What the small Pennsylvania craft brewer lacks in actual size, however, it makes up with its eruptive reputation. Started by partners Bill Covaleski and Ron Barchet in 1996, Victory produces a line of beers which causes fits of joyous convulsion among its loyal brigade of followers.
Over the next few months, I will conduct a series of interviews with intriguing, opinionated individuals connected to the brewing industry. This group will include brewers of all sizes, trade organization representatives and even a frequent critic of the brewing industry. The series will include both familiar voices and those whose interesting perspectives have gone untapped. In the inaugural interview, I spoke with Bill Covaleski to discuss how craft brewers are breaking down the mystique of Corona and Heineken, what qualities are found in a good distributor and retailer, and how his little brewery has come a long way.
ANDY CROUCH Thanks for speaking with me. Victory is a company on the move. Before we discuss Victory's expansion, tell me how the company began.
BILL COVALESKI Incorporated in June of 1995, it got its start more or less on a school bus in 1973. The reason being, my business partner and I have known each other since that time. The whole history of Victory is an appreciation of beer, and we opened the doors of our brewery-restaurant in February of 1996.
AC Both of you have extensive brewing experience elsewhere. What prompted the two of you to go out on your own?
BC We felt we had the expertise to do so. We both worked for pioneering microbreweries here in the United States, and both attended school in Germany to learn the craft more. So we felt we had the expertise. I guess the other side of the equation was that we also recognized we had the frustration with our employment situation, and we wanted to break out and try things on our own.
AC What was frustrating about your employment situations?
BC We were dealing with ownership that had specific ideas about which products were to be made and how they fit in. And I guess we have learned why those owners thought along those lines, because we have a pretty gloriously large portfolio of beers here at Victory. And as much as we love to drink them all, they can sometimes be a logistical problem, keeping everything flowing at the proper rates throughout the 12 months of the year. So I think we had very idealistic ambitions in terms of the passion of beer and making great beer. By and large, we have been able to live those out and fully realize them.
AC How did you guys decide on Downingtown, Pennsylvania as the place to set up your brewery?
BC Ron and I talked about opening a microbrewery all over the country. As we traveled around working in the industry, we were looking at all of these different locations that we thought would be intriguing for two young, single guys with nothing to ground us. At one point, we thought Lake Tahoe would be a fantastic place. But one by one, all of our prized destinations disappeared and we found ourselves gravitating back toward home, which is Pennsylvania. We realized there was tremendous opportunity there. After reading the regs in terms of what Pennsylvania permits, we became aware that we could have a pub at our brewery for just the cost of doing it. We recognized it could be a tremendous marketing tool if located in the right area. And it has been.
AC What was attractive about opening a restaurant as well as the microbrewery?
BC Well, basically, I think you know the dynamic from a consumer level. People are always saying, "Hey, let's go to that new restaurant when it opens up." But people don't say, "Hey let's go to that new brewery." So, a brewery has no identity until it establishes one. And you can do so by spending lots of money in terms of advertising or point of sale materials. One of the ways we got our audience acclimated to us was just by opening the doors of our restaurant - which is called Victory Brewing Company - and watching them come in and try our beer. Even better yet, they left money behind.
AC Victory has built a huge name for itself without spending much money on marketing. What is Victory's marketing strategy?
BC We do what we feel is necessary. We are actually more a product oriented than a marketing oriented company. We believe fully in the strength of our brands and the quality of the beer we are delivering. When we broke into the market in 1996, there was an awful lot of clutter out there. We didn't have pockets deep enough to get involved in that shouting match. So, instead, we stayed kind of quiet and marketed it in more of a grassroots, one-on-one, connecting with the consumer kind of way. And we found it to be effective. So we haven't really seen a reason to just spend money like others do in order to get results we're not certain we're even going to accomplish. We've pretty much kept our expenditures in terms of advertising down to less than two percent of our revenues each year, and it always remains a target for us to try for.
AC So Victory's success is built upon word-of-mouth support?
BC We've been pretty fortunate in terms of the press. Again, we make beers with full flavor, and they have gotten the attention of the beer geek audience, quote-unquote - and with the help of people in those places to influence opinions and get us some press. So by not rushing out there trying to be all things to all people, but just maintaining great beer, we've created a buzz for ourselves. That's a pretty sustainable form of marketing as far as we can see.
AC Who buys Victory's products?
BC Difficult to say other than based on personal experience - doing samplings at stores and such. But it's definitely the craft beer consumer or the import consumer. I hear very few stories from our consumers that they put down a Budweiser, picked up a Victory Hop Devil and never looked back. I have heard stories where it began with a Budweiser and ended with a Hop Devil, but there was a Samuel Adams and a Corona, and maybe two other products between the two. So, there's always some consumers within the beer market that are so narrow minded as to stick with just one thing for ever. We're finding growth in people who are curious about other brands and other flavors.
AC With Hop Devil as your flagship product, how does the rest of your lineup breakdown?
BC Hop Devil was never intended to be our flagship. It just sort of ascended to that position from its performance and sales. It's kind of odd to think that two guys trained in lager beer brewing in Germany would have great success with this really wild-assed American ale. But right from the start, it showed the most promise and we've down nothing to promote it more or hinder it in any way. It's just grown to that position. Number two would be our Golden Monkey Triple which, retailing for $30 plus a case, is a significant consideration. Yet it's growing very strongly. Hop Devil is fluctuating at around 60 percent of the overall picture. Golden Monkey is year 'round and trailing at 11 percent, so you can see there's a wide differential. We also have a lot of seasonals, which are filling the gaps in-between. The Storm King Stout has a long season - six months. Old Horizontal does tremendously well, but it's on such a limited basis. It's basically our Christmas beer, and it rarely makes it into February. That's kind of hard for it to equal what we do with Storm King.
AC How do you maintain the price points for your products?
BC I guess it's sort of up to us to control in all markets. At home for us here in Pennsylvania, we're at $24.99 suggested retail per case for Hop Devil, Prima Pils and what we consider our flagship beers - mainly our conventional gravity beers. Then the price varies for the Storm King and Golden Monkey and seasonals like that, creeping up to about $35 a case for our Old Horizontal, which is our Christmastime release of an 11 percent barleywine. How do we maintain those price points? We've been very sensitive about not posting off dramatically and not discounting. We basically want to get sales 365 days a year - not in two or three chunks throughout the year - and deal with old beer. So we've been pretty limited on our discounting policy. Otherwise, we try and put a lot of effort into sampling and doing public outreach - where people recognize value is actually in the bottle and it's worth the price.
AC How can craft breweries increase their market share?
BC I think that if breweries, and craft breweries in particular, want to grow the segment wider, they have to look at what drives a person to drink an import so religiously, and why wine consumers apparently have such a sophisticated palate, but seldom touch beers that may have even more flavors to excite them.
AC What is the state of the beer industry?
BC I can only speak from my own perspective. I find it a pretty nice, stable situation. I know in our area we are seeing that the weaker brands, which didn't really have a place to be, have disappeared, and it's created great opportunities for our brewery. We feel as if the clouds have parted and now we can really enjoy a moment in the sun. I think the opportunities for craft breweries are great again because consumers are placing a lot of interest on import beers. At least from Victory's standpoint, you have a brewery here using imported malt exclusively and whole flower hops from the US and Europe. So we're essentially creating import quality beer for a local and regional audience. So, if we can get over the education hump, we stand to do very well with the import consumers
AC But is that what import drinkers are looking for? Conventional wisdom has it that one of the driving notions behind the sales of import beer is the status the product conveys.
BC Well, that's a good point. The Heineken and Corona thing is not what the craft brewers are doing. I guess what's encouraging, even in the sense of Heineken and Corona, is that if you look at the price points for both of those brands - I know Corona just took a price hike and it is on the shelves in our area for $28 a case. That's just ridiculously high for what the consumer is getting. So as I see it, that emperor has no clothes whatsoever. If craft brewers can break down imports' mystique over time, they stand to gain. No craft brewer in his right mind is really going to target Corona because, let's face it, what is inside a bottle of Corona is totally different from what any other craft brewer is making. So satisfying the customer on that level is an uphill battle. But if people are simply buying imports for the mystique of the import, I think craft brewers have a good way of breaking through that and having success.
AC How do craft brewers break through that mystique?
BC I know from our own perspective, here at Victory Brewing Company, it would be education. In our back pockets, we know that we are brewing with all European malts and all European and American whole flower hops. So we know that we have critical advantages over the large American domestic brewers, and that we are on par with the legitimate imports in terms of their traditions and how they go about things. So it's about getting into the consumers mind and having this discussion with them and not letting the advertising of the big imports do all of the talking.
AC In a time when many craft brewers are staying closer to home, Victory is undertaking expansions into new states, including Massachusetts. What is Victory's national expansion strategy?
BC This is going to sound pretty funny actually, but we have no national strategy for distribution. We are just going to markets where we have had enough consumer interest. Whether it is via the internet or phone calls or whatever, to basically fill in the blanks. We just don't want to see people who want to get our beer go thirsty. Our beer has probably gone to every state in the United States since we opened through homebrew circles and UPS shipments from house to house. So basically, when we discover a market that has strong enough potential, we try to find a capable wholesaler. When we can complete that equation, were there.
AC Many craft brewers have attempted to expand their own territory, only to fail miserably. What prevents such a situation with Victory's expansion?
BC There's really no prevention other than just being prudent about what we're doing. Our home markets, Pennsylvania and New Jersey, are clearly the strongest portions of our business and will always remain so. We commit a lot more effort to them than our out-of-state markets. I don't want to sound reckless in this, but in a sense in the other states that we have expanded into, we are really picking the low hanging fruit. We're really working with our wholesalers and utilizing their capabilities to sell the beer. We're not doing anything unusual to sell the beer. We're essentially just satisfying a need that already exists.
AC How is the expansion into Massachusetts going?
BC Massachusetts obviously was new for us last year. Very strong support. I haven't visited the territory often enough to fully gauge it at the retail level. But we're getting good feedback via email from retailers and consumers, so to me it looks like a sustainable situation. Another perk is that the wholesaler (Atlantic Importing) we are with had been pursuing us for three years prior to this. So we feel we really have their interest in working for us.
AC What is going on with the expansion at your brewery itself?
BC We're undergoing an expansion here to allow us to package beer a little more economically and in more diverse packaging. In five years - we have just completed 10,000 barrels of production this year - we certainly anticipate 20,000 barrels of production and probably up to 25,000 barrels. We think in terms of liquid because as brewers we have to install the equipment in order to facilitate that. So we have to think strategically in order to produce for that certain time. We doubled our space here in November by adding another 23,000 square feet. We had a real lucky stroke back in July because we had spent the majority of last year deciding how were going to grow with tenants in this facility all around us. And then one of them went out of business in July. It was exactly next door to us and the perfect sort of space for what we needed to do. So right now we're installing tile floor, and Ron is heading to Germany next week to see our Krones (bottling) line being built. All of this equipment will be rolling in in May.
AC How much of your production is dedicated to on-premise versus off-premise consumption?
BC Boy, that's a good question. If we had the pub actually buy the beer from us instead of doing it by inventory deductions, we would know better. Of the 10,000 barrels, we certainly didn't do anymore than 1200 in the pub.
AC How does the three-tier distribution system affect your brewery?
BC It affects us greatly. I'm at loss whether positively or negatively. What I think of the three-tier system is that a lot of people gripe about how it doesn't work. Well, unfortunately, it is the reality and this is what we have to work with. Where the three-tier system might be open to problems is in the consolidation which has occurred and the larger wholesalers neglecting small scale breweries. Whether they are small-scale breweries or small-scale wineries, their exclusion from the market could very well prove to the Supreme Court that we essentially have an unfair trade practice occurring. I guess the three-tier system exists due to a federal mandate, and I don't know what sort of action could be taken in order to reduce it. It really sort of needs to be self-regulated by the larger companies which are gobbling up other wholesalers. Because if it's an unfair business environment, it could come to a screeching halt.
AC What can craft brewers do to help distributors?
BC An excellent question. I don't know if I'm too well positioned to answer entirely. I can only really see from my perspective. What craft brewers should represent for wholesalers is product diversity. I know locally we work with an Anheuser-Busch wholesaler that covers three counties in Pennsylvania. Normally, you would think that would be a bad relationship and that we wouldn't fit well into their portfolios. They also have some import beers as well. Yet, they have nothing in their portfolio that has quite the style diversity at the prices points Victory offers. I think a wise wholesaler is always looking to have a complete spectrum of products - not only in terms of the flavors the products are offering but also in the price points the products are at. So they can have a portfolio to fit every need they might encounter.
AC What makes a good wholesaler?
BC A good wholesaler - good can be gauged on so many different levels. But good, in terms of a capable wholesaler, would basically just utilize their sales force to let their customers know of the brands and what the brands can do. Other than that, it's incumbent upon the brewery, once that foot is in the door, to show what it can do for the retailer.
AC What makes a good retailer?
BC A retailer should play fair, meaning that they shouldn't just stack a beer because it is their personal favorite. They are essentially an editor between the brewery and the audience, and they should not do their audience a disservice by playing favorites and narrowing their offerings to be too limited. They should be out there doing their best to sample all available products and offer a wide enough range that all of their customers' needs are satisfied.
AC Are there any craft beers that you are itching to try?
BC Craft beers that I'm itching to try - not really. Because of the network of friends and distributors we have, we can usually get whatever we want. One of the weird things about Victory is that - if you go to the website (victorybeer.com) you will see the list of beers that we produce - we are essentially brewing to satisfy our own tastes. So we pretty much make all of the beers we want to drink. That may sound a little bit self-serving and conceited and I hope it doesn't come off that way. I'm not saying we don't like drinking other people's beers and we don't enjoy other people's beers. It's just that we are in a situation that we have all the equipment and we have the expertise, so we make an imperial stout rather than drink Old Rasputin, as delicious as Old Rasputin is.
AC So with everything going on, how has 2002 been for Victory Brewing Company?
BC It's been a great year for us, following five other great years. This year we started with the announcement from Malt Advocate that they had chosen us as their brewery of the year. The runners' up were a 130-year-old German Brewery and a wildly successful Rocky Mountain State brewery, so we're very honored.