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By Nathan Peck | FoodBiz
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Shrinking distribution channels signaling growth of craft beer in Michigan
WEST MICHIGAN — When a company decides to pull out of a market, is that a good thing? For several Michigan brewers, refocusing their distribution on local markets reflects growth internally.
Rather than expand their reach, companies like Arcadia Brewing Company and Founders Brewing Company are retrenching to focus on exploding growth in their backyard.
Tim Suprise, president of Arcadia, said the company has taken a hard look at its books and decided to suspend its sales to the east coast altogether. As the company looked at its fulfillment rates, the company’s leadership realized that they were leaving money on the table, filling only 65-70 percent of distributors’ orders in its existing markets.
“We’ve actually drawn the circle a little tighter to accommodate a tremendous amount of growth within Michigan and the greater Chicago market,” Suprise said. “That has been a necessary component in our strategy to ensure that we’re taking very good care of our customers in Michigan.”
Arcadia is in the midst of searching for a new production and packaging facility that will enable the brewery to expand its capacity to 60,000 barrels annually, up from 10,000 barrels today. While the company has taken pains to fund its growth organically to this point, Suprise said Arcadia’s leadership is looking at all its options to fund the project, ranging from traditional bank financing to private equity offerings.
“We are kind of busting at the seams here, so we’re looking at building out that capacity. We’ve funded all our growth and development up to this point,” Suprise told FoodBiz. “At this next level, it is almost impossible to fund it yourself. We will adjust that strategy quite appropriately for the capital markets. We’ve got some pretty significant growth, and that’s without the money we’re leaving on the table right now. We’re very hopeful to be putting a plan together.”
Mike Stevens, president of Founders Brewing Company, said that the company has recently finished its $7 million expansion project and now occupies most of a city block on Grandville Avenue in Grand Rapids. The facility is expanding its 45,000-barrel capacity with a new brewhouse and 10 new fermenters that will bring its capacity to 110,000 barrels. There is room to grow capacity to 200,000 barrels if needed.
“I look at it and say, it is not about the size that you get or the amount of barrels you’re putting out. It is more about the product. We’ve always been a very product-driven company and put our focus there,” Stevens told FoodBiz. “We had the theory that wherever (sales) takes us, it takes us. When you build a successful product, then comes the responsibility to the consumer to give them that product. We’re fortunate to be in a good position because of our customers. We view growth in new markets as secondary to satisfying our customers in existing markets.”
Founders has no plans to grow its geographic footprint, citing sales growth in existing markets that has hovered around 70 percent in recent years. That growth is allowing the company to pay down its debts incurred during expansion by next year.
“Now it is time to take this car out and test drive it and see what it can do. We’re now in a position to finally do it. 2012 will be an interesting year. We’ll be unencumbered,” Stevens said. “Once we max out our new brewhouse, we can produce 200,000 barrels if the world wants it. We see continued growth — some really exciting growth over the next three years for sure.”
One craft brew operation, Short’s Brewing Company in Bellaire, has never looked to distribute outside the state. The brewery produced 8,300 barrels last year and has recently invested in expanding to 14,000 barrels. Scott Newman-Bale, CFO and business partner with Joseph Short, said the duo had differing opinions about how large to grow the business. Short’s is growing at a 75-percent annual rate, and Newman-Bale said that sort of growth is difficult to maintain, in part because of the constant need to invest in infrastructure to enable capacity growth.
“We already reached our target size in Michigan. Joe and I had a few different ideas: I wanted to make it larger, he wanted to keep it small,” Newman-Bale said. “We are willing to grow now. As much as Michigan people will want to drink, we’ll make that much beer. We expect things to slow down growth-wise. There is still plenty of growth to be obtained in Michigan. Craft beer is talked about a lot more, (but) I don’t know how big we will get.”
Joe Cekola, president and CEO of beer, wine and soda distributor Imperial Beverage in Kalamazoo, said that the growth in craft beer is helping drive expansion plans for the 78-year-old company.
“There has been a significant change in consumer drinking habits — it has been quite drastic. Consumers are drinking less and less ‘commodity beer’ and are spending more on specialty, import and local beers,” Cekola said. “People want to experiment with new brands — they aren’t interested in the yellow fizzy stuff.”
The growth in these markets is driving a need for the company to expand its Kalamazoo operations. The existing Imperial Beverage facility is 74,000 square feet, and houses its headquarters, main warehouse and office staff. The new building will have a total footprint of 605,000 square feet. The facility is currently limiting Imperial’s portfolio to 4,000 products.
He points to Short’s product portfolio — Imperial is the sole distributor of the brewery’s products, which total more than 40 products each year. Compare that to Imperial’s portfolio 25 years ago — just 200 individual products.
“For us, this has been about being in the right segment to establish ourselves as a leader in the craft beer and fine wine market,” Cekola said.
