Craft beer bubble burst? Not quite — but after years of growth in Chicago, closures and headwinds arrive

In recent months, Urban Brew Labs went out of business in Chicago’s Ravenswood neighborhood. Just around the corner, so did Empirical Brewery.

Smylie Brothers Brewing shuttered its Lakeview brew pub in September, barely a year after opening. And after years of trying to find its footing, Finch Beer Co. closed its production brewery this summer.

While the bubble isn’t quite bursting when it comes to craft beer — as some onlookers have long been speculating — the industry is facing headwinds long in the offing for small and local breweries that knew mostly growth for more than a decade.

During the last 15 years, the number of breweries nationally has grown from about 1,500 to nearly 10,000; in the Chicago area, that figure surged from about a dozen to more than 250.

Yet years of exuberance have skidded to a halt, and for a number of complex and interlocking reasons: ever-increasing competition, the rising cost of doing business, the broader economy and shifting consumer habits rooted in the COVID-19 pandemic.

More closures or sales seem inevitable, and will likely include Tribes Beer Co. in south suburban Mokena, which launched in 2015 at the peak of craft beer frenzy. Owner Niall Freyne put Tribes on the market this week for $1.3 million.

“We just need to be done,” Freyne said Wednesday. “It’s been brutal. We couldn’t recover after COVID, and that’s kind of it.”

Though craft beer remains a $27 billion industry, with a 13% share of the wider beer industry, a dark cloud has grown, leading to general unease and ominous observations.

Bart Watson, an economist with the Colorado-based Brewers Association, turned heads in recent weeks with a grim prediction reported by industry newsletter Craft Business Daily: “I think, unfortunately, in the short term, this is going to get worse. I think this challenge is here for the foreseeable future.”

Doug Veliky, chief strategy officer of Chicago’s Revolution Brewing and a regular commentator on the craft beer industry on his social media channels, compared the industry’s struggles to “a video game” in which the strongest characters save resources for dire times.

“The farther you advance, the more challenging it gets and the more dialed in you need to be,” he wrote on Twitter. “Some brewers saved up a bunch of extra lives and power ups in the early going. Others did not.”

In an interview, Veliky said craft beer has faced challenges for several years, but various forces have made things “critical from here on out” with economic forces that “will put an enormous amount of pressure on craft breweries.”

“It will threaten to wipe out the weak ones,” he said. “Breweries failing to be strategic in terms of thinking multiple years down the road are at risk.”

Craft beer sales, routinely up double digits through the first half of the 2010s, have been down 5.3% in 2022 compared with the year prior, according to Chicago-based market research firm IRI. Meanwhile, openings have slowed as closings accelerate, according to the Brewers Association.

The struggles hardly amount to a swan song for craft beer in Chicago. In recent months, several breweries have grown or expanded, including Old Irving Brewing, which is taking over the former Finch space, and District Brew Yards, which acquired the former RAM Restaurant & Brewery in Wheeling. Hop Butcher for the World has acquired two breweries in the last 18 months, including opening its first taproom in November.

But the moment remains uniquely tricky for breweries large and small.

James Moriarty, owner of Urban Brew Labs, which announced its closure in August, said every story behind every closure will be different, but commonalities are rooted in a landscape that has grown intensely competitive.

“There’s no question that Chicago is saturated,” he said. “There’s only so many beer drinkers and only so much beer they can drink.”

He opened Urban Brew Labs in 2018 in what was previously home to Metropolitan Brewing, then struggled to open a taproom where he could serve beer directly to customers — one of the most reliable sources of brewery revenue. The taproom finally opened 2021, but after three years as only a production brewery trying to compete in bars and stores, he was in a difficult spot.

“We were a production brewery that opened a taproom too late,” Moriarty said.

Taproom sales were strong, he said, but distributing cans and kegs became “a losing game.” Sales didn’t support the cost of distribution — which Urban Brew Labs handled itself, including the costs of gas, drivers and vehicles — and taproom sales couldn’t sustain the entire operation.

“Our in-house numbers were phenomenal, but we were too big to solely rely on the taproom,” he said. “There was significant overhead that wasn’t being met.”

If he could do it over, Moriarty said, he would open in a suburb with less competition rather than in the Ravenswood neighborhood where he was within walking distance of five or six other breweries.

“I go to the suburbs and I see a little brewery that’s packed where the beer is less than subpar and it’s like, ‘Wow, how are they this busy?’ ” he said. “It’s because there’s no other options around.”

Mike Smylie pinned the failure of Smylie Brothers’ Lakeview brewpub entirely on the COVID-19 pandemic. Construction began on that pub in late 2018 with a goal of opening by spring 2020, he said. Due to pandemic-driven construction delays, it wound up opening in fall 2021, a robust space able to accommodate 300 people.

Smylie said he was optimistic about the density of the surrounding neighborhood and its proximity to Wrigley Field. But the construction delay put the project over budget by the time it opened. Business was strong for the first two months, he said, but then came a wave of new COVID-19 infections driven by the omicron variant and one of the worst winters many bar and restaurant operators have said they ever experienced.

Customers did not return in summer, Smylie said, seeming to prefer to travel or do things outside. He pulled the plug in September.

“It was gut wrenching and it still is,” he said. “How many weeks in a row can you put $20,000 into something?”

He said he has worked with the landlord to get another brewery in the space, but senses hesitancy based on the state of the industry.

Smylie Brothers’ Evanston pub, which opened in 2014, soldiers on, as does a production brewery in Chicago’s Bowmanville neighborhood that opened in 2017. Business has dipped at the Evanston pub, he said, in part because many office workers haven’t returned. He hesitated to outline future plans, but said opening a taproom at the Chicago location was a possibility, in part because it has a large outdoor space that seems necessary as the pandemic turns endemic.

“We have to see what the market presents to us,” he said. “It’s a tough market. I’m not going to sugarcoat that. We have to react the way consumers have reacted.”

Bill Hurley, whose Empirical Brewing shuttered in October, did not reply to a request for comment, but Block Club Chicago reported the brewery closed after months of failing to pay rent and battling its landlord in court.

Even when breweries do expand, it’s being carried out with a new precision.

When announcing Old Irving would expand beyond its North Side brewpub to take over the Finch production brewery, co-founder Trevor Rose-Hamblin said it did so after establishing “proof of concept” by first contract brewing additional beer to see how the market reacted. A few years ago, he said, such an expansion could have been more of a leap of faith.

“I don’t think the market is as patient as it once was,” Rose-Hamblin said. “You can lose your base really easily when there are so many options on shelves.”

The one-time goal of expanding by selling beer in new states has largely dried up as a dependable option for most breweries. Old Irving, which is sold only in Illinois and Wisconsin, doesn’t plan to spread farther.

“People love their local breweries, and that’s the way it should be,” Rose-Hamblin said. “It’s very difficult, no matter how good you are, to do well in other states.”

District Brew Yards, the multi-brewery concept operating under one roof with a pour-your-own taproom, has long eyed growth, but after opening the Wheeling location last month, future expansion will be more difficult, co-owner Steve Soble said. He said rising interest rates — which were still fairly low when the Wheeling project began — will make growth particularly challenging.

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“We don’t really know how the macroeconomic situation will affect things,” Soble said. “There was a time in craft beer where the barrier to entry was low and people were rushing to get into it. Now when you see people fold up, it does give you pause to ask, ‘What’s going on?’”

District Brew Yards has followed a long and winding path to its current state. It began life as Atlas Brewing, a brewpub in the Lincoln Park neighborhood. A trademark dispute led it to rebrand as Burnt City in 2016 before it took the next logical step of launching a production brewery on Chicago’s Far South Side.

But sensing industry chaos ahead, Soble pivoted. In 2019, he folded Burnt City into District Brew Yards in the West Town neighborhood, which, in addition to Burnt City, is home to several more breweries: Around the Bend, Casa Humilde Cerveceria, Twisted Hippo and Histrionic Brewlab.

Soble said the pivot quite likely kept him in the beer business. He doubts Burnt City would otherwise exist, in part because it has found competing in stores so difficult.

“I saw the writing on the wall,” he said. “It’s so hard to stand out on the shelves now. The idea was that we’re stronger together than on our own. And I think that’s been borne out.”

jbnoel@chicagotribune.com

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