Craft beer market a long way from saturated here
Shauna Steigerwald, ssteigerwald@enquirer.com 7:36 p.m. EDT April 16, 2015
Local beers by Rhinegeist, Rivertown, Mt. Carmel, Moerlein, Ei8ht Ball and Madtree are all sold at at the Party Source. (Photo: The Enquirer/Cara Owsley)
With its local pride, entrepreneurial work ethic and social media buzz, craft beer is booming.
And it probably will be for a long while.
Seems that savvy drinkers want beer with variety and flavor, and they want to get it from people they know, at places they can visit. Industry experts and local brewers don't see any sign that consumers are changing their minds about those things, which means there's plenty more room for craft beer to grow in Greater Cincinnati.
How fast is it growing?
Four new breweries opened in 2013. Last year, the area added two new breweries – Old Firehouse Brewery in Williamsburg and Tap & Screw Brewery in Westwood. Blank Slate Brewing also opened a tap room at its existing East End brewery.
And this year could see a dozen new breweries opening their doors. Two have done so already: DogBerry Brewing opened in West Chester Jan. 8; Braxton Brewing opened in Covington March 27. Taft's Ale House in Over-the-Rhine opened April 6.
Co-founders Jake Rouse, from left, Richard Dube, Greg Rouse and Evan Rouse stand in the new Braxton Brewing Company Taproom. (Photo: The Enquirer/Cameron Knight)
But this growth is not about fickle drinkers flitting from their old standbys to the newest brewery in town. Even while new breweries are popping up, existing breweries are ramping up production to meet ever-growing demand. Particularly noteworthy are MadTree Brewing Company and Rhinegeist; they both opened in 2013. This year, MadTree expects to almost double its output, from 11,000 barrels in 2014 to 20,000 barrels. And Rhinegeist could triple theirs, expecting to grow from 11,000 barrels last year to 30,000 barrels in 2015. Both are leaps and bounds ahead of their business plan projections.
We are moving so fast that even national beer experts are taking note.
"Cincinnati's a great beer town and has seen tremendous growth in the number of breweries and the number of barrels produced in recent years," said Bart Watson, chief economist for the Brewers Association (BA), a national trade association that represents small, independent craft brewers in the U.S.
Craft beer, of course, is growing everywhere. The number of all types of U.S. breweries grew 19 percent in 2014, with 3,464 breweries now operating, according to BA data released in March. All but 46 of those are craft breweries.
U.S. craft brewers produced 22.2 million barrels of beer in 2014, an 18 percent increase in volume over 2013, the association's data show. In fact, craft beer has posted double-digit production growth for seven out of the last nine years.
Can the industry's growth continue, and can Cincinnati drink enough beer to support the volume of beer its local breweries are producing? Local brewers and industry experts say "yes, it can."
"I think we've got an extremely sustainable trajectory right now," said Adam Watson (no relation to BA's Bart Watson), who founded the Kentucky Guild of Brewers (KGB) three years ago and now serves as its president. He is also one of the founders of Against The Grain Brewery in Louisville, which opened in October 2011.
"People like to talk about oversaturation or a bubble. I'm sure such a thing exists," said Watson, "but we are so, so far from it. I like to think of myself as a very forward-looking business owner, and I'm not remotely worried about it. There are so many people looking for craft beers and comparatively so few people making them."
Kenny McNutt, one of the owners of MadTree, agreed. "There are a lot of naysayers out there who say 'we're in a bubble, and we think it's going to burst.' I don't see us hitting a saturation point for a very long time.
"We may never even hit that point."
MadTree Brewing offered an inside look at its canning process and new tasting room. Beer glasses with the brewery's logo are for sale in the tasting room. A golden PsycHOPathy and a dark Identity Crisis on the bar of the tasting room. (Photo: David Sorcher for The Enquirer)
From slow and steady to rapid growth
Some might view that as wishful thinking. But some numbers might just back the bravado.
Craft beer saw a slow and steady growth in the late 1980s and early 1990s, when it started moving beyond smaller pockets, BA's Watson said. The industry struggled a bit in the late 1990s and early 2000s when craft beer growth was quicker than the consumer base could support – and some brewers, he said, got into the business with an eye toward profit rather than quality.
Richard Dubé, one of the founders of Braxton Brewing and the former vice president of brewing and quality at Christian Moerlein, remembers those days. He said education and quality, lacking then, are key to the craft beer's success this time around.
Back then, he said, beer drinkers weren't as educated. "If they had an IPA they didn't like, they assumed they didn't like IPAs," he said. "People were placing everything under the same umbrella."
MadTree Brewing offered an inside look at its canning process and tasting room. Protective caps are snapped onto freshly canned Happy Amber beer. (Photo: David Sorcher for The Enquirer)
Today, people travel more and use social media, so they're exposed to more beer, and more information about beer, he said.
"It's every single brewer's responsibility to continue the education of the public," he said. "If, as an industry, we want to survive, the only way we can do it is by educating more people. I think that some breweries will fail because of quality, but the enthusiasm about the industry won't fade because the public is more educated."
Indeed, the industry seems to have left those earlier struggles in the dust. Today's more rapid growth started around 2006, BA's Watson said.
Mike Dewey, who opened Mt. Carmel Brewing Company with his wife, Kathleen, 10 years ago this May, has watched that acceleration happen.
"We always saw nice, steady growth; we grew with the market in Cincinnati," he said. "More recently, in the last 24 months, we're in uncharted territory. We're in the dot-com era of craft beer."
"I think we've seen consumer preferences change," BA's Watson said. "We've seen demand for variety in products, fuller-flavored products and local products. None of those demand trends are going away. If anything, we see them getting stronger in our surveys."
"Anymore, not being involved or not having some exposure to craft beer is like eating the same food every day," Mt. Carmel's Dewey said. "There are so many options out there – why wouldn't you try it?"
Those who try craft beer are also very likely to be loyal customers, he points out. "Once you start exploring the craft beer side, I've not heard of a single person who says 'I'm going back to the large domestic beer.'"
Social custom, social media
On the supply side, brewers are innovating – in the ingredients they use, their marketing and their use of social media. Because, while it's the taste that matters, it's imperative that the small brewers get the word out so that potential customers can find them.
"Social media was really a game-changer for craft brewers," BA's Watson said. "It allows brewers to connect with their consumer base in a much more engaged way than they have in the past."
Rhinegiest Brewery co-founders Bryant Goulding (left) and Bob Bonder are starting a distribution company in Kentucky to expand the company's operation. (Photo: The Enquirer/Patrick Reddy)
Jake Rouse, another founder of Braxton, attributed much of the pre-opening buzz surrounding the brewery – including a record-setting Kickstarter campaign – to the accessibility of the founders and others involved with the brewery. Through social media, they interacted with future customers throughout the project, creating a community before the brewery even opened.
"It's the genuine belief that you're along for the ride with us," he said.
There's also what McNutt describes as an emotional connection to the beer we drink. Visiting a brewery and having a good experience in the tap room, or getting to know the brewer, only enhances that connection.
"It's viral in a human way," said Bryant Goulding, one of the owners of Rhinegeist. "You know a guy who works at MadTree, you know a guy who works at Rhinegeist."
Much like social media, that connection to the brewery makes people feel like they're a part of it. And it ties into many consumers' desire to spend their money with smaller local businesses instead of handing their hard-earned cash to one of the big conglomerates.
"You're supporting the local economy, and you're able to get fresher beer closer to the source," said Greg Hardman, who bought Christian Moerlein in 2004 and brought all production back to Cincinnati in 2013. (In 1981, Hudepohl Brewing Company revived Christian Moerlein, which operated in the pre-Prohibition era from 1853-1919. Hudepohl wanted to differentiate itself from the national brands and brought back Christian Moerlein in what was then known as the "better beer" category in an attempt to do so. Hardman believes it was one of the first craft beers sold east of the Mississippi.)
Greg Hardman, owner of Christian Moelein Brewing Company. (Photo: The Enquirer/Cara Owsley)
It doesn't hurt that craft beer is also relatively inexpensive, so trying a new beer isn't a big financial risk.
"You can buy the best beers in the world and it's an affordable luxury," BA's Watson said. "The producers you have in Cincinnati, many of them are world-class, but you can buy a six-pack at a price that won't break the bank."
And millennials, among the biggest consumers of craft beers, will continue to gain buying power, he points out.
Mt. Carmel's Deweyabsolutelysees that segment of craft beer drinkers growing here locally.
"For the past 10 years, at the beer events I've attended, I've seen a wide range of consumers, from the 21-year-old to the 80-year-old," he said, noting that those event attendees have started to skew younger during the last four years. "People are turning 21 and they're following trends."
Beer brewed here
Cincinnati has had to play catch-up to other cities that are further along in their craft beer journey. Brewers here, then, have benefitted from the wisdom gained elsewhere and have the added bonus of having an insider's understanding of what makes beer work in Cincinnati.
Rhinegeist's Goulding moved to Cincinnati from San Francisco to start the brewery with business partner Bob Bonder because they believed there the market here was ripe for more locally brewed craft beer.
"We're just catching up to what's happening on the West Coast," he said. As for a saturation point, "California hasn't hit it, and Portland hasn't hit it, and they have twice as many breweries per capita (than in Cincinnati)," he said.
BA's Watson calls Portland "one of the cities that can make the case for Beer City USA," with 50 breweries in the city and more in the surrounding region, he said. In California, San Diego County has 100 breweries, he said; Boulder County in Colorado, where BA is located, has more than 30 breweries serving a population of only about 300,000 people, he said.
Those parts of the country are seeing a 30 percent market share for craft brewers, he said. With his estimate that Cincinnati's market share is something like 20 percentnow, there is still a lot of room to grow.
It's worth nothing that many local breweries are small. For example, Dogberry, one of the newest breweries in the area, is also one of the smallest: It plans to brew only 180 to 200 barrels this year.
"A lot of people see the number of breweries and not necessarily the quantity of beer," said MadTree's McNutt. "A lot of the smaller breweries on the scene are not making a volumetric impact."
"A lot of those breweries that are popping up," adds Rhinegesist's Bonder, "are the equivalent of the neighborhood bar with a brewhouse."
That's an ideal situation in his mind: Neighborhood residents are likely to visit that brewery and try its beer because it's close to home, even if they wouldn't otherwise be interested in craft beer. It's a self-perpetuating cycle: If those consumers like what they taste, they'll be more likely to buy craft beer at the supermarket or to visit another local craft brewery.
"The craft brewery down the street might be a competitor in the academic sense," KGB's Watson said. "(But) you're very rarely going to find a craft beer drinker who drinks only one craft beer. The nature of craft beer is a little bit ephemeral. You very rarely have the same favorite for a long time, and people like to experiment with what they try."
Local bars and restaurants recognize that consumers want a greater variety of local craft beer and are increasing their offerings, with some even going all local. That wouldn't happen if we only had two or three breweries in town, Mt. Carmel's Dewey points out.
McNutt sees neighborhood breweries as dovetailing with Cincinnatians' passion for their individual communities.
"There's something about the people in Cincinnati that's different from people anywhere else," said McNutt. "Whatever community they live in, they're passionate about the neighborhood."
Cougar beer by Rhinegeist Brewery in Over-the-Rhine. (Photo: The Enquirer/Cara Owsley)
Nine Giant Brewing, set to open in Pleasant Ridge in late summer or early fall, hopes to become one of those neighborhood breweries. With a smaller brew system – they expect to open with 350-barrel capacity – they'll focus on serving beer in their own tap room rather than on distribution. Co-owner Brandon Hughes said they expect their core business to be hyper-local, with the brewery drawing customers mostly from Pleasant Ridge and surrounding communities, including Amberley, Silverton, Norwood and Oakley.
"When we started, we wanted to be part of a community," he said. "I want to know our regular customers because they live down the street. Our success hinges on our ability to attract those customers and deliver them an experience that compels them to come back and visit us again."
"People like to support local," said Mary MacDonald, executive director of the Ohio Craft Brewers Association. "They have a passion for where they are."
It's a passion that's specific and easily identifiable.
Each Rhinegeist can, for example, boasts "Cincy Made" just below the brewery's name, itself an homage to its neighborhood. Rivertown's new packaging incorporates the Carew and PNC Towers. Hardman named the first new beer he introduced after buying Christian Moerlein "O.T.R."
Josh Kleymeyer, general manager, left, and Brett Smalling, prepare labels for beer at Rivertown Brewing Company in Lockland. Rivertown has only been open five years, and is one of the oldest local breweries. It is now completely rebranding, with new beers, labels, changes to the tap room and more. (Photo: The Enquirer/Cara Owsley)
Oh, and one more thing: Brewing jibes with the state's Midwestern values.
"Ohio is a state that has the potential to embody the American work ethic," Rhinegeist's Goulding said. "Brewing is hard work."
Millennials especially get that. Or, more to the point, millennials buy that.
State perspectives
Cincinnati might be playing a little catch-up to Portland, but Ohio is leading the way, regionally, in its craft beer innovation and experimentation.
Divergent is one of the new beers by Rivertown Brewing Company in Lockland. (Photo: The Enquirer/Cara Owsley)
Ohio is way ahead of Kentucky in the number of breweries and the amount of beer produced. MacDonald, who became the Ohio Craft Brewers Association's first executive director in September 2013, said there are currently 117 breweries operating in the state, up from only 58 in 2012. The state ranked a respectable12th in the country in terms of the number of craft breweries in 2013, the latest year for which BA data are available. Kentucky ranked 39th.
"We've doubled the number of breweries in three years," she said of Ohio. "I've got another 50-plus that are in the pipeline." She said she expects at least 20 of those to open throughout the state this year.
Ohio's brewery-friendly laws have helped growth here, she said. In 2013, a new license, the A1C permit, was implemented. That took the cost from the previous $3,906 annual fee for an A1A license, which allows for a full bar, to $1,000 for a microbrew manufacturing businesses, which could open a tap room with no additional fee, she said.
Across the river, Kentucky has only 18 operating breweries, according to John King, executive director of KGB.
It might be instructive to know why they're so far behind.
According to KGB's Watson, the legislative environment has not been as conducive to opening breweries in the state. For example, because of franchise laws, once a brewery has a contract with a distributor, it's "harder than getting a divorce" to get out of it, he said.
"Once a distributor has you, they have very little motivation or incentive to treat you well or perform well because they know you can't leave," he said.
There's also the fact that, in bourbon, the state already has a well-established heritage beverage.
"Craft drinkers who want to focus on the nuance of their drink have turned to bourbon in the past," Watson said. Kentucky craft breweries are tapping into that mindset; many even offer barrel-aged beers that marry the two beverages.
Cincinnati's past, Cincinnati's future
Today's resurgence in local brewing might also owe something to our area's past. In the late 1800s, Greater Cincinnati was home to more than 36 breweries, according to Steven Hampton, executive director of the Brewery District Community Urban Redevelopment Corporation, which runs the Cincinnati Brewery Tours. By 1890, demand for local beer was so high that Cincinnati breweries produced the third most beer in the country per capita at that time, more than 4.2 barrels per person per year, he said.
Almost all of them closed during Prohibition. Only a handful survived with their original owners, making "near beers" and soda or selling other breweries' near beer, Hampton said.
"Cleveland, Cincinnati and Columbus all have brewing histories," said Ohio Craft Brewers Association's MacDonald, noting that each of those cities has more than a dozen breweries today. "There's a revival in those areas because you're bringing back an industry that had more or less died off.
"There's a sense of bringing back the heritage of a place and contributing to a grand tradition in brewing," she said.
The "grand tradition" means the breweries are focusing on quality more than ever.
"We all have to stay ahead of each other," said Rhinegeist's Goulding, "so we have to run at a faster rate, and the consumer wins."
Which brings us back to the question of saturation. When and why will that happen?
"I envision a point many years down the road where brewery openings and closings will be like restaurant openings and closings," said BA's Watson.
During 2014, 615 breweries opened across the country, while only 46 closed, BA data show.
Older breweries that haven't found their niche, or newer ones that aren't innovating, could be vulnerable, said KGB's King.
Who will live and who will die will depend mostly on who brews a great beer.
Still, there's room for a little perspective here. While BA's Watson thinks 20 percent of total beer sales is a reasonable and attainable for the craft beer market by 2020, it's important to know that for every 10 beers sold in this country, between seven and eight are an Anheuser-Busch or Miller-Coors product, he said.
Rhinegeist's Bonder gets that. "We're still a puddle on the floor at Anheuser-Busch's facility," he said.
That doesn't mean he thinks craft brewers have reason to fear the big guys. After all, puddles can grow.
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