Craft beer enthusiasts around the United States know something exciting is happening. They trade emails and blaze Internet forum pages with news of their favorite, distant breweries coming to their home states. Local beer stores, from Tempe to Tampa, teem with attractive new brands. But behind the scenes, the craft brewing industry is at a difficult crossroads, anxiously trying to balance robust growth with pleasing consumers and distributors. And it’s only going to get harder.

The availability of a diverse range of great beers has long been standard fare in big market cities, such as Seattle, Chicago, and New York. But travel to some cities less well-recognized for better beer offerings and you’ll see something unexpected: the same brands you can find in Philadelphia, Boston, and Denver. And while it’s exciting for a beer lover to try beers from thousands of miles away, some craft brewers and distributors have concerns about the future.

In the beer business, growth is achieved in one of two ways, organically, where breweries expand sales within their current markets, or through geographic expansion into new markets. Organic growth is difficult. It involves battling in your core markets to gain new draft handles and shelf space. Breweries work with their distributors to fight on the front lines, selling their stories and educating retailers about the values of their products. While demanding, the resulting sales, if supported, provide a strong base for the brewer’s operations to grow. In comparison, geographic expansion is much easier. Five years ago, craft breweries had to fight for the attention of distributors. Today, brewers frequently receive unsolicited inquiries from wholesalers anxious to sign up new brands. So if a brewery wants to expand, it need only look to sending a few pallets of beer to a new state.

When distributors were giving craft brewers the cold shoulder, they dedicated themselves to the organic growth model. With the change in fortunes, breweries of all sizes are increasingly rejecting it. In early 2003, Colorado’s New Belgium Brewing Company sold beer in twelve states, focused on the western U.S. By the end of 2009, that number will hit twenty-five, including South Carolina. For a brewery of New Belgium’s size, selling around a half-million barrels per year, that model may make sense. But what about the neighboring Avery Brewing Company, which sells only 16,000 barrels in thirty-three states and parts of Europe? Or crazier yet, tiny producer The Bruery sending its less than 1000 barrels to eight states. Contrast these models to those of local breweries, such as Berkshire Brewing and Wachusett Brewing, which sell 20,000 barrels in three or four states, or better yet, New Glarus Brewing, which sells 80,000 barrels in just one state.

While craft beer fans love having new beers to try, the geographic expansion model has some built-in problems. For one, as with land in real estate, we’re not making more states. So expansion can only go so far before you start eyeing Canada or Belize. Second, after the initial surge of enthusiasm, consumers often find dusty bottles sitting neglected on store shelves far from the watchful eye of the distant, absent brewer. And consumers and distributors are off to snag the next great thing to come along. Finally, while sending pallets of beer to new markets is an easy way to grow, keeping that pipeline filled when you’re over-extended is proving difficult. Even larger craft brewers, such as Bell’s Brewery and Dogfish Head have had troubles keeping popular beers, such as Two Hearted IPA and 90 Minute IPA, available in many markets. Other smaller breweries, such as Sixpoint Craft Ales, have entered markets with an initial bang only to withdraw a few months later due to lack of product availability.

While there is perhaps no greater concern for a craft brewer than access to market, especially after years of tough battles with large, entrenched macro breweries and a distribution system built upon volume sales and slanted against smaller operations, the sudden wholesaler interest in their products and promises of quick sales should give weary brewers pause. And craft beer drinkers should give some long term thought to whether it’s a good thing have every craft beer available at our local stores.

–Article appeared in Issue 29 of BeerAdvocate magazine.

21 Responses to “The Case Against Carrying Every Craft Beer In Your Local Store…”

  1. Agreed there are many dangers, some you didn’t mention, but what is he solution?

  2. Andy says:

    In a short phrase, stay closer to home. Responding to distributor requests from across the country with a pallet of beer is easy to do and fleeting in terms of sustaining growth. Building relationships in your home markets, especially where self-distribution is allowed, makes for a strong, smart, and sustainable company. While a quasi-national business plan might make sense for some breweries with incredibly niche products or as a temporary solution for ones that lack a way to raise the necessary operating capital, I don’t think it’s sustainable in the long term.

  3. Jeff says:

    “In a short phrase, stay closer to home.” For some breweries, yes. For others, no. You don’t have to have a niche to enter a new market. Many markets around the country have little representation. A brewer can enter, be successful, and if there is no strain on production or quality, benefit financially. Missouri has been a good example. When I arrived here two years ago, there were few craft beers on the shelves. Now, there are many with room for many more. Retail and restaurants are making more money. Customers are getting the opportunity to experience new types of beer.
    Breweries with national (or international reputations) and decent output who do not want to expand, can succeed as well with limited distribution: New Glarus, Three Floyds, Russian River. They are all doing fine and do not want to expand. But if Bear Republic, Founders, and Lagunitas want to expand and can do so, why not as well? Craft beer’s four percent of the beer market hardly makes for a saturated market.

  4. Chuck Noll says:

    The key is to do your homework and ensure that, as a brewery, you have a long term growth plan, and you are working with distributors that can build a brand, not just sell a couple of pallets and wait for results. Fortunately, more and more suppliers are vetting distributors aggresively and making sure they are working with an organization that is in it for the long haul, not just to throw a bunch of beer up against the wall to see what sticks.

  5. Patrick Rue says:

    Andy,

    The Bruery produces beers that don’t fit well within the “organic” growth model. Our beers do well at beer bars and great beer retailers, not 7-Elevens or grocery store chains. We don’t compete with Sierra Nevada or Blue Moon on price, and many bar owners don’t understand our product. We don’t give price discounts, we don’t have neon signs, we don’t give away free t-shirts. If I were to choose the “organic” growth model, I’d have to change my beers and our marketing approach.

    We depend on true organic growth in the sense that we grow based on demand for our beers– it arises out of natural outgrowth. Our customers learn of our beer through word of mouth. Our growth comes from people who want to try or carry our beers, not through incentives (which I’d consider inorganic).

    We’re quite proactive in choosing distributors in new markets– I personally visit multiple distributors in a market before choosing to sell beer there. I get to know many of the local accounts and find out if our beer will sell. We never send a pallet to a domestic distributor based on their willingness to pay for it as a basis of entering new markets. Our goal is steady, realistic sales to great beer establishments who are demanding a greater variety of beers.

    I feel our beer makes a great accompaniment to the other Belgian-style beers on the shelf in almost any market. Allagash, Ommegang, Jolly Pumpkin and even tiny foreign breweries like Fantome can be found in many states. I believe this is the way it has to be for a small, specialized breweries to succeed, especially when the focus is large format bottles (rather than draft / 6 packs). Small wineries and distilleries have been doing this for far longer than breweries.

    Of course I do enjoy traveling and finding beers I can’t get at home. Thanks for listening– I’ve got a plane to catch to VA, NC, SC, GA and FL…

    Cheers,
    Patrick

  6. Andy says:

    Good points all around. There is no obvious one size fits all approach. My points are addressed less at places such as The Bruery, which makes some niche products (though a white/wit is certainly less niche than when Allagash blazed the multiple state strategy a decade ago) than to craft breweries with more conventional portfolios (especially those based upon hoppier beers that fade quickly on store shelves). As to Jeff’s point, I think my article addresses a few concerns, namely that breweries such as Lagunitas, Bear Republic, and Founders can only send beer to so many states before they run out of places to grow. While your other examples, especially New Glarus (which is on track to sell 130,000 bbls in Wisconsin only). And while Lagunitas et al do a good job, at least here in MA, I could name another dozen or two breweries whose expansion efforts have led to a dusty glut on local store shelves. That doesn’t do their brands, or craft beer in general, any favors. And many of these breweries are quite small in size and certainly could sell more beer in their local markets if they tried. If NG can do 100k+ in one market, there’s no reason Avery shouldn’t be able to sell 15k in Colorado (not to pick on Avery).

  7. James says:

    I wish New Glarus would expand! I miss it.

  8. Derrick says:

    Intel co-found Gordon Moore was fond of saying, “If you don’t fail every so often, you aren’t trying hard enough.” So a few craft breweries got over-extended and stale inventory got left on shelves, or they ran out of product for their more loyal customers. Is that really a big deal? Can these breweries really be taken to task for taking a reasonable growth strategy? The argument that “a brewery will run out of states to expand into, and will have expand to Canada or Belize” is not a particularly compelling argument not to expand. We all like quaint, local breweries, but the facts are, they are a business we can only expect them to act like ones.

  9. Andy says:

    Hi Derrick-

    At least in Mass, it’s more than just a handful of breweries and we have new breweries taking the plunge every week. If expanding into new states was the only viable growth model, then, of course, there’d be no problem. The distinction here is that the healthiest breweries have invested the majority of their time in servicing their local markets as opposed to sending product 3000 miles away to a place they can’t routinely visit. And the breweries I’ve mentioned that decide to focus on their local markets are far from quaint (NG at 130,000 barrels for one) and in fact most are substantially larger than the questionably modeled ones I’ve flagged. If they can sell tens of thousands of barrels in a restricted number of markets and maintain greater profitability all the while, I think the model is too often brushed aside for the short-term ease of the new state model. With many craft breweries having expanded into 35-45 states in the last two years in order to grow, the lack of new state markets to enter will soon become a more compelling argument than you foresee…

    Best,

    Andy

  10. When I asked “what’s the solution” I meant from the standpoint of consumers/beer drinkers.

    After all, you wrote “And craft beer drinkers should give some long term thought to whether it’s a good thing have every craft beer available at our local stores.”

  11. Andy says:

    Hi Stan-

    To start, demand freshness dating. That gives consumers the information necessary to judge whether to buy a particular beer and for the more dedicated among us it can lead to changes in long-term decision-making, such as to always avoid a particularly brewery whose beers are often out of code. I’m not sure that many breweries actually know what happens to their products when sent far across the country on the occasional shipment. Consumers should let their favorite breweries know when they routinely see out of code beer on their store shelves.

    Supporting local and regional breweries is another solution for consumers. And if that doesn’t work for you, try travel. Craft beer’s popularity isn’t strong enough to sustain baby national brands. That’s just a recipe for stale beer.

    Best,

    Andy

  12. Derrick says:

    Points taken on the hazard of over expansion, and the risks breweries take when they lose control of their product.

    >And if that doesn’t work for you, try travel.

    Hmmm….I could go down to my local Beverages and More and risk a few bucks on something from a distant brewery, and every now and then, get a stale one. Or I could spend thousands of dollars flying all over the country to get fresh beer at local breweries. How many consumers to do you realistically expect to prefer the latter?

    Easy to say support your local breweries in places like Boston, or out here in California, where there are plenty of breweries to choose from. What’s the guy in Nebraska going to do?

  13. Andy says:

    Our friend in Nebraska is going to enjoy the great sour beers produced by Upstream in Omaha or drink as much New Belgium or Boulevard as they like (two breweries long dedicated to regionalism, especially the latter)…

  14. Jeff says:

    Except….Boulevard ships now to California. Breweries need to stay in business. They are like any other business; they sell to more than one market. I’m glad to see new breweries here in Missouri – local and from elsewhere – and I’d like to see more. I’ve never had a stale beer. The beer can’t even stay on the shelf long enough to go bad. Avery? Gone. Founders? Gone. Bear Republic? Gone. People buy their beer as soon as it comes in.
    And I’d love for Upstream to come down here too.
    It’s a good conversation here…but I really don’t see any issues with many of these folks looking to sell their beers in other markets.

  15. Jeff says:

    Except Boulevard now ships to California…

  16. Andy says:

    Hi Jeff-

    Hadn’t heard that and can’t seem to confirm it through the company’s website or a quick google search. Got a link?

  17. Derrick says:

    Haven’t seen Boulevard out here in California, with the one exception of finding their Nutcracker Winter Seasonal Ale at a 7-11 in Carlsbad of all places last March. (I also found Alesmith Pale Ale and IPA at this 7-11, just going in looking to get a diet Coke.) Would you believe I’m actually travelling to visit Boulevard’s brewery in KC this October?

  18. Steve says:

    I second Derrick’s opinion. If only left with local/regional choices, we would have 5, maybe 10 breweries available in central Iowa. That would mean a few things: 1)more shelf space to BMC and imports, 2)less diversity of styles and 3)less competition in quality. We don’t have a thriving beer culture here; we rely on beer from far far away.

  19. Andy says:

    Hi Steve-

    I certainly get why craft beer drinkers in the less covered areas of the country would balk at what I’m suggesting and my point is actually not directed to these situations, at least not yet. If a market is generally open and uncluttered when it comes to brands, it might make sense to compete there. Less so when you look at the store shelves in Boston, Philly, NYC, DC, or even places such as Tampa.

    Best,

    Andy

  20. dave says:

    Well, I’m near Fresno, CA, a fairly large city, less than 200 miles from Petaluma, and it sure pisses me off when i read about someone getting Hop Stoopid or some other Great Lagunitas release in boondocks North Carolina or some other 3000 mile away place, when we can barely get the regular stuff here. So yeah, concentrate on the more local, and least better saturation of the state or something!
    Lagunitas is hardly the only CA brewery that we have trouble getting that seems to love to send their stuff thousands of miles away…
    dave

  21. Andy says:

    Hi Dave-

    An excellent note that illustrates my greater point, namely that breweries, for reasons beyond my full appreciation, often prefer to send beer far from home rather than trying to sell it locally. And I can tell you that here in Boston, we get the full line of Lagunitas products and special releases and I can think of at least a half-dozen bars within a mile or two of where I live that have at least one on tap (and rotate them at that). Sure the beer seems to sell so good for Lagunitas, but with self-distribution an option in California, perhaps more money could be made closer to home.

    Cheers,

    Andy

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