Here Come the Breweries

Up from a mere 124 in 1986, there are now over 6,000 breweries in the U.S. and thousands more in planning. In Houston, our fair share of this growth is still yet to come, with 45 breweries open and 28 in planning. Last post I made the case that Houston can handle these breweries, and I discussed the implications for the large craft breweries that must sell their product in foreign territories competing against dozens of new native local breweries. I am not envious of this challenge, but I also recognize we will have our own challenges in dealing with this altered competitive landscape.

The pressures of competition are going to increase. We’ll have more competition – not only from new breweries, but also from existing players – breweries and other market participants like distributors and retailers – attempting to protect or claw back their market share. This means that we need to perform to an increasingly high standard, and be thoughtful and deliberate about how we’re positioning ourselves. Here are a few themes in the front of my mind.

We must remember: We’re only as good as our worst pint

I vividly remember a conversation a couple years ago that I had with a Goose Island (owned by AB InBev) representative, who told me that, “Most craft breweries can’t deliver a consistent product.” No doubt, this is a talking point in the arsenal of every Big Beer sales rep, used in attempts to push out craft beer in favor of their products. And as competition intensifies within craft, I would expect larger craft breweries may invoke a similar argument, perhaps in a subtler form: “We have been making beer for X years, we have an extensive lab and QC department, we won’t let you down!”.

And how would we respond if confronted with this claim? We have a short track record and a production staff of 1, who is an apprentice without a master. How could we offer the same quality assurance to a beer drinker or beer buyer as a macro brewer, or even a more established craft brewer? Maybe we could circumvent this challenge by telling everyone that they shouldn’t expect a consistent product from us, but that’s just who we are, so deal with it. I don’t think that’s a good idea, but Scofflaw Brewing did.

scofflaw-picscofflaw-text

In response to heavy backlash, they edited the post, scrapping all of that text. To be fair, they were explicitly (complete with explicit hand gestures) making an argument that other breweries implicitly make all the time by allowing poor quality products to reach beer drinkers. And this is a losing argument, as evidenced by the fate of that post. Beer drinkers have made it clear: If you’re a commercial brewery, and you’re selling a product for a premium, there is no excuse for poor quality. And thus, as we say, We are only as good as our worst pint.

We strive for that worst pint to be a great one. We have a burgeoning QC program, thanks to our beer-tender / QC consultant / lab guru Joe Jacobs. We have a rudimentary lab, and are currently developing a sensory analysis program. And our tool from day 1 has been the Brock Wagner Test. With every batch, we ask ourselves, “Would you be proud to serve this to Brock Wagner [founder of Saint Arnold]?” If the answer is “no”, it goes down the drain.

This is a very different question than, “Is it still good?” or, “Can we sell it?”. Not only is selling merely “passable” beer bad for us, it’s bad for the craft beer movement. If we’re making a hefeweizen, it needs to be great. Live Oak Brewing makes one of the best hefeweizens in the country. It’s a beer that can transform the occasional Blue Moon drinker to a craft beer lover in an instant. If we’re putting a hefeweizen out that’s not on that level, we’re poisoning the well. In fact, we’re dumping a batch of hefeweizen down the drain this week for that very reason.

Drain dumps are a last line of defense, and an established brewery with a team of experienced brewers and a heavily automated system should very rarely rely on them. However, for us, we have to accept they are a cost of doing business1, and in the long run much less costly than letting that beer go to market, especially one with an increasing number of great beers and sophisticated drinkers.

We must tell better stories

How will beer drinkers make sense of all these breweries? They’ll do what humans do: Categorize them. Which ones are good? Which ones are bad? What does this brewery do well? What makes that brewery special? Which other breweries is this brewery similar to? These questions will be evaluated by each beer drinker, consciously or unconsciously, through personal experiences, conversations with friends, and, of course, social media.

We’re telling stories, whether consciously or not. When we opened, we had six beers: IPA, Belgian IPA, Dollar Pils Y’all, Hefeweizen, Looyah Milk Stout, Amber. Since most of those conformed to simple style definitions, the narrative of, “Holler sticks with classic styles (and doesn’t do trendy stuff)” quickly made headway. Last year, after winning a GABF Bronze medal for our ESB, “Holler makes good English beers” started making the rounds. At one point, a beer buyer told us he heard we were “the feminine brewery” in Houston.

These are examples of stories that we’ve told unconsciously. Some are completely false, some are merely oversimplifications. Some are a good look, while others undermine the stories that we’re actually trying to tell. So how do we influence the conversation effectively? I believe it is by telling better stories than these narratives – stories that are more inspiring and more profoundly true.

Like many craft breweries, and unlike Big Beer, we can tell great stories without having to make anything up. Our brewery is a personal business, and we’re so proud of our product that we put our freaking name on it. Every beer we make is something we’re excited to make – not something our focus group or accountants told us to make. When we introduce a beer, we need to explain why we’re so genuinely excited about it, and share the inspiration. When we’re posting on social media, we need to show how authentically authentic we are. And this must be reinforced by the quality of our product. The story is important, but the beer still comes first.

We must resist growth for growth’s sake

People often ask us when our next planned expansion is. When we reply, “We don’t have one,” they seem confused. Perhaps they think we’re not doing well. After all, if we were doing well, wouldn’t we be expanding to meet growing demand? The truth is, as a small player in an increasingly crowded field of craft breweries, we think our business is positioned well at its current size.

Today we sell about 80% of our product through our tap room, and the remainder to draught account sales at nearby establishments. These account sales constitute an important channel for interacting with Houston beer drinkers. They provide an opportunity to reach new customers, and also to reinforce our relationships with existing ones. They also provide a certain legitimacy – when a reputable bar or a cool restaurant has our product on tap, it helps tell a story that we make fine beer.

While these account sales are an important component of our business, they do not generate much income for us. As a very small brewer, our unit cost is high, so selling our product at a wholesale price produces a very thin margin, especially compared to larger brewers with dramatically lower unit costs. Further, as all of our product is unfiltered (so as to maximize deliciousness when consumed fresh), it must be treated with care and consumed soon after packaging. This is ensured in the tap room, where it is served fresh from the tanks, or from kegs that have been kept cold and have not traveled. However, with account sales, we have to monitor how the product is being treated. With a limited number of accounts, all quite close to the brewery, this is manageable.

And as more breweries open, the tap handle space (and shelf space) is going to get increasingly crowded with other local options, and the larger regional and national players remaining in the space will be pushing high quality liquid, with force, and with strong support from their distributors2. Again, with just a handful of accounts within a short drive, we can maintain a strong relationship and provide attentive, personal service to each of them, giving our product the best chance to compete.

Were we to expand production, the additional sales would be account sales, so we would go from 80% taproom to, say, 50%. We would be increasingly relying upon a less profitable, more competitive, more complicated line of business that our little 7 barrel brewery was not built to handle. Instead of a tap room-focused brewery, we would become a wholesale-focused brewery with a tap room on the side. Or maybe we could convince ourselves that we could be both at the same time – to be a Futon, and we all know how much everyone loves Futons!

So, while we’re always looking for ways to grow incrementally (increase the scope of our tap list, bring more folks into the tap room, optimize our account sales), we must resist the temptation to invest in large capacity increases, in favor of positioning ourselves best for the future of Houston beer.


1I sure do talk about pouring beer down the drain a lot. The truth is, we do it very rarely. But it’s such a heavy, emotional experience that each drain pour tends to stay with me.

2 Large distributors, typically under the control of a large brewer, have an extensive bag of tricks they use to push out competing products in favor of their own. The most common is providing a full set-up to the bar: The draught system, the glassware, the tin tackers you see on the walls; this in exchange for loyalty. There are several accounts that are unavailable to self-distributed breweries because they are essentially controlled by a distributor, who is controlled by a large brewery. Interestingly enough, this is the exact opposite of the original intent of the three-tier system of preventing a manufacturer from dominating the supply chain. This fascinating subject deserves its own post, if not its very own blog.

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