The Microbrew and Brewpub Bubble

On my lengthy great western motorcycle ride, I noticed something in pretty much every Colorado town I stopped in - "brewpubs" or "microbrews."

Couldn't pull into town without seeing one or having the hotel desk clerk tell me about "the new brew house that opened down the street."  Heck, even in Wyoming there was a new micro-brew being built.

Yes, yes, microbrews this, brewpubs that.  How "cool" would that be?

Naturally my cynical and (though incredibly down to earth and realistic, but still) evil nature kicked in and I have come to an epiphany.  An epiphany nobody will like because I'm once again the party pooper, raining on everybody's parade.

The brewpub is the next bubble.

Not as big as the housing bubble or the education bubble, and it certainly won't affect the larger economy, but if my experience in looking at hundreds of utterly craptastic business models, not to mention my economic spidey senses, are worth anything the microbrew is going to collapse.

The reason for my suspicion is that a brewpub has all the makings of a failed business.

First, it's what the PROPRIETOR wants to do, NOT what the market demands.

Do people want a brew pub in their town?  Sure.

Will people buy beer?  Of course.

But if the market is flooded with a billion micro-brews and brewpubs, their margins will be too low to be profitable.  Besides, there already is a place that sells beer.  It's called a "bar."  And it doesn't have all that nasty overhead that brewpubs do.

Second, admit it.  You thought it would be cool to start a brewpub.  And that's the second dead give away.  Like a middle aged man starting a "sports bar" or a trophy wife starting a "horse hobby farm" none of you have ever given a consideration as to whether or not the damn thing will be profitable.  It's like "Restaurant Impossible" (which I LOVE) where the guy goes in to help the people who have a failing restaurant and ALWAYS ALWAYS ALWAYS ALWAYS they;

1.  Never have done any accounting.
2.  Don't know how much they're losing
3.  Are in debt, mortgaging their house and selling their 401k's
4.  Never had any experience running a restaurant.
5.  Cite such galactic stupidity as "it's always been my dream to run a restaurant."

Hobbies are not businesses.  They are money-losing fun things you do.  Not something you throw your retirement fund at.

Third, permit me a bit of discrimination - too many young man are starting them.  Men who still wear their hats backwards and say "hawt" instead of "hot."  Yes, yes, I've seen plenty of the proprietors be the aging, desperate to do something with their lives and their measly 401k balance, "hey brewpub!  That'll save us during our retirement."  They are out there.  But nearly half I've ran into are young men in their 20's and early 30's simply making the mistake their middle aged trophy wife counterparts do with horse farms.  They are once again blinded by "dreams" and not reality.

Fourth and finally, brewpubs are cool.  And bankers like "cool" more than profit.  I know a score of small, community banks and their retarded legions of aging male bankers who will be so enamored with the idea of financing a brewpub, that the young, naive entrepreneurs pitching the idea could have the world's worst projections and worst presentations and it won't matter.  Desperate middle aged bankers will fall in love with the idea of a self-brewing Sam Malone, remember Cheers fondly, and finance it anyway.  This provides the final ingredient for a classical "bubble" - an extension of credit.

Of course after Chip and Tad fail to file their tax returns for the 3rd year in a row and need to have their perpetually maxed out line of credit extended and increased for the 12th time, even moronic community banks will tire.  And maybe, just maybe, saner heads will prevail at the bank and foreclose on the now-aged and decrepit property and equipment.  That or the FDIC will come in, audit that file and make the bank foreclose.

Now, do I have any empirical data?

Actually, I do.  But it isn't conclusive yet.  I'm making a bet that in the future this bubble will burst.  That cool micro-brew down the road will be no longer in about 3-5 years.  The charm it brought to your village will be forever lost and you'll just have to go to the regular bar to get your more-than-ample microbrews.  Of course I could be wrong too.  Maybe there is a ton of demand.  Maybe the brewpub is the next evolution that will replace the bar.  But if I know my naive American dreamers faking it as serious entrepreneurs, and the community bank industry that is only more than happy to do their best to finance failing business models, we have a nice little boondoggle ahead of us.