We continue the discussion of what happened to New Glarus and their choosing to go all-local. Should other breweries follow this model?
When breweries open for business or expand their current capacity, there may be a temptation to send beer to new markets, especially to those premium on-premise accounts. A presence in the on-premise channel can help grow business because it helps establish a position for the off-premise channel.
Mark Anthony Brands Senior Brand Manager and former Pabst and Flying Dog Marketing Director, Neal Stewart, presented this idea late last year, “On-premise strength = off-premise pricing power. Craft brands that are weak in the on-premise channel never get the respect needed to become a power brand. On-premise strength also leads to sampling, credibility and top of mind awareness.”
What happens is that a brewery gets its foot in the new market and fills up some of its capacity before the casual customers in the local market catch up. Eventually, the local market comes around as same-location business picks up and new accounts become interested in carrying the brewery’s products. Then what? Breweries hit a level of demand that exceeds capacity. Sometimes, distribution will stay thin in all markets as the brewery struggles to keep up or it will have to pull out of a new market or two (or a few or several) to better focus on meeting expanding demand back home.
Surly Brewing is a prime example of a brewery that had to make the same tough decision that New Glarus did back in 2002. It happened earlier this summer. Per The Chicagoist, “The Minnesota brewery has been having a hard time meeting the demand of its home market, accounts in Wisconsin, North Dakota and here in Chicago where Surly was only available in draft. Faced with a tough decision, Surly decided to pull out of all markets except for the Twin Cities while they finish an expansion project intended to increase their capacity.”
For other breweries pulling out of markets, it may be because of high demand or, even worse, lower-then-expected sales in the new market due to tough competition.
Demand in craft beer will undoubtedly continue to grow for the next several years but we are coming to this “tipping point” or “inflection point” as Jim Koch calls it. Breweries opening with large systems in the future right off the bat will probably face more challenges than those of the past several years. There will be more opportunities in the marketplace but more breweries will be vying for them than previously; competition is becoming more intense.
Where does all of this end up?
It goes without saying that regional breweries with national brands have played the most prominent role in the rise of craft beer. Because of their efforts, there is a greater selection of craft beers in many parts of the country. That said, only one in eight craft breweries makes at least 15,000 barrels a year; it’s a hard mark to achieve. My hope is that tomorrow’s new brewery decides to think (or at least start) smaller.
A swath of small breweries (I’m thinking nano-breweries or 5-7 barrels to start) with a local focus is probably the most manageable way for craft beer to grow over the next decade. Ten years from now, imagine a garage brewery or brewpub or small micro in nearly every community and what that would do for U.S. beer culture. Or envision your local store having twice the beer selection that it does now. For some areas, they are nowhere near this tipping point yet (thinking outside of the large metros) but for others with an already vast selection of beer, the first scenario would probably make a better compliment to what the market currently provides.
By July 16th, over 150 breweries had opened up in 2010 according to The Brewers Association and I’d estimate that nearly 20% of those are operating on systems that are three barrels or less in size.
… Hopefully we’re already seeing a glimpse of the future.
[Ed. note: The 800 lb. gorilla in the room? How about the fact that much of what I do here is provide information on new breweries and new brands? That won’t change. As craft beer grows as a several-billion dollar industry, I’m committed to providing a news source that continues to bring transparency with respect to happenings and new products hitting shelves (and when possible, taps). What will change is that Beernews.org will be a more comprehensive site with more than just “new beer” posts in the future. Making that a reality takes a ton of work though I expect it will be completed sometime this year.]