Craft beer makers get canny
New entrants are slowing to a trickle but existing players are looking to exports for growth
Overall sales by craft beer companies stood at €59 million last year, up eleven-fold since 2011. Photograph: iStock
A certain well-known beer brand might like to suggest it is – probably - the best in the world but brewer Michael Cowan can make such a claim with authority.
His Manor Brewing company, which is based in Blessington, Co Wicklow, just won a World Beer Award for its pilsner, Mont, a Czech-style pale lager.
In fact, a raft of Irish craft beers scooped gongs at the event, including Rye River, Wicklow Brewery and Boyne Brewhouse.
For Cowan, who set up Manor Brewing in 2013, winning accolades at the World Beer Awards, and previously at the Alltech Beer Awards, has helped establish him on the local market. You’ll find his beer in five-star hotels around the country. But his real ambition has always been to export.
“From the beginning, our aim was to establish a craft brewery with export quality lager,” says Cowan, whose background is in international drinks marketing (he previously worked for Red Bull).
“We’re already started exporting into the UK, albeit in a small way, and are actively looking for distributors there. We are also looking at four countries in Asia for which we reckon a high-end Irish product has appeal.”
In looking to develop overseas markets, Cowan is doing precisely what industry experts believe is the next stage for a sector that has fizzed up dramatically in just five years.
According to a report commissioned by the Independent Craft Brewers of Ireland, there were some 90 microbreweries operating in the Republic of Ireland last year. In 2012, there were just 15.
Of that 90, 62 are production microbreweries producing their own brand of beer, and at least 28 are contracting companies, brewing beer to order for others.
In terms of value, overall sales by craft beer companies stood at €59 million last year, up eleven-fold since 2011.
The report’s authors estimate that, given current trends in craft beer production, market share hit 2.5 per cent by 2016, which, though a drop in the ocean in terms of overall beer consumption, isn’t small beer in a landscape dominated by deep-pocketed drinks giants such as Guinness, Heineken and Carlsberg.
Despite a recent and rapid proliferation, in theory there should be scope for more microbreweries here. Compared with similar countries, Ireland lags behind, with just half the rate of microbreweries per head of population compared with the UK and Denmark.
Challenges to growth here include the fact that said drinks giants have not been slow to create ‘craft’ product of their own. Guinness’s Brewer’s Project has produced Hop House 13 lager, as well as its Dublin and West Indies porters, and has the distinctly non-artisanal advertising budgets with which to promote them.
According to Bord Bia’s estimates, which differ to those in the report because Bord Bia includes only breweries that register with it, there are currently 72 breweries operating here, with an additional 28 brand owners sourcing their beer from one of these 72 breweries.
In 2014, Bord Bia recorded just 32 breweries. In 2015, that figure had risen to 48 while last year there were 62. “While there has been a fall in the number of new market entrants, the number that did launch in 2016 was still quite significant proportionally, at about 16 per cent,” says Denise Murphy, drinks sector manager at Bord Bia.
The reason for the tapering off is because the “home market is becoming saturated”, she says. “There is a need for the category to start working very hard on exports now. The home market is very small but demand for craft beer globally is still growing.”
At present, just three producers account for more than three quarters (78 per cent) of exports by volume of Irish craft beer. The partnering-up of existing microbreweries to achieve export scale is likely to become a feature of the sector here, believes Murphy.
The good news for exporters is that, unlike the artisanal food beloved by the ‘locavore’ movement – people who favour locally grown or made food – beer does in fact travel well. “Craft beer does not depend on provenance, its sales are driven by uniqueness,” says Murphy.
‘Next new thing’
“Globally, the craft beer drinker is the one who wants to discover the next new thing.” The challenge for microbreweries is that it is therefore a very difficult market to foster brand loyalty in. “It is by its nature fickle, so the only thing you can do is constantly innovate,” she says.
Many craft breweries produce a core stable of four or five beers, and add limited-edition or seasonal beers, such as a Hallowe’en or Christmas brew. Once a craft beer brand is well enough established, existing clients will try its new beers. “But you have to keep innovating all through the year to keep the customer interested,” says Murphy.
A feature of the market is that, while existing craft beer drinkers – or beerdos, as they are known – love nothing more than to try out unusual flavours, it can be hard to attract new drinkers, believes Michael Cowan. He has decided to take a different tack by sticking with one, perfected, product.
“Craft beer still only accounts for between 2 and 3 per cent of the market but the craft beer drinkers are making 97 per cent of the noise,” he says. “The mainstream beer drinker is not being reached.”
At Bloom this year, when people asked him if his was a craft beer he made a point of saying: “No. We’re an independent microbrewery making export quality beer,” he says.
“This is because every off licence is telling us we are eating each other’s children, cannibalising the craft beer market but not infiltrating the mainstream. Whether it is raspberry-, chocolate- or banana-flavoured beers, the paradox of choice is playing out in the craft beer market. It appeals to the ‘beerdos’, but it’s confusing to the mainstream customers.”
Exporting offers a way to combine both interesting new craft beers and sustainable market growth, however. It’s why Shane McCarthy, a former hedge fund consultant, set up Ireland Craft Beers, an export distribution company, in December 2014.
He now sells Irish craft beer all around the world. “The number of new craft breweries here may have plateaued but the scope for exports among existing ones is enormous,” says McCarthy.
“Brands like White Hag, Eight Degree and Metalman are doing well in London, for example, which has more than 1,000 microbreweries of its own. If you can do well in London, you can do well anywhere.”
It was Tony Healy’s faith in the ability of Irish microbreweries to start scaling up through exports that encouraged him to build Dundalk Bay Brewery Company. A massive operation, it comprises a fully automated, 50 hectolitre brewhouse (a typical microbrewery operates off 1,500 litre tanks) and provides contract brewing services to those looking to grow volumes.
It launched commercially in mid-summer and already has a full job book, according to Healy, who is also the founder of Spectac, the country’s best known maker of microbrewery kit.
In time, the goal is to develop its own brand of craft beer, but for now, fulfilling orders for others is the name of the game, says Healy, who runs the business with his daughter Faye.
“I spotted a gap in the market two years ago. Most of the microbreweries operating at the moment are too small to scale up – so they have to beg, borrow and steal capacity from one another on a grace-and-favour basis. The reason Irish microbreweries are slow to export is because they don’t have the capital investment required to scale. Our brew house cost €2 million, and I had the advantage of being able to build it myself.”
The sale of a reported 32 per cent of craft beer pioneer O’Hara’s earlier this summer to the Spanish company behind Estrella Galicia is further evidence of a sector increasingly looking to export sales.
Jacqui and Ronan Kelly of Kelly’s Mountain Brew are expanding their brewery at Clane, Co Kildare. By Christmas, they will have added a fourth brewing tank, boosting production capacity by 25 per cent, and enabling three brews weekly, all to meet growing demand.
Much of this is domestic, having come through a ramping-up of supermarket sales in SuperValu, Tesco and, most recently, Lidl. Kelly’s has seven products in its range, five core ones and two limited-edition innovations, currently a raspberry blonde beer limited to 100 cases.
“Overall, the market is growing,” says Ronan Kelly. “We now have Lidl, Aldi and Tesco, three of the big five supermarkets, really focusing on craft beer. That’s a big step and a lot more shelf space opening up.”
They too are now looking to develop export markets, however. “We already sell into Russia, a market that is growing for us, and are currently in talks with a Chinese brewing company with a view to supplying it,” says Jacqui.
Both are relieved to have boarded the craft beer train early on. Starting now would be much harder, reckons Ronan Kelly. “When we started you could get on social media and find people who were out looking for craft beer. Now you’d have to spend a lot more money to catch their attention. You’d certainly need to spend a lot more on advertising because, when there’s more in a race, it’s harder to get up the front.”