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Saturday, 29 April 2017 06:00

Suppliers carve out niche with growing set of small craft breweries

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Greenville-based Psycho Brew co-founder Chris Breimayer, left, said the company has worked to generate business from the many small, neighborhood breweries that have opened recently. The majority of the company’s sales are for 7-barrel brewing systems or smaller, he said. Greenville-based Psycho Brew co-founder Chris Breimayer, left, said the company has worked to generate business from the many small, neighborhood breweries that have opened recently. The majority of the company’s sales are for 7-barrel brewing systems or smaller, he said. Courtesy Photo

Dynamics within the maturing craft beer industry are creating new growth opportunities for suppliers. 

While the pace of production growth in the overall craft beer market slowed in 2016, the number of small neighborhood craft breweries continues to expand at a rate of more than two per day, according to data from the Brewers Association

That dynamic has led suppliers such as Greenville-based Psycho Brew LLC to form a niche serving smaller producers. 

While the manufacturer of brewing equipment sells larger capacity products, the majority of its sales are dedicated to 7-barrel brewing systems or smaller, said co-founder Chris Breimayer.

“On the smaller scale, we see things moving more so on that side of the market,” Breimayer said. “With the large equipment, most people are trying to get into distribution and stuff like that. Most of the stuff that we sell is mainly for startups and for brewpubs.”

Concentrating on smaller breweries also allows Psycho Brew to get in on the ground floor with customers, who typically return to the company for more brewing equipment.

“As they grow, we can grow with them as well,” Breimayer said. 

So far, concentrating its sales on smaller breweries has proven profitable for Psycho Brew. The company generated $2.5 million in sales for 2016, according to Breimayer, who’s forecasting $3 million this year. 

Going forward, the company plans to add more products such as electrical systems to control brewing equipment, and potentially larger brewing systems. 

Psycho Brew is far from alone in capitalizing on the proliferation of smaller new breweries. Suppliers of a variety of products have increasingly shifted their offerings to target smaller craft brewers. 

In Michigan, about three-quarters of the state’s breweries, excluding brewpubs, sold less than 1,000 barrels of beer last year, according to an analysis of state tax data. 

A similar story holds true nationally. 

“In 2015, 75 percent of breweries were less than 1,000 barrels,” Brewers Association Chief Economist Bart Watson said during a press conference in March. “Those breweries collectively made less than Sierra Nevada, which made less than 1 percent of what (Anheuser Busch) makes in the United States. The vast majority of these breweries are very small. I think it will pose opportunities for suppliers that modify their offerings. There are challenges there, but these have been challenges that they’ve faced for three to five years now.”

The smaller breweries have also posted the most growth recently, albeit off a smaller base. According to Brewers Association data, microbrewery production grew 27 percent and reached 5 million barrels, while regional breweries grew less than 1 percent, producing nearly 18 million barrels of beer. 

It’s unlikely that growth among small brewers will slow anytime soon. Approximately 2,400 unopened breweries have obtained federal permits through the Alcohol and Tobacco Tax and Trade Bureau (TTB) and could to open at a later date, according the Brewers Association.

For Omena-based Michigan Hop Alliance, catering to these small brewers was integral to surpassing $1 million in annual sales from its hops brokerage business, said co-founder Brian Tennis. 

While Michigan Hop Alliance grows its own hops on roughly 60 acres, the company has seen increasing interest from brewers looking to purchase hops in small orders, primarily between 11 pounds and 44 pounds, according to Tennis. 

“We fill a niche for guys who are looking for spot market stuff and they’re not going to write a contract with some of the larger distribution centers that need to sign three- to five-year contracts,” Tennis said.  

Michigan Hop Alliance’s brokerage business maintains nearly 700 accounts across the U.S. and recently entered the European market. 

Providing brewers with flexibility also has driven orders for Kalsec Inc.’s hop oils and extracts business. The Kalamazoo-based manufacturer of flavor extracts, food colorings and other products saw its online retail business for hop oils and extracts increase 5 percent in 2016 compared to the previous year. 

Kalsec sells its oils and extracts through Amazon, which allows brewers to purchase small orders with more commercial methods of payment, said Gary Augustine, the company’s executive director of market development.

“It gives them the flexibility to change different flavor profiles without having to commit to large hop variety purchases,” Augustine said.

Moreover, the products also give brewers the ability to make quick changes to their beers based on consumer demand. 

“The consumer is getting used to very boutique and very specific flavors and a lot of varieties and a lot of choices,” Augustine said. “The difficulty is trying to manage the supply chain of getting that hop variety to meet the consumer demand, which could change very quickly. … We give them a little more of an advantage in being able to move and change as quickly as the consumer demand changes, which seems to be the norm now, rather than the exception.” 

MiBiz Editor Joe Boomgaard contributed to this report.

Read 2091 times Last modified on Saturday, 29 April 2017 06:50
John Wiegand

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