The future for craft brewery start-ups? KISS!
It really is KISS. KISS is nothing untoward. It’s just one of those acronyms that keep changing their meanings. In this case it stands for Keep It Simple and Small.
For several years, industry pundits have wondered how many more craft breweries the US beer market can possibly absorb before someone will have to give? Well, despite continuing growth for the segment, some of the large craft brewers have actually felt the effects of increased competition. In 2016, several struggled to maintain volume levels, while others (including Boston Beer and Sierra Nevada) lost volume. The troubles have continued this year. While craft beer sales were up five percent in the first half of 2017, off-premise sales of craft beer – for brewers big and small – fell by USD 143 million to USD 2.3 billion, according to data from Nielsen.
Undeterred by the industry’s Cassandras, the US brewery count nevertheless continues to rise. As of 30 June 2017, there were 5,562 operating breweries in the US, an increase of 906 from the same time period the previous year. Additionally, there were approximately 2,739 breweries in planning, the Brewers Association reported on 1 August 2017.
We at BRAUWELT International have maintained for some time that the US beer market could cope with plenty more craft breweries, provided the newcomers stick to a proven business plan which says Keep It Simple and Small. This is another way of saying, open a small brewery and run a taproom successfully.
Our opinion was underlined by Brian “Spike” Buckowski in a recent interview with the financial information website MarketWatch (4 August 2017).
In 2002, Mr Buckowski and his pal John Cochran set up the Terrapin Beer Company in Athens, Georgia, with the help of some prior brewing knowledge and probably a lot of credit-card debt. By 2008, they had collected enough investors’ money to build their own brewery, which will do perhaps 100,000 hl beer this year. In 2016, MillerCoors bought a majority stake in Terrapin and Mr Cochran left to acquire a brewery in Asheville.
In the interview with MarketWatch, Mr Buckowski said that if he were to start a brewery today, he would “rely on a lot of the sales coming right through my brewery because you make so much more money selling beer at your brewery.”
For him the beauty of the taproom business model is “cash availability”. “When you’re selling a keg through a distributor and make 100 bucks”, he went on to explain, “you can turn around and pour USD five pints. That’s approximately 150 pints, or 140 with foam, and that tasting room becomes a lot more valuable.”
Whereas in the past it was industry credence that you need to build beer brands – and revenues – in the on-premise, this no longer holds true. On the contrary, as Mr Buckowski pointed out “it’s just rotation nation. You’ll be on a tap handle one week and won’t be there again until three weeks later because these bars are just rotating beers in and out so quickly that you can’t get a stronghold anymore.”
Which leaves everybody keen to get on to supermarket shelves. But where is the growth in shelf-space going to come from? Mr Buckowski wondered too. At some point, the retailers will say: “’We need our produce section back; we can’t have beer in our produce section.’ That’s going to be a challenge, as well as how much beer is going to fit on the shelves. If you’re a mom-and-pop package store, can you bust down a wall and add another 6,000 or 7,000 square feet for all these new breweries coming in?”
That’s why he concluded that, if he were to start all over again, he would start a lot smaller than he did and he would look at US states, where the laws are friendly to sell beer out of a taproom.
Some keen and eager brewery entrepreneurs might like to consider his advice.
You can find the full interview here: marketwatch.com
