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.
