Brewers Learn Their Craft in 1999

Craft beers and brewpubs may no longer be the darlings of Wall Street and Main Street, but the total craft brewing industry can still claim to be growing.

The beer industry as whole bubbled up a bit this year, reports The Adams Handbook Advance 2000, with a 1.5% increase in 1999 following a similar increase in 1998. But this is not the year to evaluate the industry as a whole. “There used to be a wave and everybody was rising,” says Richard Doyle, CEO of Massachusetts Bay Brewing and chairman of the Brewers Association of America. “But now some people are doing well [with double-digit growth] and some aren’t.”

“This is shake-out time,” confirms beer industry analyst Robert Weinberg. “The domestic specialty players who have been very good continue to be very good. But you are seeing and will see a failure rate among small brewers.”

Regionalism Rules

Industry leaders and observers are looking for more back-yard brand building. Even mega-brewer Anheuser-Busch is building regionally with specialty brands like Ziegenbock, available only in Texas, and Pacific Ridge, available only in California, says Joe Corcoran, vice president, national retail sales, on-premise. Corcoran continues, “There is a strong interest from our wholesalers and consumers in having a more regional product that takes advantage of regional tastes and attitudes. Our alliance with Widmer brands enables us to enhance our existing line-up of specialty/craft beer offerings.” (In April 1997, A-B entered into a partnership with Widmer Brothers Brewing Company in Portland, Oregon.)

Commonwealth Fish and Beer Company, Boston, MA

“The craft brewing industry is about being special in a regional kind of way,” says Steve Hindy, president of Brooklyn Brewery Corporation. “I want to be New York’s brewery. And to be that means really sinking your roots deeply into your home market.”

“We’re back to basics,” says Carol Stoudt, president and brewmaster of Stoudt’s Brewery in Adamstown, Pennsylvania. “This means fresh, local product, distributed in certain geographic areas, like we originally started out.”

Even Gordon Biersch Brewing Company, perhaps best known for its highly successful brewery restaurant chain, has left the restaurant business to concentrate on making beer for its regional markets. “It wasn’t a pre-conceived strategy,” says executive vice president Dean Biersch, explaining that state laws limited their growth as manufacturer, retailer and distributor. “You can’t be two of those things,” says Biersch, “otherwise you’d see 2500 Budweiser restaurants out there. We realized we could be very successful going back into our market and fishing where the fish are, versus opening new territory. There’s a certain strength to staying in a regional market and playing wall to wall in that market. That’s a trend you’ll see for small brewers as well,” says Biersch.

Along with “fishing where the fish are,” smart distribution and improved quality control are hallmarks of success.

Make it Fresh and Ship It Out

“The secret of the future lies in the ability of the domestic specialty players to develop a distribution channel they can move their own beer in,” says St. Louis-based analyst Weinberg, “Brooklyn Brewing has done just that, by distributing their own beer, as well as others.”

Brooklyn Brewing president Hindy says “We distribute beer from our own and about 15 other microbreweries, the biggest being Sierra Nevada, as well as imports, such as Chimay from Belgium. No one can put the hammer down on us.” Hindy believes microbreweries that went up fast and pursued a national distribution strategy ran into intense competition from big brewers, who cracked the whip on the wholesalers. “The rabbits ran into a wall,” says Hindy, who puts Brooklyn, with 32,000 barrels in 1999, into the tortoise category.

Gordon Biersch, with a 100,000-barrel capacity and a bottling plant in San Jose, distributes deeply in its back-yard of California, Washington, Nevada, Arizona and Hawaii. But future growth may lie to the southeast, via lager distribution through the very brewery restaurants it sold to Tennessee-based The Restaurant Group (now known as The Gordon Biersch Brewery Restaurant Group), who recently opened up an Atlanta facility. “On a certain level, it’s all about distribution,” says Biersch, adding that selling through restaurants and concessions (they own 30) is the best way to build brand awareness.

For retailers and consumers, smarter distribution breeds better quality control.

“A lot of old product was working its way through the system in 1996 and 1997,” during the microbeer boom times, says Doyle from Massachusetts Bay Brewing Company, makers of the Harpoon brand. “The retail channels were clogged.” Microbrewery consolidations and closings have strengthened the shelves, and strong brands with strong distribution flourish.

“We created our own monster,” says Carol Stoudt, speaking of the early to mid-90s.”We didn’t make one flagship product, we made everything under the sun! Every wholesaler took every brand it could get and threw up against the wall to see if it would stick” Now Stoudt’s Brewery, as well as other well-positioned microbrewers, concentrate on core brands to avoid spreading themselves too thin and compromising quality. To further help the retailer and consumer, Stoudt’s started making bartender-friendly kegs, labeled with a style description, alcohol content, and pouring pressure. “All you have to do it rip it off the keg and put in on the tap marker,” says Stoudt.

Other craft-brew trends to keep bartenders happy include high pricing and an increasingly strong on-premise presence, particularly of craft-brewed lagers.

Pricing and On-Premise Sales

Lighter beers are the trend today, so expect more lagers from craft brewers, who have traditionally been bastions of ale. “You’ll see more people get into lagers,” says Biersch, who already sells a lot of super premium lager. Craft lagers are good trade ups from American mass-produced beers and are particularly attractive in a food environment because of their drinkablity factor. “The whole world is going toward lighter beer,” seconds Stoudt, who has noticed the light and low-alcohol trend in her extensive travels through Germany.

On-premise placement remains the preferred venue for craft brewers. “On premise is the best place to showcase our product,” says Brooklyn’s Hindy, and to showcase profit, too. “You can make 75 cents on a bottle of Brooklyn as opposed to a dime selling something else,” says Hindy. Draft sales will remain king, as the new generation of conservative craft brewers will often decide against installing expensive bottling lines, which necessitate pricey beer packaging. “You have to make sure you’re selling enough beer to justify the packaging,” says Stoudt, noting that even Sam Adams and Pete’s may have had too many packages too soon. “Now they’re focusing on seasonals and lagers,” she observes.

Look for higher prices as brewers raise their rates and discount less. “Prices in general have firmed up,” says Doyle, “and that’s a sign of a healthy industry. It’s good to finally see some real increases in prices,” says Doyle, noting that real price of craft beer had remained the same for 13 years, even with inflation and the rising cost of doing business.

Just as the craft brewing industry is maturing, a period of increased stability, so is its subcategory: brewpubs.

Mature Brewpubs

“Brewpub openings have slowed down,” says John Hall, CEO of Goose Island Beer Company, a microbrewery with two brewpubs in Chicago. “There are probably more closings than last year and fewer openings, but that’s to be expected as this segment of the industry matures.” Two trends Hall notes are more brewpub chains and an increased emphasis on food.

“We’ve always been a restaurant that brews beer, not a brewery that serves food,” says Joe Quattrocchi, CEO of Boston Hops, Inc. and owner of two restaurants and two brewery restaurants (Commonwealth in New York and Commonwealth Fish and Beer Company in Boston). “In the old days you could get away with silly mistakes because brewpubs were hot,” says Quattrochi. “But today you have to remember: You’re in the restaurant business. And that’s a highly competitive industry.” Chains with big funding, such as Big Buck Brewery and Steakhouse, survive well in this environment where food comes first.

Craft Brewing Performance, 1999
Though the craft brewing industry as a whole grew only 2% in 1999, many companies experienced double-digit growth. Regionals performed especially well.

DATA COURTESY OF INSTITUTE OF BREWING STUDIES

“Good food comes first, then good beer,” agrees Bill Rolinski, CEO and president of Big Buck, with three locations in Michigan and a fourth in Texas via a joint venture with Bass Pro Shops. “You also have to have something unique and different, be it food, architecture or service.” Big Buck’s 80-item menu and unique lodge theme has Bass Pro talking four more locations and has attracted the interest of an international developer of shopping malls. Capital outlay for each Big Buck unit is about $6.5 million.

Craft Brewing Set-Backs, 1999

Each of the four biggest publicly owned specialty brewers–Boston, Pete’s (before Gambrinus bought it), Redhook and Pyramid–declined in 1999, but still retained a healthy market share.

DATA COURTESY OF BEER MARKETERS INSIGHTS

The future looks bright for the craft brewers who are mindful of distribution, costs, competition and quality. “What you have today is a really solid foundation,” says Doyle, Chairman of the Brewers Association of America. “Our industry is putting out more good beer than ever before. It’s a great time to be a beer drinker in America.”

Elk Grove Brewpub Does It Right

Former insurance executive Jackie Andersen-McAuley bought the Elk Grove Brewery and Restaurant (Elk Grove, California) in 1999 and has cashed in on today’s trends for brewpub success. His tips to success?

Be Unique

Located in an 1885 national historic building, Elk Grove offers two lagers (as well as the more standard ale selections), premium steaks, and signature ribs and fish and chips, sauced and battered with Elk Grove beer–all a refreshing change from German fare the competition dishes out.

Serve Great Food

Along with steak, burgers, pasta and fresh fish, Elk Grove serves up Sunday Brunch, all-you-can-eat spaghetti and rib nights and a children’s menu. Prices range from $1.99 to $19.95.

Offer Entertainment

When Monday-night sports aren’t around, Elk Grove offers Monday-night auctions where play money buys cameras, radios and t-shirts. Family nights include karaoke and golden-oldies. Blues festivals as well as country and rock groups pack ’em in on weekends.

Grow Slow

Andersen-McAuley doesn’t see the profit margin in a huge distribution system involving bottling. “If I can make $2 on my pints, why would I go and make $1 or less on a bottle?” Instead, she might open a manufacturing plant for draft sales, and incorporate a little brewpub to help pay for it. “I want to maximize my manufacturing because I can make beer cheaper than I can buy it. But you can’t make it on beer alone today,” says Andersen-McAuley. “You need good food and entertainment to bring people in.”

Anderson-McAuley knows what she’s talking about. At 1999’s Great American Beer Festival, Elk Grove won gold medals for Otis Alt and Diamond Back Wheat Ale, and captured the title of Best Small Brewpub and Best Brewmaster.