Making the Beer People Buy
I have been meaning to comment on a fascinating article Josh Noel wrote about a little brewery called Une Annee in the Chicago Trib. Superficially, it’s just one of those business-survives-challenges-and-thrives story that is a bedrock of local news reporting. But it’s precisely because the form is familiar that the details are so revealing. Here’s the set-up which I’ve compressed for brevity (sorry, Josh!):
Founder Jerry Nelson’s vision of faithfully re-creating classic Belgian beer styles was quickly abandoned when the beers failed to resonate.... Une Annee pivoted from classic Belgian styles — think saison, dubbel and tripel — to sour and wild ales.... When Nelson made his first American-style IPA in 2015, two years after launching Une Annee, he had just laid off his sole employee. He was desperate to right the ship.
“You either adjust or you close your door,” he said. “I decided to adjust as the market told me what I needed to do.”
Every craft beer fan will recognize this pattern immediately. Breweries that focus on European styles are at a real disadvantage in the marketplace, where most sales are registered within a few popular types. The hops-shift is almost inevitable, because owners can’t afford to sit around and watch their debt grow as they try to find an audience for obscure styles. So they make an entree of IPA with a side of pastry stout and fruit sour. Exactly like Une Annee did.
In Une Annee’s case, Nelson performed some fancy footwork to survive, and this is also instructive. First, he had to figure a way out of the bind he’d put himself in by committing to a distributor. His volume was too low to survive on the bare margins he was making through the wholesaler, so he started a separate brand, laser-focused on the styles popular by avid fans. Although Noel doesn’t give us this background, his pitch to the distributor seemed to be: you can have a share of the sales of this brand, which I will subsidize by self-distributing my new label, or I can go belly up and you get nothing.
Une Annee also lacked a physical space, so Nelson opened a taproom in a suburb north of Chicago. He plopped it in a strip mall in the under-served town of Niles, where he was courted by local officials. Noel notes dryly: “It is the picture of American suburbia, drab and bland, a single red sign — “BREWERY” — summoning beer drinkers above the entrance.”
Now that the two labels are focused in on the beers people are clamoring for, and now that the brewery has an outlet where locals can form a bond and visit regularly (and Nelson can earn full retail on beer sales), it is thriving. When the story came out, some folks commented on Twitter that this is a sad state of affairs: why won’t Americans drink dubbels, dammit? But Une Annee’s development is entirely predictable, and most everything in the story represents the organic development of a mature market for craft beer.
A few of the lessons:
They don’t drink dubbels in Munich, either. This is what happens when people begin to develop a national beer culture—preferences narrow. There are something like 50 million Americans who at least sometimes drink craft beer, and so dubbels will still get made. But as more and more people begin to become avid beer fans, the effect of culture will actually solidify the dominance of IPAs. (Pastry stouts and fruit sours may be a passing fad.)
These trends are especially acute for smaller breweries. A lot of people still drink Blue Moon and Boston Lager and Fat Tire. But the people who are engaged enough with craft beer to go to taprooms want what’s hot and on-trend. As Une Annee illustrates, it’s hard for breweries to appeal when they’re selling off-trend or mainstream beers in specialty locations.
Distribution is broken. The current system we have was based on a beer landscape that is now 40 years out of date. It is very hard to survive on the tiny margins breweries receive putting beer into the marketplace, and franchise laws make the arrangement a straightjacket. Worse, distributors might represent dozens of breweries, and they are therefore hamstrung in their efforts to promote small, low-visibility brands.
Breweries can’t survive without a retail location. And this further exacerbated the inherent conflict of interest resident in the wholesale tier. Wholesalers can’t make any money if breweries are selling out of the taproom, and breweries have a hard time making money if they’re selling to distributors at a discount.
Small, under-served towns are ideal targets for new breweries. Sure, Southeast Portland has the greatest concentration of craft beer drinkers in the US, but it also has the greatest concentration of breweries. Breweries are discovering that it’s difficult to make a splash in towns dense with them. Moving further out reaches consumers who don’t have a local brewery. Towns like Niles know breweries enliven sleepy districts, too, and they’re desperate for them.
Teaching this online course at Portland State has made me think much more critically and with much less rosy-lensed romanticism about how to succeed in business. You gotta make the beer people want to buy, you gotta go where the other breweries ain’t, and you gotta sell beer at enough of a profit to keep the lights on.