Beer, Wine & Spirits

The BMW of beer: Brewery crafts luxury approach

When consumers think of luxury items, many conjure up images of exclusive handbags, watches or cars.

But Simon Thorpe, CEO of Cooperstown, N.Y.-based Brewery Ommegang, thinks beer.

For Thorpe, the beer business is undergoing a transformation driven by a new generation of drinkers, whose first beer is more likely to have been a Samuel Adams or a Sierra Nevada than a domestic lager.

Source: Duvel Moortgat USA

"Their parents started on Coors Light and stayed with Coors Light," said Thorpe, whose company is a subsidiary of Duvel Moortgat USA. "But this generation was never really exposed to that classic American mainstream beer business."

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Brewery Ommegang is known for its Belgian-style beers including Rare Vos Amber Ale, Ommegang Witte Ale, Three Philosophers Quadruple Ale. The company also recently made a splash with a line of inspired by the hit HBO show "Game of Thrones."

Thorpe sees an expanding group of millennial beer drinkers, who fall between ages 18 and 33, who started with more flavorful beer and have traded brand loyalty for experimentation.

The result, he said, is a business model that resembles an industry not often associated with the beer business.

"Cosmetics companies are geared up to be able to bring out, very efficiently, a whole new set of colors to match a particular fashion or season. Breweries have to do a similar thing," Thorpe said. "Keeping things fresh, new and relevant is the single biggest challenge that all breweries face."

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In managing the challenge of keeping things fresh, Thorpe sees an opportunity in the willingness among millennials to pay more money for higher quality.

"As a group, they are much more likely to say, 'I would rather spend my $10 on one good thing, than three things that are mediocre,'" he said.

While craft beer is often cited as an affordable luxury, Thorpe is staking out a higher ground within the craft category.

The strategy involves creating attributes more often associated with luxury products such as automobiles and watches.

"There must be truth and craftsmanship and honesty in the way that something is made," Thorpe said. "That's critical to the way that people view luxury. You can't market something into being authentic."

Leinenkugel: A beer drinker's favorite tongue-twister
Leinenkugel: A beer drinker's favorite tongue-twister

Another key element is elevating the consumer experience while creating the notion that the product, while more expensive, is worth it.

"For people who are buying luxury beer, it is important to them that it is served in the right glass, and poured and presented in the right way," Thorpe said. "The experience is as important as the quality of the beer itself."

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The final piece of creating a luxury brand, Thorpe said, is limited production and being selective about where the product is sold, to create scarcity.

Duvel Moortgat USA acquired Kansas City based Boulevard Brewing in October of last year. Boulevard sold approximately 174,000 barrels of beer in 2012, making it the 12th largest craft brewer in the U.S. Brewery Ommegang sold approximately 32,000 barrels in 2012.

"You typically can't find a luxury beer in Wal-Mart. You have to hunt a little bit and the whole experience in hunting for something makes it even more special," he said.

But the idea of spending more money to get higher quality doesn't just apply to the beer drinker. It's also an integral part of how Brewery Ommegang does business.

Thorpe said the brewery spends about 40 percent more on packaging and labels than the average craft brewery, in part to create a finer aesthetic. It also employs an unusually large sales staff for a brewer of its size.

The mission of the sales staff isn't to get the beer into as many accounts as possible. It's to place it in the right accounts, even it if means turning away an interested retailer.

"We are very, very selective about where we are going, what our distribution is, who we partner with," Thorpe said. "It is more important to me, for example, to be seen in the Soho [Beach House] in Miami, so that people identify your brand with something that is also high-end."

Source: Duvel Moortgat USA

Brewery Ommegang is willing to sacrifice volume, choosing instead to keeps its focus on generating high margins and revenue via high quality and high pricing.

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"From an economic point of view, we don't have to invest in tons of equipment to produce huge volumes in order to make our business sustainable," Thorpe said. "Our brewery operates at the top end of the quality pyramid. There are [only] four or five breweries in the country that can do what we can do."

That exclusivity allows the brewery to operate at the top of the pricing chain. Thorpe, who previously served as CEO of InBev USA, said the typical price for selling a large-scale macro beer, such as Budeweiser, to retail accounts is $50 to$100 a barrel. For a luxury beer, its $400 to $500 per barrel.

From a consumer perspective, Thorpe defines a luxury beer as anything above $70 a case, or $10 to $13 for a glass.

While volume isn't the end goal, Brewery Ommegang is still adding capacity where it makes sense.

In the last four years, production has increased from a little more than 25,000 barrels in a year to 46,000, during which time revenue has tripled.

For Thorpe, the brewery's recent performance is rewarding, but ultimately, just the beginning of a very long journey.

"If you are really building something that is sustainable over a long period of time, you are looking at not just the current generation or even the generation to follow, but the one after that," he said. "In the luxury space, it is a much longer-term, slow burn."

—By CNBC's Tom Rotunno.