This article was originally published in the January/February 2016 issue of The New Brewer—a bi-monthly journal published by the Brewers Association.
The basic concept of the brewpub, pairing beer and food made onsite, is neither new nor particularly novel—taverns have been making their own beer for centuries. Even so, the modern crop of American brewpubs have managed to put a new spin on the concept of beer and food, and in doing so have created economic value that extends beyond the two components independent from each other.
That value can be seen clearly in the historical success rate of brewpubs. Since the Brewers Association started tracking in 1980 through 2014, 2,482 brewpubs opened in the United States and only 1,141 closed. That calculates to a historical success rate of 54 percent (a bit inflated by the faster-than-usual opening rate the last few years). In contrast, a study at Ohio State found that 60 percent of restaurants close in a three-year period1.
To restate, 60 percent of restaurants close in the first three years, whereas only 46 percent of the 2,482 brewpubs that have opened in the past 35 years have closed. That type of disjuncture can only occur when there is something fundamentally different about the categories in question. So what differentiates brewpubs from restaurants more generally? And, in an era where good beer is more readily available than ever, can brewpubs continue their impressive run of success going forward?
It’s worth noting up front that some of the advantages of brewpubs stem from their ability as the manufacturer to sell a high-value-added product (aka beer) at better margins than a typical restaurant. In the latest Brewery Operations and Benchmarking Survey, smaller brewpubs (fewer than 1,000 barrels) derived 26.8 percent of their sales from house beers, and larger brewpubs (more than 1,000 barrels) derived 46.3 percent of their sales from house beers. In 2010, those percentages were closer to 35 percent for both groups. Regardless of the specific percentage, that means roughly a third of sales stems from a product that averages gross margins that can reach more than $800 per barrel depending on the business model and beer style.
These benefits don’t come without risk. Brewpubs are betting heavily on their ability to sell their own beers, and not surprisingly, typically have a much lower percentage of their sales come from guest beers and other bar sales. Most people come to brewpubs looking to try the house beers, so if those beers don’t meet the ever-increasing quality standards, there may be challenges. In addition, running a brewery inside a restaurant requires additional capital, expertise, staff, and more. So brewpubs are a step beyond the average restaurant on the classic risk-reward scale, with more invested, but greater potential benefits. Given this basic tradeoff, what are the additional advantages that have allowed so many brewpubs to keep that balance firmly pointed toward reward?
If you weren’t aware, the American beer lover craves variety and novel beer experiences. The on-premise is where this experimental spirit is the strongest. In a recent Nielsen survey commissioned by the Brewers Association2, a majority (51 percent) of craft beer drinkers said that when selecting a beer to order at a restaurant or bar, it was very or somewhat important that “it’s a craft beer product that I have not tried before.” Brewpubs have a tremendous advantage in this regard, in that not only can they serve whatever they can think up, they can also choose to have exclusive rights to that beer, offering the beer lover a novel experience they can’t get anywhere else.
In the same Nielsen survey, 71 percent of craft beer purchasers gave “complements my meal” as a very or somewhat important selection criteria in their beer choice. More than ever, beer lovers are thinking beer and food pairing, and in increasingly sophisticated ways. Pairing beer with food is in the DNA of brewpubs, and they have additional advantages in their ability to create beers with specific pairings in mind, use special ingredients like spent grains to enhance the pairing experience, and more easily integrate beer throughout the menu development and cooking process. This isn’t to say that a restaurant can’t accomplish many of these components; it’s simply that brewpubs are more likely to do it as a part of their natural process.
Built-in Beer Knowledge
A recent CraftBeer.com survey of its readers asked them to decide among the “5 Cardinal Sins” of beer service. While several sins rose to the top (including limited diversity on the beer list and dirty beer lines), the number one response was “unknowledgeable servers,” with 27 percent of respondents picking that as their biggest red flag. While there’s nothing about brewpubs that makes servers inherently more knowledgeable, the reservoir of brewing knowledge, presence of a brewing culture, and physical presence of brewing makes training staff more accessible. This is an area in which the Brewers Association has also been providing new resources, and I’d be remiss to not mention the excellent new Beer Server Training for Brewpubs Manual, available for download on BrewersAssociation.org.
In closing, it’s important to stress that the advantages highlighted in this article are not divine rights—they require dedication and effort to achieve, and they are not exclusive to the brewpub business model. At a recent lunch at a non-brewpub, I counted 62 beers on the menu. The server was knowledgeable about them and suggested pairings that were thoughtful. Consequently, in order to keep the success rate of brewpubs at its historical rate, brewpubs will need to continue to invest in these advantages to preserve the gap as the rest of the restaurant world plays catch-up and continues to recognize the world of beer and food. I’m confident that brewpubs are up to the challenge.