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Posted: September 01, 2009

VINE: Recession-proof brewing

Considered an affordable luxury by consumers, craft beer enjoys a year of unlikely growth

Jay Dedrick

 There’s an old axiom that alcohol is one of those consumer goods that’s recession proof. So the confirmation that breweries in the country’s unofficial beer capital, Colorado, are weathering the current storm isn’t surprising.

What has many brewers pleasantly surprised – if not outright shocked – is that they’re not merely maintaining the status quo, but growing. Growing big.

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“I don’t think it’s fair to say that anything is recession-proof,” says Julia Herz of the Boulder-based Brewers Association. “But craft beer from craft brewers is proving to be very strong in sales despite the weak economy. Despite the challenges, some little guys have gone big.”

For proof, consider the biggest of the “little guys.” Following a broad expansion by Fort Collins’ New Belgium Brewing into new territories this year, its flagship Fat Tire is on a monster roll: Sales in dollars for the brand were up 39 percent in July over a year ago, up 33 percent in case sales.

Both figures are the largest among top craft beer brands across the country, according to IRI, a Chicago-based market research company. New Belgium’s seasonal beers – the only other Colorado-made craft brew in IRI’s national Top 20 – also enjoyed big growth, with a 19 percent rise in sales dollars and 18 percent in cases sold.

As is the case with most craft beers, price increases over the past year account for the sharper rise in dollars compared to cases.

“You can make the case that Colorado is driving much of the growth of high-end beers across the entire United States,” says Nick Lake of the Nielsen Co. in Atlanta. Like IRI, Nielsen tracks sales of alcoholic beverages at retail, not in restaurants and bars. “Certainly, New Belgium is growing very rapidly across the U.S. Another Fort Collins brewer, Odell, is expanding into other states, too, and their business is solid.”

The state’s brewing success stories in this year of recession aren’t limited to Fort Collins, or even to the Front Range. In Durango, David Thibodeau’s Ska Brewing finished the long-planned construction of a new brewing facility last fall. Immediately, the brewery doubled its capacity, enabling Ska to meet demand that had been building in recent years.

“We’re up huge right now,” says Thibodeau, Ska’s president and cofounder, pointing to 40 percent growth year to date overall; in Colorado outside of Durango, he tallies an 87 percent jump in sales.

Besides adding Kansas and Texas to its roster of states where it sells its products, Ska also introduced canned packaging for two brands. “Sales of both of those are far beyond our expectations,” Thibodeau says.

Avery Brewing in Boulder and Great Divide Brewing in Denver both report 30 percent growth in sales volume through July.
Great Divide founder Brian Dunn says he’s not only surprised at the rate of growth, but also where the growth is occurring. While bars and restaurants have struggled this year as diners venture out less often, Dunn says growth of Great Divide’s draft products for on-premise sales has outpaced growth of its packaged products.

“I think more people are buying local beers,” Dunn says. “We’ve been after local restaurants and bars for years, trying to get them to serve more local beers. The message is finally resonating with people. It’s becoming more important to restaurant and bar owners, but more importantly it’s something that’s being demanded by beer drinkers.”

Like most Colorado craft brewers, the home state is Avery’s biggest market – and one that’s also providing 30 percent growth, says C.V. Howe, the brewery’s marketing specialist.

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“Colorado is saying, ‘Yes, we want more Avery beer,’ and we’re excited about that,” Howe says. “Obviously, it’s our home turf, and we want more of our neighbors drinking our beer. Nationally, it’s hit-or-miss. Some markets we’re in, like Arizona or Michigan, have been hit harder by the downturn than other markets, like New York or Washington, D.C.”

Mike Bristol, owner-founder of Bristol Brewing Co. in Colorado Springs, also attributes a shift in consumer thinking – as in, thinking to buy local first – with helping Colorado’s craft brewers through the downturn.

“I’m sensing that a lot more people want to spend on a company that they have some common association with,” he says. “We’re local, we’re in the community, we’re visible. Import beers don’t seem to be doing well in our market or nationally, and I think that’s a shift.

“People are realizing, hey, we make some of the best beer in the country, so why are we buying beer from Oregon? From California? From Massachusetts? It could be totally unrelated to the economy, but when people think more about how to spend their money, those connections resonate more.”

Bristol is about as local as a craft brewer gets these days. Products including Laughing Lab, a perennial medal winner at the Great American Beer Festival (see sidebar), are only distributed within Colorado. And 80 percent of Bristol’s business is done in Colorado Springs and the Pikes Peak region. The limited market has meant limited growth this year – a 3 percent rise in sales – but Bristol isn’t complaining.

“Like a lot of brewers this year, we’ve taken a hit on margins. So profitability is not where we’d like it to be. But with so many businesses off 40 percent or 50 percent – or no longer in business at all – we feel very fortunate.”

Like beer drinkers in Bristol’s Colorado Springs market, consumers throughout the Centennial State are buying more craft beer at retail stores than last year. As of July, craft sales volume was up 6.5 percent over a year ago, based on data from IRI.

If there’s a gray tinge to the silver-lining story for craft brewers, it’s that this figure is half of the 13 percent sales increase that beer overall enjoyed in the state. Mainstream beers from giant brewers Anheuser-Busch and MillerCoors – both of which brew beer here, too – are the bigger gainers. Bud Light, Coors Light and Budweiser each notched double-digit sales gains over the past year.

“It’s surprising how big the domestic segments were up in Colorado,” says Dan Wandel of IRI. His research breaks down domestics into four categories: Premium brands, such as Bud Light; Super Premium, such as Blue Moon; Sub-Premium, such as Keystone Light; and Malt Liquor, such as Mickey’s. “All four of those segments are outperforming the beer category overall.”

Even imported beers, which have seen sales drop throughout most of the country, enjoyed higher sales in Colorado in July compared to a year ago. But that number from IRI, 1.3 percent, is by far the smallest growth of any beer category in the state.

So beyond thinking locally, why are consumers so bullish on craft beer? Just about every brewer and expert mentions the term “affordable luxury.”

“It’s one part of people’s spending that they’re not cutting back on,” Dunn says. “People like good beer, and they’re finding the money to spend on it. They may be cutting back elsewhere, but not on beer. It’s one of the things that gives people pleasure, and it’s not super extravagant – it’s nine bucks for a six-pack.”

A more sophisticated consumer is driving the trend, too.

“Brewers and the Brewers Association in Boulder have done a phenomenal job of educating consumers and retailers, on and off premises, about the different taste profiles and characteristics of craft beer,” Lake says. “They’ve also educated consumers in how well beer goes with food. Consumers have had a fundamental shift in their taste profile.”

 For craft beer drinkers, it’s also a profound shift. Even as the economic downturn grew severe last fall, it was clear that the masters of small-batch brewing had no fear of losing customers to the Sub-Premium category of bargain beers.

“It’s hard to switch from craft beer back to mainstream beer,” Bristol says. Adds Thibodeau: “You really can’t go back once you’ve gotten into it. The quality, diversity and excitement are enough to keep you from going back to anything bland. So once you’ve got ’em, you’ve got ’em. The quality of the product is what keeps people there instead of them trading down.”

If anyone is trading down, Bristol says, it could be wine drinkers – swapping their expensive bottles for the relative bargain of flavorful craft beer.

“This is like a ball that’s rolling, and I hope it just rolls and rolls and rolls.”

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