You know, we’re doing more with less.”
As Michigan’s craft brewing industry has expanded in recent years, so has its in-state supply chain, ranging from brewing equipment, packaging and raw materials like hops and malt to related services like legal, accounting and insurance.
For example, Michigan’s hop-growing industry now ranks a distant fourth nationally behind states in the Pacific Northwest with around 650 acres planted in 2016, according to an annual report from the Hop Growers of America.
“As our industry grows, we’re creating industries too,” Spaulding said. “We’re going to buy ingredients that directly impact the economy, but then as those companies grow, they’re going to start exporting hops and malt to other states too, which brings more money into the state. That’s what economic developers look at.”
Michigan Hop Alliance, one of the state’s early adopters in hop farming, started with a small-scale growing operation, and has since expanded into brokering hops from in-state, national and international growers.
Founder Brian Tennis said his company maintains about 70 accounts within Michigan but that pales in comparison to the 600 accounts it has across the country and even internationally.
“If we were solely relying on Michigan breweries, we would not be in business,” Tennis said.
Given concerns of oversupply in the hops industry nationally, Michigan Hop Alliance has eschewed the common hop varieties in favor of planting types that can command better pricing.
“You really have to just differentiate yourself and become the purple cow of the industry, just do something really unique,” he said. “That’s really the only way we’re going to make money here. The stuff that we’re trying to grow is not being grown really by anybody else in Michigan or, in some cases, the United States.
“I think we’ve reached the point now in Michigan where we either need more brewers to buy more product, or we have to come up with a different portfolio in terms of what we’re planting. A lot of guys are going after the same brewers with the same product, so it makes it difficult to be profitable.”
It also helps that some Michigan breweries prioritize using local ingredients in their beers, according to Tennis.
Spaulding at Brewery Vivant said he’s been shifting more of his purchasing to in-state vendors in recent years. The company’s newly released flagship IPA, Hop Field, uses a blend of several Michigan hops and unmalted wheat sourced from Byron Center-based Pilot Malt House LLC. As his contracts for hops from the Pacific Northwest expire, he hopes to make the beer with all Michigan-sourced ingredients, he said.
In the end, that kind of full-circle supply chain will only help propel the Michigan’s craft beer industry and its broader economic impact even farther, Spaulding said.
“It’s not just Michigan people buying Michigan beer. Now we’re exporting to other states, but then all of a sudden the industries that are supporting us are supporting other breweries elsewhere, and that’s where states really gain,” he said. “If these hop growers start exporting hops to all over the country and all over the world, now there’s a whole other industry that’s tied to the craft beer movement.”