An accountant’s-eye view of the Minnesota brewer competition
Bud or Miller? Heineken or Hamm’s?
Depending on your age, you might have grown up seeing one of those familiar names on the bottles in the family fridge or watched your dad or grandpa tip back a can of the same when they were dropping a line off the boat. Back in their day, when beer was much more a man’s beverage, devotion to a label was as solid as a guy’s preference for an automaker, a sports team or a political party.
“Today, the individual consumer is loyal to the craft segment, not necessarily to a particular craft brand,” says adviser to the beverage and brewery industry Scott Ebert. “That’s why you see liquor stores with the make-your-own six packs, to let customers pick the bottles they want within the genre.” And in Minnesota, there’s plenty to choose from.
The craft craze
The number of brands, microbreweries, taprooms and craft distilleries continues to grow. As of mid-June, there were 128 licensed brew pubs and breweries in the state, skyrocketing up from a mere 20 such facilities in 2011. A 2015 survey by the national Brewers Association ranks Minnesota 16th in its number of craft breweries; Wisconsin is 14th.
“About 14% of the beer sold in Minnesota is in the craft segment, a little higher than the national average, which is 13%,” says Ebert. “There’s room to grow. We believe it can get to 25%.”
Scott Ebert is well steeped in the Minnesota craft beverage industry, but his knowledge base comes via an unconventional route. A CPA and partner at the Minneapolis office of Baker Tilly, the nation’s 12th largest full-service accounting firm, Ebert, 52, began working with traditional beer distributors 25 years ago.
With that expertise, he was drafted into service as a business adviser as Minnesota’s craft brewing movement began to bubble up.
Business is brewing
Ebert concedes that he had to do “a major mind shift” when he began advising the startup clients. Many of them had begun as hobbyists, brewing in their basements and driven by an artisan’s passion.
“They didn’t have much bandwidth from a business perspective. We stepped in to help them with equity, regulations, negotiating distribution contracts and some M&A activity,” says Ebert, who leads a national beverage practice for Baker Tilly.
He also sits on the advisory board of the Minnesota Craft Brewers Guild, which counts scores of the state’s brewers and professionals working in allied industries among its members. Ebert credits the strength of the 16-year-old association with developing the local sector through its high quality advocacy, lobbying and leadership.
“It’s been a collaborative and collegial group of business owners. It’s a ‘rising-tide-lifts-all-boats’ mentality,” he says. “The early leaders have been extremely supportive of the next generation coming in.”
But that may be changing. While the shelves and coolers in liquor stores have not expanded since the wave of craft beer began to rise, there are now many more brewskis fighting for space in them; brewers also face more rivals when they’re trying to get their logo on a tap in bars and restaurants.
“It’s becoming more competitive. A brewery won’t get shelf space unless product turns,” Ebert says. “It’s not enough to produce great beer; brewers have to figure out logistics and how to market to succeed and grow.”
Refining a niche
Brewers sign deals with distributors to raise their profile, but they give up something to do it. Distributors hold exclusive rights to sell the product within a specific territory; a brewer with a distributor’s contract could not carry a case of its product to a bar that might happen to be located next door.
The upside is that the distributor has its own relationships with retailers and can negotiate optimal exposure for its brands, leveraging end-cap placement or promotional displays.
“Distributors have the clout but the brewer gives up 25% to 30% of its profits, so they better pick the right business partner to grow their volume and share,” Ebert says.
Ebert is also watching the competitive field change. He notes that sales of the first national craft beers, like Lagunitas, Sam Adams and New Belgium, have plateaued in Minnesota and the brands are getting more aggressive in going after market share, which puts pressure on the local labels.
He also sees a blurring among some of the major players.
“Anheuser-Busch InBev purchased Goose Island, a Chicago brewery, and has made it a national brand,” Ebert explains. “So is Goose Island now a craft beer or Big Brother?”
That’s why Ebert believes that Minnesota brewers will have to spend more time seeking, defining and promoting their niche.
“They’re entering the next phase. The segment is maturing and brewers have to decide who they’re going to be when they grow up,” he says. “Do they want to expand out of state or stay hyperlocal? Do they want to market to a certain demographic, or specialize in lagers or sour beers? Do they want to up food sales onsite and have a lifestyle business?”
As brewers look to the future, they will certainly pitch to the newest American beer drinkers. The tail end of the 75 million strong Millennial generation has yet to turn 21.
“Millennials only know craft. For them, it’s OK to pick something different every time and explore variety,” Ebert notes. “They will develop a taste for their own favorites.”