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    Supermarket GROCERY Business: Regional champs

    In the dog-eat-dog world of beer marketing, hometown regionals are brewing up a storm.

    By Richard Turcsik

    When shoppers belly up to the beer case in San Antonio, there's a good chance they'll pick up a pack of Spoetzl Shiner Bock. At Wegmans up in Rochester, N.Y., it'll likely be a case of Genny Light, while 100 miles down the Thruway in Utica, they're going crazy for Utica Club. Anchor Steam has them quaking in San Francisco; Leinenkugel's is taking the Windy City by storm; and Yuengling has enraptured the entire East Coast.

    "A regional brewer can go three routes," says Fred Matt, v.p., marketing and sales, at the Matt Brewing Co. in Utica, N.Y. "You can be a volume supplier, a momentum supplier in categories that are hot and driven by consumer demand, or you can be a niche player."

    With its flagship Saranac line, Matt Brewing plays in the momentum and high-end niche segments. "What we're really going after is categories where there's consumer demand and high margins for us, the distributor, and the retailer," Matt says.

    Today regional beers are winning accolades from consumers—and awards at beer festivals. "Our flagship brand, Point Special Lager, won the gold medal at this fall's Great American Beer Festival in Denver," says Joe Martino, managing partner at the 146-year-old Stevens Point Brewery in Stevens Point, Wis. "Miller Genuine Draft was second and Budweiser was third in the American Premium Lager category," he adds.

    The brand, distributed in Wisconsin, Illinois, Minnesota, Iowa, Kansas, and Missouri, has aligned itself with Glazer's Network, the Dallas-based alcoholic beverages distributor, to help it expand, but Martino cautions that Stevens Point is growing slowly so that it's not overwhelmed.

    But with the way consumer trends are heading, that can be hard to do. In many ways regional beers are the one bright spot of the domestic beer market, which has been losing volume to imports and wine. "The regionals and microbrews are outperforming the beer market this year," says Brian Sedano, senior v.p. at Beverage Marketing Corp. in New York. "In aggregate they're growing."

    Sedano attributes the growth to the return to comfort foods brought on by the war and the economy. "They're seeing 2 to 3 percent growth, and especially when the beer market as a whole is down 1 to 2 percent, that's healthy growth," he says.

    "There's been some growth in the small-brewing segment," says Jeff Becker, president of the Beer Institute, the Washington-based trade association representing the nation's breweries. "We've seen those guys doing some pretty good growth, particularly in their natural markets, and some of them have been able to expand beyond their original markets to successfully increase their volumes," he adds, referring to breweries in the 100,000- to 700,000-barrel range.

    Sedano singles out three growth brands: Spoetzl Brewery of San Antonio, a division of Gambrinus, which just introduced a new light beer and is expanding into the Mid-Atlantic states; Fat Tire of Boulder, Colo., which has grown to a 4 million-case business partly by playing off the environmental consciousness message; and Yuengling of Pottsville, Pa., America's oldest brewer, founded in 1829. "Yuengling is going to be over 20 million cases this year," Sedano says. "They're gaining rapid distribution in their expansion markets and growing rapidly in those markets, which is driving growth 15 to 20 percent this year."

    While Yuengling is driving its growth independently, other regionals find it best to team up with one of the major brewers. For example, the Jacob Leinenkugel Brewing Co., founded in 1867, has been a wholly owned subsidiary of Miller Brewing Co. since 1988. However, the brewery is still run by the Leinenkugel family and maintains its own management team, sales force, breweries, and brewmasters. "What we've seen recently is the explosive growth of our craft beers, especially Leinenkugel's Honey Weiss, which we introduced in 1995," says Dick Leinenkugel, v.p., sales and marketing, at the Chippewa Falls, Wis. brewery. "That's now become our largest-selling flavor."

    Most of Leinenkugel's sales are in the upper Midwest, with Wisconsin, Minnesota, and Illinois accounting for 85 percent of its volume. It's now expanding into Detroit via western Michigan. "We are using our 'Vacation Marketing' strategy," Leinenkugel explains. "We target people when they're on vacation. We make sure that we have our beers everywhere they're on vacation and where they're more apt to try a new or different beer. Then when they come home they'll ask for it and it will cue those good times and fond memories they had when they were on vacation," he says, noting that this is how Leinenkugel's expanded into Chicago and Minneapolis. "We're doing the same thing now in the vacation markets of Michigan to eventually get distribution into Detroit, Cincinnati, and Columbus, Ohio."

    Miller isn't the only major brewer tapping into the regional end of the business. Anheuser-Busch has marketing agreements and a 25 percent ownership stake in both Widmer Brothers and Redhook Brewery. "Anheuser-Busch aligns with regional beer brands, such as Redhook and Widmer, in order to provide its wholesalers, retailers, and customers with a wide variety of beer styles," says Pat McGauley, director of High End Brands at St. Louis-based Anheuser-Busch. "These alliances allow Anheuser-Busch to offer a nationwide channel of distribution to popular regional brands that enhance our company's portfolio of quality beers."

    "We did the distribution alliance with Anheuser-Busch because we saw the beer distribution in the U.S. as becoming increasingly in flux, and we wanted to have a high degree of reliability in our distribution," says Paul Shipman, founder and president of Redhook Brewery in Woodinville, Wash., which has been aligned with A-B for a decade.

    Shipman notes that regional beers offer a great growth opportunity for the supermarket channel, especially the small to midsize chains. "Often the smaller chains are more focused on products like ours because of their high differentiation," he says.

    Twin breweries

    Redhook produces eight varieties—ESB, IPA, Blackhook, Nitro, Blonde, Winterhook, Nut Brown, and Sunrye—at breweries in Woodinville and Portsmouth, N.H., which handles production for the East Coast. "The two breweries are identical in design," Shipman notes. "The tanks, brew house, mill, yeast, fermenting temperatures, and the way we filter are all the same. And we're always tasting the product back and forth."

    Widmer Brothers also has grown through its relationship with A-B. "It definitely helps for us to be aligned with Anheuser-Busch," says Marty Wall, v.p., sales, at Widmer Brothers Brewing Co. in Portland, Ore. "We work very well with their salespeople. We have 23 salespeople, and four of them specifically call on grocery. We're in the same wholesaler network, and with some of the larger grocery chains we definitely have an advantage working with the Anheuser-Busch network."

    "In a market like California we have seamless distribution from north to south," says Kurt Widmer, brewmaster and one of the Widmer brothers. "Grocery chains are very interested in things like that. It's very important in pricing. It is not to be overlooked and is pretty indisputable that Anheuser-Busch has the best beer distribution system in the world, and we're pleased as hell to be a part of that."

    Further down the coast, Anchor Brewing Co. has been brewing beer in San Francisco since 1870. Owned by Fritz Maytag of the Maytag Appliances family since 1965, the company brews seven beers, including its flagship, Anchor Steam. Although the brewery only produces 85,000 barrels, its brews are sold in every state and internationally. What's the secret of its success?

    "We don't do any advertising," notes John Dannerbeck, sales manager. "Fritz never wanted to own a huge, great big company. He thinks there's a natural growth curve and a place where the company kind of settles into a natural place, about where it is now, as opposed to chasing some arbitrary growth."

    Trying to grow too fast is one of the problems that beset High Falls Brewery in Rochester, N.Y., which is celebrating its 125th anniversary this year and up until three years ago was known as the Genesee Beer Co. New management is trying to reinvigorate its current brands.

    New brews

    Remember the Pepsi Challenge? At High Falls it's back—with a twist.

    "We did a ton of consumer research over the past 24 months, which included blind taste tests on our current brands vs. the competition, and we were more than pleasantly surprised," says David Boggs, v.p. marketing. "We did our Genny Light Taste Challenge with 10,000 people, and against all the brands we tested we haven't lost to anybody—not Bud Light, Miller Lite, Coors Light, Labatt Blue Light, or Amstel Light. And we only challenged people who are more expensive than we are."

    Building on that success, High Falls, which also makes Genesee Cream Ale and J.W. Dundee Honey Brown Lager, has launched a new brand, Kipling Light, a super-premium light beer, targeting the light versions of Beck's, Corona, and Sam Adams. "That segment is growing in the double digits, and we asked, 'How can we participate in that?'" Boggs says. "Our consumer research showed there was a void in that segment. People could get either less than 100 calories or great taste with significantly more calories. With Kipling Light they can have good taste and low calories."

    Kipling Light is currently being tested in Rochester and Vermont, and will likely be rolled out first to High Falls' key marketing areas of Ohio, Pennsylvania, and New York before being expanded to the other 39 states where its products are available.

    Over in Utica, Matt is also rolling out a low-carb product—Accel. "We're very excited because we're going to be the lowest in carbs and lowest in calories," Matt says. "There are 30 million people on the Atkins diet, and we see that as a great shot."

    While Saranac is now Matt's flagship product, at one time it was most famous for Utica Club. In fact, a giant neon "Utica Club" sign still tops the brewery and overlooks the city. Today the brand is sold from Albany to Syracuse and out into Pennsylvania, and it's making a comeback. "Utica Club is a very interesting brand that I would describe as being so bogus that it's hip now," Matt says. "It's that whole retro thing. People are saying, 'This is my beer,' especially the young adults. It's had a real resurgence."

    By Richard Turcsik
    • About Richard Turcsik

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