Getting Crafty
Craft beer marks steady growth in the
overall sluggish beer category.

“The Death of Beer,” intoned the cover article of last May’s Advertising Age. At about the same time, Slate, the on-line magazine, jumped in with its doom-laden news for the brewing industry.

The eulogies were generally similar: here lies beer, abandoned by the young and fashionable, and killed off by distilled spirits and wine. But please, send no flowers. The beer industry has had a rough couple of years, but it’s far from dead.

In particular, against the backdrop of flat or slipping sales for mainstream beers, the category of “craft beer” or “specialty beer” has been growing well this year, just as it has consistently for a decade. According to the Brewers Association, craft breweries ­ the 1,400 small breweries in the U.S. ­ grew by an average of 7.2 percent in 2004, compared with 1.4 percent growth for imports, and only 0.5 percent growth for mass-marketed beers.

In fact, last year the growth of craft beer outpaced every other category of alcoholic beverage, including spirits, wine, mainstream beer or imported beer. Granted, the craft segment is only 3 percent of the total U.S. beer market, but the performance of these small companies, and the appeal of their brands, is too impressive and durable to dismiss. Certainly, operators can find some good brew news here.

WHAT MAKES A BEER CRAFT?

The craft beer category is easier to understand than it is to define. Produced in smaller quantities, with higher-priced ingredients, craft beer has set itself apart from mainstream beer ­ and justified its higher cost ­ by concentrating on unusual and more flavorful beer styles that are a marked contrast to the ubiquitous light lagers.

For many consumers, the most visible face of craft beer may be the downtown brewpub, which has made the transition from novel to normal in many communities. Brewpubs, which sell beer made on the premises as part of a restaurant experience, are distinct from the other face of craft beer, the microbreweries, which sell their beer alongside many other products at restaurants and bars, as well as for off-premise consumption.

(It should be noted that the Brewers’ Association, the trade association for small breweries, divides its members that distribute beer into several categories depending on the number of barrels produced each year. “Microbrewery” is only one of the official categories, referring to companies that brew fewer than 15,000 barrels of beer annually. However, to operators and consumers, “microbrewed beer” is generally synonymous with craft or specialty beer.)

Like the craft beer category of which it is a part, the brewpub segment expanded in 2004. However, unlike microbreweries, the brewpub growth represents a welcome turnaround after five years of falling numbers. Clearly, there isn’t a neat association between the growth of the craft beer and the fate of brewpubs, which have to succeed above all as independent restaurants.

The exceptions would be the well-established brewpub chains such as Rock Bottom Restaurants and the McMennamin chain in the Northwest that have built a reputation around beer, but are also run by very savvy restaurateurs.

What does the steady strength of the craft category mean for on-premise beer sales, and brewpubs in particular? Companies that have both a brewpub side and a microbrewery side are in a good position to know.

BREWPUB DESTINATIONS

Great Lakes Brewing Co. in Cleveland, OH distributes its award-winning beers in a limited number of midwest states. It also has a brewpub that was cited by the New York Times as one of three destinations to take in on a visit to Cleveland, along with the West Side’s open-air market and the Rock’n’Roll Hall of Fame.

Founder and president Patrick Conway compares the two branches of the company: “The performance of craft beer and the growth of brewpubs are not a parallel experience. But regardless, we’ve experienced double-digit growth in both.

“Last year, the brewery was near 20 percent growth, and the brewpub was close to 10 percent. So far this year, the brewery is up between 25 and 30 percent and the brewpub is between 10 and 15.”

Out West, Deschutes Brewing Co. in Bend, OR, is among the breweries cited by the Brewers’ Association on its list of “Tiger” breweries — the ten strongest companies, based on an index of size and growth performance. Deschutes’ founder, Gary Fish, is also the chairman of the association.

Fish reports healthy growth for both the brewpub in Bend, and the microbrewery, but points out important differences.

“A brewpub is first and foremost a restaurant; which is the riskiest form of small business, which, in turn, is the riskiest form of all business,” he says. Brewpubs “capitalize on and are in turn responsible for some of the growing popularity of craft beer, with its emphasis on flavor and style diversity. The challenge is to execute that concept in a restaurant, and manage the brewery inside the restaurant.”

Fish continues, “When I was in college, I worked in a place called Victoria Station, a concept restaurant that was meant to be an English train station. There are a lot of concept restaurants that just don’t work. That’s the beauty of a brewpub. It’s a concept restaurant, except it really IS a brewery: a working, authentic brewery that is a natural part of the restaurant.”

BUILDING LOCAL LOYALTY

Talk to Conway or Fish about their brewpubs, and it’s clear that these are restaurants that make their own beer, rather than small breweries that serve food. Although both companies rank among the nation’s best small distributing breweries, the owners appreciate that the only way to sell top quality beer in a brewpub is to make sure that the entire restaurant experience matches or exceeds the standards set by the beer.

Great Lakes Brewing Co.’s Dortmunder Gold.

For Conway, this means nurturing connections to the community. He encourages his chef to buy local and regional ingredients, organic whenever possible. “That dovetails really well with the quality of the beer,” he says.

The appeal has to balance Cleveland’s working class background with its new gentrification. Conway notes, “At first, the traditional blue-collar consumer considered us a little foo-foo, but we’ve integrated our food concept into more traditional menu items. So, we serve pierogi, it’s just an upscale pierogi. Our sausage is homemade sausage. Our mushrooms are from an artisan grower who uses barley from the brewery as the substrate to grow the mushrooms.”

The result of this approach, Conway finds, is customer enthusiasm. “In more sterile restaurant environments, people have lost the connection with consumers. In stores, there can be aisle after aisle, all the same. It’s important to reconnect with consumers. People want to believe in the things they support. We want inspirational consumers, like the ones who love Harley Davidson, Southwest Airlines, Nordstrom’s. Consumers love them, and they forgive them when things go wrong. They know you’re transparent and honest.”

Conway is a self-confessed fanatic about the freshness and presentation of Great Lakes’ beers. The brewpub serves each style of beer in an appropriate style of glass. All beer glasses are washed in a separate machine to protect the beer from the residual flavors left by detergents. Draft lines are cleaned weekly.

The brewpub has been recognized in Cleveland for its high standards. “We’ve mentored other restaurants in the handling and serving of beer, based on what we do,” says Conway, with pride.