A man walks into a brewery, says "hey, I could live here." An oversimplification, but small breweries have helped breathe new life into forgotten pockets of cities for decades. And now a lot more Americans are familiar with the urban redevelopment success stories of a handful of craft brewers, thanks to widely-redistributed AP story that appeared over the weekend. Cleveland and Kansas City, the South Boston waterfront, Williamsburg, Brooklyn, and San Fran's SoMa nabe have all transformed after "the arrival of a craft brewery" became "one of the first signs that a neighborhood was changing." Great Lakes Brewing turned around Cleveland's Ohio City district so that "newcomers are flocking to the neighborhood, even though Cleveland's overall population is still declining." Boulevard Brewing has watched downtown Kansas City, Mo enjoy a "renewal" and now hosts about 50K visitors a year at its brewery. Waterfront manufacturing districts made easy homes for Harpoon in South Boston and Brooklyn Brewery near the East River in NYC. Now Harpoon attracts 85K folks a year to its visitor's center (recently updated to help service them all and more), plus "thousands more from festivals." Williamsburg is famously one of the trendiest neighborhoods in NY, where "home values" are up 145% in the last 10 years, after Brooklyn Brewery set up shop in 1996. In fact, nationwide, "the biggest cities are growing faster than the suburbs around them," the article states, citing Census data.

Once small manufacturers attract workers (since those employers "typically pay workers more than service businesses") and turn around a neighborhood, those manufacturers can be overrun by land-developers looking to put in more lucrative buildings. "We sowed the seeds of our own demise here," Brooklyn founder Steve Hindy explained. He's already "worried," the article notes, "that the company will get kicked out of its warehouse" when its lease ends in 2025. Harpoon, on the other hand, "recently negotiated a 50-yr lease with the city." But 21st Amendment's brewpub in San Francisco may already be as big as it's going to get. Now that the famously-contract brewing co is searching for an 80K sq-ft brewery to call its own, it's looking to "help anchor the revitalization" of an area across the bay, in Oakland, founder Nico Freccia told AP. Elsewhere, some urban neighborhoods are becoming veritable brewing districts in their own right, like the Ballard section of Seattle, where Hale's Ales and Maritime Pacific opened in the 90s and "six breweries have sprung up in the last two years." Just like in Williamsburg, South Boston, and Cleveland, "higher-income apartment buildings" alongside "restaurants and nightlife" have moved in. Click here to read the AP story.

It's no wonder then that some struggling smaller communities see dollar signs when presented with brewing biz proposals. That's the story in tiny Bridgman, Mich, a lake town whose population doubles from its usual 2300 during the summer months. The city manager explained that a brewpub opening soon downtown is "a cornerstone of the redevelopment of downtown," according to the Kalamazoo Gazette. Tapistry Brewing, already available at retail and on tap, got $40K from the city as well as a USDA Rural Business Enterprise Grant earlier in the year to help refurbish an old hardware store. And the Bridgman community hopes that'll only be the beginning, envisioning moving a car dealership to make space for "a $10-$12 million, mixed-use residential and storefront building." It's also providing "overwhelming community support" to Tapistry, one of its founders, Joe Rudnick, explained, adding that "our No. 1 goal is to make this downtown thrive."

Consumers turning to craft may have contributed to decreases in total and per capita beer consumption over the last decade, but our analysis of those trends reveal a much more complex story. As we suspected, craft growth ain't close to the only explanation. Between 2002 and 2012, overall US per capita beer consumption dropped 9%, to 28.2 gals, according to recently updated Beer Institute data. Changes over just the last 5 years represented almost 90% of that dip. Since 2007, just 5 states increased per capita beer consumption.

Craft-loving Vermont saw the largest increase, +9% from just slightly above the national avg to well above it at 35.3 gals. Vermont is followed closely by North Dakota, +8% to the highest avg per capita beer consumption rate, 45.8 gals, with the recent increase driven by the oil boom there, no doubt. Interestingly, Vermont has the lowest capita per brewery rate, according to Brewers Association stats, its 25 breweries serving about 25K Vermonters each in 2012. North Dakota's 4 breweries served almost 7 times that many residents. Other states that increased consumption from 2007 to 2012 include Maine, a fairly craft-friendly state where beer suppliers outside of the top 5 (AB, MC, Pabst, Crown, Heineken) have added 6.7 share growing to 27.8 in the same time frame. So two of the most craft-centric states had among the best per capita trends over the last decade.

That belies the notion that as consumers drink more craft, they're drinking less total beer. Look at two other craft-centric states: Oregon and Colorado. In 2002, Oregonians consumed slightly more beer per capita than the national average. The state's per capita beer consumption then increased to about 2 gals above the national avg in 2007 before dipping 6.5% to 30.3 gals last yr (just 0.3 gals less than the 2002 stat). Per capita consumption dropped less in Oreg than the national avg as craft continued its ascent and smaller suppliers gained 6 full share between 2007 and 2012. In Colo, consumption dropped 7.1% in 5 years (less than avg) and 13% in 10 (more than avg) as dozens more brewers took root and gained share.

States with the largest drops in consumption since 2007 were Nevada, Washington and Florida: 3 beer markets of widely varying sizes, craft production and brewery counts, as well as small supplier share and share trends. While "all others" gained 2.9 share in Fla from 2007-2012, more than doubling, per capita consumption dropped 15% from above to below the national avg, as many construction workers lost their jobs and left. Nevada's per capita number fluctuates with tourism, also a factor in Fla. Washington's per capita consumption has shifted up and down over the last 10 yrs, but has remained steadily below avg. But ownership changes and a major tax hike for large suppliers compounded continued growth of craft there. Across our analysis of various indicators of craft growth, not a single one proved effective in predicting state-level consumption trends. Instead, myriad factors affect these stats, not least of which are broader economic trends, individual state tax code changes and wine and spirits consumption.



"All Others" Mkt Share is combined share for all brewers below top 5: AB, MC, Crown, HUSA, Pabst. Per capita consumption data from Beer Institute. Brewery count, capita per brewery from Brewers Assn. Go To

Just a coupla weeks after Dogfish Head founder Sam Calagione went public in CBN seeking at least "transparency" when wholesalers have ownership stakes in craft brewers (see Jun 26 CBN), Brewers Assn has adopted a position statement calling for just that. "Transparency in Brewer-Distributor Relationships" notes the "significant risk" craft brewers take when appointing a distrib and need for mutual "trust and goodwill." Therefore, "our desire is for transparency so that a brewer entering an agreement with a distributor is aware of any direct or indirect ownership interest in any other brewery." Recall, Sam said such stakes make relationship "asymmetrical" and "pierce" 3-tier "integrity." Recall too, US' biggest distrib group, Reyes Holdings, told CBN that ownership stakes "tilt" the playing field and "only serve to weaken the three tier system."

A bit ironically, newest BA position statement joins others that support independence of distribs in 3-tier system and criticize big brewery branches, but also support "self- distribution" for small brewers, as well as direct sales to consumers. In fact, two of these position statements include language that "such right" or "such capability" is "not intended to bypass the three tier system," even as they explicitly do. So in effect, BA supports 3 independent tiers, while wanting to assure small brewers can be each of them. Of course, small brewers far from the first players to seek 3-tier carve outs.

Meanwhile, some distrib advocates speak of protecting "pure" 3-tier systems, especially as they work to pass anti-branch laws (sometimes with support of craft brewers). But veteran alc bev atty Richard Blau reminds: "No jurisdiction in America enforces a pure 3-tier system." To enforce that, you'd have to toss all brewpubs and farm wineries, he points out, which ain't gonna happen. Indeed, more and more such carve outs are being introduced and passed by state legislatures. On issue of distrib stakes in brewers, barring cross-interests would be "untenable and counter-productive," Richard believes, given impossibility of "policing" financial interests in a global economy and the fact that such a system could cut off capital to "struggling industry members at times when they need it most." Certainly AB would argue some of its interests fit the latter situation. And one distrib who owns piece of craft brewer told CBN that his investment happened when brewer just started up, desperately needed money and for the first 6-7 years he "thought it was a waste of time" and money.

Richard does second Sam on transparency, which he calls "a must…. There is no reasonable argument against Sam Calagione's contention that transparency will reduce the risks of unfairness. Cross-tier interests in some cases may produce 'asymmetrical relationships,' but transparency at least puts the third-party on notice so that contractual protections can be put into place to reduce 'sibling rivalry' by assuring equal attention to brands, protection of confidential or proprietary information, etc."

Richard suggests that distributor stakes should perhaps be allowed "when they are kept small" and would have to be "liquidated" if the small brewer gets to a certain size, kind of like volume caps for other exceptions. That would be a valuation challenge, but doable, Richard believes. Bigger issue may be erosion of 3-tier that such exemptions bring about. "Large manufacturers might reasonably cry foul for not having an equal opportunity" to invest in distribs, Richard suggests. Then too, "large, multi-state retailers that find current alcohol laws too constraining might welcome the further dilution of traditional regulation. And the wholesalers? They just might find themselves in a dilemma - wanting the additional opportunities, but fearing the further unwinding of their cherished three-tier system. Which harkens us to the shibboleth: Be careful what we wish for…"

CraftWorks Restaurants and Breweries announced $10 mil brand "refresh" of its Old Chicago chain recently, covering three-quarters of the chain's 96 outlets. Revamp places greater focus on beer offerings, according to a Boulder Daily Camera report. Senior marketing mgr Will Powers described the chain as a "casual dining establishment with an emphasis on craft beer," and told the paper it could expand to 300 locations in 3-5 yrs or 500 in 7-10 yrs. Gordon Biersch and Rock Bottom (also owned by CW) re-do's are in "beta testing stages." CW operates between 30-40 GB and RB's each, plus another 8 unique restaurants. Other major brewpub chain, BJ's has already opened 5 new locations in 2013 and plans 12 more by the end of FY13. It's rolling out new "large format" Restaurant and Brewhouse outlets as it expands at some of its 134 locations.

Have a great 4th of July weekend!