Minneapolis-headquartered Surly Brewing is looking to put down roots in another midwest state, with a brewery and taproom in Michigan or Ohio, VP of marketing Bill Manley said.
“We have a lot of different locations that are potentials on the table right now and haven’t pulled the trigger on any of those,” he said.
The new location will include a taproom and restaurant that will follow the Minneapolis brewery’s pizza-centric service model, which has been “incredibly successful,” Manley said. A 7-barrel brewhouse, which will supply the new taproom with unique beers, has already been ordered and is expected to arrive later this spring.
“We can ship beer that’s produced here in Minneapolis to be served there and then produce its own line of beers out of there on that new system, which is really exciting,” Manley said.
Ohio, a candidate for Surly’s next brick-and-mortar location, and Indiana are next on Surly’s list for expansion, which would be the brewery’s easternmost markets. Surly entered Kansas and western Missouri to complete its footprint with grocery chain Hy-Vee in October 2021.
For 2022, Surly is focused on becoming “a bigger player in the Midwest overall,” Manley said. “It’s a pivot from where we’ve been in the past, something that we’re really looking forward to.”
Surly plans to achieve this through expansion and activation within its chain accounts, boosted through the hiring of national accounts manager Marty Masta last fall.
“We do really well with the limited chains that we’re in,” Manley said. “We do great with Target; we do great with Hy-Vee; we do great with Total Wine and More and Meijer.”
Minnesota – Surly’s home state and biggest market, accounting for about 80% of its sales – is the country’s last state to ban the sale of beer stronger than 3.2% alcohol by weight (4% ABV) from grocery and convenience stores, so its market leans toward independent liquor stores. Driving volume through chain accounts means growing in markets where Surly is less known.
“The farther a brand gets away from its home base, the less resonance it has for the customer,” Manley said. “You’re trying to figure out how to share your story and how to give people a sense of who you are. A disembodied beer someplace on a warm shelf is the worst possible way to do that.”
After an ill-timed launch in Massachusetts at the onset of the pandemic, Surly “looked inward a lot about what it is that we’re really trying to do here.”
“Our aim here is building that connection piece,” Manley said. “That connection comes through beers; it comes through events; it comes from food, and hospitality.
“If we can bring our model to a different market, and have our same philanthropic goals, our marketing goals, our ways that we were able to bring people together, just celebrate what we’re doing and be part of the community, I think that that’s going to go a long way to helping to build ambassadors for the brand and share the message in those markets that are on the other side of the Great Lakes,” he continued.
In addition to Minnesota, Surly sells beer in Wisconsin, Iowa, North Dakota, South Dakota, Illinois, Michigan, Missouri, Kansas and Arizona.
Last year, the company sold 65,000 barrels of beer, down from 76,955 barrels in 2020, according to data from the Brewers Association.
“We’re down altogether since 2019 about 20,000 barrels, which is a bummer,” Manley said.
About 80% of that 20,000 barrel decline can be attributed to the on-premise trade in Surly’s hometown.
“Downtown Minneapolis is a hard place to run a restaurant/bar these days,” he said. “A lot of that’s not coming back, sadly.”
Manley estimates that Surly’s on-premise sales are less than halfway recovered to their pre-pandemic levels, which was about 40% of its volume in 2019.
“Obviously in 2020, that draft all went away,” he said. “We had just an absolutely killer year with packaged beers in 2020, specifically with Furious. It’s our flagship beer; it’s a pretty mature brand and we were seeing 40% growth on that package during especially the early part of the pandemic, when people were pantry loading still.”
Like many other breweries have done since the pandemic restricted operations at bars and restaurants, where craft beer over indexes, Surly has shifted its production to lean more toward packaged beer
“Right now, we’re just shy of 20% draft, just better than 80% package,” he said.
Off-premise sales of Furious, one of the first beers 16-year-old Surly produced, are still growing. Twelve-packs of the 6.7% ABV IPA are up +14% over 2019 levels.
Other products doing well for the brewery include its Supreme variety pack, which includes four flavors of a 4.5% ABV fruited Berliner weisse.
“They’re real bright, citrusy, easy to drink, crisp, delicious beers,” Manley said. “In the summertime, they crept up to our No. 2 brand.”
Surly will introduce a tropical Supreme variety pack in May and is rolling out two new IPAs now: Drips & Drops, a 7.4% ABV hazy IPA; and Controlled Chaos, a 7.2% ABV West Coast IPA that Manley described as “a big enamel stripper.”
Drips & Drops will be available in 4-packs of 16 oz. cans, while Controlled Chaos will be sold in 6- and 12-packs of 12 oz. cans. Both will be available in kegs.
Soon, Manley will shift into a newly created VP of brand development role, in which he’ll work on innovation, which took a backseat during the pandemic.
“We’ve been averaging about 70 brands a year,” he said. “I’ve been here four years, and I think it’s been like 260 some odd brands that we’ve launched into the trade. Most of those are drafts, obviously, but we’re really ramping up our R&D processing over the next year to get back to that high number.”
Surly has not been immune to the aluminum can shortages that plagued the rest of the industry. Due to Ball Corporation’s quintupling of minimum order quantities for printed cans, the company has moved its can business to Crown, the world’s second-largest producer of aluminum beverage cans, behind Ball.
“Thankfully, we pivoted over to use Crown cans now via a broker, and that seems to be working better,” Manley said.
The supply chain issues that rocked the industry 2021 were “absolutely brutal” for Surly, he added.
“For a while there, the added costs on things like our variety packs with four different brands in each was something like $6 a case,” Manley said. “It absolutely crushes your revenue margins.”
Despite challenges in the can supply chain, Surly’s portfolio is now exclusively packaged in aluminum.
“We’re completely moving away from the 750 mL [bottle] format, which we’ve been doing for forever,” Manley said. “That’s going to get some interesting reactions, I think, from some of our longtime fans.”
For limited release specialty beers, Surly will use 16 oz. cans in individual “fancy, letterpress-embossed foil boxes.” The last release of Darkness, Surly’s barrel-aged Russian imperial stout, on Halloween 2021 was the brewery’s last run of bottles.
“That was glass riding off into the sunset,” Manley said.