Understanding the ‘craft’ of expansion

Understanding the ‘craft’ of expansion

Offering customers a range of high-quality craft beers is the way forward for F&B, and increasingly, craft beer is using franchising to expand the market, says Eddie Goitia

If you ask most Americans who have visited London, they’ll say they love going there as a tourist, but they shy away from the food. This is not another article to beat up on our British cousins and their cuisine – actually they have come a long way, and an even longer way when it comes to beer.

Craft beer that is. Taking a tour of Old London Town you cannot avoid running into one of their biggest raves: BrewDog. What appears to be an overnight sensation is nothing more than local-brewing-done-right by a group out of Scotland. Walk into a BrewDog bar and have a pint of one of their best craft brews. But wait, BrewDog also offers you an expertly-purveyed selection of other local and international craft beer brands. It’s crafty, and it is working.

And, yes, franchising has played a key role in BrewDog’s global expansion. Established in 2007, BrewDog used crowdfunding to fuel early growth, and as of last year had a valuation in excess of £1 billion (USD $1.3 billion). According to the company’s website, BrewDog now has over 70 company-owned and franchised bar locations in 16 countries. In 2017, BrewDog opened its first U.S. brewery and currently has three company-owned bars open in Columbus, Ohio. In late 2018, BrewDog announced a plan to offer franchises in key British markets to supplement their existing network of company-owned locations in the UK.

Today’s craft beer boom comes at a pivotal time for food and beverage franchises. F&B chains have been turned upside-down in the last decade with the onslaught of fast-casual restaurants and closures of full-service dining brands. Meanwhile, the local craft brew bar is on the rise worldwide, and there’s no end in sight.

Today’s millennial beer lovers will not settle for what’s in their dad’s refrigerator. This new generation is a true flavor craver, enlightened, and a bit revolutionary – which means craft beer here to stay.

Creativity meets franchise standards

Now, how does the craft brew craze fit into the franchise model? Actually, very well. Beyond BrewDog, some craft beer concepts are making good inroads.

Of course, craft beer has always been an integral offering of large bar chains like Buffalo Wild Wings, World of Beer and Gordon Biersch. However, some emerging franchise concepts are going all-in to make their mark in the craft brew space.

Most seasoned franchise executives will expound on standards and consistency. Craft beer is one area where a franchisor can allow a franchisee to be totally inconsistent yet cool.

According to John Kutac, President of Colorado-based Growler USA, “As a franchisor, we are pretty tight when it comes to trademark, décor, quality control and other elements of our business model. However, our philosophy on beer selection is community-based, focusing on regional and local craft beers. As a result, we provide 100 per cent flexibility to our local franchise owners on their selection of craft beers, although we do limit the selection of non-craft beers to five labels at any time.”

Allowing local franchisees to have choices in beer selection is not really something new, but today we have many more choices. “Ten years ago, it would have been difficult for some craft beer bars to find a good selection of regional or local beers within a couple hours’ drive. Today, finding this local flavor is getting easier, with many more craft breweries to choose from in nearly every region of the U.S,” adds Kutac.

Franchisors can keep their standards and open the door to a great number of flavors. The growing ranks of flavor craver beer drinkers will expect it and demand it. This also gives franchisees an opportunity to truly differentiate their business and put their unique flavor stamp on their beer selection. Say goodbye to the red-and-white can from the bar refrigerator!

Stepping up

The debate on beer quality vs. quantity begs the question: Do we drink less when going out? The answer is yes, or we get a ride home. If we venture out for a brew, it better be a good one, and more than likely it will be a craft beer.

Also, stepping up the game in the bar business has never been more important. In today’s world, I can buy a 70-inch 4K screen TV for $700, selectively stream my favorite sporting event, enjoy my own selection of food and beverages delivered to my doorstep, and have the best seat in the house on my 50-yard-line sofa. For all these reasons, franchisors need to arm franchisees with the best opportunities to capture, sustain and build their customer base by maximizing their position in the craft beer market.

Julia Herz, Craft Beer Program Director at the U.S.-based Brewers Association, states, “Franchised food and beverage businesses stand to gain exponentially when they offer beer from a variety of breweries. For one, an advanced beer selection attracts new beer customers. We know from Nielsen 2018 data that 59 per cent of craft beer drinkers said it was very or somewhat important to their purchase decision if a beer was made by an independent craft brewer. Especially in the last few years, we are seeing more retail establishments expand their beer selection to include local, regional and national craft beer brands.”

Take a look at the numbers in the U.S. craft brewing industry. This is not a trend. It’s a full-scale evolution of the beer market, and Clydesdales may soon be an endangered species.

An American Three-Tier hangover

So, if craft brewing numbers are so great, why not open your own craft beer brewery and start selling beer? That’s a tricky question, especially in the United States.

While craft brewing has been around for ages, American Three-Tier Distribution laws for alcohol have only been around since the 1930’s, after the repeal of Prohibition. The Three-Tier System requires a distinct relationship among beer manufacturers, distributors and retailers, meaning some breweries cannot sell directly to retailers or to the public. To complicate things, these regulations vary by state. Suffice to say, a craft brewer needs to work with beer distribution experts if they wish to navigate these regulations and market their craft beers widely in the U.S. market.

The debate still rages on about the good points and bad points of the Three-Tier System of alcohol distribution. For my part, the less regulation the better. One could write a book of the Three-Tier System’s history and implications for the craft brewery industry, but we won’t tackle that topic here. Nevertheless, these laws are slowly being challenged and changed in several states, making room for craft brewers to brew and sell directly to retailers.

Franchise model

Starting your own brewery is not cheap and your brew must hit the mark. If you can get it right, like BrewDog, you now have a great opportunity to work within the franchise model to sell your beer, and also like BrewDog, we are learning that market share expansion does not necessarily mean excluding your competitors. Clearly, this paradigm shift in customer choice is gaining momentum in F&B. Have you noticed the growing number of fast-casual outlets that now offer Coke and Pepsi from the same dispensing system? Same idea.

Brand expansion can also be accelerated by brewing your own beer, selling it through your franchise outlets, as well as other retailers. Every craft beer brand is in a global battle for recognition and relevance. At 26 million barrels and growing in the U.S. alone, the craft beer market has mammoth potential. The question is, who will own the biggest slice of the craft beer pie?

Tapping into technology

Another hot trend in craft brews is the evolution of self-serve beer taps. Take the example of Pour Taproom, a newly emerging southeastern bar chain with a proprietary tap system that allows guests to pour their own beer by the ounce. Craft beer lovers can now sample a wide range of craft brew offerings by the ounce, and pay by the ounce through an integrated POS system. For beer aficionados, this is better than sampling from the dessert tray at the finest of restaurants.

Based in South Carolina, Pour Taproom currently has one company-owned unit and eight licensed locations across five states and is planning to take the plunge into franchising this year. With an average of 75 craft beers on tap per bar, they are building their tap systems to allow their franchisees to feature local craft brews, while advising them on the best trending brews nationally.

“In the craft brewing world, it’s critical to balance the creative art of brewing with efficient business practices,” says Nate Tomforde, Founder and CEO of Pour Taproom. “Our self-serve tap technology enables us to strike that balance by providing a great selection of craft beers, while streamlining beer dispensing processes and lowering our labor costs. More importantly, our self-serve model attracts a loyal following of craft beer fans.”

Beyond Pour Taproom, other self-serve beer tap systems are popping up in major franchises like Buffalo Wild Wings, Dickey’s BBQ Pit and Hilton Hotels, as well as smaller players, such as Blast & Brew and Z Pizza. For F&B concepts that attract a less beer-centric clientele, self-serve taps can also serve up a selection of wines, or even pre-mixed cocktails.

A key challenge is that self-serve beer taps are not permitted under laws in seven U.S. states. Other jurisdictions may also have legal limits on the amount of beer or alcohol dispensed. However, even if a bar employee must pour the beer for the guest, the ability to charge by the ounce is still a game-changer for bars seeking to expand their craft brew clientele.

Catching the craft brew tsunami

So what have we brewed up? If franchise systems sell beer on-tap, we now have a greater opportunity to allow our franchisees to select their local craft beer brands and expand the number of taps. This trend is here to stay because customers love it.

In the near future, we will likely see more cross-over between craft breweries and F&B franchises, especially in states that allow brewing and distribution. Smart franchisors will begin brewing, and smart craft breweries will begin franchising. It’s inevitable – and the first movers will be in a great position to capitalize on this new beer market.

ABOUT THE AUTHOR
Eddie Goitia is a Partner at FranLaunch USA, a management firm focused on building successful franchise concepts in the American market. With over 30 years in F&B, Eddie served as CEO of The Tilted Kilt, one of the largest franchised pub chains in the U.S. He also owned a multi-unit regional restaurant group with over $10 million in annual sales.

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