06 Nov The Pros and Cons of Out of State Breweries Coming to Indiana, and Why It’s Happening
by Mark E. Lasbury for Indiana On Tap
Last time we introduced the four out-of-state breweries coming to Indiana or already here. Since they are in different parts of the state (South Bend, Indianapolis, and Jeffersonville), not everyone might be aware of all four – but four makes a trend. I think this trend is really the extension of the off site taproom explosion. It’s a way of growing without losing as much of the home brewery feel, and to expand without as large an investment.
Note -I feel I should correct something from last week’s article first off. After talking with the people at Goodwood Brewhouse & Live Room, I came to realize that by almost every definition available, this is an Indiana brewery. They will brew in Indiana (brewhouse is coming next, right after the restaurant area renovation is done), they have a different focus and philosophy than the Louisville brewery, and most importantly – they are owned by a Hoosier and have completely separate ownership from the Goodwood in Louisville.
Therefore, Goodwood Brewhouse & Live Room is by all accounts an Indiana business. The name thing is just a means of getting a foot in people’s door quickly, much like when Tin Man Kokomo opened. They were a separate business from Tin Man in Evansville, but bought beer from Tin Man and licensed the graphics and such – same thing here. There, I feel better about knowing that and getting it out to you. So, now we really have three out-of-state breweries in Indiana; it is still a valid subject for discussion, and I doubt these will be the only three we see in Indiana in the next couple of years.
To be clear – Goodwood Brewhouse & Live Room in Jeffersonville is as much an Indiana brewery as you can be, it just has the name of a Kentucky Brewery. image credit: Goodwood Brewhouse & Live Room
Why are non-Indiana breweries coming to Indiana? The idea of breweries from other states opening in Indiana does come with questions. How and why is it happening? What are the differences between the different situations for the new Indiana breweries? What factors might make it more appealing and likely to succeed for all parties involved? What are the pros and cons of the situation in the opinion of the breweries coming to Indiana and Indiana breweries?
The why is easy – to make money. Indiana is a strong community for craft beer. Our breweries are high quality, we are in an period of strong growth (we are +11 for 2019 even with more closings than ever), and we aren’t close to a saturation point in many communities. It isn’t surprising that people want to be here; consider how many breweries have begun distributing in Indiana in the last couple of years – do you think they’d come if they didn’t think they could sell beer?
The second reason breweries are coming to Indiana is because expanding is getting harder and harder. Once you have covered a good part of your state, then the only choice is to open off site taprooms in your own state (something many are doing), start distributing in other states, or open up in other states. The distribution route is the most common, but it also has the worst margin and is the most impersonal.
If a brewery already has a good pull from their own state and they are located near a border, then opening off site taprooms in your own state is going to have diminishing returns over time, but it is more personal – people get to know your people and your brand better, and that’s how you build brand loyalty. That leaves opening a brewery and/or taproom in an adjacent state. If you brew on site, you get to keep your margin high, and you get to expand your neighborhood with a location people can learn to love.
Indiana does have some room to grow, especially in the production and consumption categories. But do people want that growth to come from within the state or outside? image credit: Brewers Association
Expanding is becoming harder, as voiced by a Craft Brewing Business article from May of this year (here) – “people are now thinking more about expanding via new buildings instead of new shelves.” This applies to breweries both in and out of state. If you want to sell a good deal more beer, you can invest in a very large brew house and distribute a lot of beer, but the margins mean you have to make a lot and sell a lot. A viable alternative is to go out of state, open a small brewhouse for less money there, sell out of the taproom for good margins, and build a bigger neighborhood that way.
Ellison Brewery + Spirits and BrewDog have moved a bit farther from home to do these new locations, but for Greenbush Brewing, the move is barely 25 miles and Goodwood’s name and brand (not profits) are only expanding by a mile or so. Yet, in the scheme of things, even the expansions of Ellison from Lansing to Indy and BrewDog from Columbus, OH to Indy aren’t really that far. This mirrors the locations off site tap rooms for so many Indiana breweries, MashCraft expanded from Greenwood to Indy and Fishers, HopLore is expanding from Leesburg to Warsaw, and Chapman’s Brewing expanded from Angola to all over northeastern IN. Really, the farthest one will be 18th Street Brewery coming to Indianapolis, if that ever opens (they now say spring, 2020).
Look at the out of state thing as an expansion of the trend of breweries opening off site taprooms and small batch brewhouses within their own state – we have 30 or so here in Indiana alone. I think it is telling that most of the articles that talk about expanding via new locations rather than getting big at one location have been published in the last 12 months. The trend is real and people notice. Greenbush, for example, is space limited in Sawyer, but have no such problem in South Bend.
The third reason people are expanding off site, and sometimes this means to new states, is to take advantage of the economies of scale of being bigger. Some parts about expanding, like a much bigger brewhouse, mean investing lots of money, but if you open a second taproom or a brewery out of state, you can still take advantage of better pricing for some items. Hops bought on contract can be cheaper, as can malt. Ellison is trucking malt down to Indy from Lansing to advantage of that pricing. Even with ordering special totes and an auger system o handle the, they save a lot of money. Plus, they are using a brewhouse in Indy that they already owned.
By saving money on printing, packaging, ingredients, and marketing, breweries can open in a second state for much less money than it would take for a new brewery to be planned and get operating. The costs of real estate and an additional brewhouse and brewer in a second state (if you will brew) are offset by other savings and by the fact that they will make more money on every beer sold as compared to distribution.
Upland has chosen several ways to expand, distribution out of state, greatly expanded capacity, and a ring of off-site taprooms and breweries. One thing they haven’t done yet is open a location out-of-state. image credit: Growler Magazine
How do breweries look to make an expansion succeed? There are issues that breweries consider when looking at opening up a second location, whether it is in state or out-of-state. The idea of just where to go is primary, and many sources say to expand in concentric circles, like the Soviet Union did (OK, I added that last part). One of the main ideas is to immerse your brewery in the new community, even before opening. Ellison-Indianapolis did this by asking people from businesses around their location what they would like to see on the menu. Goodwood did this by having so many concerts using local talent.
Third, the breweries that succeed in expansion don’t look to recreate their success the same way in each location. They dive into the local culture, the local beer scene, and the local arts in order to be what those people want – this isn’t a McDonalds situation where every one should be exactly the same. Finally, those that succeed get the professional help to do all the things above well – a local marketing firm, a local marketing representative. Thy let the people who know the area help them understand, fit in, and win people over.
With Greenbush (and Goodwood) opening so close to home and Ellison having friends and family that they have visited in Indy for many years means that they had good knowledge of their new homes before they got started. And BrewDog has the resources to hire the best help to make their Indy location a success. Plus, with all locations being close to their motherships rather than across the country, decisions and problems are easier to handle. It looks, from the outside, like each one has maximized their chance of being successful – for what they are doing.
I do think Ellison, Greenbush, for that matter, Goodwood, will ultimately be seen as more part of the community since they will be brewing on site. Every location needs to have it’s own beer personality, and what is popular in one location may not work as well in another location. By brewing on site, your patrons have a sense of ownership of the beer, see a brewer at work in that location, and have a relationship with the brewery to a much greater degree than buying beer in a package store. OK, maybe that only applies to beer geeks – it could be that many drinkers never think about such issues.
With a larger, already successful brewery nearby, could a local Hoosier lose out on gaining capital to open their own brewery? Does it matter if that competition is from Indiana or from out of state? image credit: realtor.com
Pros and cons. We’ve talked about many of the pros for the breweries as to why they open in an additional state(s). The economies of scale, the extending of the neighborhood, the better margins, and heck – us the ability to sell a lot more beer. Your beer in this situation carries your experience with it. The beer, for lack of a better word, lives for the patrons rather than just exists. Brewing on site is also a pro in my opinion, for all the reasons stated above.
There are pros for the local community too – more choice, jobs at the taproom/brewery, tax revenue staying locally, collabs with the local brewing community. But there are also potential negatives to having out of state breweries come to town. My two biggest concerns are with money and opportunity. The money takes the form of profits – with an out-of-state brewery taking in Indiana cash, do the profits stay here to help Hoosiers, or are they going away to help another community? Re-invested profits are what build businesses, and if Indiana money is sparking that growth, I’d like the growth to take place in Indiana.
Second, and I don’t have concrete proof that this has happened or would happen, is with opportunity. Is there an Indiana resident out there who is looking to open a brewery and who might not do it because an already successful brewery has moved in to their locale? Is there capital that won’t be available because of local saturation, local competition, or the idea that how can this individual go up against a bigger outfit from out-of-state?
Will a successful competitor close by from out-of state make it harder for a higher risk individual to get a loan or to open and get a strong foothold in the market while they are most vulnerable and trying to remain viable? Would an existing Indiana brewery be dissuaded from trying to distribute locally because taps and shelves just got harder to find? It’s definitely possible that one or all of these could happen.
I asked the breweries what thy think. What do you think about out-of state breweries? image credit: live your passion
What Indiana brewers and brewery owners think about the situation? I asked a bunch of Indiana beer people what they thought about out-of-state breweries coming to town. Some wanted to remain anonymous, and I have decided that perhaps it’s best if I just give you’re their opinions and not their identities. In general, they come down in favor of competition helping the best breweries survive, but there is a great diversity of opinion and thought. They said:
– It definitely adds to saturation and hurts local breweries. I think it’s time Indiana breweries go out of state too (note: there is only one example of this, Books & Brews has a franchise location in Oxford, OH)
– The issue is mostly noise and doesn’t matter much in the long run. New places open all the time, and national/regional breweries are like national or regional chain restaurants. Mostly it is about making good product, but the several places that have tried it have seen mixed results. More jobs, but profits do leave the area.
– Several owners/brewers reiterated the idea that, like politics, a lot of brewing is local. Some took the side that if it isn’t around me, I don’t care, and some voiced the idea that whether it is close to them or not, the affect will be greatest at the neighborhood level. It may take away some business from a local spot, but only if it’s doing the job better in the long run (novelty wears off fast).
– Hoosiers are loyal to local, even though they sell regional and national, their own stuff always sells more. Same way around the state – it’s good and it’s local, so it’s going to sell
– Craft beer is more mature than many realize – it’s a matter of change or die. Experience is still the number one thing
– people are feeling the pinch and opening more sites is a way to deal with it.
– there are spaces where a local brewery could open – but those aren’t the places that an out of state brewery is going to look to.
– we grow with our community, not with the market – as long as out of state feels the same way, it could work.
– more out of state may increase temporary saturation – they will survive or not.
The general consensus – competition is good, whether it comes from inside the state or outside. image credit: enlighteninglife.com
– I personally don’t feel that competition is a bad thing. In fact I think the opposite. I think it is good for the brewing industry as a whole because it separates the cream of the crop.
– The worst thing for our industry is how a bad beer experience effects the “beer tourist.” In order for our market share of beer to grow we need to have new people that are not just checking things out but switching over to craft. I would prefer to have people have positive experiences with beer whether its from in state or out of state.
– Indiana is far from saturated from the craft beer standpoint in fact we rank very low compared to other states with craft beer consumption. In addition growth at the rate that openings have been happening is not a sustainable model regardless of whether it’s in state or out of state.
– the entire industry is headed toward more local/community breweries. Patrons are loyal to local. We’re not threatened by out of state taprooms because it leads to a larger demographic that enjoys craft beer and its experience.
– I believe that in some cases, the help to the local community is already happening – a good out of state brewery helped get several Indiana breweries going by helping to train good brewers.
– I can see that there might be some positive impacts – BrewDog has made it part of their mission to convert diet beer drinkers to craft beer drinkers, so perhaps their presence will grow the craft beer market share; and for all of the breweries & tap houses that you mentioned, there could be an increase in beer tourism in that town which could positively impact revenues on the weekends. However I do believe the net effect will be more competition. These out-of-state places have bigger operating budgets and can frankly overwhelm prospective customers with marketing material and the local brewers will either need to find a niche and fight to maintain their market share or lose business. It is certainly possible that some of the breweries that are already struggling will succumb with another big player in their town or city.
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