The Tipping Point: Part III


Photo Credit: Another Pint Please on Flickr

The third and final part in my self-destructive Jerry Maguire moment. Here is Part I and here is Part II.

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 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.]

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10 thoughts on “The Tipping Point: Part III

  1. Pingback: The Tipping Point: Part II |

  2. I think that the one thing most drinkers don’t understand is what you highlighted with New Glarus and what Sam from Dogfish Head talks about in “Beer Wars”, it is expensive for breweries to expand to meet demand. Here in Chicago, Half Acre is taking off and is having to add tanks to an already crowded brewery, but they only have a limited amount of space. I think the other tipping point is when do people become so jaded with the new brands and overwhelmed that they quit? I’m talking the casual drinker who wants to try and few things, but has NO IDEA where to start. Is there also a tipping point in the number of blogs?

  3. Just want to say thanks for this series. It’s good to hear some thoughts and analysis from you, and I’m looking forward to the revamped and expanded

    AS far as breweries pulling out of markets, New Glarus has the brand power to do that. They’re nationally renowned and established, and the market will be there if/when they expand and return to Chicago. Surly, too, has enough reputation to sustain a temporary absence. The question is more if a relatively new brewery in a crowded market could afford to pull back and lose market share they might never regain.

  4. Jerry Maguire? It worked out okay for him. But I think you deserve a lot more credit for furthering this discussion than to consider yourself self-destructing. Some may not think that this isn’t the most politically correct discussion to have but I think it’s important to try and sort this thing out.

    Thanks for entertaining multiple viewpoints, even ones that you might not agree with.

  5. Thanks for the comment, Greg! I’ll say this about New Glarus. Remember that they made that decision back in 2002. Back in 2004, I know that they made about 28,950 barrels so when they made that decision, I’m guessing that they were producing around/less than 20,000 barrels/year. That was probably still enough to be a brand power in the Midwest at the time but were they nationally renowned and established? Debatable. They also pulled out of Chicago when craft beer was growing at only 1-2%/yr so the climate was very different then.

    You’re right about Surly being very successful. Breweries, not just Surly, but many of them can go to new markets and pull back or mismanage in other ways and still get away with it right now. But let’s add another 800-900 breweries to the mix (which believe it or not could take only 4-5 years at the current rate) and can breweries afford to do that anymore? A lot of breweries fail and/or close but I haven’t talked to them to find out why unfortunately.

  6. Heh, he gets the girl in the end, right? 🙂 I guess that was just my little way of joking about whether this thrown-together series would really resonate with my core readership. I’ve got some good feedback so far. Now I’m just waiting for a brewery to post a comment and say that I am dead wrong about all of it. Thanks for reading!

  7. Great posts. Definitely a topic more beer folks need to start rolling around in the old noggin.

  8. Fantastic series touching on a topic that we talk about here in the store all the time. I don’t think there is really any question that we are leading up to a very local beer culture in this country with a handful of regional brewers playing lead. Like you said, this will ultimately be a good thing for beer and beer culture.

    The one thing you didn’t mention is the European beer scene. Belgium has a couple thousand breweries as does Germany and the UK. These countries don’t seem to be struggling as they have adopted a very local and regional system like what I believe we’re evolving towards.

  9. San Diego has seen 3 nano breweries open in the last months. We’re doing a series on it and can’t wait to see how that complements this series here.

    Great work.

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