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Is Indiana Ready for More Local Breweries?

United States microbreweries, regional breweri...
Let’s Be Oregon, you guys!

I was talking to Mike DeWeese Tuesday night at Brugge Brasserie in Broad Ripple about his upcoming venture, Triton, a brewery. I was mostly curious about why he wanted to start a venture of such difficulty in the current economic climate. After all, by his own admission his last few endeavors downtown suffered from one of two major problems. In an Indianapolis Monthly article a couple of years ago DeWeese was having trouble introducing Hoosiers to unfamiliar brands. His first attempt was the go-it-alone Badaboomz which closed 10 months after it opened. Then he tried a new but not yet tried franchise, J. Gumbos. It closed in late 2008.

Tuesday night DeWeese said what shut him down was not branding but the recession which he admitted is still a pressing concern for restaurateurs downtown. And there’s no doubt he’s right. Via Twitter, Scotty’s Brewhouse owner Scott Wise shared this article earlier today from the National Restaurant Association. It breaks down a 1% contraction in the number of eateries in the country with independents, like Badaboomz, faring worse than chains.

Even before the catastrophic economic collapse in October, Americans were already shifting their dining from restaurants to their homes, according to this April 2008 NY Times article, which brings me to something else that DeWeese said. “Is gas $4 a gallon?” he retorted when I asked if the recession wasn’t still a huge concern for him.  The short answer, of course, is that, no, gasoline is not $4 a gallon, but it wasn’t in April of 2008 either when the NY Times was talking about the “recession diet.”

According to the Energy Information Administration, the average price of a gallon of gasoline in the Midwest in April 2008 was $3.36/gallon—almost exactly between the +$4 highs of the previous summer and what gas is selling for right now.

But the more important point, and the point I wanted DeWeese to comment on, is that, the price of gasoline notwithstanding, the economic situation right now is worse than it was in the summer of 2007 or the spring of 2008. What restaurateurs were dealing with in those days was an employed populous with stricter limits on their leisure spending. What we have now is record-setting unemployment and a limping economic recovery, which is occurring, as anticipated, without jobs. In other words, a populous with no money and little prospects of having money in the future.

So why would you open a brewery now?

Contrary to these figures, it is my personal opinion that now is a good time. We all know the rule of the slow return on small businesses. You have to plan for between 24 and 60 months before your new enterprise becomes profitable. If you can secure financing to run that long, and provided your analysis and planning is sound, you’re good. I think most reliable, even conservative, economic prognosticators are certain that the economy will be better in 24 – 60 months than it is right now.

Furthermore breweries have a lot of capital expenditures right up front. Even a tiny brewery set of 3.5 bbl can get expensive fast. If you want to be competitive 3.5 bbl won’t really work. To give you an idea, just a little while after they started Sun King was producing about 5,000 barrels. So a new brewery with a relatively tiny 5bbl system would be brewing 3 times/day just to stay competitive locally. The bottom line here is that the right equipment is expensive, but it’s cheaper right now than it will be three years from now. Breweries are closing across the country and capital investment is down. So the combined effects of lots of used equipment being on the market and no buyers means there’s a lot of downward pressure on prices. Furthermore, the outlook for craft breweries is good, which means when the economy starts to improve for real, there will be a lot of potential new breweries looking to scoop up used merchandise. The increased demand in three years will not only erase the inventory of used goods, it will raise the prices of new goods too. It’s better, in my opinion to move now, if you can.

It’s also a buyers market in regard to employees. A lot of employable people are out of work and so an employer can find quality employees and pay them bargain wages. Not that I encourage that sort of decision-making, but business is business after all, and there’s no denying the realities.

DeWeese did not say either of these things. Instead our conversation caromed off into the state of the overall beer industry and the strange divergent beer economy. Something we learned early in the recession was that, contrary to conventional wisdom, beer is not a recession proof industry. Beer consumption dropped pretty quickly and has stayed depressed. Beer drinkers moved into bargain brands and left the premium and import market behind.

Except craft brew consumption has gone up. I hypothesized that were were seeing two trends come out of nowhere to bolster craft sales while the rest of the industry fell: wine drinkers were moving into craft beers and locavorism.

The first hypothesis, that wine drinkers were moving into craft beer has been a trend that beer industry writers have been awaiting for a long time but was sped along by the recession. Tighter pocketbooks make $30 bottles of wine unpalatable but the culture that encourages $30 bottles of wine doesn’t really go away. A $10 bottle of wine can actually provide a lot of value but in certain circles is unacceptable. But a $10 bomber of beer is fancy (and costs $10!). In other words, wine drinkers moving from fancy wines to fancy beers is not unlike the beer drinker’s move from premium to bargain products.

The second hypothesis is that the surging popularity of the locavorism and its various related trends moves people to find products made nearby. I doubt that particular trend needs much in the way of explanation from me.

While I thought I was being wise, it turns out that Bob Mack from World Class Beverages wrote something not dissimilar on his blog just earlier this month. For those interested in such matters, I suggest you read his take.

A third thing we barely touched on was this: Indiana is still ripe for a lot of growth in the beer market. DeWeese will have his work cut out for him, no doubt. Hoosiers, as he well knows, are a brand-loyal people. Shaking them from their old habits will be hard. And it may be worse than he knows. According to Mack, those that move to bargain brands during the recession are likely to stay there after it rebounds. Of course, there is a silver lining in that note. Brand loyalty is not an insurmountable obstacle. The national numbers tell the story that there is a definite market for craft beer well above that which Indiana is exploiting. Some of that is availability. Some of that is education. But most of it, in my opinion, is just habit.

Sun King has done remarkably well for themselves since opening a year ago and part of their success, in my opinion, is for people to drink “their beer.” A beer made down the street, right here, in their hometown. Having multiple breweries in town (DeWeese’s Triton is just one of three potential new breweries in the works) might dilute the ability to succeed as Sun King has in this regard. But what multiple breweries take away from each other by way of dilution of hometown pride, they make up for in giving Indianapolis the character of a “beer town.” This is a good thing for beer drinkers here.

As Indianapolis moves toward this new identity, beer drinkers, because they will be more used to trying new (locally brewed!) beers at their regular dining establishments will become less risk averse at their package liquor retailer too. And, if you’re Sun King, Triton, or one of the few others who jump into the fray early, you can later profit off your longevity even if your quality isn’t as high (again, not that I encourage low quality). And of course, more locally brewed beers will force competition between brands as they fight for the limited market share of People Who Care about Locally Brewed Beer. It will most certainly result in gimmicky, attention-grabbing knock offs, but it should also result in better beer all around.

In my somewhat considered opinion, Indiana(polis) can not only support additional breweries, even during this recession, its consumers would benefit from them.

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Posted in Bob Mack, Brugge Brasserie, Indiana Beer, Sun King Brewing, Triton, Writers & Reviewers.

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