To grow and where to grow, those are the questions for small craft breweries like Backcountry | SummitDaily.com

To grow and where to grow, those are the questions for small craft breweries like Backcountry

Krista Driscoll
kdriscoll@summitdaily.com
Photo: Ben Trollinger
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The number of microbreweries in the United States is growing exponentially, which creates a conundrum for smaller craft breweries that want to expand in a market that is approaching oversaturation.

“A year ago, there were 1,400 breweries in this country,” said Charlie Eazor, co-owner of Backcountry Brewery. “By the end of this year, there will be 2,400 or more, which is a rapid expansion, obviously, of brewpubs and breweries, etc., etc.”

The total beer industry in the United States, in comparison, is really flat in terms of growth, Eazor said.

“It hasn’t grown hardly at all in the last three or four years,” he said. “During that same period, the segment of that industry called craft beer has grown 15 percent per year. That means that craft beer is taking away market share from the big, mainstream brands. So now, if you’re a brewery such as Backcountry, facing that next growth decision, you have to look at all of the considerations.”

Booming Backcountry

In February, Backcountry Brewery in Frisco completed an expansion that came online and quadrupled its capacity to produce beer. The brewery added automated bottling and labeling systems that enable it to package its products in 12-ounce bottles in six-packs and cases for distribution.

“Up until that, we were pretty much limited to Summit County and a few select spots that we self-distributed in Jefferson County in the Denver area,” Eazor said. “We now have distributors who give us coverage — it’s the easiest way — from Castle Rock to Fort Collins to Edwards. We drew that triangle, which obviously includes Denver; that’s the footprint our product is now distributed in.”

That equates to adding about 50 liquor stories and about 20 locations with tap handles to the Backcountry repertoire. The brewery has just passed half of its brewing capacity, Eazor said, and at the rate it’s adding accounts, it will reach its full, expanded capacity in the fall. But where does that leave Backcountry in terms of future growth?

“The $64 million question is: What do you do next? How do you make more beer? Where do you make more beer? How do you package more beer, and where do you distribute that beer after you package it?” Eazor said. “It’s a more complex question than probably just finding a place and making more beer and getting more distribution coverage.”

Determining distribution

Nailing down a growth and distribution plan in a market that is already glutted with similar products can be a bit of a puzzle. There are a lot of factors that weigh into the decision of when and where to expand.

“The first consideration is that the industry is structured into three tiers: those who make it, those who distribute it and those who sell it in retail at liquor stores, etc.,” Eazor said. “Every state requires that you only be in one of those three components. Most states will let craft brewers do some self-distribution up to a certain size. So you’ve got, arguably, 10 times as many breweries as you have distributors, so distributors are being flooded with brands, particularly when you consider each brewery probably has three to five different products that they want to distribute, so that volume gets even larger.”

The challenge, Eazor said, is getting your product somewhere where someone can buy it, and the distributor has a great influence on whether that happens or not. Restaurants have a limited number of tap handles and liquor stores have a limited amount of cooler space and both need to see the product as being a money-maker in order to keep it around.

“I think what the successful breweries have discovered is that you can’t rely on the distributor alone to get your product out there and to keep it placed once it’s placed,” Eazor said. “So you have to have a sales person in those markets where it’s being distributed, to help the distributor stay excited, to find new accounts and to maintain the relationship with the accounts that have chosen to have your product.”

Contiguous markets

From Backcountry’s perspective, the most logical path to growth is concentrating on contiguous regions with dedicated sales people to keep an eye on products and distributor and retail relationships.

“If you don’t do that, there’s a lot of things that can happen,” Eazor said.

Long-distance distributors in states such as New Jersey or Florida, for example may sell a lot of beer initially, but the brewery has no idea what’s going on so far away.

“We have no idea what’s happening or how it’s being presented,” Eazor said. “More importantly, craft beer — all beer — has a shelf life, and after it’s been bottled or canned, containerized, there’s a finite amount of time that it still has its true, optimum taste. I send it to Florida to a distributor, I have no idea if they are going to leave it on the shelf too long because I have no presence.”

If the product is left on the shelf too long, a new customer could buy a beer that’s outdated, taste it, declare it to be terrible beer and have a negative influence on opinion of the brand. Therefore, the breweries that have the most long-term success grow contiguously, hiring a dedicated sales person for each region that is added, Eazor said.

“Some of the craft brewers have signed 20, 30, 40 as many as 60 distributors in 20 or 30 states,” he said. “Most of them haven’t put the sales people in that many locations, so they may be growing faster than they can control the quality. Our strategy is yes, we want to grow; yes, we want to get to that decision point and figure out what to do next, but it will be quality-controlled decisions, and that means that we have to have the physical presence. You can’t rely on someone else to be as enthusiastic about your product as you are — you just can’t.”

Having a regional presence

Focusing on one region at a time and building a beer brand that way has a lot of merit, Eazor said.

“Being too broadly available takes away some of the aura of craft beer,” he said. “Craft beer is special to start with because it’s brewed with more ingredients; it’s a little more expensive thing, brewed in small batches so there’s a personalization with each batch. And it’s a local product. When you start doing mega batches and it’s everywhere, although it still has more expensive ingredients and better quality, it’s just not perceived as being unique anymore.”

Distribution is a delicate balancing act of making a product available to those who want it without being ubiquitous.

“I think most craft brewers don’t want to be on every shelf in every liquor store or have a tap in every restaurant and bar,” Eazor said. “The liquor store wants to have products that not everyone else has, the bar wants to have on tap products that not every other bar has. We’ve been selective about where we put the product to make sure it’s a good fit, represented well and will be well-received by that location’s demographic. That’s learning.”


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