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Sunday, 01 March 2015 22:00

Michigan hard cider producers form new industry association

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Jason Lummen, owner of The Peoples Cider Co. in Grand Rapids and a member of the new Michigan Cider Association, thinks the industry is poised for growth as a growing number of consumers and retailers seek out the beverage. Jason Lummen, owner of The Peoples Cider Co. in Grand Rapids and a member of the new Michigan Cider Association, thinks the industry is poised for growth as a growing number of consumers and retailers seek out the beverage. COURTESY PHOTO: STEPH HARDING

Michigan’s growing base of craft hard cider producers have joined forces in a new industry association that aims to improve the supply of raw materials and drive awareness of the beverage among consumers.

At a time when numerous new operations are coming online and existing cideries are investing in expansions, the industry also faces its share of regulatory challenges, not to mention intense competition from other craft beverages. While the state already ranks among the top three in the nation for hard cider producers, the newly formed Michigan Cider Association wants to encourage even more growth.

To do that, producers needed to set aside their competitive nature and work for the good of the industry, said Paul Vander Heide, owner of Spring Lake-based Vander Mill LLC and the association’s president.

“We sell against each other, but we don’t do it in a way that’s negative to the other,” Vander Heide said. “We’re better off promoting what we have in a positive way for the category first. If we all do that, the category gets bigger.”

Representatives from Ada-based Sietsema Cider LLC and Tandem Ciders Inc. of Suttons Bay also sit on the association’s board.

The 501(c)(6) nonprofit organization spawned from the Great Lakes Cider and Perry Association (GLCPA), which includes members from Michigan, Indiana, Minnesota, New York, Ohio, Pennsylvania, Wisconsin and Ontario.

Michigan currently ranks third in the U.S. with 9.3 percent of the country’s cider producers, according to a report on the cider industry by IBISWorld.

“We thought there was a lot we could be doing as a state organization that may not be as much of a benefit to outlying states or could have specific benefits to Michigan cider makers and agriculture,” Vander Heide said.

The MCA plans to host the inaugural Grand Rapids Cider Week during the second week of April to coincide with the annual Great Lakes International Cider and Perry Competition, which is also being held in Grand Rapids. During the weeklong event, MCA members plan to sponsor and participate in various programs and tastings throughout the city, Vander Heide said.

GROWTH MARKET

The idea of establishing Michigan — and West Michigan, in particular — as a destination for craft cider is a distinct possibility especially as the beverage continues to catch on with consumers, said Jason Lummen, owner of Grand Rapids-based The Peoples Cider Co. LLC and a member of the MCA.

“I think the biggest difference for me in the last two and a half years here is I no longer have to convince a bar owner to carry cider on draft,” Lummen said. “I now only have to convince them to carry my cider on draft.”

Regionally, new cideries have continued to crop up as companies look to capitalize on the growing industry. Newcomers including Hudsonville-based Farmhaus Cider Co. and Ridge Cider LLC in Grant plan to open and begin distribution sometime in 2015, according to the companies’ websites. The dedicated cideries join a growing number of microbreweries in West Michigan that can produce cider under a small wine maker license.

Existing cider companies are also taking the opportunity to increase capacity to meet customer demand. In January, Vander Mill announced a $4 million investment to open a 40,000-square-foot production facility and 4,000-square-foot taproom in Grand Rapids. Vander Mill plans to purchase four additional fermentation tanks that will boost production capacity to approximately 35,000 barrels per year. The company will have the space to increase production to 300,000 barrels in the future. By comparison, Vander Mill’s current Spring Lake facility has 3,000 square feet of production space and produces approximately 8,000 barrels per year.

“Production is our number one focus as far as the expansion is concerned,” Vander Heide said.

While the new facility “came at a significant premium” compared to sites in other municipalities, the location gave the company better access to the larger Grand Rapids market, Vander Heide said, noting the project was necessary to grow the business.

With the additional capacity, Vander Mill plans to push deeper into the Ohio and Indiana markets while avoiding over-extending itself, he said.

On a larger scale, the cider industry has grown nearly 700 percent since 2009 to reach $293 million in revenue in 2014, according to the IBISWorld report. Large corporations such as Boston Beer Co. with its Angry Orchard brand and C&C Group PLC, which owns Vermont Hard Cider Company LLC and the Woodchuck brand of cider, maintain about 84 percent of the market and have been responsible for most of that growth.

Going forward, the larger corporations and smaller craft enterprises will continue to grow together within the industry, sources said.

“We’re just scratching the surface of the national audience as people develop a palate for craft cider,” said Lummen of Peoples Cider.

Unlike in the beer segment where craft producers are taking on massive, established corporations, the players in the cider industry are starting from nearly the same position, Lummen said.

“It’s like the (industry) is building Budweiser and exclusive craft beer all at the same time,” he said.

While the industry should continue to expand, the IBIS World report predicts that revenue growth will plateau over the next five years as the market for cider stabilizes. Revenues for the cider industry overall are expected to grow 92 percent to $560 million by 2019, according to the report.

CIDER ACT

As the cider industry continues its growth trajectory, both national and regional industry associations have lobbied to change the federal tax code to give producers more flexibility in crafting their beverages.

Under the current law, hard cider may contain up to 7 percent alcohol by volume before it is taxed as a wine under a higher rate. Similarly, the beverage must maintain a relatively low level of carbonation before it is taxed in an even higher bracket with champagne.

However, those requirements can significantly hamper cideries trying to meet consumer tastes and expand their offerings, Vander Heide said. For instance, some varieties of apples naturally produce cider with a higher alcohol content than what the law allows, he said, noting that consumers also tend to prefer a higher level of carbonation than is acceptable under the law.

The fluctuation between the classifications of wine and champagne can also lead to significant tax ramifications for cider producers that cross the threshold, which is easily done when relying on a volatile measurement like carbonation, Vander Heide said.

Producers that misjudge the alcohol or carbonation content could face a tax rate that’s 208 percent to 1,900 percent higher, according to the United States Association of Cider Makers.

“There’s such a huge tax ramification and so little definition of knowing if you’re in the right spot that it needs redefinition to align itself with the industry,” Vander Heide said.

That case for redefinition led to the creation of the proposed Cider Industry Deserves Equal Regulation (CIDER) Act, which was reintroduced to Congress this year by U.S. Rep. Earl Blumenauer, D-Oregon, and U.S. Rep. Chris Collins, R-New York. Originally introduced in August 2013, the CIDER Act — also known as H.R. 600 — would raise the maximum alcohol content of hard cider to 8.5 percent alcohol by volume and nearly double the allowable carbonation content. The new act would also allow pears to be used under the cider category.

Ultimately, the proposed legislation along with the creation of the Michigan Cider Association are necessary steps forward for the growing industry to keep up with consumer tastes, Vander Heide said.

“Anyone with 12 tap handles should have at least two ciders,” he said. “If they don’t, they’re not keeping up with what the consumer wants. If we can get cider a little bit more mainstream and continue to bring it into the world of craft beverage, then that’s the right spot.”

 

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