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Craft brewers toast another year of growth

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Craft brewers turned out 1.3 million more barrels of beer last year than they did in 2010, a 13% increase in volume, and retail sales rose 15% even as the overall beer industry turned out a lackluster performance, according to the Boulder, Colo.-based Brewers Association. Brewers qualify as craft if they turn out fewer than 6 million barrels a year, and they range from tiny microbreweries that produce a barrel or less to Samuel Adams-maker Boston Beer, which recently hit the 2 million mark. Last year also brought the opening of about 250 craft breweries, and craft beer has a nearly 6% market share, compared with slightly less than 5% in 2010.

Small-batch beers have been growing in popularity for more than a decade and, while growth slowed a bit during the recession years, things are heating up again as the economy recovers. I talked with Brewers Association Director Paul Gatza this week to learn more about what’s driving the rise of the craft beer industry.

What’s fueling the growth?

One of the major factors is that this is what the beer drinker wants. They’re willing to search out local brands from microbreweries, and brew pubs are doing very well right now. Back in the 1990s, there was a period when craft was pretty hot, but what we didn’t have back then was the educated beer drinkers. On the brewer’s side, we are seeing more continued innovation in styles and products. There are all sorts of things coming out now — there are barrel-aged beers that we didn’t see much of five years ago; sour beers are doing very well and, at the retail level, we’re seeing variety packs and seasonal beers doing very well. India pale ales are having amazing growth — they grew 40% last year. People are discovering what hops are and they really like them.

At the wholesale and retail level, market access has improved for small brewers and they are getting the shelf space, mostly because the public is demanding it. Companies are looking at the overall beer industry as a shrinking industry. Where’s the growth? It’s in craft, which tends to get a higher price and margin, so it benefits them to have it on the shelf, especially when it’s selling.

Finally, overall consumer [trends] are heading toward local products and small companies — it’s a huge movement. I was recently at the National [Grocers] Association’s convention and local is what’s going on. It used to be it was a fad, then it was a trend and now local is the way people think. Craft brewers are very local, so they fit right in with where consumers are now.

Are small breweries expanding their distribution areas?

No, in fact we’re seeing the opposite. They’re selling so much beer in their home markets that we’ve seen a lot of them pull back out of some markets because they can’t guarantee a consistent supply. Growth is not happening through expansion, but by having more and more beers on the shelves.

Who is opening all of the breweries?

I think a lot are home brewers who have reached a higher level of home brewing and want to go to that next step. There’s also an easy point of entry these days. We’re seeing a lot that are really small — we call them nano-breweries — and the startup [funding] options are in the five-figure range rather than the six-figure range now. Also, as more people are exposed to new beer styles, they develop that passion and they’re diving in. A lot of these plans started being hatched two and three years ago, when the recession hit and lot of people realized they didn’t have control of their situation. One way to have some control is to start your own brewery.