The prodigal daughter: what is brewery growth?
In 2014, Lucette Brewing in Menomonie, Wisconsin was on the precipice of a major expansion. This was no surprise, given that the state saw a whopping 27% growth in craft breweries from the previous year. Owner Tim Schletty was walking the grounds of the brewery during the construction phase to get a feel for the progress. The plans were to connect two small buildings, one holding their 15-bbl brewing system, to another housing cold storage. The addition would, once complete, host a 25-foot bar serving only Lucette beer. It made sense.
In 2014, American craft breweries were growing at a rate of about two per day. The Midwest was a serious part of that growth; Minnesota saw booming expansion in the wake of the so-called “Surly Bill.” 2014 saw an unprecedented 19 brewery openings (2015 saw another 19) [1]. Wisconsin seemed uniquely poised for growth, given the number of historic and regional breweries churning out brewing talent and buoying interest in beer. Craft brands were on the rise in the state, routinely seeing double-digit growth year after year [2].
Tim opened Lucette in 2010 after selling a local townie restaurant he had created himself. He started the fledgling brewery with one business partner and a used brewing system. He hired experienced brewers and had no shortage of local talent given nearby U W Stout. In 2010, there were about 1800 craft breweries in the US.
Production started and remained strong upon opening. By the fall, only months after opening, Lucette began packaging and distributing their kegs and cans to western Wisconsin and the Twin Cities. Minneapolis, only 70 miles away, became a significant market. Tim noticed that Lucette was popular with travelers due to its proximity to Interstate 94. Soon, demand rose in Madison, too, with a handful of bars becoming some of the brewery’s most reliable accounts.
The vision for the beers has always been a classic one – Belgian Ales with hallmark phenols, classic West Coast IPAs that appeal to the beer superfan crowd, and their de facto flagship: Farmer’s Daughter, an American Blonde Ale. Farmers Daughter became a regular draft option throughout the Twin Cities within a year or so, and tallboys of about four varieties were regularly on liquor store shelves. Production volume rose annually for the first four years, from about 700 barrels in 2012 to 1,566 barrels in 2014 [3].
a new plan
It was at this moment in 2014 when Tim stood in his expanding brewery, peeking out at the picturesque land through the windows of what would soon be his office. Several things dawned on him at once. First, he had become somewhat of a slave to the distribution chain. Lucette had orders to fulfill for their distributors, including JJ Taylor in Minnesota. Retailers kept ordering. So they kept brewing. Not a bad problem to have, but an increasingly tricky one.
Second, craft beer was fast becoming a consumer-driven market, and consumers wanted variety. “What’s good?” had become “What’s new?” How could Lucette fulfill their orders while also experimenting with new recipes? It was an impossible level of risk to develop recipes and face an unsuccessful new beer when the resources could have been spent on a sure thing.
Coupled with some other hesitation, including the lack of food or events to draw guests, and the steady taproom competition on the horizon, Tim knew his plans had to change, even as they were taking place. What could his taproom in Menomonie offer that a bar (or another taproom) couldn’t?
A tectonic shift occurred: Lucette became synonymous with their flagship, in the way that we have all heard Bell’s referred to as “The Two Hearted Brewery.” It was almost unnoticeable until it was undeniable — Tim was churning out Farmer’s Daughter while consumers wanted variety. It left him unfulfilled. He believed that his loyal fan base should have access to a broader portfolio.
He needed food. Menomonie has no food truck infrastructure, but food would help draw new fans, keep people at the brewery longer, and create an evening destination. Capitalizing on his prior restaurant expertise, he developed a Neopolitan pizza program. Insisting on attention to detail, Lucette prioritized local meat procurement and a strict mozzarella process. The result is excellent, from the warmth and aroma of the space, to the pizzas themselves.
However, he also needed to scale back distribution severely to divert more beer to his home base. By doubling down on his local operation and investing more in across-the-bar sales, Lucette’s entire model changed. By 2015, the pizza was a hit (and the growing beer list was gaining steam, too). “Something interesting happened,” Tim says. “Now, the pizza draws people here. The beer is a surprise. My goal is to flip that back around again.”
Tim, along with brewer Christian Thompson, formerly of Sand Creek Brewing Co. and Lift Bridge Brewery, don’t mind at all that the beer is a surprise to some. With distribution limited to a handful of local accounts and some hand-deliveries to Madison, the brand has become less recognizable outside of western Wisconsin, and that’s okay by them. They’ve experienced immense local support. During our visit, bartenders filled multiple growlers for eager fans. And their beer is still in cans and corked bottles for purchase at the brewery.
Lucette now has more control over its products, from storage to marketing. “It’s challenging to work with distributors,” explains Tim. There’s the fear of old beer on shelves, of poor storage, or of simply being lost to bigger brands in a distributor’s portfolio.
These are just some of the reasons why some small breweries who have opened in the past two years have done so without distribution plans, a concept that was nearly unheard of in 2014. Lucette opened with distribution as a no brainer, and Tim had the foresight to change tacks even before any drop in profitability.
Other brewery growth strategies
But not all breweries plan to conquer a region or even a state. The most notable local example of an in-house-only model is Dangerous Man in Northeast Minneapolis. Their stupid-popular taproom and growler shop rake in regulars with absolutely no distribution. Dangerous Man was an early adopter — a pioneer, really — of a growth model that was not based on distribution.
For many years, brewery growth was measured in double-digit sales figures, but also by geographical expansion, in a sort of Manifest Destiny mindset. While this has been more true of regional brands than smaller facilities, even tiny breweries have been clamoring to fill shelves with SKUs and draft systems with tap handles. But for breweries like Lucette and Dangerous Man, the definition of growth is changing to one of depth rather than breadth. Their desire to serve local fans rather than broaden their distribution portfolio may be the way of the future.
Co-owner Sarah Bonvallet explains: “I talk about horizontal growth a lot and that to me means trying things out that don’t necessarily increase the bottom line but do increase our experience both as a business and from a customer standpoint. For example, expanding our volunteer group, organizing beer dinners, trying out new events, starting a cheese program, etc.” To Sarah and her team, groundbreaking and boundary-pushing styles feel like growth even though they may not translate directly to rising sales figures.
According to the Brewers Association, volume growth for all US breweries fell 4% in 2018 as compared to the previous year [4]. The craft category gained 0.6% of market share over 2017. And, perhaps more to the point, production volume was fairly stable in many cases — 86% of US Craft breweries finished 2018 with production within one thousand barrels of their 2017 production [5]. This fascinating perspective is an opportunity to discuss the meaning and evolution of growth in a craft beer pie that’s being cut into smaller and smaller pieces, like dessert at a good Lutheran potluck. While the industry remains undeniably strong, the growth is spread over more and more businesses each year (7,346 in 2018, to be exact).
Unlike Lucette, Venn Brewing Co. in Southeast Minneapolis never had plans for distribution. Upon opening in 2017, in a very different landscape, co-owner Kyle Sisco felt distribution would be too much for the young business. “Packaging and distribution were never a part of the original plan. We wanted to see what the taproom was capable of and to make sure that it was sustainable on its own.”
At about the 6-month mark, Venn began experimenting with a distribution format that was novel to the state, unofficially beta-tested by the team at Junkyard Brewing in Moorhead: they’d try sending a small supply of crowlers to liquor stores. The 750ml cans are time-consuming to fill and distribute, but Kyle felt it offered an opportunity for brand recognition. In 2017 it had become far more difficult to stand out to consumers than it was in 2010 when Lucette opened its doors.
So far, this happy medium has been a success, and Venn has no plans to assume formal distribution. The crowler model corrects some of the issues that Lucette encountered when distributing, including shelf practices and fluctuating demand. “As we rounded out our first year and enjoyed more stabilized brewery & taproom operations,” says Kyle, “sending a few hundred crowlers out the door per week was not only feasible but helpful in servicing our mountain of debt. We can currently make enough beer to do so, so as long as deliveries are small and frequent enough and cans aren’t sitting on shelves, we’ll continue to do so.” They aim to sell out each week, leaving nothing to grow old.
The average business analyst would probably call bullshit on the idea of retracting in order to grow, but is it working? The 2019 numbers look promising for Tim’s team in Menomonie. Taking March as an example (not statistically significant, but illustrative nonetheless), Lucette’s taxable barrels of production during their last year of out-of-state distribution were 124. In March 2018, they sold 137 barrels. This March, that number is up to 182. Only time will tell, of course.
“The definition of local is changing,” Tim explains. Menomonie used to be local to Twin Cities residents. “Now local means down the block.” This down-the-block model is becoming more and more important, especially to the Millenial age group, who value “local” over other generations, regardless of how local is defined.
The brewpub model and the taproom-only model ensure a stream of revenue that’s based on the appreciation of local; those adopting on-premise-sale focused models are thriving and operating without regret, effectively maintaining their slice of the pie without cannibalizing their neighbor’s. Whether this will be of benefit to the industry as a whole remains to be seen. What we do know is this — craft breweries are still employing a “hook” to ensure growth, whether it is pizza, or crowlers, or, ironically, no distribution at all. That, and Lucette Brewing is worth a visit. You can go for the beer and stay for the pizza, but the opposite is just as well.
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