In an attempt to differentiate themselves from their competition, craft breweries in Michigan and nationwide have started to infuse various combinations flavors into their beers.
While not all consumers embrace the latest lime lager or cherry stout, the trend toward using flavors has created a nascent market for producers of concentrated juices and flavorings, many of which now look to supply their products to the ever-growing cadre of craft brewers across the country.
Many brewers prefer to flavor their beers with fresh ingredients, but using concentrates and extracts can offer a handful of advantages, particularly for smaller producers, said Jonathan Davis, president of GLCC Co., a Paw Paw-based supplier of flavorings.
“To get the citrus peels and keep them fresh and get a consistent flavor out of them is difficult,” Davis said. “If you take those same peels and you extract them by pressing out the oils, it comes to the same thing only you have a more consistent product.”
GLCC blends natural flavors that are used to enhance and strengthen the flavor of commercially made concentrates.
Using flavors can also be more cost effective for smaller brewers who lack the space to store large quantities of citrus peels or raw berries. A 5-gallon container of concentrate can flavor between 2,500 and 5,000 gallons of beer, while a small liter container can flavor between 130 and 260 gallons of beer, Davis said.
GLCC, which primarily sells its products to large juice producers, began marketing to craft breweries two years ago after realizing how many companies were entering the industry, Davis said.
The company was one of more than 835 vendors who exhibited earlier this month at the BrewExpo America trade show during the Craft Brewers Conference in Philadelphia.
While craft beer customers represent just a small percentage of GLCC’s total business, Davis expects that to continue to grow as more breweries incorporate flavors into their brewing process.
“It’s only natural considering there are so many breweries around to look at the breweries as well,” Davis said of the company’s attention to the industry. “What we’ve noticed is that the reason why people like to keep coming back to the taproom is because they have a variety of different products. A lot of them are growing into fruit products and we’d like to be part of it.”
GLCC also markets its flavoring to cideries and wineries, Davis said. The company will generate approximately $4 million in sales this year and employs 19 workers.
GAINING TRACTION
The reason GLCC and a handful of other flavor companies exhibiting at the BrewExpo are targeting the craft beer market is clear: Fruited IPAs are among the fastest growing sectors within craft beer.
In a presentation during the Craft Brewers Conference, Daniel Wandel, principal of beverage alcohol client insights at Chicago research firm IRI, noted that sales of fruited, veggie and spiced IPAs grew 844 percent in the 12-month period ending March 30, 2016. Meanwhile, flavored products made up 8.7 percent of overall craft beer sales by dollar last year, up from 6 percent in 2011, according to IRI.
“The trend that we’re starting to see spread throughout the category is the flavor occasion, if you will, of beer,” Wandel said. “In the craft space, we’re talking about fruit, veggie (and) spiced beers. … I believe easily by the end of this year, it’s going to exceed a 15 (percent) share. You can see the bigger role flavors are starting to have within the beer category.”
The move to flavored products has played out for Michigan fruit growers as well.
Central Lake-based King Orchards Inc. northeast of Traverse City began marketing its cherry concentrate to brewers in 2013 and has since grown its client base to more than 200 producers across the country, said co-owner Jim King.
The 400-acre family farm, which grows a variety of fruit crops including cherries, pears and apricots, uses the entire crop in its concentrate, instead of only using lower quality fruit, King said.
King Orchards, which also exhibited at the BrewExpo America, contracts with an unnamed third party to process its fruit into concentrate.
“I think that not just the brewing industry, but between the cideries, the meaderies, breweries, distilleries and wineries, there’s been a huge impact on agriculture,” King said.
Of the many flavors used by brewers, tropical flavors have increased significantly as brewers increase production of citrus-flavored beers such as grapefruit IPAs and session ales, which often have a fruit component. Tropical flavors make up 8 percent of the flavored market and have increased 251 percent in the 12-month period ending April 2, according to a report from research firm Nielsen. Meanwhile, the use of fruits such as blackberry, apple and raspberry have declined, according to the report.
A NICHE MARKET
For flavoring makers and producers of concentrate, tapping into the craft beverage industry also gives the companies a way to diversify from the often volatile fruit juice and beverage industry they typically serve.
“When you’re a small company like ours in the food industry, there’s a lot of buying of one another,” Davis said. “We’ve had years and years where we worried we had too much business with too few customers. What we really like about this is the opportunity to sell to a lot more people. If one of them gets in trouble and you lose the business, well, it’s disappointing, but it’s not the end of the world. If you have 30 percent with one company, you can be in trouble.”
While flavoring companies and fruit growers welcome the increasing interest in concentrates among brewers, they’ve had to make some adjustments to their business model to successfully market their products.
Primarily, small brewers typically purchase flavor in smaller containers than the 5-gallon industry standard, Davis said. To account for that, GLCC has started to package a standardized list of flavors in packages as small as a liter.
“You need to be more accommodating and realize they’re smaller operations,” Davis said. “If you can get enough of them, it makes a reasonable business and that’s the way to market to them.”
Sidebar: The ‘vodkafication’ of beer?
Some industry watchers wonder if the influx of flavored products is a good thing for the craft beer category over the long term.
Beer Business Daily Executive Editor Jennifer Litz-Kirk noted that the growing push of the “fruit salad IPA” could send the category on a similar trajectory as flavored vodka.
In a presentation on beer trends during the Craft Brewers Conference, Litz-Kirk said the tropical flavored beers could be reaching unsustainable heights.
“It’s getting a little faddish, in my opinion,” she said. “Every time I turn around, I see another fruit salad IPA.”
Litz-Kirk and other industry experts think the flavor trends run the risk of confusing consumers as well as eating into sales for breweries’ flagship brands.
But the news isn’t all bad. A case study Litz-Kirk cited on flavored vodka found the people who entered the category with flavored products tend to stick around after the newness wore off.
“But of course, beer is not vodka,” she said. “You don’t have vodka on tap. You don’t take off a flagship vodka brand to put on the new tropical fruit vodka brand. It does remain to be seen what will happen with beer for this.”
MiBiz Editor Joe Boomgaard contributed to this report.
