28 November 2011

What Next? The Indianapolis Beer Market In Adolescence

If there's any proof of how far better beer has come in Indianapolis, you only need to look at the tap handles at popular establishments around town. Where there once was a better beer wasteland now lies fertile ground where new breweries add their wares to the mix on what seems like an almost monthly basis.

But as the market grows, so does the competition. Whereas your local brewery may once have owned three taps at the bar, entries from newer breweries mean that the market for tap handle real estate has grown more competitive, even allowing some bars to move from beyond a local/regional tap list to one that focuses on beer from breweries within a few mile radius.

Somewhere, it seems like someone loses out. Be it the long running macro that no longer has an audience, the established craft brand that suddenly has local competition, or the new brewery that can't find tap space in suddenly crowded market, there must be a saturation point.

Are we there yet?

"New breweries haven't had an affect on our sales," said Sun King's Clay Robinson. "We are a proven seller in the market and have a really solid fan base, so our tap count has not just remained steady, it continues to climb as more people discover Sun King and craft beer. I would assume that new breweries are getting tap handles from national brands that are also available in bottles, because it really doesn't matter when it comes to mass produced domestics whether you have it in bottles, cans or on draft."

Then perhaps it's the regional craft brands that have taken a hit? Brands from surrounding states once had almost free reign over tap handles in better beer establishments. Are distributors seeing the hit on sales?

"An increase in local craft sales very much benefits out of state sales," said Bob Mack of the local/national beer distributor World Class Beverages. "Especially in our situation in Indiana where we are still well under the national average in terms of craft as a percentage of overall beer sales."

So what about a brand like Bell's, who had a very strong tap presence and very little local competition until recently?

"Bell's is, in fact, still up," said Mack. "They do have fewer taps in some places as competition is squeezing some of those taps out, but the velocity (rate of sale) on existing taps is getting higher as more and more people ask for craft beer. So we are seeing greater sales on a single tap than we used to see. Also, there are more taps overall in the market than there were a year or two ago, so there are more to go around."

But do World Class' salespeople find it harder to push their bigger brands to bars that are just hopping on the craft wagon?

"Maybe, but there are many more opportunities today versus a year ago or further back, so business for Bell's is still very good - even better than it is for some local brands," said Mack. "Of course for many World Class customers, Bell's is closer to home than many Indiana brewers, so it is still local to many consumers."

"Overall, we're up dramatically on regional, non-Indiana brewery sales. So I don't see the growth of local brands being a problem for them. There are case by case situations where they lose lines to local brands, but overall their number of lines is not reduced. They are picking up lines in other places where there was no craft beer previously and the lines that are out there are selling faster than before. In my opinion, the regional and local brands can complement each other."

So perhaps the real story is the continued and growing success for everyone involved with better beer? Not quite. As is the trend nationally, imports are losing market share.

"I suppose that is going to happen given the large number of American brand selections now versus what it used to be," said Mack. "Additionally, a lot of good American craft brewers are making excellent examples of Dubbels, Tripels, Oktoberfest, and other traditional foreign styles. We are somewhat cushioned in sales of brands like Spaten but retailers are looking first for new placements of craft brands and not so much for imports."

So imports are down, but what's it like for our newest breweries? Fountain Square Brewing recently opened and has secured a fair amount of taps in their short existence, including a very strong presence in their backyard of Fountain Square.

"Getting into bars and restaurants has been fairly easy," said Fountain Square's Skip DuVall. "We have a sales person taking samples out and people have received our beer well. We sometimes need to wait until a tap opens, but our success rate is pretty good."

Sun King's Robinson echos the sentiment. "What I found from the early days of Sun King was that the slowest seller is the beer that loses its spot, which can be frustrating because a new brewery has to wait for it to sell out before changing over," he said.

"It seems that we have replaced some semi-mass produced beers like Stella," said DuVall. "Our porter has taken off and I think that is because of the timing of the seasons changing."

How does a new brewery set itself apart in a market that's not only crowded with local breweries, but also repetitive styles?

"We have been talking a lot about what we want to do with our beer and who we are," said DuVall. "I am leaning on towards doing a series of Imperial beers on a seasonal basis - IPA, Stout or even an Imperial Lager of some sort."

One thing that may be forgotten by those of us in the middle of the craft beer movement is that while these styles seem repetitive to us, to new drinkers, they're a whole new world. "You've got to remember that a lot of folks are coming from a background where beer is only one style," said Sun King Head Brewer Dave Colt.

If you look at it from the other side of the argument - that we've got an overabundance of the same styles - Colt also has a theory.

"For many of the folks behind new brewery efforts, they look at what's available locally and say, 'Well everyone's doing a porter, so we've got to do a porter.' Or 'IPAs seem to be really popular locally, so we should do an IPA,'" he said.

Regardless of where you stand on the style issue, the market for everyone continues to grow.

"We have less brands this year than we did last year (WCB lost both Dogfish Head and Avery recently, while Flat 12 has been added to their lineup) and we are still going to finish the year up at least 20% in sales over last year," said Mack. "I dare say that some very mature markets, like Portland, might be tough for outside brands because so much of the beer sold there is local – as much as 30%," said Mack. "But with Indiana brewed beers still being around 1% or less of overall Indiana beer consumption, I think we have a long ways to go before hitting that sort of ceiling."

So if demand is up, tap numbers are up, variety is up, and the number of breweries is up, what challenges await?

"A challenge that I see for brewers based on the rising tide of demand is their ability to increase capacity," said Mack. "It is most definitely not cheap to build and increase capacity and it often requires brewers to take out loans based on the idea that growth will continue. With more brewers coming into the market, growth may not continue for everyone as they plan it to, making it tough for them to meet financial demands."

From the distribution standpoint, it's brewery inventory and production that provides the biggest challenge.

"Small brewers are much more subject to out of stocks and inventory fluctuations than larger brewers, so we continue to have a somewhat frightening out of stock rate on products that people order a lot of, but that's the nature of the craft industry," said Mack. "Of course, some brewers are solving that problem for us and for themselves by pulling out of states to better manage their inventory levels, but it's unfortunate that it has to come to that."

While we've lost certain well-respected brands in Indiana before, the lack of availability of drinkers' favorite beers doesn't seem to be hurting the overall business. The better beer audience seeks variety. Indianapolis' better beer drinkers can rest assured that if they lose a regional favorite, there's a newer and more local brewery waiting to fill the void.


  1. Fact is that if you have, say a cream ale handle next to a rauchbier one, the cream ale is going to sell because it's familiar and a wide swath of consumers can enjoy it. It's not a copycat thing, it's a sales thing.

  2. Granted - and those are extreme examples - but who made cream ale popular? I can't think of any "craft" brewery apart from Sun King that regularly makes one. IPA sells well, but that wasn't always the case - there's a learning curve for everything.

    To paraphrase a quote from a guy who just opened a brewpub in St. Louis: "When a new hamburger joint opens, no one says 'not another hamburger joint!'" And he's right. I'm not complaining about another great porter or another great IPA, I'm just saying it wouldn't hurt to also have a place that makes tacos (instead of hamburgers).

    I think there's an audience for that. I hope there's an audience for that.

  3. I'd like to see industry numbers for 2010. Is Indiana still sitting around 1% of the market for craft beer? Or is it higher now?

    I know downtown Indianapolis isn't really the best sampling for an average of the entire state, but the number of craft taps since 2008 has increased drastically.

  4. I also hope to see more variety. When I walk into a place and it's the familiar Amber, Porter, Pale, Wheat... I start to zone out. Where's the Indiana version of Cascade? Or Stillwater? Or any other place the specializes in a certain genre and does a damn fine job of it? I guess Brugge is along those lines for Belgian styles, and BRBP for English styles, but I'd like to see more specialization and exceptional beers as a result. No you can't make a Rauch your flagship beer, but you can be a brewery that focuses on German styles.

  5. One place that does have that sort of differentiation is Bier, but unfortunately (at least for me) the beer never makes it out of their brewery in anything but their growlers.

  6. You have to remember, it is one thing to "talk about what we want" from restaurants/brewpubs and it is another for what consumers buy. Even a blog like this is from the more "educated craft beer drinkers." Sometimes we are in the business of educating the consumers and it takes time. I've been selling craft since 1996, the first "boom" for craft brewing. Pete's Wicked Ale, Newcastle, Guinness, Boddington's and Sierra Nevada Pale Ale were the most of what people knew as specialty beers. In 1997 I opened my first bar, in Muncie, with 30 taps. I know I wasn't the 1st; but, I'd be willing to bet I was in the first 5% of bars/restaurants to offer this kind of tap lineup. Granted, it wasn't all craft/specialty/import; but, I say again, from an owner's perspective, you don't cut off your nose in spite of your face - meaning, you may WANT to sell more craft; but, if the consumer is buying something else, you have to offer that to them. I think the Indianapolis craft market is well above the curve, finally, for knowledge and production of craft beers... and, I'd like to think there is enough market share to go around. No one can predict tomorrow and market share for other regional breweries like Bell's, Floyd's and others... if they get "pinched" out of handles in Indy, due to the Indy craft scene growing, I'm not going to be too upset about that. I'm all for local representation and I always think quality will reign supreme and market supply/demand from our consumers will ulitmately make the decision on what stays on tap and by whom. I liked your earlier blog a few weeks ago about how "extreme" brewing is getting and where will that end... I love the creativity; but, could that scare some of the novice, uneducated drinkers away? What if I walked into a brewpub for the 1st time and everything was so exotic, experimental and "out there" that I was tarnished forever and went back to my "swill" beer? Anyway, just some of my thoughts... -Scotty, Scotty's Brewhouse & Thr3e Wise Men Brewing Co

  7. The fact that there is so much new competition for tap space is a great indicator of how incredible the craft beer market is right now, and I don’t think that the market has reached its limit yet.

    There are few barriers to entry so new breweries aren't prevented from introducing their product around town; as in existing craft monopolies making it hard for new breweries to even get started or succeed. You said it perfectly that “if they [Indy better beer drinkers] lose a regional favorite, there’s a newer and more local brewery waiting to fill the void.”

    Additionally, seeing that regional & local sales are still increasing demonstrates how much supply & demand can still expand together – something simply fascinating to see from an economic perspective.

    I absolutely agree that a big concern that small breweries face is the ability to keep up with demand, especially because the market is constantly undergoing pretty significant fluctuations (shifting supply & demand) and changing trends. I know that there are incredible upfront costs associated with starting a new brewery & expanding. I do hope that they’re able to retain their place in this market to meet that challenge year after year, so we can see as many of our breweries succeed in the long run as possible.

  8. P.S. Awesome article by the way