When it comes to craft beer, part of the charm for some — and frustration for others — is its regional aspect.
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Barman pulling a pint of stout
Love Kilt Lifter Scottish Ale from Phoenix-basedFour Peaks Brewery? You won't find it in liquor stores outside the southwest. Love Harpoon Brewery's Winter Warmer? You can only find it in the Northeast. Oregon-basedDeschutes Breweryis the fifth largest craft brewer but its products aren’t available in any state east of the Mississippi.
But while regional distribution for many craft brewers is limited, the demand is not. The category continues to show consistent growth year after year and the question facing many brewers is how to best meet increased demand.
According to the Brewers Association, the craft beer industry saw a 15 percent increase in dollar sales in 2011 and the industry hit 5 percent of the overall U.S. beer marketfor the first time.
For many brewers, the answer to meeting that demand lies in expansion. Already in 2012, California-basedSierra Nevada Brewing, the No. 2 craft brewer and Colorado-based New Belgium Brewing, the No. 3 craft brewer, have announced they’ll be opening up brewing facilities on the east coast in order to increase production, reduce shipping costs and increase distribution. Pennsylvania-based Victory Brewing has also announced they'll be building a second facility in Pennsylvania to help meet rising demand.
This week one of the fastest-growing craft brewers in the U.S. joined the expansion fray. Lagunitas Brewing, based in Petaluma, Calif., plans to open a brewing facility in Chicago.
Lagunitas has seen rapid growth, with sales up 53 percent last year according to Beer Marketer’s Insights. Tony Magee, Lagunitas founder and owner, tells the Chicago Tribune sales were $49 million last year and are on pace to hit $60 million in 2012.
Lagunitas is already in the midst of a $10 million dollar expansion to its Petaluma brewery and now says it will build an identical facility in Chicago. This will nearly double their Lagunitas’ current capacity and could vault it into the top five craft brewers by volume when the facility begins operating in 2013. The Chicago brewery also will give it the largest brewing facility in Chicago, even larger than Chicago craft pioneer Goose Island, which was acquired by Anheuser-Busch InBev in a $39 million dollar deal last year.
The Lagunitas announcement was surprising not just in the fact it was a well-kept secret, unlike the Sierra Nevada and New Belgium moves, but in how it was released: not with a standard press release but in a few excited tweets from the owner himself.
On Monday, McGee tweeted from his @LagunitasTaccount: "Back in Feb, I thought about all the truck loads of brew leaving eastward. Thought about all the freight. Added it up. It was enough to cover the financing for a whole new brewery. So I jumped a plane n flew back to Chicago…about 9 hours found a perfect space on a movie soundstage complex so I rented it."
While McGee is using the savings from shipping beer cross country to build another brewery, others in the craft marketplace are choosing to scale back distribution to focus on growing existing markets. That was the case for Delaware-based Dogfish Head Brewery, whose "offbeat" brews have created a rabid following. In March 2011, founder and President Sam Calagione announced via the brewery’s website the company would be reducing its distribution.
In a blog post titled “Thank You For Understanding” Calagione wrote:
“We know the message you want more Dogfish! Our InBox, our Facebook page, our Twitter feed and our website Forum posts are all littered with 'Please send more Dogfish to whatever-town' or 'Please start selling Dogfish in my state.' In order to get our supply closer to your demand, we’d need to get a big, big pile of money and grow, grow, grow. We are not excited by that.”
Calagione’s post went on to announce Dogfish Head would be pulling distribution from four states (Tennessee, Indiana, Wisconsin and Rhode Island) in order to focus on markets closer to the brewer's Delaware base. A similar “less is more” strategy has been employed by popular Wisconsin-based New Glaurus Brewing, which has to date chosen to limit its distribution only to its home state of Wisconsin.
Still, as the craft category continues to grow, many industry players are poised to grow with it. So don't be surprised when that local beer you discovered on a recent vacation, one day starts appearing in your hometown liquor store.
Questions? Comments? Email us at consumernation@cnbc.com. Follow Tom Rotunno on Twitter @tomrotunno.
