"We’re gonna need a bigger boat.”
This is what, in a CSP column earlier this year, one former Anheuser-Busch employee and current beer connoisseur predicted c-store retailers would need to accommodate the increasingly successful craft beer segment.
It’s a success that the numbers clearly support. “Last year craft brewers grew 15% by volume, having sold more than 13 million barrels,” says Jennifer Litz, who covers craft beers for Beer Business Daily. “Craft reached a 6.5% volume share and a 10.2% dollar share during the same time.”
Yet during that same time, craft accounted for only 2% of convenience-store beer sales. Perhaps some retailers are indeed strapped for space to stock both the c-store standard brands and the dizzying number of craft and local options. Perhaps others feel it’s not worth the space, anticipating a burst in the craft-beer bubble. Either way, those closest to the craft scene warn it’s a subsegment that’s not going away.
“Contrary to what some people are saying, we are not in a bubble,” Brewers Association president Charlie Papazian said at the April 2012 Craft Brewers Conference. “We are knee-deep in foam, and the level is rising.”
Though the number of breweries in the United States dipped to fewer than 100 in the 1980s, the Brewers Association reports there were a record 2,538 U.S. breweries as of June 20—with nearly 2,500 designated under the label of craft. And 1,605 breweries are already in the planning stages.
Of those craft breweries bursting onto the scene, most belong to a segment that historically would not be considered competition—or as an opportunity—for the c-store industry: the brewpub.
“Brewpubs are restaurant-breweries that sell 25% or more of their beer on site,” says Litz. “Of last year’s 2,347 total craft breweries, 1,132 were brewpubs.”
The majority of these brewpubs have centered their business model on the simple concept of a tasting room, providing consumers great, fresh beer offerings from knowledgeable employees in a unique setting.
It’s a concept that has worked well for a number of brewpubs, as well as for brewers who technically fall into the category of a microbrewery or regional brewery, but who have recognized the power of the tasting-room model. Not only does it allow consumers to sample fresh products, but it also draws a variety of new beer drinkers into the segment.
“They can be from anywhere; they don’t have to be rich. People want to drink something that tastes good,” says Eric Kapraun, cultural coordinator for Chicago’s Half Acre Beer Co. “I think once people go outside from the macro and drink something with the intention of being fresh and not consumed in mass quantities, they’re not going to go back.”
So space limitations or not, it’s important for c-store retailers to at least sample what the local craft segment is brewing up.
Craft Appeal
According to the Brewers Association, the craft segment is broken down into three technical categories: Microbreweries that produce 15,000 barrels a year or less, regional breweries that produce 15,000 to 6 million barrels a year, and the previously described brewpubs. These definitions can get confusing, especially as larger brewers invest in unofficial brewpubs (at least by the Brewers Association’s definition) or brewpubs increase capacity, technically becoming microbreweries or even regional breweries.
Dogfish Head Brewery is just one of many examples. Founded in 1995 as Dogfish Head Brewings and Eats in Rehoboth Beach, Del., it was the state’s very first brewpub and had the capacity to brew only 12 gallons of beer at a time. The company has now grown into one of the most popular regional breweries in the country, with a 75,000-gallon-a-year capacity and three more beer-centered restaurants (branded as Dogfish Head Alehouses) located in neighboring states.
“The demand for products these brewpubs generate via on-premise brand building should only strengthen off-premise sales for craft in general, with the rise of beer tourism and the locavore movement,” Litz says.
“I see great things from craft brewers and brewpubs,” adds Bump Williams, president of Stratford, Conn.-based Bump Williams Consulting Co., a frequent adviser to craft brewers. “They have worked hard to bring new beer drinkers into their segment, they have actually increased the frequency at which people sample craft beer, and they have increased the volume per shopping occasion for craft beer. These three things are the only tried-and-true way to build a business.”
Perhaps out of a desire to bring new drinkers into the segment, craft brewers have demonstrated an ability to set aside rivalries and work toward the common goal of providing beer drinkers with a bevy of high-quality options. This kind of team spirit has allowed for an impressive number of operators to thrive in brewery-dense states such as Colorado, which The Beer Institute ranked No. 1 in terms of gross beer production and comes in fifth in terms of breweries-per-capita, according to the Brewers Association.
“It’s a competitive environment, but also a very collaborative environment, especially here in Colorado,” says Steve Kaczeus, who opened Bootstrap Brewing of Niwot, Colo., in June 2012. “If I’m low on hops or grains, I know I can call any number of brewers in the area and they’re happy to help me out. Likewise, when we started bottling, an avid brewer let us use his labeling machine when he heard we were doing it by hand.”
Kapraun of Half Acre agreed: “It’s not super-competitive; all the breweries get along. The more people like good beer, the more we’re selling out of what we make.”
A Fresh Experience
While companies such as Bootstrap have benefited from operating in a brewery-heavy location, others are finding success by bringing the craft movement to uncharted territories. When Half Acre’s founder, Gabriel Magliaro, moved from Colorado’s beer mecca to Chicago, he quickly took note of the lack of local beer.
“There was only Goose Island within the city and Two Brothers out in the suburbs, but almost no smaller craft breweries in the city,” says Kapraun. “Basically, it was an empty market, and this is one of the biggest cities in the country.”
Started out of a spare bedroom in 2006, Half Acre now boasts a retail store and taproom, producing nearly 15,000 barrels per year.
“It’s far exceeded expectations,” Kapraun says, pointing out that he expected to take another five years to hit the 15,000 mark. “It grew more rapidly than we thought.”
Such growth is understandable for a metropolis such as Chicago. But what about a city where “big brewing” has reigned supreme for more than a century?
“St. Louis is certainly a beer and baseball town,” admits Kevin Lemp, president of the recently opened Four Hands Brewery in St. Louis. “I don’t think that will ever change.”
However, even St. Louis drinkers are apparently willing to explore the craft movement. Located less than 2 miles from Anheuser-Busch, Four Hands has had no problem tempting locals to the craft side with options such as Prunus Saison, a cherry seasonal that landed on Draft Magazine’s Top 25 Beers of 2012 list; and Smoked Pigasus, a collaboration with a local barbecue joint that includes malts smoked in the restaurant’s meat smoker.
“The community has been very receptive to our brand,” Lemp says. “I believe they appreciate our creativeness and our passion for the city.”
In many ways, the craft-beer movement is part of a larger trend toward high-end local products across the board. From farm-to-table dining to community-supported agriculture groups (CSA) and farmers’ markets, consumers across the country are showing a willingness to spend more in exchange for quality, locally produced goods. Beer is no exception.
“That consumer wants to know and understand the product they are enjoying,” says Lemp. “They become passionate about the brewing process. They want to know more about the farm that raised what is now on their plate.”
Many brewers recognize the power of this consumer base and cater beers toward the fresh “foodie” crowd.
One of Half Acre’s beers is called Sticky Fat, named after a fictitious bear that “comes out of the mountains every year to eat the fresh hops off the vine,” Kapraun says. Half Acre brews Sticky Fat only once a year, when it can get the freshest possible hops from the Pacific Northwest or Michigan. “The hops are picked on a Tuesday, and we’re brewing on a Wednesday,” he says.
The result is a crowd that flocks to tasting rooms such as Half Acre’s to enjoy a freshly brewed draft, surrounded by other beer enthusiasts and the brewers behind the beers. It hits on yet another unique aspect of these brewpubs and microbrewers: the appeal of the tasting room.
“I believe we are able to capture such a great clientele at our tasting room because of the experience we offer,” says Lemp. “We offer a very inviting space with passionate team members behind the bar, a 2-foot-by-20-foot window looking into the brewery, and food that pairs great with our beer. There is something fun about drinking a beer 20 feet from where it was made.”
A key highlight of these tasting rooms is the passionate and often colorful individuals serving up the suds. Whether it’s the brewmaster or a part-timer behind the bar, the craft-brewing movement seems to have perfected the hiring process to ensure a personable expert is serving their clientele.
“The personal interaction with the drinker and the tasting-room servers is an awesome personal relationship where stories are swapped, questions are answered, appetites are whetted and loyalties take root,” says Williams.
This combination of local, quality beer, a fun environment to sample it in and knowledgeable pourers has helped expand the business of countless craft brewers.
“The retail store opened in August 2009 as a place where people could not only interact with the people who brew beer and run the company but also get the ‘freshest beer possible,’ ” says Kapraun. “I think that’s what made this company successful … being able to interact with people who work here.”
Untapped Potential
With all it has going for it, the craft movement has plenty of room to grow. And it is.
Litz of Beer Business Daily says, “America’s 1,132 brewpubs were up 7.25% in 2012; 1,118 microbreweries were up 33%, and a lot of companies in this bracket are doubling in size every year. The 97 regional craft breweries were up 13%.”
And as great as the tasting room experience is, it’s the expansion into bar, restaurant and off-premise accounts that has allowed the craft movement to thrive.
“The majority of our consumption is done outside of the brewery,” Lemp says. “Our tasting room represents about 10% of our total sales.”
This transition to wider distribution is one that has happened much more rapidly than many brewers anticipated, further proving the power of the craft consumer.
“Distributing to other accounts wasn’t something we had planned to do right away,” says Kaczeus. “But within weeks of opening, I had restaurant guys in here leaving their cards so they could bring Bootstrap into their locations.”
Likewise, less than two years since opening, Four Hands went from focusing only on draft beer, with a capacity of just over 1,500 barrels per year, to an 8,000-barrel-per-year (and growing) capacity, with 22-ounce bottles of their core line and plans for 12-ounce four-packs. The bottled products came about largely to meet growing demand from a variety of markets.
“We currently have over 250 on-premise customers carrying our brand in the State of Missouri and roughly 100 off-premise accounts; this number continues to grow every month,” and the brewery also has distribution in metro Illinois and Philadelphia, Kaczeus says.
It’s this expansion outside of the taproom and brewpubs that c-store retailers should take note of. While the convenience channel may not be able to duplicate the full experience of these tasting rooms, they can offer craft consumers a convenient way to bring that experience home.
“C-store chains from Circle K to ampm are generally adding more craft—full doors or even growler stations, in the case of Sunoco—as a way to bring in a new consumer and make up for domestic-premium losses,” says Litz.
Williams sees growlers as a great option for off-premise retailers to replicate some of the tasting-room experience, saying, “Nothing tastes better than a freshly brewed and well-poured draught beer. It allows me to bring the brewpub home with me and savor the drinking experience all over again, any time, day or night.”
Still, he’s quick to warn that a growler program is certainly not for every retailer. Some states have legal restrictions, and there’s a significant amount of work (and cost) that needs to go into successfully implementing a growler bar.
“But for those states where it’s legal, where the retailers have implemented a strict quality-control procedure and have a well-educated and knowledgeable staff who can talk to shoppers, it’s a great way to generate trial, traffic and higher market-basket rings,” says Williams.
Growlers aside, craft is quickly proving to be a segment ripe with potential for c-store retailers: a growing, loyal, high-spending consumer base that has often been limited in off-premise options.
“As the volume of beer coming out of taprooms and brewpubs continues to rise, share of craft in the off-premise channels of c-stores, grocery and others continues to climb,” Litz says.
It may be worth getting that bigger boat to accommodate this segment. Why surrender such an opportunity to grocery, liquor or drug?
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