announcement yesterday that Sierra Nevada has chosen a site outside Asheville, NC to build a new brewery came as no surprise - they have been looking for a long time for the right place to expand. Other western breweries are also reportedly looking to follow suit, most notably New Belgium, and it has also long been rumored that Deschutes have their sights set on an east-coast brewery as well.
Which of course all begs the question, will these breweries loose some of their sense of craftiness - Sierra Nevada that is not brewed in Chico?!? I hope not, but in a country which has been defined beer-wise by Budweiser and their many regional breweries, I have some trepidation. I hope the punters will still respect Sierra Nevada in the morning. It will help to provide the east coast brewery with a lot of autonomy: letting their brewers do lots of specialties and one-offs that define the east coast brewery as distinct from the mother ship.
But that's not what interests me most as an economist, what interests me most is the economies of scale vs. the transportation costs. As breweries expand there is always a tension between growing big an one site and capturing the considerable economies of scale and getting close to customers thereby reducing transportation costs. In international economics this is known as the proximity-concentration trade off and some interesting empirical work has been done to understand where the tipping points are. It is interesting, then, to see where that tension resolves itself in craft beer. Sierra Nevada is up to an annual production of around 800,000 barrels, New Belgium is up to about 600,000 barrels annually, but Deschutes is still less than 250,000.
Anecdotally it would appear to make sense for breweries to grow pretty darn big on one site before opening a second. Of course, a big factor is how much you currently sell and expect to sell in the future to east coast customers. Also factoring into the equation is the desire to reduce the carbon footprint of the business. Beer is heavy and bulky and it take a lot of energy to get it from Chico California to New York. But this gives us some idea of where the tipping point is 600,000 to 800,000 barrels a year. [As a side note, the Tremblay's in my department have estimates that the economies of scale in brewing accumulate until about 2.5 million barrels a year]
Congratulations to Sierra Nevada! One of my first entries into craft brewing was Sierra Nevada Pale (as it was for so many others) and it remains perhaps the ur-classic American craft beer. Founder Ken Grossman is also known as one of the truly good guys in a business with a lot of them and has opened a lot of doors for future craft brewers. Cheers.