By Clay Barbour
Sten Sellier was working as a sales engineer in California, making and selling conveyer systems, when he decided to turn his hobby – homebrewing – into his livelihood. He returned home to Sterling, Virginia, and started Beltway Brewing Company. That was six years and about 5,000 breweries ago.
The number of craft breweries in this country, according to the latest available statistics (2018), has grown to more than 7,400. Almost 1,500 opened in the past two years alone, which were also the best on record.
And according to the Brewers Association, a national trade organization, craft beer contributed $79.1 billion to the U.S. economy last year and accounted for more than 550,000 jobs.
Compare that to the country’s manufacturing and retail industries, which are experiencing tough times. Manufacturing is down about 7 million jobs from a high of 19 million in 1979. And retail? It’s experiencing a meltdown. The industry has lost more than 140,000 jobs since January 2017 and experts predict another 75,000 stores will close by 2026.
So how has craft beer succeeded in this environment?
Brett Vassey, president and CEO of both the Virginia Manufacturers Association and the Virginia Craft Brewers Guild, said the industry has benefited from three factors:
Uniqueness: Every brewery offers a different experience.
Good timing: The industry’s growth was helped by the locavore movement.
Popularity: People love craft beer so much they’ll travel long distances to experience it.
“Other retail is more at the mercy of the global economic market,” Vassey said.
All of these are obviously true, but I would argue a few other elements play a role as well, and they could provide a blueprint for businesses struggling in this modern, digital-heavy economy.
Most American businesses deal with competition by raising prices, cutting costs and sacrificing expertise. In other words, they reduce the quality of their product at the exact moment they should make it better. Corporations gobble up companies, fleece them of revenue and discard them without a second thought. Quality is never more than a talking point in a press release.
But the craft beer industry went a different way; it went local, it focused on quality and it invested in customer service and job expertise.
“Consumers are willing to pay more for something they have a relationship with, but you have to cultivate that relationship,” said Sellier. “That is true for organic milk and farm-to-table restaurants and yes, craft breweries.”
Quality. Customer service. Expertise. Simple, right?
Well, consider for a moment, department stores. Online sales have made life hell for traditional brick-and-mortars. But when faced with lagging sales, did these businesses make their products better? Did they improve their showrooms, increase the variety of inventory or hire more knowledgeable employees?
I walked into a department store in Norfolk last year, looking for a dress shirt, and the salesman in the men’s section looked like an unmade bed; he was wearing a semi-tucked, white shirt that was yellowing with age, an ill-fitting suit and scuffed shoes.
“Can I help you find something,” he asked.
“No. No you can’t,” I said, as I left.
Even worse, go into a J. Crew sometime and stare glassy eyed as the salesperson apologizes for the hundredth time for not having an item, but then reminds you cheerfully, “We can order that for you online.”
Yeah, so can I.
Not surprisingly, department stores sales have dropped from $76.9 billion in 2007 to $52 billion last year. What incentive is there to go?
Several industry experts, including Pam Danziger from Unity Marketing, have argued that these kinds of businesses need to focus on hiring better, more knowledgeable, employees and creating a better overall showroom experience.
So far that advice has fallen on deaf ears with the big boys. But you know who does seem to follow it? Small independent retailers. For example, Ledbury and Shockoe Atelier, both Richmond-based clothiers, have made a name for themselves in the bespoke business game and seem to be doing quite well.
Their stores are well-designed and pleasing to the eye; their employees are thoroughly educated on what they are selling. You go in to browse and walk out poorer. In some cases, a lot poorer. You want cheap, go to The Gap. They will gladly order it for you online.
So, if this works for smaller companies, why do so many industries go the other way? Well, cynically, having been in some of these meetings over the years, I can tell you there are precious few atom-splitters running corporations. I have worked for 10 different news organizations and I have seen a lot of people who would rather fail together than to do something different and risk failing alone. I mean, the 100 lemmings in front of me must be on to something, right?
But it is also true that the American business model is based on the axiom “bigger is better.” Start small and grow until you’re wealthy beyond your dreams. Over time that mindset has created a corporate culture that Ice Cube summed up thusly: “All they want is they dividends.”
The quarterly culture that drives American business makes it hard to invest in quality – no matter how much some try to deny this. That goes for pretty much any industry, including the media.
The Post and Courier, a smaller, family-owned paper in Charleston, South Carolina, has been a Pulitzer finalist four times in the past six years and won the award in 2015. The company has mostly avoided the layoffs that have plagued the newspaper industry and has done an admirable job of keeping print readers while growing its digital audience. Of course, the recipe for this success is multi-pronged and includes hiring and keeping talent and focusing on legitimate news (instead of chasing clickbait).
But in a story last year, the newspaper’s executive editor, Mitch Pugh, said something I thought was profound:
“When I hear people say that you can’t make it work in local news, that really irritates me,” Pugh said. “You can if you have the right expertise, you’re willing to accept a small profit and you’re tied to the community. You can do it.”
The key part of that statement is “small profit.” You want to cause a shudder in a board meeting, propose the “small profit” model and then please put your stuff in a box and follow security out the door.
Vassey and Sellier both note that one of the keys to craft beer’s success is that few brewers are concerned with outsized profit margins. In fact, despite economies of scale, it is rather hard to be a successful large brewer.
“It defies logic, I know, but it is very difficult to grow beyond a regional craft brewer and still make it work,” Vassey says. “It is usually better to stay local and constantly experiment.”
And the simple truth is, it is hard to get rich without getting big. According to national numbers released by the Brewers Association a few years ago, craft brewery owners clear on average between about $45,000 and $225,000 a year.
“It’s a grind. It’s manufacturing,” Sellier says. “Most owners, this is a passion project. They love it.”
I recently interviewed Ron Dennis, the former president of Farm Fresh. Dennis was notoriously detail oriented during his 12-plus years at the grocery giant. His focus on variety and customer service was legendary and made Farm Fresh an industry leader.
One of my favorite stories is how, after reading some customer complaints about long lines after work, Dennis mandated that all shopping lanes be open from 4 to 6 p.m. on weekdays. His business-savvy managers, however, did not like the idea.
“They said, ‘We can’t do that. It’ll hurt us. It’ll hurt our business. It will hurt our profits.’ I said, ‘OK, fine, fine, fine. I understand what you’re saying. So effective immediately are all lanes will be open 4 p.m. to 7 p.m.’ And they stopped arguing. ”
And you know what? It didn’t hurt the company’s bottom line at all.
Years later a new parent company purchased Farm Fresh. It wanted a leaner, cheaper, business model. In other words, it wanted higher profits. Dennis opted to retire. Farm Fresh as we knew it went out of business in 2018.
Quality. Expertise. Customer service.
It sounds quaint, I know. But it seems to be working for craft beer. Maybe it could work for the rest of us.