Infrastructure to grow

by Robyn Staggs (robyn.staggs@baml.com) 241 views 

Nearly a decade after craft beer first achieved mainstream popularity, industry growth remains steady. The national craft beer market now tops $26 billion, and key players continue to seek new ways to scale their business to meet this increasing consumer demand.

Arkansas’ craft beer scene has grown to 35 breweries, with a combined 42,000 barrels of craft beer produced last year. Not surprisingly, the breweries are primarily clustered in Northwest and Central Arkansas. Craft beer popularity has grown in part due to its availability in a wide range of venues — from brewpubs to fine dining restaurants. Brewers who look to grow their market share should consider investing in the infrastructure to deliver their products to retailers and consumers, with a focus on efficiency and quality control.

For brewers seeking to improve production and distribution, here are some best practices on expanding your craft beer network.

LOCAL, REGIONAL & NATIONAL BREWERS
Craft beer companies typically fit into three categories: the small local brewpub, the regional brewer and the national production brewery. Each has unique needs when it comes to production and distribution.

The local brewpub typically sells most of its beer on-site or at the brewer’s restaurant. This reduces the need for distribution and allows the brewpub to recognize profits quickly. A regional brewer typically requires more equipment, such as tanks, as well as a larger amount of real estate to produce and store inventory. A regional brewer might be selling out of a tasting room from one or multiple breweries, but most revenue and growth comes from selling brews into other retail accounts, both on- and off-premise. A national production brewery may have several operations and requires a more sophisticated and robust distribution system.

TO GROW OR NOT TO GROW
It’s important for investors and owners of breweries to align on objectives when it comes to growth targets and appetite for expansion. Once in agreement, partners can set priorities for investment and determine the amount of capital they’ll need to build their infrastructure. Brewers also should consider operational needs to maintain equipment, including maintenance and upgrades.

ASSESSING WHERE (AND HOW) TO EXPAND
Brewers also need to evaluate where to expand. Craft-centric regions, such as Colorado, and cities like Austin, Texas, and Asheville, N.C., have turned into highly sought-after destinations for craft beer tourism. This equates to a high demand for craft beer in these areas, but it doesn’t come without fierce competition.

A key partner for craft brewers are beer wholesalers. As the craft beer industry has continued to grow over the past decade, wholesalers have adjusted their business models from supporting a few key suppliers to now having more than 30 breweries to support, sell and distribute. Today, brewers have the opportunity to work with large distributors in addition to craft-only distributors. Craft beer’s continued growth will be in part due to the commitment and support of wholesalers.

WHAT WORKS BEST FOR YOUR CRAFT BEER
The value for a particular brewer is case-dependent. Key factors to consider include: quantitative elements (growth rate and profitability); intangible factors (brand awareness); competition (assessing if similar products are in the market); and succession planning based on the end goal (for example, an IPO or selling to a larger brewer).

Brewers must assess whether the distribution strategies implemented would support their growth and closely align their financial strategies with their long-term goals. The craft beer industry has already climbed to nearly one-quarter of the U.S. beer market and continues to become more competitive for the next generation of entrepreneurial brewers. Though craft brewers face fierce competition and a unique set of industry challenges, their ability to secure capital and the future of the craft brewing industry has never been better.

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Editor’s note: Robyn Staggs is a senior relationship manager for Global Commercial Banking at Bank of America Merrill Lynch in Northwest Arkansas. The opinions expressed are those of the author.

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