Divergent Growth Strategies Emerge in a Competitive Craft Beer Marketplace

As the craft landscape has become increasingly competitive and as growth has slowed, some craft brewers are beginning to alter their approaches to expansion.

While some companies have restructured their sales and marketing teams and laid off employees, others are starting to reexamine their brick-and-mortar strategies. Take the divergent paths of Other Half Brewing Company in Brooklyn and Renegade Brewing Company in Denver, for example.

Other Half yesterday announced that it had purchased the former Nedloh Brewing Company facility in Upstate New York, which closed in October 2017, for $660,000. The 4-year-old, 8,000 sq. ft. facility, which includes a 10-barrel brewing system and taproom, will be transformed into a second location for Other Half as it looks to service demand in a more emerging market.

Meanwhile, Renegade Brewing, which sold an undisclosed stake to Northeastern-based family office Silver Fox Partners at the end of last year, has put its 3-year-old manufacturing facility up for sale for $1.2 million. Renegade, which will maintain a separate taproom in Denver, is hoping to find another production facility with lower rent costs, as it eyes an own-premise expansion model, according to Denver alt-weekly Westword.

Renegade’s move away from Denver comes just two months after Shmaltz Brewing sold its 5-year-old production facility in Clifton Park, New York, to Queens-based Singlecut Beersmiths. At the time of the sale, Shmaltz owner Jeremy Cowan characterized the shift away from an asset-heavy business model, along with a recently negotiated brand management partnership with Artisanal Imports, as “aggressive adaptation” in a more competitive craft environment.

For Other Half, the goal is to reach more consumers in upstate New York with its direct-to-consumer sales model. Speaking to Brewbound, chief operating officer Andrew Burman said the success of pop-up can sales events where consumers lined up to buy cases of product in Rochester, Buffalo and Syracuse, led the company to plant roots in the area.

“We realized that our customer base is really strong up there,” he said. “And this facility kind of fell in our lap.”

Burman added that the project is being “self-financed” through cash flow from its Brooklyn facility as well as up to $400,000 in tax credits tied to the creation of 35 full-time jobs over five years via Empire State Development, a state-run economic development corporation.

Despite some of the more negative headlines, Burman said his company remains bullish on the continued growth of craft breweries that are focused on their local markets as consumers continue to shift spending toward fresh, locally made beer. In 2017, the company sold 8,000 barrels of beer, Burman said, adding that the company plans to sell around 11,000 barrels this year. About 80 percent of those transactions occurred directly with consumers, he added.

“That’s what we built our business on in New York, and we think Rochester will be the same way,” he said.

As for Renegade, CEO and co-founder Brian O’Connell told Westword that the company plans to adopt a regional brewery-taproom model in order to avoid competing with taprooms in Denver and Boulder. Instead, the company will focus on underserved markets inside Colorado as well as out of state.

Renegade, which grew production by 31 percent last year, according to the Brewers Association, plans to sell its brewing equipment and relocate operations to a lower-cost manufacturing facility.

Renegade could find a buyer for its existing equipment, if the price is right. Over the last year, a number of beer companies have taken over facilities or made asset purchases, including Green Flash (Ploughshare Brewing Company), New Realm Brewing (Green Flash’s Virginia Beach facility), Runnymede Investments (Smuttynose), Seaboard Craft Beer Holdings (Cape Coral Brewing Co. and Fat Point Brewing Co.), Guns & Oil Beer (Payette Brewing Co.’s original production facility), Thirsty Monk Brewery & Pub (Deep Draft Brewery) and Red Truck Beer Company (Fort Collins Brewery), among others.

Speaking to Brewbound, Mass Bay Brewing co-founder and CEO Dan Kenary, who purchased the failing Catamount Brewery in Vermont in 2000 for about 25 cents on the dollar, said it’s currently a buyer’s market in certain geographies.

“I’d be very, very selective about purchasing anything, both brands or assets,” he said, noting that he expects the pace of asset-focused transactions to accelerate in the coming year.

“Turnarounds are tough. It’s always been tough in this business,” he added “If you’re selling, it depends on why you’re selling. If you’re selling to just get out, that’s one type of sale. Are you selling to bring on a partner? That’s another kind of sale. And the number of potential good partners is dwindling, so I’d get after it if you’re interested in selling. I wouldn’t waste any time.”

Kenary said he believes the “phase of tremendous growth” is coming closer to an end, and he expects an increase in the number of brewery closure announcements.

“That doesn’t mean that the number of openings is going to slow down,” he explained, “but it probably means the number of closings or sales might start going up until we reach some kind of newer equilibrium.”

Kenary characterized the current trends as a correction to an overspending phase in the industry over the last five to 10 years, with many of the lessons from the 1990s shakeout being forgotten as beer companies experienced double-digit growth.

“The amount of money that’s poured into this business in the last five to 10 years is truly staggering,” he said. “You know that people make sloppy decisions when there’s a lot of money sloshing around, so you’ve got to deal with a bunch of sloppy decisions.”

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