18 November 2013

Why Do Brands "Skip" Indiana?

Jake Wrote:

Recent news that Deschutes will distribute to Ohio and Kentucky in 2014 conjured familiar emotions from a few people that I follow on twitter: "Do they not own a map?" "Why the hell does Kentucky get them and we (Indiana) don't!?" Green Flash, Crooked Stave, and Oskar Blues launching in Indiana during the past year, plus news that Dogfish Head will be back in the market in the near future, has given local drinkers a stronger sense of entitlement. There are a number of potential reasons for breweries to choose the states that they do (and don't). This post will explore four of the points that I keep in mind when asked why a brand might not come to Indy.

The first point that I often repeat when asked for my thoughts, is to remember that the market share for craft beer in Indiana is smaller than the national average. The last number I heard was ~3%. As a national business, if you tell me that the average is 6.5%, but the market is less than half that, it is a tough justification. Yes, we have seen some crazy growth in the past couple of years, but remember the larger picture.

The second piece is the time it takes to get into a new market. Take the Deschutes announcement as an example. They are announcing a 2014 distribution start three months in advance. I am sure they have been working with distributors for at least the twelve months before that press release. Let's assume it takes 12-14 months for a brewery to get into a new market, and then look at this Advertising Age article from June 2012 from a brewery owner's viewpoint. The Great Lakes region has the largest jump in Craft beer $ sales from 2011 to 2012 (21.1%), but we are still sixth of the eight regions in market share (8.0) and four other regions grew their share faster. If I, as the owner, only have one or two states, due to my production volume, that I can target, why would I pick the Great lakes region for 2013?

The third point is the available volume and expansion efforts of breweries. I will always go back to the first time that I watched Beer Wars, specifically the moment when Sam and Maraiah Calgione talk about all of the personal guarantees they have had to put on loans to expand production. Also, consider that New Glarus has put $38 Million  into the hilltop facility since mid-2008 and Surly just broke ground on a $20 Million facility. I'm not an accountant, but I am willing to bet a bottle of Raspberry Tart or Darkness that those two breweries don't have that amount of money in cash. All three of those breweries, plus Lagunitas, Oskar Blues, Sierra Nevada, and New Belgium, have made choices to try and keep pace with demand for their beer. It has to be a frustrating chase as they have the desire to get into new markets, but can't. Expansion costs money which lead to loans which lead to owing more money. At some point, it stops making sense to take on more debt.

I want to give an example of the amount of time it takes to add a new tank verses the volume impact adding that tank has in the market. It takes 4-6 months to get a new tank manufactured, delivered, and ready for production. A 60BBL Fermenter costs ~$30k. The brewery pays $15k (50%) up front to have the tank made, then waits 4-5 months, and then pays $15k when it is delivered. Once it is delivered, they have to run glycol to the tank, test it, and run acid washes through it to get it ready for production. Then the first batch has to actually ferment. So, now they are 6-ish months invested to get 100 1/2BBL kegs OR 12,000 16oz cans (3,000 four packs, 500 cases) into the market. If the brewery has four distributors and allocates those new cases equally, that is 125 cases to each distributor. Big Red Liquor alone has 49 stores in Indiana, which would mean an increase of 2-3 cases per store just for Big Red. But, there are also Crown Liquors and 21st Amendment stores that need beer. So, an increase of 1-2 cases at some key stores. So, even if a brewery sees an increase in demand and wants to meet that, they are 6-7 months from being able to make an impact of 1-2 cases at your store per month which means 6-12 people get a 4-pack they didn't get before.

For a brewery to enter a new market, they must either get ahead of demand or be willing to pull some of the beer currently allocated to other markets and allocate it to the new market. If you listened to the Indy Beer News Episode from the Oskar Blues launch, you heard one of the Oskar Blues reps talking about how crazy their growth has been and how hard it was to find the beer to send to Indiana. I have a feeling that the brands people are currently coveting for Indiana (Deschutes, Avery, Ballast Point) are in a very similar situation. Meaning, they are struggling to meet demand in current markets or have already allocated the beer for the next set of markets.

The fourth point I keep in mind is the working relationship with the brewery and distributor(s). I know a few of the local breweries that have signed with distributors spend a large amount of time riding with the distributor's sales reps to help them sell the product into the market. I also know that our Indianapolis area distributors are working as hard as they can to service the market. But, a brewery and a distributor are "business married", so vetting that new boyfriend/girlfriend is key and doesn't always result in a match.

Did you know that most craft breweries are responsible for shipping costs to their distributors? Could be another factor.

As a community, we should be very proud of the market that currently exists in Indianapolis. We support craft beer locally and nationally with passion and hard-earned dollars. My hope is that this post helps build an understanding on why it generally takes longer for Indy to get a number of brands than our neighbors.


  1. Very good article. Nice job, Jake. A couple of nit-pickies: 1) Whether a brewer pays for the transportation to the distributor or the distributor pays for it is pretty much inconsequential since that cost is built into the final price either way. 2) Indiana has also gotten some brands that other states have not, so the scale tips both ways. 3) Craft sales as a percentage of overall beer sales in Indiana is probably closer to 5% right now versus the national average which is likely around 7% (it was 6.5% in 2012 and has grown since then).

  2. Thanks Bob! Always happy to have some of the latest information. Do you have examples of some brands that we have gotten before our neighbors, lately?

  3. Well written. Growing any business is hard and growing breweries is a fairly complicated supply chain.

  4. As a Kentucky resident, I say the same thing when I see a brewery skip us. When Flat 12, for instance, skipped Kentucky and sent beer to Tennessee (which had higher taxes until recently), I wasn't happy. Plus, when I see Indy or St. Louis breweries skip our region for Chicago or Colorado - which already are crowded markets - I feel the loss.