Good Beer Hunting

Which Way to Market? — How Competition is Making Distribution Strategies More Complicated

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When it launched in March 2017, Four Seam New England IPA was supposed to be Idle Hands Craft Ales' first year-round IPA. As often works with beer brands, however, serendipity stepped in, and the beer became a good problem for the Boston-area brewery.

Drinkers can find Four Seam at the taproom at any time, but the beer that is meant to conjure up “thoughts of a tropical paradise” is much more elusive off-premise, where a three-week production schedule makes for a limited supply. Of 150 cases (or 900 $16 four-packs), half stay at the brewery for direct sales and the rest are specifically allocated to about 30 local stores.

“Looking at how other brands have performed in the market, we’ve noticed that as soon as a beer becomes ubiquitous—you can get it at any store—it starts to lose its luster and desirability among a crowd that sees it as a pure, ‘gotta have it’ type of mentality,” says Chris Tkach, owner of Idle Hands. “It’s a very methodical approach with Four Seam to not overproduce it, so when it goes out to retail accounts it runs out within a week or two, so it’s not always on the shelf.”

Part of that decision is practical. As a delicate NE IPA , Four Seam is meant to be drunk as fresh as possible—for a beer like this, keeping scheduled turnover guarantees the best drinking experience. But there’s also a business side to it.

“It’s a terrible way of having to manage a brand, but it’s the only way we can do it and make sure Four Seam stays top of mind for people,” Tkach says.

Creating artificial exclusivity to drive demand isn’t a new psychological tactic to entice consumers, but the increased social recognition of the “fear of missing out” is certainly one that has continually come of use in beer. But most of all, Tkach’s point of view is a response to a variety of trends currently impacting the industry.

According to numbers reported by IRI, 2018 saw a continued shift in higher spending per trip to buy beer, but shoppers are also making fewer trips overall. With beer volume sales either plateauing or decreasing, particularly given consumers’ increased thirst for wine and spirits, finding niche ways to attract attention is something all breweries need to consider. That’s especially true given that new competitors are opening every day, pushing the country’s total number of breweries to a record count every week. The tally is well past 7,000 at this point.

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The majority of those breweries are small and local, with anywhere from two-thirds to three-quarters producing less than 1,000 barrels of beer a year, depending on who you ask, from the National Beer Wholesalers Association to the Brewers Association. These businesses are spread all over the country, but they also represent the most growth potential in terms of sales, especially as they enter markets through distribution.

Which is why, in an IRI analysis, breweries with the least distribution, but which represent the largest raw number of businesses, show the strongest growth. They’re ramping up sales in part because, for these companies, retail sales didn’t exist before.

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Still, the overall number of beer brands being sold on store shelves across the country has actually declined, dropping by 3.4% since 2016. Craft-specific beers have decreased by almost 6%.

“It becomes a little of an innovator’s dilemma,” says Tkach. “You’re constantly having to produce something new because you train consumers to look for it.”

Idle Hands experienced this phenomenon in action with Six Seam, a DIPA version of Four Seam. When releasing it for the first and second times, two-thirds of each batch was allocated for taproom sales and sold out in a week. The third time, the brewery produced twice the amount of volume, but noticed a steep decline in demand as a result of more of it being available at both the brewery and off premise, Tkach says.

“Internally we wondered if we shot ourselves in the foot,” he adds. “Did people have it and check that box to move onto the next thing?”

In industry vernacular, it’s otherwise known as “rotation nation”—the idea that consumers are always looking for something new and shiny in lieu of classic brands or old standbys, which may be the case for the most enthusiastic, but not average consumers. The worry that Tkach acknowledges can be seen in more places than Massachusetts, and in different ways, too. In Florida, some breweries don’t even know if they can partner with a distributor to get products to retail. Around the country, the number of wholesalers has been cut nearly in half over the last 40 years, creating crowded portfolios and fewer opportunities in places where self-distribution isn’t available.

But still, these challenges of distribution aren’t identical everywhere. Rather, they relate directly to individual circumstances based on brewery, geography, consumer demographics, and more. American beer consumption has been on a slow, downward trend for years, so finding ways to connect with potential customers isn’t just about creating something tasty, exclusive, or new. Maybe it has to do with a business’ politics. Maybe it’s about how they treat employees. Maybe it’s simply where a brewery exists.

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“The one constant that we do know about is the dominant trend in beer right now is localization,” says Collin McDonnell, co-founder and CEO of California’s HenHouse Brewing Company. “People are trying to buy beer from closer to where they live, from their community. That radius may be a largely gray area, but people are looking for something more local than what they used to.”

Unlike Idle Hands, McDonnell sees a $4.5 million expansion to ramp up production from 10,000 to 45,000 barrels of capacity as a way to double down on his Bay Area home. With about 85% of total volume sold on and off-premise across about 700 restaurants, bars, stores, and other accounts (15% at the taproom), it’s an opportunity to go deeper in HenHouse’s local space—however it may be defined—by further expanding placements and becoming more ubiquitous with consumers. These decisions are aided by the brewery’s ability to self-distribute.

Adding 60-BBL tanks and a new canning line gives the brewery access to two different paths. If one particular beer blows up, like Idle Hands’ Four Seam, there’s now an option to increase production to meet whatever demand there may be. Outside of that, if consumer demands ask for four new releases every week, there is enough space to accommodate that, too. A source of McDonnell’s inspiration—a brewery that has pulled off this kind of a move in a time of more competition and less shelf space—is one of beer’s most remarkable outliers: New Glarus Brewing Company.

New Glarus only sells in its home state of Wisconsin, and is also one of the 20 largest breweries in the country.

“Being everywhere is only detrimental to your ability to be cool if your coolness is based on exclusivity,” McDonnell says. “We think of ourselves actively as an anti-exclusivity brand and will continue growing the company and making beer as long as people want to buy more of it and we don’t have to compromise quality.”

Being cool and staying popular aren’t about long lines and limited buys, he adds.

“What’s cool is creating a beer that’s delicious and a brewery involved in the community in a way customers can appreciate,” McDonnell says.

It's that latter part that is increasingly at the core of conversations of what can create broader success. HenHouse currently has two taprooms alongside a soon-to-be expanding retail presence. Meanwhile, research by Nielsen’s CGA division and shared by the Brewers Association shows brewery visits lead to increased beer purchases and could also stoke interest in where that beer is coming from—presumably from the places drinkers are visiting in the first place. Even if it’s only about 15% of volume that’s being sold through HenHouse’s taprooms, their presence could mean much more as the company’s brands seek more space.

Once the brewery reaches its full capacity, and HenHouse finds itself in three-to-four times as many accounts as its current 700, this kind of measured growth offers strong potential for the future. If that increased presence isn’t too much, of course.

“Even when we’re expanding our territory a little bit, the geographic area of which we’re trying to sell all our beer is tiny,” McDonnell says. “We don’t see ourselves in this round going to Los Angeles. We’re certainly not going to any mountain ranges. We’re not planning on going to Oregon.”

All the growth and beer placements will be in one of the largest population centers in the most populous state in the country.

“I’m really proud that we’re focused on locality, staying home, and going deep,” he adds. “Integrating ourselves further into our community has always been our mission for growth.”

Words by Bryan Roth