craft beer

Alabama Goes From Craft Beer Wasteland to Model of Progress

In June of 2007, the Free the Hops bill to raise the alcohol-by-volume limit on beer from 6% to 13.9% was given the “Shroud Award” in the Alabama House of Representatives. That’s a humorous award presented to the sponsor of the bill considered the “deadest” of the session. You can read the lengthy, pun-filled resolution here: http://www.freethehops.org/blog/2007/06/gourmet-beer-bill-wins-the-shroud-award/

Hundreds of other bills were equally dead that year, not having been passed into law. But the Free the Hops bill received the Shroud Award because of the intensity of opposition it faced. The floor debates featured angry diatribes from devout, religiously-conservative legislators about the terrible ills of alcohol and the dangers it posed to families.

Furthermore, though the religious opposition to the bill was the most vocal and public, the truly influential forces holding the bill back worked behind closed doors — the beer wholesalers. Ten years ago, many in the wholesale industry had serious concerns about negative impacts on their businesses if Alabama’s beer laws were changed to allow for the sale of a greater variety of craft beers. Their opposition helped prevent the Free the Hops bill from passing in 2007 and again in 2008.

The bill finally became law in 2009. It passed the House with a vote of 49 in favor to 37 against, and the Senate with a vote of 19 in favor to 9 against. But it went down to the wire that year with all of us terrified senator Hank Erwin would filibuster the bill and prevent final passage. Once it finally passed the Senate we refocused our terror on the very real possibility that governor Riley would not sign it, which would have prevented it from becoming law. We launched a massive campaign of phone calls, emails, and faxes to his office asking for his signature, and he came through.

Fast forward to 2016. In the last seven years Alabama has gone from being home to two breweries to having, I don’t even know… twenty-something? At the time of this writing there are twenty-nine brewing members of the Alabama Brewers Guild but several of them are not open yet. These breweries have been a critical component in the economic revitalization of several areas around the state. For one example, the highly popular Avondale area in Birmingham is now home to about a dozen bars, restaurants, and music venues that didn’t exist before Avondale Brewing Co. became the anchor in the area. Which would not have happened without reforms to the state’s beer laws. All of the breweries have created jobs and contributed a tremendous amount to the state’s economy.

And remarkably, the legislature understands that and is behaving accordingly. This year the Brewers Guild lobbied for a bill to give new freedoms to Alabama breweries. And it passed. By huge margins. Without any weeping or gnashing of teeth from legislators. It passed the House by a margin of 68 to 17 and the Senate by a margin of 23 to 4. With never a fear of filibusters.

The bill will allow breweries to sell a limited amount of their beer directly to consumers to take home. It could be a few six packs or a couple growlers of specialty items filled at the tap room. It will also remove several asinine restrictions on where brewpubs can be located, making them a more viable business model. Restrictions that were once put in place at the behest of beer wholesalers, who feared brewpubs were an existential threat to the three tier system.

All of this is happening because everyone came to their senses. Religious opposition to the liberalization of alcohol laws is still a thing, but it has withered so much it’s incapable of halting progress. The wholesalers recognize the growth of craft beer is helpful to their businesses, not harmful. And the lawmakers have witnessed the tremendous benefits from the explosion of new small businesses made possible by said liberalization of alcohol laws.

In nine years Alabama has progressed from calling a pro-craft beer bill the deadest bill of the legislative session to passing a new pro-craft beer bill by landslide margins with no drama whatsoever.

Obviously, our state still has many problems, and our legislature is often dysfunctional on some of the most important duties it has, like passing budgets in a timely manner. But progress is possible. The history on this issue is proof.

Hey, Craft Brewer Looking at Distributors

PUBLIC SERVICE ANNOUNCEMENT

If you have an ownership stake in a craft brewery or are friends with someone who does, or you are planning to start a craft brewery or are friends with someone who is, or you think you might someday want to start a craft brewery or are friends with someone matching that description, this post is for you.

I have worked in the wholesale tier of the beer business as a Craft Beer Manager for five and a half years now. That doesn’t make me the be-all, end-all expert for the ages, but I promise you I understand the beer wholesale business better than anyone who has never worked in this part of the industry, which is most brewers, retailers, consumers, and the general public.

At this point I could fill an entire book with advice for craft brewers, but if someone cornered me and asked, “If you could only give one piece of advice to a craft brewer, what would it be?” I would say this: “Never, ever, ever sign a distribution territory agreement without having at least one conversation with every single wholesaler working the market where you want to sell your beer.” I don’t care where in the country your brewery is, or where it is you are looking to sell your beer, this is the cardinal rule of choosing a wholesaler.

to-sign-a-contract-3-1221952-mAt this point this seems self evident to me, but clearly it’s not, because I keep seeing examples of brewers not doing this, and all I can do is shake my head.

Even if you were approached by some really cool, super friendly dude from wholesaler X, and y’all totally hit it off and he obviously loves craft beer and totally gets what you’re doing, and his company has a top notch portfolio, and even if you heard some shit about wholesaler Y and/or you have concerns about some other brand or brands in wholesaler Y’s portfolio, and you’re sure you would never want to sign with them, have a conversation with wholesaler Y. Even if it’s only one. It is conceivable what you heard about them was actually a completely bullshit rumor. It is conceivable your concerns about the other brand(s) in their portfolio are unfounded. And, without having the conversation, you’ll never know if wholesaler Y also has some really cool, super friendly dude who totally hits it off with you and who also obviously loves craft beer and totally gets what you’re doing. And oh yeah, maybe wholesaler Y has a few dozen more sales reps and works a few hundred more accounts.

What’s that? Not every wholesaler works every account in a market? Correct. Some wholesalers have a bigger footprint than others in the same market. Some have better relationships with key accounts in a market. Some clean draft lines more frequently (or at all). Some have more cold storage. Some do a better job rotating stock. Some put more money into growing brands. Some don’t pay their bills on time.

And maybe you don’t want or need the bigger footprint, or the deeper pockets, or the larger square footage of cold storage. Maybe your strategy requires more focused hand-selling to a smaller number of accounts. Cool. You might very well still end up signing with wholesaler X and that may very well be the best thing for your business. But choosing a wholesaler without exploring all your options is like deciding your favorite kind of pizza is plain cheese without ever trying pepperoni or sausage or mushroom or bell pepper. You simply don’t know what you’re missing.

By the way, if that dude from wholesaler X who you totally hit it off with and who totally gets what you’re doing doesn’t offer you this same advice, if he doesn’t tell you to talk to all the wholesalers in the market, and visit their warehouses, then that should be a huge red flag. If the powers that be at a beverage wholesaler are confident in how they go to market and confident in how their operations stack up against the competition, then they will happily encourage you to talk to everyone. If they don’t, maybe they have something to hide.

In the United States, franchise laws make it nearly impossible for a brewer to terminate their relationship with a wholesaler without the latter’s consent, so picking your wholesalers is among the most important decisions you’ll ever make. Why would you ever take a shortcut on that?

On Having Goals

Brewfest LogoSo Magic City Brewfest​ is this weekend. I was one of the original co-organizers of the event back when I was president of Free the Hops​, and now I work it from the beer wholesaler angle. It’s always been one of my favorite weekends of the year, even though it’s always been exhausting. It was the first craft beer festival in Alabama back in 2007 and remains the largest, with somewhere in the neighborhood of 6,000 humans traipsing through Sloss Furnaces over the course of two days.

Brewfest was birthed out of a shared goal to reform the Prohibition era beer laws of Alabama. One step towards accomplishing that very concrete goal was the more nebulous goal of increasing craft beer appreciation among the state’s citizens. More people who love craft beer = more people fighting to reform the beer laws.

The efforts were not in vain, and the original goals of Free The Hops were accomplished. The group continues on advocating for the consumer’s voice in the continuing changing landscape of beer law reforms in the state.

This year Brewfest exists in the context of a new, very different goal for me. I’m a dedicated runner working towards the highly ambitious goal of qualifying for the Boston Marathon (adventures on that recorded at From Birmingham to Boston​).

Just like the old goal of reforming beer laws shaped my actions ten years ago, this new goal shapes me today.

Today it occurred to me that my usual 6 am Saturday morning long run was not going to be feasible. The Friday session of Brewfest doesn’t end until 11 pm, and I’ll have some cleanup to do after it ends. I probably won’t be in bed until 12:30 am, which is unfathomably late for this old-at-heart man. I’m not getting up a mere five hours later to go run.

So I thought, “no big deal, I’ll sleep in and go running whenever.” Saturday’s session doesn’t start until 4pm. But then I remembered the brunch for industry folks and festival two-day volunteers. Ohhh that brunch. The homemade cinnamon rolls. The biscuits and tomato gravy. The grits. The sausage. The locally roasted, french pressed coffee. It cannot be missed, and so last year I just skipped my Saturday morning run.

But my goal is too important to slack off. I’m not going to skip a long run if there is any way to make it work.

Thus I spent several minutes working backwards figuring exactly what time I’d have to wake up to do a long run and still make it to brunch by 11:00. 15 minute drive from the house. 30 minutes to shower and get ready. 5 minutes to get from driveway and get undressed into shower. 10 minutes to drive home from run. 2 hours to run. 10 minutes to drive from home to run, 25 minutes to get ready and get out of the house after waking up, 5 minute buffer… Set my alarm for 7:20. So, a little less than 7 hours of sleep. Doable.

Having a specific, significant goal with a plan to achieve it changed my mindset. I can work towards my goal and still enjoy one of my favorite weekends of the year.

Budweiser’s “Brewed The Hard Way” Ad Is Almost Perfect

If you pay even a tiny bit of attention to what craft beer people are talking about in media (either social or traditional) you are aware that the topic du jour is Anheuser-Busch’s Superbowl ad for Budweiser titled “Brewed The Hard Way” (a.k.a. Proud to be a Macro). In case you need a refresher, here’s the ad:

Craft beer fans have been in an uproar because the ad attacks our beloved beverage as something to be “fussed” over, and paints craft consumers as pompous hipsters. Just about all the criticisms fall along the lines of what Jim Vorel wrote for Paste Magazine.

I would like to make two points regarding this ad. One, it wasn’t intended to convince dedicated craft beer consumers that Budweiser is good and two, it has already been a boon to craft beer marketing and will continue to be for some time to come.

Regarding the first point, the ad was intended to convince people who think craft beer is mostly consumed by pretentious hipsters that Budweiser should be their beer of choice. Craft beer consumers can be guilty of tunnel vision when it comes to the wider world of malt beverages, forgetting that craft brewers still only had 8% market share as of 2013. 92% (or probably slightly less once the 2014 numbers become available) of the American beer market consists of domestic “macros” and imports. And Budweiser’s slice of that pie has been steadily declining for many years. The ad was squarely aimed at trying to increase Bud’s share of the non-craft segment, and with that in mind, I think it was pretty brilliant. Credit where credit is due.

Regarding the second point, the ad was manna from heaven for craft brewers, and they should be thanking their preferred deity for having blessed them with it. A mere two days have passed and already we have this from Abita:

And this from Green Flash:

And this from homebrewing supply shop Northern Brewer:

And who knows how many others have been posted that I haven’t seen yet. Having an enemy to vilify rallies the base. Anheuser-Busch has always been Enemy Number One for craft beer, and this ad serves as a useful rallying cry.

The worst part of the ad was their shot at those who sip “pumpkin peach” ales made a direct hit on a craft brewery they just purchased, Elysian Brewing in Seattle, which makes a pumpkin peach ale called Gourdgia On My Mind. So, oops. But even that’s turning out pretty well for them, as the widely respected Homebrewers Association just saw fit to publish an article featuring tips from the Elysian head brewer on brewing with pumpkins.

The real battle in beer is not over flavor. The oft-repeated claim that American macro lagers taste like “horse piss” is absurd on its face. The facilities of the mega breweries are engineering marvels that produce the most consistent beer in the world, brewed to be light and crisp and as inoffensive as possible to the maximum number of people. Millions of people enjoy the (minimal) flavor of those beers. And if flavor was truly where the battle was being fought, you wouldn’t see the countless message board posts every time A-B or MillerCoors buys another small brewery announcing how Joe Craftbeer hates that he can no longer drink the beers he enjoys from Brewery X because they just sold out to Big Beer.

No, the real battle is over the souls of the companies making the beer. And that’s a thorny topic for another day.

Visualizing Breweries Per Capita

Related to yesterday’s post, here is a little context on where Alabama currently stands with regard to the number of residents per brewery. Sure California has over ten times as many breweries as Alabama, but it also has nearly ten times as many people. On a per capita basis, Alabama is not massively trailing the country’s leading state for craft brewing. Yet we’re way behind places like Oregon and Colorado, and way ahead of Georgia and Mississippi.

I chose the states in the graph to add useful context. Throw in a few of the states with the most advanced craft beer culture and a few immediate Southeastern neighbors. Both comparisons are helpful.

ScreenHunter_09 May. 21 15.08

It seems to me the biggest takeaway from this is that Alabama is now ahead of the curve in the Southeast, but there’s no reason to think we are completely saturated. It’s all about the pace of growth. We’re not yet at a point where we can sustain 24K residents per brewery. But in 30 years, who knows?

Below is the raw data. I tried to get information as up-to-date as possible, but that’s not always easy. I also added in the year of the opening of the oldest brewery in each state, to show how long different states have been cultivating their respective brewing industries. While Alabama is in the middle of the pack on breweries per capita, we have the youngest brewing industry on the chart. So we’ve had the most rapid growth. Mississippi is so far behind the curve I included their breweries-in-planning.

Alabama

  • Breweries: 28 (May 2014)
  • Population: 4.833 million (2013 est.)
  • Residents per Brewery: 172,607
  • Year Oldest Operating Brewery Opened: 2008

Oregon

  • Breweries: 166 (2014)
  • Population: 3.899 million (2012)
  • Residents per Brewery: 23,487
  • Year Oldest Operating Brewery Opened: 1984

California

  • Breweries: 312 (2012)
  • Population: 38.04 million (2012)
  • Residents per Brewery:  121,923
  • Year Oldest Operating Brewery Opened: 1980 (excluding Anchor, a very unique case)

Colorado

  • Breweries: 217 (2013)
  • Population: 5.268 million (2013 est.)
  • Residents per Brewery:  24,276
  • Year Oldest Operating Brewery Opened: 1979

North Carolina

  • Breweries: 103 (2014)
  • Population: 9.848 million (2013 est.)
  • Residents per Brewery: 95,611
  • Year Oldest Operating Brewery Opened: 1986

Mississippi

  • Breweries: 7 (2014)
  • Population: 2.985 million (2012)
  • Residents per Brewery: 426,428
  • Year Oldest Operating Brewery Opened: 2003

Georgia

  • Breweries: 30 (2014)
  • Population: 9.992 million (2013 est.)
  • Residents per Brewery: 333,066
  • Year Oldest Operating Brewery Opened: 1993

Tennessee

  • Breweries: 36 (2014)
  • Population: 6.495 million (2013 est.)
  • Residents per Brewery: 180,416
  • Year Oldest Operating Brewery Opened: 2003

 

 

 

So You Wanna Start A Craft Brewery?

I get it. I’ve dreamed about it myself.

You’re a homebrewer. You love making beer, and climbing the corporate ladder is a drag. You’ve noticed a bunch of small breweries opening in the last few years, so why not you? Live the dream!

Although I love brewing beer at home I have not taken the “going pro” plunge myself (but haven’t ruled it out for later in life). I am in my fifth year working in the wholesale tier of the beer business and I know and regularly speak with lots of people who have started their own breweries. I have a pretty good perspective on the risks and rewards, so I’d like to offer up a few words of caution to people seriously considering the professional craft brewer angle.

NOTE: This is not intended to be an exhaustive list of issues facing aspiring pro brewers. It simply touches on some key issues that I’ve witnessed brewery start ups not sufficiently considering before launch.

Your Wheel Was Already Invented

First things first: have you had a long conversation with someone who started another brewery in your area? There really isn’t anything more valuable you could do than learn as much as possible from someone who’s been where you are now, and who really did take the plunge. Fortunately the craft beer community is generally very friendly. Jot down a long list of questions and spend as much time as possible mining information from people with experience doing exactly what you want to do. There is no substitute.

Too Small, Too Big, Or Just Right

Next, how realistic is your ambition? Do you have any idea what a reasonable volume projection is for a start up brewery in your area, and do you have any idea how you’d reach those sales numbers? I’m not talking about “if I buy three 10 barrel fermenters and turn them over every two weeks I could fill 360 sixtels a month” kind of stuff. I’m asking if you know how many bars, restaurants, and growler retailers would have to have your beer on tap in order to sell 360 sixtels every month. If every single account went through one keg a week (highly optimistic scenario) you’d need 90 accounts to utilize all of your capacity. If you consider a more realistic scenario in which some accounts only go through a keg once every couple of weeks, and some only go through one keg a month, you would need close to 200 accounts to utilize all of your capacity on three 10 barrel tanks.

Can you name 200 businesses in your area that sell craft beer? Do you have an idea of which products all 200 would be willing to take off a tap in order to put your beer on tap? Yes, this stuff is what wholesalers deal with, but if you don’t have answers to these questions yourself, you may be setting yourself up for failure. If you went big (for a startup) as some do and got 20 barrel tanks instead of 10s, you’d probably need to be in nearly 400 accounts to utilize full capacity for just three tanks. 400 bars and restaurants.

Tap Room Magic

That calculus changes if you have a tap room. You will sell far more volume in your tap room than any one of your accounts ever would or could. IF your brewery is in a good location, and IF your tap room is big enough to hold a large number of people, and IF your beer is sessionable, and IF you have good enough ambiance that people want to hang out at your place.

If a tap room is in your plans, do you know what the commercial real estate market is like in the area where you want to locate? Do you know the zoning restrictions in the area and do you know how the city zones breweries? Are you familiar with the health department and ABC regulations that would be imposed on your tap room, and do you have any idea what the costs would be to conform to those regulations?

All Hail The Six Pack

The previous paragraphs focused on a draft-only operation because packaging equipment is expensive, leading many brewery start ups to open for business selling only draft for a year, or two, or three. Have you thoroughly analyzed the ROI on packaging equipment? Have you thought about the “bottles vs. cans” debate and do you have sound business reasons for preferring one over the other? Do you know what a realistic volume projection would be for a craft start up selling both package and draft vs. only draft? If applicable, do you know which convenience stores in your area sell craft beer? Do you know all of the non-chain grocery stores that sell craft beer? Do you have any idea what is involved in getting a new beer package approved for sale in a chain store?

Make It Sexy

The days of start up craft brewers thriving without any marketing effort are long gone. The competition is too steep. There are too many options, even for local beer. Yes, you have to make great beer, but great beer almost certainly won’t be enough. Do you know anything at all about marketing? Do you know how to find and evaluate a talented graphic artist? Do you even have a marketing budget in your business plan? Do you have a tap handle design that will stand out on a wall of 30+ taps? Any thought given to marketing firms or having a marketing person in-house?

Relatedly, do you have a name picked out for your brewery, and do you think it will resonate with consumers? Are you planning a theme for your beer names, and if so, have you researched trademarked names in that theme? Picking out names that aren’t already trademarked is getting more difficult with over 2,700 breweries as of the end of 2013 and hundreds more slated to open soon. I already mentioned the friendly nature of the craft brewing industry, but that camaraderie is being sorely tested by the rapidly shrinking pool of unique beer names. And beer name trademarks aren’t just competing with other breweries, you probably can’t get away with a name that overlaps with any alcoholic beverage. Wine and spirits are adding new brands all the time, too.

Love The Middle-Man

Wholesalers sometimes have a bad rap in the craft community and some of the negative feelings have merit. The value added by the middle tier is something I’ll write about another day. For now, though, do you know anyone that works for a beer wholesaler in your area? Have you talked to him about challenges he thinks you might face? If you don’t know someone who works for a wholesaler, do you even know who the wholesalers are in your area and what they sell? Have you ever had a conversation with anyone employed at the wholesale tier to gain some general insights into the beer business?

Do you know the difference between gross profit margin and markup? Do you know which calculation is used most often by wholesalers? By retailers? Do you know what percentage (of margin or markup) will be used by wholesalers and retailers in your area? Do you know typical profit-per-barrel numbers for craft brewers of different sizes?

Live or Die at Retail

Do you know employees at all of the top craft beer bars and retailers in your area? Do you know what their best selling beers are? Do you know what their preferences are with regard to keg size and pricing? Do you know whether they are excited by the prospect of more locals coming online, or if they might be feeling overwhelmed by the flood of new choices making their job more difficult?

The people who sell directly to consumers will make or break you. The more you know about them and the more relationships you have among their ranks, the better your chances of success.

Details, Details, Details

What sort of beers do you envision your brewery producing? Were you thinking of doing a porter and/or a pale ale and/or an IPA and/or a brown ale that a dozen other breweries in your region already sell, or do you want to be experimental and cutting edge? Or something in-between? If you dream of being cutting edge, do you have any idea what the sales volume difference is between a “successful” average-priced pale ale and a “successful” cutting edge beer which might cost twice as much for the retailer and consumer?

Have you thought about the factors related to buying your own kegs vs. leasing? Various types of plastic kegs? The pros and cons of 1/2 bbls vs 1/4 bbls vs 1/6 bbls? Do you know which size keg each of the key retailers in your area prefers?

Are you partnering with a group of friends to make the initial investment? Do you have a process in place if there is a falling out and someone needs to divest early in the life of the brewery? Or are you counting on a loan? Or venture capital? Where is the money coming from, and how much ownership interest does that get the people providing it? Also, THIS.

Do you know all of the larger trends in craft brewing across the country? What are your aspirations for the size of your brewery? Is selling a couple thousand barrels a year in a small geographic area enough for you? Do you want to be regional? National? Lots of folks believe it’s likely new breweries will have to settle for being more local and only already-established large regional and national craft brewers are in a position to be big players on the national stage going forward.

Hooray (Local) Beer

I have no idea how many breweries the U.S. or Alabama can handle. I’m pretty confident that we haven’t reached that number in either case. But it is possible for the growth of supply to outpace the growth of demand in any industry. My sincere hope is that we can avoid that in craft beer.

Updates

I have added a post with data illustrating where Alabama stands in relation to select other states with regard to its number of breweries: Visualizing Breweries Per Capita

See something I missed here? Let me know in comments and I may add it.

About Me

I first became obsessed with craft beer ten years ago, in 2004. I had previously dabbled in better beer, but 2004 was the year I went over the edge and pretty much went exclusively craft. It was also the year (not coincidentally) I founded Free The Hops in Alabama. I have been passionate about craft beer for ten years, and lately I’ve found myself a little concerned about the sustainability of the growth in the number of breweries in my state. Not because I want less craft beer, but because I want more, and my greatest fear is that growth will outpace demand and lead to a collapse in the industry, locally if not nationally. I have an insider’s perspective on the industry as the Craft Beer Manager for a wholesaler. I am also a Certified Cicerone.

-Danner Kline