Craft brewers share concerns, talk collaboration

FORT COLLINS — While the craft-brewing industry nationwide may be entering a “mature market” and exhibiting characteristics of that category of business, including a leveling off of growth, in Colorado its practitioners are still seeing growth year over year although not at the same rate as before.

Exact growth numbers aren’t clear, as different methodologies yield different results. Yet despite the growth, craft brewers in Northern Colorado who gathered for a BizWest CEO Roundtable on Tuesday afternoon shared the same struggles and the same concerns. Chief among the issues for Northern Colorado craft brewers were distribution and uncertainty caused by the 2016 legislation that will permit grocery stores to buy liquor licenses that permit sales of strong beer — a concept fought by independent liquor stores that are the craft industry’s biggest ally.

The market

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Andres Gil Zaldana, executive director of the Colorado Brewers Guild, said there are about 6,000 craft brewers in the United States, with Colorado and especially Northern Colorado as a center of activity in the industry. The industry is seeing changes in where consumers are buying beer and what consumers are looking for — a style of beer or whether the beer is produced locally. Imports have “ticked up substantially” in sales, he said, but that may be having more of an impact on the maxi-brewers.

“Hyper-local beer — that growth is continuing,” he said.

Tim Cochran, co-owner of Horse & Dragon Brewing Co. in Fort Collins, agreed that imports may be having an impact on overall beer sales, but said that distilled spirits, now also a craft industry, are also having an impact.

“You have to look at our space in the market,” Cochran said. “Nationally, craft beer has a 12 or 13 percent share of total beer sales. We’re still a small piece of the total pie. Look at our segment, and look at Colorado where we’re (a) higher (share) than national. Higher than 12 (percent). Maybe 20ish. The national numbers don’t match here.

“Other things we have to consider is that we have a home-state macro brewer, Coors, and we have another big brewer [Anheuser-Busch] in Fort Collins,” he said, which supports his contention that craft brewing in Colorado is exceeding the national growth numbers.

Case in point, Neil Fisher, co-owner of WeldWerks Brewing Co. in Greeley, said his company will brew 100 new varieties of beer this year. That strategy reflects what he’s seeing as greater interest in different beers as opposed to a desire for the consistency of a single style.

Zaldana said there have been closures of craft breweries in Colorado, “but then someone else moves into the same space. It’s almost one for one.” The state remains third among the states in breweries per capita, with 330. That number is low because it counts chain microbrewers as one instead of the total number of locations that a chain might have.

The landscape differs a little for New Belgium Brewing Co, which sells in all 50 states. Steve Fechheimer, CEO, said that because their market is nationwide, they’re seeing a slowing. It’s still growing, but not at the same rate, he said. In addition to spirits having an impact, marijuana is also affecting sales, he said.

The marijuana impact may not be all bad, said Frezi Bouckaert, co-owner of Purpose Brewing LLC. Fort Collins is the mecca of beer in Colorado, and there’s a tourism impact, just as there is with marijuana. With those draws, tourists are contributing to the market share for beer in the region unlike in some other areas of the country.

Legislative impacts

Legislation passed in 2016 that will ultimately permit grocery stores to sell hard liquor and strong beer is starting to have an impact this year, with the big change coming in January 2019. When that date rolls around, an additional 1,600 retailers of strong beer will join the private liquor stores in the state. This either creates a whole new sales channel for craft brewers or a potential barrier to reaching customers if those grocers fail to offer shelf space to local brewers.

In the past month, according to Charlie Hoxmeier, chief brewing officer for Gilded Goat Brewing Co. in Fort Collins, large national companies — Albertson’s and Kroger among them — have bought the licenses of four independent liquor stores in Fort Collins. The independent liquor stores have been the primary off-premises channel for sales of craft beer.

Craft brewers fear, on one hand, that sales inventory decisions will be made on a national basis, thus freezing out the local craft brewer. On the other hand, they fear that if national grocery chains permit local decisions that the volume of outlets will make it impossible for the small brewer with a half dozen employees to adequately distribute throughout the market.

Liquor stores, which opposed the 2016 legislative changes, this year are seeking a legislative fix to slow down the changes. Limiting the number of brands a grocer could handle, for example, would dampen the impact on liquor stores but also eliminate the craft beer opportunity in grocery stores.

Hearings on these bills are occurring this week.

Collaboration

All of the craft brewers face distribution challenges.

For the largest of them, New Belgium, the challenge is overcoming interstate transportation costs, which have increased significantly, Fechheimer said. For the smallest, such as City Star Brewing LLC of Berthoud, Whitney Way, co-founder, determined that she could not financially support transporting small quantities long distances, even when there was preliminary interest among consumers.

Fisher of WeldWerks and Josh Grenz of Verboten Brewing in Loveland asked if there was interest in working out distribution networks whereby members of the network would share distribution workers or administrative staff, as well as haul kegs or cases on the same vehicles when distribution points were the same or similar. All agreed that there was interest if the details could be worked out.

“We’ve been looking at ways to collaborate,” Fisher said. “We could add a small brewery to our route so it would be affordable for the small brewer and beneficial to us because we’re already making that route. We have a lot of interest in the Springs, but we don’t have enough there to make it worthwhile just yet. Could we share resources to make that happen?” he asked.

Grenz said the Loveland brewers have had one meeting to start talking about doing exactly that. “We’re at the beginning of those talks,” he said.

Fisher said brewers could also collaborate on purchasing of raw materials. If the brewers jointly bought hops, for example, they might be able to get contract rates instead of having to buy small quantities on the spot market.

Joining together may also lessen risk of buying too much of the next popular hop, said Peter Bouckaert of Purpose Brewing. “They try to push us to five-year contracts. No way; I won’t take that risk. I don’t know what my customers will want down the road.”

Changes in operations

The brewers acknowledged that they have had to be nimble as the market moves. City Star has pulled back its marketing into its base in Berthoud. Its sales are focused on its taproom for the time being.

Fisher said WeldWerks, which produced 5,000 barrels last year, is experimenting with numerous new flavors. They’re finding the “dessert beers” to be popular. “We call them pastry styles” because the ingredients might be found in the baking aisle at the grocery store.

New Belgium, Fechheimer said, is finding interest nationwide on higher-priced beers. He also said both the high ABV — alcohol by volume — brews and the lower ABV/lower calorie beers, which represent both ends of the spectrum, are selling well. New Belgium is also seeing a return to more traditional styles.

The BizWest CEO Roundtables are sponsored in Northern Colorado by EKS&H accounting firm, HUB International insurance company and Elevations Credit Union.