CBC: Industry Stakeholders Share Tactics for Building and Defending Taprooms

Taprooms and direct-to-consumer sales were hot topics during this year’s Craft Brewers Convention in Nashville, Tennessee.

Two seminars — “Building Your Brand Through the Tasting Room” and “Defense and Promotion of Tasting Rooms” — focused on the phenomenon that has agitated some retailers and wholesalers, but the topic bled into other conversations throughout the week. Here are a few key takeaways from a trio of seminars.

Building Your Brand Through the Tasting Room

Mike Hess Brewing Company founder Mike Hess, who led a panel with Jack’s Abby co-founder Sam Hendler, said selling beer over a brewery’s bar can bring 10 times the money that the company could receive selling a case of beer or a keg through wholesalers.

Hendler called brewery taprooms a “game changer” for businesses that can also help grow sales for distributing breweries. Hendler said the rate of sale for Jack’s Abby beer has doubled two years in a row within a 10-mile radius of its Framingham, Massachusetts, tasting room.

Hess, citing a survey of conducted by Reyes Beverage Group in 2016, said one in three beers being sold in San Diego are coming from brewery taprooms.

“That’s a 40,000 case equivalent increase — 29,000 barrels or so, if I did my math right — in the last two years that’s going through breweries,” he said.

Hess added that brewers should look at rate of sale within their taproom offerings in order to see which products might succeed in on- and off-premise retail channels.

Hess also encouraged brewery owners to get involved with their state guilds and track brewery legislation. He warned that “pushback is coming” and brewers could lose taproom privileges if they don’t defend them. Hendler added that challenges to taproom privileges are an “existential threat” to the future of the beer category.

“People aren’t coming into beer with Bud Light and Coors Light. People are coming into beer with taprooms,” he said. “And if we lose this thing, beer is going to lose out big time.”

Defense and Promotion of Tasting Rooms

A more focused discussion on defending taprooms featured Brewers Association chief economist Bart Watson, Freetail Brewing founder and CEO Scott Metzger and California Craft Brewers Association executive director Tom McCormick.

McCormick encouraged brewers to work with their state guilds and be prepared to defend taproom privileges. He added that he foresees attempts to erode tasting room laws in “many states” as discontent continues to “bubble up” with retailers and wholesalers.

“We are preparing ourselves for that effort,” he said, noting that taproom privileges are a “line in the sand issue” for California brewers.

“If a bill comes forward by the wholesalers or anybody else, we are hitting the nuclear switch, and there’s no room for negotiation,” he continued.

Metzger pointed out that wholesalers and retailers do not have space in their warehouses or on their shelves for all of the SKUs from craft brewers, making taprooms “the free-market solution and the free-market response to a crowded marketplace.”

To demonstrate his point, Metzger asked if there were any wholesalers in the room. “I have about 500 SKUs that I want to put in your warehouse. Are you ready?” he asked.

Watson said the vast majority of beer volume is still flowing through the three-tier system. He called taprooms an “evolution driven by the beer drinker, not necessarily a revolution.”

“We’re not exploding the three-tier system,” he said. “We’re not transforming how beer is sold. We’re giving beer lovers what they want.”

Watson, citing a Nielsen CGA survey, said two-thirds of the people visiting brewery taprooms said their visit was a different occasion or an additional visit to a traditional on-premise establishment.

“Two-thirds of this is new volume that wouldn’t have been going through traditional channels had that brewery visit not existed,” he said, adding that “this is a powerful weapon in that story.”

Still, Metzger cautioned brewers against undercutting retailers on price or doing other things that could be viewed as competing with retailers, such as operating until 2 a.m.

Growing Into the Headwinds

In a panel titled “Growing into the Headwinds,” Karl Strauss co-founder Chris Cramer warned brewers against “impinging on the realm of retailers” by adding duplicate licenses and acting as bars. He called it a “slippery slope” that only serves to agitate retailer and wholesalers who “collectively have a lot of power.”

Brooklyn Brewery CEO Eric Ottaway said many retailers are upset about paying upwards of $1 million for on-premise liquor licenses when new breweries can receive a license for $5,000.

“Be careful of the bear you’re poking,” he said.

Russian River co-owner Natalie Cilurzo told brewers that it’s important to diversify their business, splitting evenly between direct-to-consumer sales and distribution. Doing so benefited Russian River, she said, when tourism in Sonoma County slowed down late last year and early this year due to last year’s California wildfires.

“It’s important to have a mix of retail and wholesale distribution because if something happens and you’re 100 percent reliant on one customer base and that suddenly goes away overnight,” she said, “you’re going to have a really hard time scrambling to figure out what your next move is.”

Meanwhile, Firestone Walker co-founder David Walker said brewery owners need to stay engaged as competition increases and growth slows.

“This is not a job; it’s a lifestyle,” he said. “And there’s some real sacrifice you make with a lifestyle. Everybody in the chain needs to be engaged. The people you work with, your wholesalers, your retailers and you consumers. It’s a little bit of a religion. And if you’re not ready for that, I’d disengage right now.”

Nevertheless, Walker cautioned brewers against overleveraging themselves.

“Banks know what cutting your losses mean better than anybody,” he said, “and once you blink, they’ll exit the building with your brewery. You’ve really got to be careful.”

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