Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Craft Brewing Industry
Transcript
- Lucas: You walk into a craft brewery these days, and a flight of four six-ounce pours is running you eighteen, sometimes twenty bucks. That's up maybe forty percent from four years ago. Luna: And it's not just the taproom markup. The underlying costs have gone through the roof. Lucas: Right. We're in episode sixty of this show, and today I want to drill into one industry that's a perfect stress test for stagflation: craft brewing. It's capital intensive, ingredient-sensitive, and reliant on discretionary spending — exactly the kind of business that gets squeezed when inflation stays sticky and growth stays anemic. Luna: And we've got the numbers to prove it. The latest CPI, for May 2026, shows food-at-home prices up one point eight percent year-over-year. But barley and hops — those have outpaced that by a wide margin. Lucas: Barley futures are up about thirty percent from two years ago. Hops, especially the aromatic varieties used in IPAs, have seen even steeper increases. The 2025 hop harvest in the Pacific Northwest came in short because of drought and disease, and that's still rippling through contracts. Luna: So the raw ingredients are more expensive. But brewers can't just pass that through dollar for dollar because consumers are already pulling back. Lucas: Exactly. Real GDP growth annualized was just one point six percent in the first quarter of 2026. Unemployment is at four point three percent, which is still low, but real wage growth is barely keeping up with inflation. So people are trading down. They're buying fewer twelve-packs and more six-packs, or switching to cheaper macros. Luna: I've seen data from the Brewers Association that craft beer volume declined about two percent last year, and 2026 is shaping up to be similar. Meanwhile, the number of brewery openings has slowed sharply. Lucas: Closures are outpacing openings now. In 2025, there were roughly five hundred brewery closures in the U.S., and only about four hundred openings. The shakeout is real. And it's not just the tiny nano-breweries — we're seeing regional players like Stone Brewing pull back distribution and close some of their out-of-state locations. Luna: Stone's a good example. They were one of the pioneers of the San Diego craft scene, and now they're selling off their Richmond, Virginia facility. That's a sign of the times. Lucas: So what's the playbook for survival? I think there are three strategies emerging. First, shift from draft to packaged goods. Taproom margins are higher per pint, but foot traffic is down. Cans travel better, and they open up grocery store and liquor store channels. Luna: But canning lines are expensive. A basic canning line runs a hundred thousand dollars or more. So you see smaller breweries using mobile canning services or contract packing. Lucas: That's the second strategy: contract brewing. Breweries that have excess capacity can brew for other brands. It's a way to keep the lights on without taking on more brand risk. Some of the biggest 'virtual breweries' — like Evil Twin or Other Half — have built their model around this. Luna: And the third strategy is the subscription model. Several breweries now offer monthly beer clubs where members prepay for a curated mix of releases. That provides predictable cash flow in an unpredictable environment. Lucas: Right. It's basically a working capital advance from your most loyal customers. And in a stagflation environment, cash flow is king. The breweries that survive will be the ones that can generate consistent cash, not just hype. Luna: Speaking of hype, the hazebro IPA wars have cooled off. The trend toward hazy, juicy IPAs drove growth for years, but now the market is saturated. Differentiation is harder. Lucas: Yes, and that's another pressure point. When everyone makes a hazy IPA, you can't charge a premium just for the style. You need a story, a brand, a real connection. And that's expensive to build. Luna: So the breweries that are doing well — who are they? Any standouts? Lucas: One that comes to mind is Tree House Brewing in Massachusetts. They've managed to grow by keeping their distribution tight and focusing on destination taprooms. They build an experience around the beer, so people drive two hours to visit. That model insulates them from retail price competition. Luna: But that's a luxury most breweries don't have. For every Tree House, there are dozens of breweries in strip malls fighting over the same local customer base. Lucas: You know, it's interesting — we talk about these economic pressures, and it makes you think about how we fund this very show. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. It's a similar kind of community support model. Luna: Yeah, it's the same principle. Relying on a core group of people who value what you do, rather than chasing ad revenue or a mass audience. Lucas: Exactly. So back to the brewing industry — what about the publicly traded craft brewers? Boston Beer, the company behind Sam Adams, has seen its stock get hammered. Their price to earnings ratio has compressed from the thirties to the mid-teens. Luna: And Sierra Nevada is private, but they've been around since 1980 and have no debt. That's the ultimate stagflation hedge: a strong balance sheet. Lucas: Right. So the lesson for small business owners listening — and I know many of you are — is: in this environment, prioritize cash reserves, lock in long-term ingredient contracts if you can, and build a direct relationship with your customers that goes beyond just selling pints. The subscription model, the membership model, the experience model — those are your defenses. Luna: And keep an eye on the macro. If the Fed under Kevin Warsh continues to hold rates higher for longer, which seems likely given the inflation data, the cost of capital for expansion is going to stay high. That's another reason to focus on profitability over growth. Lucas: Warsh's first meeting as chair was last week, and the statement was steady as she goes. No rate change, but they didn't signal cuts either. That's consistent with a stagflation mindset: you can't cut because inflation is still above target, but you can't raise because growth is weak. So you sit. Luna: Which means the craft brewing shakeout has more room to run. We'll probably see more consolidation, more closures, and more innovation at the margins. Lucas: Agreed. I'll be watching the hop contract prices for the 2027 crop. If those come down, it could signal some relief. But for now, it's a grind. Luna: And we'll keep tracking it. That's it for episode sixty. Thanks for listening, everyone. Lucas: Yeah, take care of yourselves, and we'll talk next time.