Good Beer Hunting

Critical Drinking

I Want You to Want Me — Examining the "Own Premise" Revolution

When there are close to 5,000 breweries in the U.S. and thousands more bars and restaurants, it’s easy to get caught in a bubble. (Or to start yelling “The sky is falling!” because you think that bubble’s about to burst.) There are more places than ever to enjoy a fresh pour of beer. The best time to be a beer lover is right now.

But it's also hard to ignore a contrast of the situation. The rise of breweries has been met by a decline in neighborhood bars. Defined by Nielsen as a location with "regular clientele with no dress code, obvious theme or cover charge," a peak of six such spots closed per day in 2014. In a 2015 survey, Nielsen found that while 334 bars were opening each month, that number was dwarfed by the 609 that closed.

More breweries and fewer bars: it's all interconnected. Consumer behaviors are changing, but it doesn't mean doom or gloom for the people making beer. As the market matures and drinkers rethink spending habits, a decline in alcohol sales at bars and restaurants has been met with an increase in sales at supermarkets, Walmarts and club stores. Most important for brewery owners, however, is more spending in their on-site taprooms.

Brewers Association Chief Economist Bart Watson says about about 7% of craft beer sales now occur at the breweries that make that craft beer. As of May 2016, according to his estimates based on the data provided, brewery taproom sales were growing 15-20% annually, faster than the overall craft industry. By the end of this year, Watson projects on-site sales could reach 1% of total beer sales—a volume equivalent to the production of Boston Beer’s Sam Adams line of beer.

"If it's getting more competitive to get your beer on tap out there," Watson says, referring to the influx of breweries trying to sell kegs to local businesses, "the best way to get on tap is to control your own. Not only is selling yourself better on your margins, it provides a connection with beer lovers."

In an industry based around experiences (it's not just what you drink, but where and how you drink, too), more people are turning directly to the source of their beer. The rise of "own premise" sales is here.

“We get hundreds, sometimes thousands, of people coming to visit us, and I can’t believe it’s happening,” says JC Tetreault, co-owner of Boston’s Trillium Brewing Co. “This is not something we set out to do.”

Since opening in 2013, and producing a modest couple hundred barrels that year, Trillium has grown to about 15,000 BBLs in 2016, with plans to hit as much as 30,000 barrels in 2017. But it’s the way that he’s been selling his popular Fort Point Pale Ales and Congress Street IPAs that has set the tone for his growth. Tetreault estimates that 99.5% of the beer he currently sells comes directly from his brewery locations in Boston. That figure was around 80% this spring, but once Trillium started canning beer in July, keeping up with on-site took precedence. Customers were clamoring to pay $13 for a four-pack of 16-ounce cans of lower ABV Pale Ale or $22 for speciality Double IPAs.

Trillium does self-distribute to 30 retail locations, but it’s piecemeal—90% of its beer is sold packaged, and it’s almost exclusively handed from its employees to thirsty beer fans.

“If we sent out any more beer, we wouldn’t have enough to keep our doors open here,” Tetreault says. “There are a heck of a lot of people driving from far away to see us, and I’d hate for them to come to a locked door. The only reason why we’re able to do what we can today is the support of our fans coming directly to the brewery. It would have taken us many more years if we were in a broader distribution model or we would have had to take on investors or debt.”

This isn’t the only example of on-site sales driving a business success, let alone the only case in Massachusetts. Nate Lanier, co-founder and brewer at Tree House Brewing Co., says he hasn’t sent a drop of beer outside his company’s doors in Monson in six months because they greet about 5,000 visitors a week—slightly more than the estimated number that visit Sam Adams’ Jamaica Plain facility. As one of the leaders in New England/Northeast IPA (the hottest sub-style of the moment), perhaps that’s no surprise.

Lanier said he didn’t want to focus on own-premise sales, but it simply became a function of the brewery’s inability to meet demand. Just like Trillium, the margins earned on sales allowed Lanier to expand into a new facility. He credits an own-premise focus as the reason for Tree House’s new, 55,000-square feet brewhouse.

But making good money isn’t the only reason it’s worked out. Lanier noted that facetime with supporters, simplicity of operations, and direct feedback from customers are all benefits of the model. “If you are able to create great beer people want to buy, you can earn a living on a much smaller scale these days, he says. “And that is very appealing to folks who want to create a sustainable business or a lifestyle business.”

Which raises an important point: the success of on-site beer sales isn’t just because of popular beer. It’s a reflection of what customers want.

Part of the reason neighborhood bars are in decline may be because the expectations of their patrons have changed. In a 2015 survey by The Harris Poll, participants showed their growing preference toward a more intimate, authentic experience when it comes to food and drink. When asked about specific words that influence purchasing decisions, here’s what respondents picked as their top choices:

  • “Handmade/handcrafted” – 59%
  • “Artisan/artisanal” – 46%
  • “Custom” – 46%
  • “Craft” – 44%
  • “Limited edition” – 41%
  • “Small batch” - 31%

When considering a place where these kinds of words may exist and feel accurate, it might lead back to the spot from which a product originates: a brewery, for example. Only some of the words and phrases above can describe a nearby bar or restaurant, especially when about 75% of drinking-age Americans live within 10 miles of a brewery. All this is emphasized by the increase in on-site beer sales reported to the Alcohol and Tobacco Tax and Trade Bureau (TTB).

From 2006-2015, the number of taxable barrels sold at breweries reported to the TTB increased by 179%. From 2014-2015, it jumped from 690,395 to nearly 1.2 million BBLs reported. Through the first half of 2016, sales were projected to go just beyond 1.7 million for the full year. But Watson thinks this year’s figure is likely to be higher due to a mixture of state laws, brewery interpretations, and quirky reporting statistics. It could actually hit two million BBLs.

And that’s only half the story. According to a report from the Beverage Information Group, 2015 was the third consecutive year of declining volume in “on-premise” sales at bars and restaurants for spirits, wine and beer. Brews took the biggest hit, declining 3% in volume and 1.6% in dollars.

Overall, seasonally-adjusted sales reported to the U.S. Census Bureau for “food services and drinking places”—which includes bars and restaurants—has slowed slightly in 2016. Sales increased by 2.3% from January-June, but those first six months of the year have been on a downward trajectory over the last three years, dropping from 4.2 (2014) to 2.7 (2015) and now 2.3% in the first half 2016. Some economists are calling it a ”restaurant recession” as recent sales performances are some of the worst since 2013.

Chipotle is trying to fight back by offering half-price and 2-for-1 drink specials at 300 locations in August and September. Even beer-centric bars are having a hard time. By one estimate, 20 World of Beer locations have closed since 2012, with the majority of those coming in the last two years.

Meanwhile, own-premise numbers continue to climb. In terms of volume, the mere increase of breweries day-to-day and year-to-year helps push it upward, but it’s a trend that shows no sign of stopping. If the U.S. is going to add hundreds of breweries every year, more will need to focus on keeping their sales in-house where margins are better and beer served is guaranteed to be of the highest quality. Better yet, a joint survey by the Brewers Association and Nielsen showed that 60% of craft beer drinkers polled were more likely to purchase beer from a company after visiting the brewery.

“Distribution doesn’t have to be an end goal anymore,” Watson says. “When you start up, it’s about connecting with beer lovers—some breweries are content to stay in that model.”

Since opening in December 2013, the near-exclusive place to find fresh beer from The Rare Barrel has been its Berkeley, California headquarters. That was a deliberate decision from the start. The owners are making more money in the process, but Alex Wallash, co-founder and director of sales and marketing, noted that selling almost 99% of beer on-site was the only way to fully control the experience they want customers to have with their barrel-aged, sour beers.

“You can quality-control the beer regularly to make sure it’s up to standard, you know exactly how it’s being poured, and, if something is off, you take it off the tap and customers would never know it was there,” Wallash says. “If I don’t want it served, I don’t want anyone else serving it.”

Admittedly, there’s not a ton of that beer to go around in the first place—Rare Barrel produced 400 BBLs in 2014 and about 600 in 2015. But between the quality and the experience, customers have shown they have no problem dropping $8 or $9 for a 10-ounce pour or around $30 for a 750-milliliter bottle. About two-thirds of Rare Barrel beer is sold in bottles to drink at the brewery or to-go, with the other third coming from the tap.

Wallash and his team may have plenty of cache with beer enthusiasts who buy up as much beer as Rare Barrel can produce, but he admits that, in a perfect world, it would be nice to ship just a little bit more off-site to expand the recognition he feels his brewery deserves. Sour beers aren’t for everyone, after all, but businesses are meant to grow, even if it’s incrementally.

“It would be a hell of a lot easier if we just put everything on a pallet and shipped it out, but we wouldn’t have the interaction and feedback from our customers, which helps us improve,” Wallash says. “We’re making more money per ounce this way, but you also have to reinvest that into new resources.”

At Rare Barrel, that could mean more barrels, more staffing, or even new ways to sell their product. The brewery recently announced it would sell beer via its website and ship to customers in California, another new avenue to slowly expand—while keeping control of—its beer and sales. And in a way, it’s still the experience drinkers want: getting new, exciting beers with some kind of enhanced interaction directly with the brewery.

“I’d rather spend my money for you to come in my front door than to buy a six-pack in Lincoln, Nebraska,” says Bob Baile, president of Twisted Pine Brewing Co. “The experience is better, the beer is fresher, and we all win that way.”

This summer, Twisted Pine ended its final relationships with distributors across its former 12-state footprint. Customers won’t be able to find its well-known pepper beers Billy’s Chilies or Ghost Face Killah outside its Boulder, Colorado brewpub.

Over the last five years, Twisted Pine’s taproom and restaurant grew to make up more than half of the businesses’ revenue, making Baile’s decision to pull back an easy one. Revenues were steady from packaged beer sent elsewhere, but even the cost of packaging was making him think twice about how to approach sales when it was clear more customers wanted an in-person experience with the brewery. Limited packaged beer is still available at the brewpub in 22-ounce bombers and kegs. Growlers are popular, too.

In recent years, upward of 60% of Twisted Pine’s volume was sent out of state. Now, none of it is leaving the four walls at 3201 Walnut St. Sales at the brewpub are up between 10-15% so far in 2016 and Baile says he’s making an average of about $500 more selling a keg of beer by the glass in Boulder than going to a distributor. That revenue will go back into the brewpub, allowing Twisted Pine to make itself even more of a destination for customers.

The change has also affected what drinkers can find. Instead of brewing 100-barrel batches of a hoppy Pale Ale, IPA or pepper-forward beer, Twisted Pine brewers have the freedom to play with a variety of experimental batches set to rotate across a dozen of the brewpub’s 25 taps. Recently, customers found a German Pilsner, a Cream Ale with cucumbers, an Imperial Saison, and a Brown Ale with flavors that call to mind a brownie.

“A year ago, these couldn’t have been made,” Baile says. “Even our standard beers sometimes had a hard time staying on tap because we needed to send them out for distribution.”

To whatever degree, it does seem like Twisted Pine’s decision to focus solely on own-premise sales is turning out to be the win-win Baile wanted for his brewery and its fans. And it’s a move recently embraced by Grapevine, Texas’ Grapevine Craft Brewery, which announced it would cease distribution of its beers, choosing to sell only at its taproom and beer garden. Brooklyn Brewery’s Steve Hindy also recently noted that the on-site, own-premise model is key for future businesses.

But if more breweries use this model, and logic seems to indicate they will, how can bars respond? In a way, by acting like breweries.

With nearly 130 breweries in San Diego County, Beau Schmitt had his work cut out for him when opening The Brew Project with business partner Mike Sill in 2012. With 34 million people estimated to visit San Diego every year, how could they attract the beer loving crowd to visit them when their options of going straight to the source is so plentiful?

“Every ounce of beer we pour has been brewed within San Diego County lines by San Diego County breweries,” Schmitt says. “So many breweries are opening up in harder-to-reach areas of San Diego, but we’re the only place exclusively serving San Diego beer other than the breweries.”

At a time when neighborhood bars are shuttering, maybe the key to success is finding a niche and running with it. Across 30 taps at The Brew Project (24 of which are dedicated to local beer), familiar names like The Lost Abbey and Coronado take up space next to lesser-knowns like Council Brewing, Novo Brazil, and Rough Draft. When customers don’t have time to go brewery hopping across San Diego, they can stop at The Brew Project for a pint or a flight of any five beers. Schmitt says the sampler is a popular choice to get a sense of what San Diego’s brewery scene has to offer, with servers handing out 20-30 most Saturdays and Sundays.

“There are awesome craft beer bars in San Diego, but there wasn’t a craft beer bar wholly dedicated to San Diego,” Schmitt says. “This is an opportunity to expose people to everything they can find within this area.”

Offering the variety of beer options found at a brewery is one approach to retaining customers and volume, but mimicking the feel of one is another option. A mile from where Twisted Pine is refocusing on own-premise sales, a new concept bar opened in mid-July, billing itself a “collective of all things Colorado.” In addition to 30 taps, The Rayback Collective calls itself a “foodpark” featuring daily food trucks, offers live music, and fancies itself a community gathering space. It’s the kind of intimate experience most people find at their neighborhood brewery these days—not their neighborhood bar.

“Not everyone likes to take their families to a bar,” says Alana Koenig, The Rayback’s bar manager. “We’re kind of an in-between, so it’s like having a brewery experience, but at the same time, having a fun place where kids can play and hang out.”

At a dog-friendly location with yard games outside and board games inside, The Rayback is much like many modern breweries found in urban cities or dotting rural farmlands. In a beer-rich city like Boulder, that kind of business plan may be necessary, but with 4,656 breweries operating in the U.S. and another 2,200 in planning, standing out from bars and blending in with breweries may be the smartest move yet.

If anything, the growing number of breweries will only continue to force new businesses to consider how their beer is sold. The neighborhood model—once the norm across the country in the late 19th century—has returned. According to estimates by the TTB, about 75% of U.S. breweries are producing less than 1,000 BBLs a year.

More breweries producing smaller amounts of beer sounds like a situation ideal to focus on home markets, especially when trends indicate people are increasingly interested in coming directly to a brewery.

  • In Portland, Oregon, the most recent estimates by the city's tourism office showed that, in 2014, 68% of adults who visited Portland participated in some beer-related experience.
  • Kent County, Michigan, home to Grand Rapids, estimates that 42,246 visitors came to the area specifically for beer tourism in 2015.
  • Asheville, North Carolina, estimates that between 2012-2014, 22% of visitors specifically sought out alcohol-related tourism while in town. On its own, the city’s brewery gem, Wicked Weed, served about 500,000 visitors in 2015, a number added on top of hundreds of thousands visiting Oskar Blues, Sierra Nevada, New Belgium and all the smaller breweries in town.

Attitudes are changing and behaviors are following suit. Even though neighborhood bars may be waning, the process is all part of a broader business and ideological shift. Both beer’s culture and economy can benefit as people seek out personal and authentic experiences from the sources of the liquid they love.

If own-premise hits 1% of the total beer market in 2016, maybe that’s just the start.

Words by Bryan Roth
Graphics by Luke Gregulak