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Local breweries thriving in a crowded market
20160318-Hunter Smith
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Credit: Ryan Kelly, The Daily Progress
Hunter Smith, president and head brewer at Charlottesville's Champion Brewing Company, sits in front of his Woolen Mills production facility.
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Aaron Richardson | Saturday, March 19, 2016 at 4:35 p.m.

The patios, decks, courtyards and gardens of Central Virginia’s growing number of small breweries are heaving this time of year. As the first rays of an early spring chase off the last of the cold weather, people thaw around the tables and fire pits at their favorite local watering holes.

The Charlottesville area is soaked in craft beer, and the trend is only growing. Nationwide, the story is the same. Craft beer’s volume share in the beer market grew 11 percent in 2014, producing more than 22 million barrels of beer, according to statistics from the Brewers Association.

Around the country, more than 600 breweries opened in that same year, while only 46 closed, association numbers showed. Last year, the United States passed 4,000 operational breweries, nearing a record that has stood since the 1870s.

Virginia, association statistics showed, has 78 craft breweries, which generated more than $1 billion in economic impact in 2014. Nationwide, craft breweries had a more than $55 billion impact.

All that attention to craft beer, a niche that has grown steadily as the overall beer market has shrunk, has attracted the interest — and money — of beer giants such as Anheuser-Busch InBev and MillerCoors.

Anheuser-Busch InBev, known for producing Budweiser, snapped up Colorado’s Breckenridge Brewing, Arizona’s Four Peaks Brewing and Camden Town Brewery in England in the span of five days in December, according to Fortune magazine.

Area craft breweries

» Starr Hill Brewery, Crozet
» Pro Re Nata Farm Brewery, Crozet
» James River Brewery, Scottsville
» C’Villian Brewing, Charlottesville
» Champion Brewing Company, Charlottesville
» Three Notch’d Brewing Company, Charlottesville
» South Street Brewery, Charlottesville
» Blue Mountain Brewery, Afton
» Blue Mountain Barrel House, Arrington
» Devils Backbone Basecamp Brewpub, Roseland
» Wild Wolf Brewing Company, Nellysford

The purchase of smaller-batch, esoteric beers poses a challenge for those trying to make their mark as locally owned independent operations, some area brewers said.

“The primary concern for an independent brewery owner is that they are good at marketing and advertising and things like that,” said Hunter Smith, president and head brewer at Charlottesville’s Champion Brewing. “Without customers doing a ton of independent research, it’s really easy to sell a [non-independent brand] just like it is the product of a small-town handmade craft brewery ... That is where independent brewers like myself have concerns.”

Smith, whose brewery opened on Sixth Street in 2012, said his primary concern is making sure consumers know what they are drinking, and where their money is going.

“It’s really important to know who owns your brewery, because the beers will still be good,” he said. “But [what if the money] all goes up to one office in South Africa or Belgium?”

Neither Smith, nor Robbie O’Cain, brewmaster at Starr Hill Brewery in Crozet, are worried about the overall quality of craft beers diminishing after being purchased by international giants.

“People want to buy the same beer, they would be crazy to go and mess with that,” Smith said. “Of course they are going to want it to taste the exact same, because nobody is going to buy it if it starts to change.”

The real danger for small brewers, said Bart Watson, chief economist at the Brewers Association, comes from companies like Anheuser-Busch InBev and MillerCoors’ ability to control distribution networks.

Anheuser-Busch InBev late last year announced a plan to incentivize independent distributors who carry a certain percentage of their products. The program could provide up to $1.5 million for distributors who sell 98 percent Anheuser-Busch InBev products, the Wall Street Journal found.

That program is dangerous for small brewers, especially those just starting out, Watson said.

“We have no problem with AB incentivizing their distributors to sell more of their products. We have an issue with them incentivizing distributors not to sell competitors’ products,” he said. “This is an access-to-market issue for small independents. If one channel is now unavailable, they only have one option, and one option isn’t an option, it is a forced choice.”

That problem has not manifested itself locally, O’Cain said.

“That’s where you could have some issues, but so far with our wholesalers there have been no problems,” O’Cain said. “We have great relationships with them. They are very committed to the brand, they are committed to us, and we are committed to them.”

Worries about distribution also could be compounded by the sheer number of craft labels on the market, Watson said. As the number of labels expands and distribution becomes tougher, the days of independent labels like Sierra Nevada gaining a national foothold could be numbered.

“I don’t want to say it cannot happen … but certainly with 4,000-plus breweries in the country, the challenges are getting steeper,” he said.

The steep challenge of standing out in a crowded market means the era of the nationally distributed independent craft beer could be coming to an end, said Ryan Lake, a director at FirstBev, a Los Angeles-based investment bank and consulting firm focused on the beverage industry.

“My view, personally, and our view as a firm is that the window to becoming a national craft brand is closing. I don’t know how many more will become national,” Lake said. “I don’t know if there is room for five more national brands or if it is two or if it is 10, I just know it’s getting harder.”

For brewers, solving the size riddle is an ongoing task.

“That’s the million-dollar question, I think,” Smith said. “If consolidation starts taking all the opportunity for market share, then people have to start picking, OK, we can only be this big … I still think it is perfectly reasonable to think that everyone is going to have their little piece.”

Though competition promises to increase, Smith said, Champion has enjoyed steady growth in its four-year existence. The brewery produced 6,000 barrels of beer last year, he said, up from 500 in its first year.

He expects the brewery, which distributes throughout Virginia, North Carolina and Washington, D.C., to produce between 9,000 and 10,000 barrels this year.

“I don’t think that there is going to be a paradigm shift now that big beer wants to start carrying craft beer that we’re all screwed,” he said. “I don’t think that it’s going to change the underlying reason that people have always bought craft beer: that it tastes better, that it is made with better ingredients and there is a face and a name that you are supporting.”

Watson said growth has forced breweries to adopt novel business practices.

“We are seeing depth rather than breadth of distribution — focusing on one area, rather than many different places,” he said. “I think it varies based on business model. You can have people with a high-end niche, who sell a niche product over a broad network.”

Staying competitive also has meant brewers have found themselves needing experienced salespeople and a diverse range of products, Lake said. Those needs haven’t always been easily met.

“Sometimes the opportunities are there — it is just a matter of having the right brand to plug in there to make sure you are taking advantage,” he said. “There is a real fight out there to get good salespeople and keep them.”

For O’Cain and Starr Hill, competition is a welcomed motivator.

“Competition creates quality for the most part,” he said. “They’re pushing us harder. We have taken a very open stance on looking at what we have to offer … if we see that there is a need and a change that has to be made, we address it.”

Anheuser-Busch InBev did not provide comment by press time.

Map of area craft breweries

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