Mark Stutrud, president and founder of Summit Brewing Co. of St. Paul.

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Christian Dixon loaded kegs of extra pale ale at Summit Brewing Co. of St. Paul.

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Scott Alewine checked quality along the bottling line of Hefe Weizen beer at Summit Brewing Co. of St. Paul.

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Big beer is flat, but craft brews blossom

  • Article by: MIKE HUGHLETT
  • Star Tribune
  • April 19, 2010 - 5:34 AM

On a recent tour of Summit Brewing Co., company President Mark Stutrud proudly showed off a shiny new keg-filling machine that churns out 60 percent more beer per hour than its predecessor. And down in the cellar, Stutrud pointed to the soon-to-be home of three giant new fermentation tanks, allowing Summit to expand production by 13 percent.

It's all part of St. Paul-based Summit's biggest annual capital outlay since 2006, and symbolic of how the nation's craft beer industry has prospered during a recession that's flattened sales at the big mainstream U.S. brewers.

Sales of craft beer rose 9.6 percent for the 52 weeks ending March 6, as measured by volume, according to market researcher Nielsen Co. During the same time, sales of domestic premium beer -- think Budweiser -- sank 6.1 percent, while volume in the nation's largest beer market, premium light -- think Bud Light -- fell 2 percent.

Brewing industry experts say the recession has hit the mainstream beer drinker harder than the craft-brew consumer. Even though craft beer costs more than standard brews, the craft-beer drinker is generally more affluent. Also, craft brews fit a niche that's been hot -- recession or not -- in foodie circles: localization, be it locally produced beets, beef or beer. Most craft brewers still are intensely local.

But perhaps most important, and a key to craft brewers' continued prosperity, is the evolution of the American beer drinker. "Consumers are really moving away from the mainstream," said Nick Lake, Nielsen's vice president for beverage alcohol. They're more educated than ever about beer, and increasingly into the variety -- hopped-up India pale ales, chocolatey stouts, fruity Belgian styles and so on -- offered by craft brewers, Lake said.

Plus, many beer drinkers in their 20s and early 30s have been weaned not on pale mainstream lagers, but on the more complicated tastes of craft beer. "They've grown up in a diverse flavor environment," Lake said.

They're beer drinkers like Chris Pangle, a 29-year-old grocery warehouse worker with aspirations to be a fiction writer.

He grew up, so to speak, on craft beer in Oregon, one of the nation's top spots for microbrews. "Even in high school, there was Mirror Pond [an Oregon craft brew] at keg parties," Pangle said recently while nursing a Surly Furious at the CC Club in south Minneapolis.

If he's stretched for cash, Pangle said he'll buy a cheaper non-malted alcoholic drink, rather than switch from craft beer to the standard stuff. "It's an acquired taste, and it's hard to go back."

Stutrud said he's heard such stories from 20-somethings on brewery tours at Summit. "Craft beer has always been there, so it doesn't seem foreign and weird to them."

A Minnesota focus

That wasn't the case back in 1986 when Stutrud became Minnesota's craft-brew pioneer with the founding of Summit. Yet he carved out a niche, and Summit has steadily grown, ranking as the nation's 19th-largest craft brewer in 2009, according to Brewers Association data released last week.

The company's flagship Extra Pale Ale -- the original Summit brew -- still accounts for about 65 percent of its roughly $17 million in annual sales. Its Horizon Red Ale, launched just a year ago, is its second most popular brew with 5 percent of sales. And Summit's four seasonal beers together comprise 16 percent of sales.

With Summit's spring beer, Maibock, almost out of stock, the brewery's bottling line last week was humming with one of the first batches of Hefe Weizen, its summer offering. Thousands of bottles of the wheat beer rolled down the line, a din of clinking glass amid the fresh earthy smell of yeast.

Most of that beer will be consumed by Minnesotans, particularly in the Twin Cities. Summit has focused primarily on Minnesota, and 89 percent of its sales are generated here, with far lesser amounts in the Dakotas, Wisconsin and Chicago. The recession didn't totally bypass Summit and some other craft brewers. In 2008, Summit's sales volume grew only 2 percent while the company had budgeted for 10 percent growth. Summit had to lay off one worker in 2008 -- the first time that had happened -- and cut its annual capital budget.

But 2009 was much better, with sales growing 8 percent by volume and 12 percent in dollar terms, Stutrud said. Four new jobs have been created since mid-2009 -- it currently employs 50 -- and the company upped its 2010 capital budget to $1.4 million, double last year's. About $600,000 is funding two new stainless steel staples: the keg-filling machine and the three 9,000-gallon fermentation vessels.

"A brewery is no place for a Norwegian with a stainless-steel fetish because you can really blow your bank account," Stutrud joked.

Like Summit, New Ulm-based August Schell Brewing Co. saw a rebound in craft-beer sales in 2009 after a significant deceleration of growth the year before. Meanwhile, the upstart Brooklyn Center craft brewer Surly Brewing Co. has been growing at a furious pace.

If only their big brewing brethren could say the same, or given their already large volumes, at least say things have been looking up. Last year, the nation's top-selling beer, Bud Light, experienced a 2.5 percent decline in shipments, its first annual decline ever, according to Beer Marketer's Insights, an industry publication.

Meanwhile, Coors Light, the mainstream beer business's biggest success story in recent years, saw shipments rise only 0.7 percent in 2009, down from 3 percent annual increases the two previous years. In terms of sales volume, the big winner last year among the nation's nine largest beer suppliers was Boston Beer Co., maker of Sam Adams and the nation's largest craft brewer.

Boston's shipments, while only a fraction of Anheuser-Busch's and MillerCoors', were nonetheless up 11.8 percent in 2009 compared with the year before. Said Beer Marketer's Insights publisher Benj Steinman, "The craft guys have an advantage in the way they are perceived [among consumers] that belies their size."

Indeed, while Summit seems ubiquitous in Minnesota, the company has only about 2 percent of the state's total beer market, Stutrud said. His plans for much of Summit's growth hinge on bringing the brewer's Minnesota market share up to 4 percent or 5 percent over the next five to 10 years.

Stutrud doesn't have a rocket-science approach to getting there. He says he'll keep focusing on making high-quality, full-flavored beers. And his sales team will keep working to bring that beer into more restaurants, bars and liquor stores.

"We have to earn our business over time," Stutrud said.

Mike Hughlett • 612-673-7003

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