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Pat Hagan of BBC

January 8, 2014

What’s on tap for Louisville’s beer scene?

Can our local breweries handle more competition?

Matt Fuller, Vince Cain and Zach Barnes are working their butts off these days. On a recent Saturday afternoon, Fuller and Cain, along with a couple other helpers, were busy building out a 3,000-square-foot space in the Highlands in preparation for opening Great Flood Brewing, their new craft brewery.

They were hoisting a roof piece they’d put together themselves onto what will soon be a walk-in cooler where precious kegs of their beer will be tapped. And even though the space, which is just a few doors down from Twig and Leaf, looked like so many piles of lumber mixed with a few ladders on that Saturday, they remain confident they’ll be open sometime in late February.

Such work is going on all around town. Red Yeti Brewing is building out a space in downtown Jeffersonville and hopes to open by late January; another local brewer, Cory Riley, is eyeing April 1 as an opening date for his Bannerman Brewing in the Clifton area. And Beer Engine, based in Danville, Ky., has been working furiously to open a location in Germantown. In addition, five more breweries are planning to open in 2014 in and around the area.

Add those to six established local breweries and brew pubs — Bluegrass Brewing Company, Cumberland Brews, New Albanian Brewing Company, Falls City Beer, Apocalypse Brew Works and Against the Grain Brewery — and the supply of local craft beer is about to more than double. And that doesn’t even include Gordon Biersch and BJ’s Restaurant and Brewhouse, two chain breweries with locations in Louisville. Nor does that include craft beer destinations such as Sergio’s World Beers, Louisville Beer Store, Buckhead Mountain Grill, Tony Boombozz Tap Room and plenty of others that offer craft brews from around the region and the world.

So how much craft beer can Louisville consume? Sure, there are a lot of hipsters here, but even they spend a ton of their drinking money on PBR. How will a new brewery survive? In talking to a few of them, they express varying levels of confidence.

Barnes, of Great Flood Brewing, says, “We think the demand is going to be great. If (the market for craft beer) grows, the demand will be so great we won’t have to force it. The general market for craft beer is still growing, and that’s fantastic considering the economic market.”

The national Brewers Association reports that there are just fewer than 2,500 craft breweries — which are defined in part as having an annual production of 6 million barrels of beer or less — currently operating in the United States. But consider this: There are another 1,500 or so lined up and preparing to begin operations. So, Louisville is not an exception. In fact, Louisville is outpacing the overall trend.

Will the market hold?
The good news is that growth of the craft-brewing industry in 2012 was 15 percent by volume and 17 percent by retail dollars; 13.2 million barrels of craft beer got brewed in 2012, compared with just fewer than 11.5 million in 2011.

Craft beer now represents 10.2 percent of the domestic beer market, according to a recent story by Business Insider; meanwhile, a study by IBIS World predicts the craft beer market will grow to $3.9 billion this year.

A few recent studies have shown a decline in beer consumption as wine and mixed drinks grow in popularity, but it’s the Big Suds breweries — Anheuser-Busch, MillerCoors — that seem to be losing favor in the market.

That’s all good news, right? Local brewers feel confident, despite the inherent challenges. In the case of Red Yeti, Paul and Brandi Ronau ran into problems with the building at 256 Spring Street that delayed the opening. If and when it does open at the end of this month, head brewer Paul Ronau says the beer on tap will be guest crafts. Original beers probably won’t be ready until spring, but still they move forward.

At Great Flood Brewing, much research was done to ensure a good chance of success. “We hope we’re not close to a saturation point,” says Cain.

But how will they differentiate from other brewers around town or, heck, just down the street?

“We have such a small capacity size,” he says of Great Flood Brewing’s two-barrel system, “and we’re going to brew so frequently that we’re going to have something new all the time.”

Experimentation will be the order of the day. They are even tossing around ideas of ways to get customers involved in helping out with recipes.

Leah Dienes, co-owner and head brewer at Apocalypse Brew Works, believes there is room in the market for more breweries. Bannerman will open just down the street in April, but she fully believes the two breweries can co-exist.

As long as beer is coming in from out of state, there is room for more local breweries,” Dienes says. “Buying local is a growing trend across many cities in the U.S. And we are part of that trend.”

Dienes keeps overhead down by operating a taproom that opens only on Friday and Saturday. Many of her sales come in the form of growlers, often to regulars who live in the neighborhood. Apocalypse also brings in food trucks every weekend and hosts special events, creating foot traffic. Poorcastle, a daylong concert series in July, and Yappy Hour, a Kentucky Humane Society benefit as part of Louisville Craft Beer Week, were two events that brought in big crowds in 2013.

Speaking of Louisville Craft Beer Week, it’s also a positive sign that such events and efforts not only exist, but that they keep growing; there are more and more craft beer events popping up each year and enjoying success, from Brew at the Zoo to the Highlands Beer Festival to the forthcoming debut of Tailspin Ale Fest, set for Feb. 22 at Bowman Field. Louisville even has its own website dedicated to the local beer scene in LouisvilleBeer.com.

But all that still doesn’t mean the market couldn’t top out.

Dave Stacy, formerly of Gordon Biersch on Fourth Street, believes a saturation point is ahead. Still, if a customer came to his place and couldn't find a beer he liked, Stacy would direct that person to BBC, Apocalypse or Against the Grain. Will there come a time when there is too much of a good thing?

“Beer being the product that it is, I think we’re getting close to that (saturation) point,” Stacy says. “But I still think it’s better to keep that door open.”

It’s a good point. Why panic when the market is still growing? Stacy points out that differentiation is an important factor. Gordon Biersch specializes in German-style beers, and there is no other brewery in Louisville doing that specifically. If you want a Marzen-style beer, well, Gordon Biersch is a good place to look for one.

At the same time, Blue Stallion opened last year in Lexington and also specializes in German lager-style beers. Sure, it’s a good 70 miles down the road, but it’s still down the road. How long before another brewer follows that lead? And for Gordon Biersch, there is also the specter of how beer snobs eschew chains.

Our challenge is how people view us,” he admits.

Bubble in the beer market?
Roger Baylor, owner of New Albanian Brewing Company, has been in the business of craft beer for quite a few years; his business model with Rich O’s Public House and Sportstime Pizza hinged on it from the word “go” when those side-by-side concepts launched in 1990. Later, he was the first one in town to eliminate sales of corporate beers like Bud Light. New Albanian as a craft brewing entity was founded in 2002.

“Saturation point depends on the capacity of the new breweries, their level of debt service and what size territory they need to get by,” Baylor explains. “What happens when everyone decides to play the game the same way?”

He added that if the amount of beer local breweries need to produce to stay ahead is more than a local market can absorb, then it must be bottled or canned and shipped further and further away, “which tilts the advantage toward larger and better capitalized entities.”

Pat Hagan has been in the craft-brewing business for more than 20 years as owner-operator of Bluegrass Brewing Company. BBC survived a 1990s market that claimed local breweries such as Pipkin and Silo, and also outlasted Ft. Mitchell-based Oldenburg.

“Where is the bubble in the beer market?” he says. “I don’t know whether it’s a saturation point. There are just so many (new breweries) popping up all over country. Somewhere along the line, something has got to give.”

Hagan wonders aloud what the new brewers’ aspirations are. BBC, like NABC, bottles and distributes outside the Louisville market and has a presence in taps around the area. Breweries like Apocalypse can also be found tapped around town. But how big is too big?

“I guess everybody would like to get as big as they could,” he says. “Apocalypse Brews makes good beer and is getting some distribution out. You take small ones like that, (and) I think we can handle a few more. I keep looking at (the demand) and wondering, but it keeps going.”

Like others, however, he’s simply happy the demand has become so big. That has created room for all these craft brewers’ aspirations and promises plenty of new beer in 2014 and beyond.

“At least consumers are more aware of it and more willing to try it,” Hagan says.

Cory Riley of Bannerman Brewing noted that Michigan Brewing Company entered Chapter 7 bankruptcy earlier this year; it is a mid-size craft brewery. A handful of other craft-brewing companies have suffered similar fates over the last year and a half. Is that evidence of saturation in that market, or are these isolated situations?

“In the next couple of years, we’ll hit that saturation point,” Riley says. What will happen then? “The beer will get better.”

Once again, differentiation may be key. Riley says he plans to feature sour beers and Belgian-style beers at Bannerman, which is different than a BBC, a Cumberland or a New Albanian. He also believes people who drink local craft beer will drill down in their support of local products.

“You’ll find that people who live in certain neighborhoods will go to their local brewpub,” he says. Also, he points out that many will avoid drinking and driving by walking to their local brewery for beer.

Of course, that notion takes us back to the days when distribution channels were smaller and refrigeration wasn’t as advanced as it is today. It wasn’t all that long ago that buying a six-pack of Corporate Light at the liquor store wasn’t even an option, so you went to the corner pub with a bucket and got it filled up with whatever was on tap. The return of the local brewer and the growler is obviously a good sign, both economically and socially.

Baylor believes one of the keys may be to remain as local as possible. Five years ago, New Albanian began brewing beer for bottling and distribution outside the Louisville area. But he believes broader isn’t necessarily better.

“It has been a success, but just barely,” he says, “and NABC’s ‘export’ growth is slowing.”

While that doesn’t mean NABC will stop bottling and distributing, what it does mean is a re-focus on maximizing what’s happening in-house, “and be even more ‘local’ than before,” Baylor says.

The problem is that with more small breweries trying to distribute, that means more craft brands for liquor stores to put on their shelves. “But the shelves don’t get any bigger, do they?” Baylor says. “If craft beer is 10 percent or 15 percent (of the market), it still means much of the shelf space has to go to mass market (stock).”

Additionally, the local and regional craft brewers are still competing for that space with established brands like Sierra Nevada, New Belgium and even pseudo-craft beers like Blue Moon, he says, and at price points the smaller breweries can’t hope to match.

“So, where’s the market?” Baylor asks. “It’s there, I think, but in places that get ignored. We know they’ll come to our buildings and drink our beer there, and because of that and deep roots, we’ll be OK. But who is our customer elsewhere? And will the new start-ups have time to grow roots?”

All good questions, with unknown answers.

Meanwhile, however, the beer boom is on, and how big the bubble can manage to get is still anyone’s guess. It sure isn’t going to stop those who believe the market has plenty of room to expand.

“You don’t know where a lot of food you eat comes from,” says Barnes of Great Flood Brewing, “or the clothes you wear. I know where (local beer) comes from. It’s a social activity brought down to a natural scale. As long as we keep that dynamic as we’re brewing, I think it’s a permanent trend, and I think that’s a good thing.”

Drink up, Louisville.