Russian River Brewery possible expansion

News article on making a decision whether or not to significantly expand production next year. Also, explaining pulling out of the WA market to “feed the brewpub.”

RRBC

Interesting little tidbit about Lagunitas at the end of the article, too!

The tricky part of expansion for Russian River is that they don’t make too many beers that they could simply expand production on. The sours aren’t really built for expansion, the part of their IPA’s which make them so special is the freshness and craft.

For whatever reason, I can’t see RR developing an everyday Stout and/or porter or a simpler Pale Ale to be shipped all over in six packs which is ultimately how they will be able to expand into Dogfish Head’s size, much less Stone or Lagunitas.

This is a big decision for the Brewery. Strong growth in the craft beer market is predicated on taking market share from the Budweisers of the world, and the question remains as to how far craft brewing can go. Nationally, craft beer has about 7% market share, but the share is much higher in some markets (OR, WA, CA, CO in particular) and close to zero in places like the Southeast. If a market like Oregon is more like a third craft beer, how much room for expansion is there?

In the 90s, there was strong growth in craft beer sales, followed by massive capacity expansion which was followed by no growth in craft beer sales. A lot of breweries struggled to survive. With all the expansion going on right now, I’d be very reluctant to saddle my brewery with a bunch of debt.

I’m somewhat surprised craft breweries aren’t bigger in Minneapolis, Chicago etc and in the urban north east.

Rick,
They are also big in the places you mention, but not nearly as much as they are in the states I mentioned. The Brewers Association did a map of market share by region. I’ll see if I can find it.

Found it here. This is based off of dollars spent rather than barrels sold which skews the numbers favorably for craft brewing. National-wide average for craft beer sales is 10.8% share. The three highest regions are the West except CA (OR, WA, NV, ID, MT, CO, NM, AZ, UT, WY) at 18% share (keep in mind that AZ, NM, NV in particular bring this down quite a bit), the Urban East (New England plus PA & NJ) at 15.2% share and California at 12.7% share. I was surprised that the upper Midwest was as low as it was.

Seems pretty big here in Chicago! Seems everyone who has worked at a craft brewer is now opening their own place. Plenty of talk bout " over expansion" already happening

Interesting. I’d expect craft beer to be bigger in Chicago and Minneapolis (though I think Chicago just relaxed laws in the last few years, so it’s taking off as Mel notes). Austin, too. Craft beverages in general seem to be a coastal thing though.

The talk about expansion is going on everywhere. Just like at one point (and still is to a certain extent) it was cool to own a winery, now it’s just as cool to own a brewery. The new participants are willing to give a piece of the action to the head brewer as well, which is something that most brewers passionately want.

As far as IL rules go this is bout as close to a “relaxed” situation that Rick mentions

Last month, Gov. Pat Quinn signed into law a bill > restoring the right of small Illinois craft brewers to sell their products directly to taverns and retailers without using a middleman. > Legislators in Springfield heralded the law as a victory for the little guy. But craft brewers feel the bill is limiting: It permits only breweries that produce 15,000 barrels a year or fewer to self-distribute, caps self-distribution at 7,500 barrels per year and does not permit self-distribution by brewpubs. Haymarket Pub & Brewery owner Pete Crowley is thirsty for more.

FWIW, the data in the study posted above is 18 months old. I’d Bet there have been 10 craft brewers In the Chicago area that have started brewing since then.

Minnesota recently passed a law that will promote microbrewery growth. “Minnesota breweries were not allowed to serve pints of their beer on site because of a “three-tier” system that strictly separated the roles of alcohol manufacturers, distributors and retailers.”* The new law changes that.

*http://www.startribune.com/politics/statelocal/122536608.html

Thing about the midwest, however, is this: there’s a lot of salt-of-the-earth folks who live in those States who view craft beer, expensive wine (anything costing more than $10/bottle), and other fine consumables as “froo-froo” stuff that is a waste of money. These states are widely covered with farms. It’s just a different way of life in that part of the country. The Midwest relies on its big cities to not be 100% farm country, and it’s mostly those cities (as well as university/college towns) that will most help spur growth in markets like that craft beer market.

Which is why I called out the cities - I don’t ever see craft booze taking off in Iowa for example. Craft booze will follow the same demographics as interest in food and wine meaning both coasts and select cities between the coasts with marginal, low-level interest in other cities (KC, etc). What I’m pondering is how much growth there is in markets where craft beer doesn’t already have a strong presence, i.e. Minneapolis, Chicago, Austin, etc. Secondarily, if those areas end up with the same market share as existing good markets, what does that do for unit growth? 50% gain? 100%?

I think the MSP craft brew scene will grow healthily in the coming years — Surly has put MN on the map for microbrewing, and their beers have really whipped-up a frenzy in the State. Although I think the scene will grow “healthily” (a purposely vague term), I don’t think the craft brew scene in MSP will ever be like it is in the Pac NW, CA, CO, or MI. — and that kind of brings up an odd outlier there: Michigan. IMO, Michigan may be the second-best State in the U.S. as far as micro-brews go ---- tons of extremely high-quality brew coming out of that State.

I don’t know enough about Chicago or Austin to comment on them, although I would assume there is a healthy Chicago interest in craft beer, if not many craft breweries. Austin — I know very little about it, other than it is a liberal college town in Texas.

In the context of the OP, what I wonder about is whether the newer markets will grow enough to make distribution worthwhile for people like Russian River. It’s one thing to embrace a few local beweries, another to have a population that’s interested in what else is out there and to buy it and try it enough to make expansion into those markets worthwhile. Obviously the other place for growth is in the markets where that interest has been demonstrated to exist in an attempt to either grow the pie while maintaining market share or to grab share from other segments.

there would be a tremendous market for Pliny – assuming they could properly scale & distribute it.

Rick could you define “strong presence”

What I’m pondering is how much growth there is in markets where craft beer doesn’t already have a strong presence, i.e. Minneapolis, Chicago, Austin, etc.

As a Chicagoan, I’d have to say that CB has a strong presence and the metro area make some of the most sought after brews in the industry. Every new restaurant (other than the upper most tier of fine dining) in town talks about their “beer program”
Many of the 1 and 2* places have a CB connection with a “house beer” made locally. Not a week goes by without a brewer leaving an established brewery to start their own. So, I just can’t see how you can say that Chicago does not have a strong presence of craft brewing.

Oh yea, let’s not forget where many of the brewers went to school http://www.siebelinstitute.com

Obviously we’re a little different here than other places, but the craft scene really took off after restaurants began offering good size lists. As far as Ricks’ question above, Russian River will sell out in any city, they make great beers, their lineup is relatively small, and there are beer geeks everywhere that would love to buy them. The problem with new startups is too much saturation right now, With the big guys you have about 6 to 10 beers total on the shelves, Craft sections are a whole isle or more, how can someone not already into craft beer sort through that? If new brewery’s are opening to just have a local brewpub than that’s fine, or distribute only locally, but with 50 ipa’s and imperial stouts on the shelf already it’s going to be hard to sell your product nationally. If you walk in to any shop and check the bottle dates on just Stone ipa’s I’ll bet most of them are already 3 to 4 months old and that is a problem.