Philly's oldest craft breweries say 'local is king' | Crain's Philadelphia

Philly's oldest craft breweries say 'local is king'

Sly Fox Brewing Co. in Pottstown, Pa., opened in 1995. One of their community events, pictured here, is a Can Jam Music Festival. | Photo courtesy of Sly Fox Brewing

America’s oldest brewery, DG Yuengling & Son of Pottsville, Pa., is also America’s largest craft brewery — even if they don’t think of themselves that way — producing some 2 million barrels a year of lager, light lager, black and tan, and seasonal offerings, and leading a rapidly growing segment of the overall beer market.

The brewery established in 1829 as Eagle Brewery by David G. Yuengling is still family run, with Dick Yuengling’s four daughters the sixth generation involved in the business.

And it’s one of several stalwarts in the Philadelphia area that have been brewing for years and are now poised to capitalize on the booming craft beer business — though the success of craft beer itself has begun to present some challenges as “Big Beer” attempts to jump into the market.

Overall beer sales were level in 2016, according to The Brewers Association, but craft beer sales increased 10 percent to $23.5 billion, up from $10.12 billion in 2011, and now make up nearly 22 percent of the $107.6 billion U.S. beer market. Nationally, total beer consumption fell 4 percent between 2011 and 2016, the Beer Institute reported.

The Brewers Association defines craft breweries as those producing 6 million barrels or less annually, with less than 25 percent of any operation controlled by an alcoholic beverage industry member that is not a craft brewer. A majority of craft beer output also needs to come from “traditional or innovative brewing ingredients and their fermentation,” excluding flavored malt beverages.

In 2016, there were 5,700 craft breweries in the United States, slightly more than 200 of them in Pennsylvania.

The Brewers Association has changed its definition of craft beer over the years, and the latest change, in 2014 — which allowed craft breweries to use corn or rice sugar in more than half of their brews, as well as their “flagship” beer — meant Yuengling was a craft brewery.

“At this point, we fall under that definition,” said Jen Yuengling, vice president of operations. “We’ve always been a local brewer, a regional brewer. Consumers view us as a step-up brand. We’re more than a mainstream beer. We have the viewpoint that we’re between the domestic mainstreams and the craft category.”

Yuengling changed its packaging this year to capitalize on its heritage.

“We brought a stronger emphasis to our iconic Yuengling Eagle and barrel logo, making it the focal point of the design,” spokeswoman Jessica Seiders said. “The iconic eagle remains a symbol of the brewery’s fierce independence as America’s Oldest Brewery.”

The brewery also announced partnerships with the Philadelphia Phillies and Philadelphia Flyers to better connect with consumers in that market, and expanded its footprint to Indiana, with plans to begin distribution in Arkansas next month.

Big players like Anheuser-Busch InBev and Molson Coors have moved into the craft beer arena, buying up small breweries, but Yuengling said that hasn’t had much of an impact on her family’s business.

Some of the area’s smaller breweries, however, do see a threat from the big players. John Giannopoulos, who is managing partner of Sly Fox Brewing Co. in Pottstown, Pa., said the entry of the big players in the business is going to grow more significant as they add to their offerings to appeal to craft beer fans. His brewery, which began production in 1995, is one of the older ones in Pennsylvania and now sells 22,000 barrels a year in seven states, according to Giannopoulos.

“Anheuser-Busch has massive distribution channels. They can pretty much present a whole lineup of beers and take over every single tap. The breweries they have purchased make great beers,” Giannopoulos said. “We’re highly focused on being independent, local and fresh. That’s our push and what we’re doing. The big players are going to impact the business but we’re going to carry on.”

Tom Kehoe, founder, president and brewmaster of 23-year-old Yards in Philadelphia, agreed.

“Just the fact they’re acquiring some smaller brewers and acquiring authenticity through acquisition hurts us. They’re using the marketplace,” said Kehoe, who started brewing beer in his dorm room and now produces 45,000 barrels per year. “They’re out there in a big way doing what they do best: market product. At the same time, they’re taking advantage of the market we built as craft brewers.”

To stay ahead, Kehoe said, craft brewers have to watch carefully to make sure the big boys aren’t taking advantage of them. The key, he said, is to remind consumers that craft brewers are local; the big boys are not.

“Local is king,” Kehoe said. “It’s very important to the way we market our beer. By them [major breweries] getting small breweries, they’re buying great stories and great names but sending them all over the country. They’re not local.”

As major players buy more and more independent craft brewers, it becomes harder for smaller breweries to gain shelf space in package stores and on taps in bars, said Julia Herz, craft beer program director at the Brewers Association.

“It’s a tougher challenge than ever to get on the shelf and on the restaurant menu,” Herz said. “Some retailers are one-stop shops. They get convinced to have exclusives with ‘Big Beer.’ It’s the illusion of choice. They’re still presenting the craft beers they’ve gotten as independent when they’re not.

But, she said, “many beer lovers have said independent ownership matters to them and supporting those breweries is important.”

Even among independent breweries, the craft brewing field is getting pretty crowded, Giannopoulos said.

“You have to pick your place, find a niche that maybe is not oversupplied,” he said. “Realistically, it’s getting difficult but there still is plenty of room for brewpubs. For packaging breweries, it’s getting tougher and tougher.”

Sly Fox, co-founded by Giannopoulos and his older brother Peter, started as a brewpub 22 years ago and began production brewing in 2004. He said it became the first East Coast craft brewer to use cans instead of bottles in 2006. The company also produces beer for about a half-dozen other craft brewers, which makes up about 35 percent of its yearly production, Giannopoulos said.

Both Sly Fox and Yuengling eschew the trend toward dessert beers, those that incorporate such things as cacao nibs and fruit juices, preferring to produce traditional lagers, ales and porters, while Yards produces a chocolate stout and a tart berry beer that Kehoe described as almost like “pink lemonade.”

Yuengling’s first creations were Lord Chesterfield Ale and Porter and the two brews are still on the company’s roster. The company, which distributes throughout the Eastern U.S., has three production facilities: two in Pennsylvania about three miles from each other, and an old Stroh’s plant in Tampa, Fla., it purchased in 1999 to try to meet demand while the larger of its Pennsylvania plants was under construction.

Yards distributes its output in Pennsylvania, New Jersey, Delaware and Maryland. Kehoe said once his second brewery is up and running, Yards might expand its footprint to adjacent states.

Ted Zeller, general counsel to the Brewers of Pennsylvania, said the the state’s brewers have some significant obstacles to overcome because of state franchise laws when it comes to distributing their wares to retailers.

State law requires brewers to engage a wholesaler for each county and that contract cannot be broken. So if a wholesaler loses interest in a particular brand, the brewery is effectively shut out of a given market.

“With the proliferation of brands, it becomes even more relevant,” Zeller said. “Just as brands are consolidating on a global scale … wholesalers also have consolidated.”

On the flip side, Pennsylvania is one of the friendliest states when it comes to brewers selling directly to consumers, promoting tasting rooms at production breweries, brewpubs and microbreweries. By contrast in New Jersey, restaurants are fighting breweries’ ability to sell directly to consumers, he said.

December 15, 2017 - 4:15pm