Grow or Die
For many “local” microbreweries, there comes a time when it’s necessary to sell beer beyond the home base. “You have to grow or die,” said Jim Schwab of Tommyknocker Brewery & Pub in Idaho Springs, ID. Schwab reports what many owners of mid-size craft brewers have come to realize, that once a brewery grows to a certain size—past the small, local brewery with limited sales—it’s impossible to remain at this new size. A tough business decision has to be made to spend money, time and effort to ramp up the sales and marketing efforts. New territories must be explored.
“We take it one step at a time in new states,” Schawb said. Tommyknocker currently sells in 16 states, with 31 percent of sales at home, headed by its Maple Nut Brown Ale.
A small brewery encounters several problems when it first attempts to sell outside the local market, one of the biggest of which is cost. “You need more money the farther away you go,” said Gary Bogoff of Berkshire Brewing, whose flagship beer is Steel Rail Pale Ale. “We prefer to plow money back into the brewery and the local market.”
According to Bogoff, Berkshire has been successful because he and his partner, Chris Lalli, stuck to local markets and have kept advertising through word of mouth.
Berkshire has recently opened the Flatstreet Pub in Brattleboro, VT (30 miles to the north), where 10 of the 20 draft lines are Berkshire beers.
The cost of a sales person dedicated to a new, far-flung territory is difficult for a small brewery. Jurgen Knöller of Bayern Brewing in Missoula, MT, said that sales reps are hard to find and difficult to fund.
“When you add the annual salary plus expenses for a sales rep,” Knöller said, “you need about $1.5 million in sales.” Knöller added that Montana is a challenge for a small brewery because it’s “a big state with few people.” Bayern sells half of its beer (led by Bayern Amber) in Missoula and up to 80 percent in Montana, with the remainder in nearby Idaho and a small amount in Oregon.
“A happy medium is hard to find,” Knöller said. “We’re a hybrid size—not small enough to stay in town.” Like other brewers we interviewed, Knöller pointed to the fact that, at a certain point, a small brewery must move forward.
At Fish Brewing in Olympia, WA, Lyle Morse said his brewery’s size is too small for efficiencies, but that selling bottles in far-away territories is less profitable. Instead, Fish (which sells in eight states, with 50 percent of those sales happening in Washington), said he’s “refocusing on our organic brands,” such as his best seller, Organic Amber Ale. Fish bought Leavenworth Brewing (all all-draft brewery) in 2001, but has now phased out the Leavenworth brand to concentrate completely on Fish Tail Ales.
Sometimes there’s the problem of whether customers even exist in border states, the first place microbreweries usually look for expanded sales.
Brock Wagner of Saint Arnold Brewing in Houston, TX, said he still sells 75 percent of his beer (led by Amber Ale) in Houston and 100 percent of his beer in Texas.
“Our border states are not screaming for better beer,” Wagner said, referring to Louisiana, Arkansas, Oklahoma and New Mexico. “It would take great effort to sell there, although there’s always a subset of people desiring good beer and this can be rewarding for a brewery.”
Wagner said it’s viable to remain a 5,000- to 10,000-barrel brewery “if you stay local and not try to maintain a far-flung sales force. And if you’re local, your beer is always fresh.”
How much support can a small brewery give a faraway territory? “Not much,” said Eric Wallace of Left Hand Brewing in Longmont, CO. He feels the cost of sales reps is prohibitive, and he’s been slow to add on new states. Expressing the stresses of many small business owners, Wallace said: “We need room to breathe as we move outwards.”
Some middle-small breweries self-distribute in their local markets, and this can be an advantage for them. “We’re not distributor dependent,” Bogoff said, “so we remain connected to our customer base.” Self-distribution also allows a brewery to service local accounts more easily. “This makes it real for our customers,” noted Mueller of Flying Fish.
The story is the reverse at Left Hand Brewing, where the management decided to sell its distribution company, Indian Peaks (formed in 1998). “The distribution company took too much energy and resources,” Wallace said. ,”That energy now goes into the brewery” and beers such as the flagship Sawtooth Ale.
Advertising for middle-small breweries is almost entirely word of mouth and tasting events at which beer can be poured for the public.
“The consumer needs to drive it from the street,” said Baku of Mad River, brewer of Steelhead and Jamaica brand ales. “This carries more weight than our sales efforts.”
How does a middle-small brewer feel, once he has achieved a level of local acceptance and success?
“It’s pretty awesome to be recognized and loved by the local community, Bogoff admitted. “We sort of feel like Coors must have felt in the 1960s when they were a Colorado cult beer, before they went national. Every day we hear stories from people traveling through western Massachusetts…about how they simply have to bring back some of our beer to their part of the country. And locally, people do things, such as pull up alongside one of our drivers at a red light and give them the “thumbs up” for being part of Berkshire Brewing.”
This local edge seems to be what it’s all about for these middle-small craft brewers. The strategy is simple: brew great beers, get them in the hands of local customers (as fresh as possible) and dedicate all the business’s efforts to that local market. Gaining that “home field advantage” as Gary Mueller put it, is key. Only after the local sales base is strong enough do these brewers have the confidence (as well as the necessary capital) to begin outward expansion. Once that occurs, a successful “middle-small” brewery might just have the luck to grow into a “smallish-large” brewery—the next step up the ladder.