By Erik Maza, The Baltimore Sun
6:19 PM EST, November 9, 2011
The Brewer's Alley brew pub in the heart of downtown has been chugging along for 15 years, slowly adding artisanal beers to its stable, resisting temptation to expand when it seemed every wannabe brewer with some start-up capital and a disdain for Budweiser got into the craft beer business.
This year the pub faced a crucial test: "What we had to decide a little while ago was, either stay at capacity as a small pub, or continue to meet demand and possibly create more demand," said Tom Flores, brewmaster at Brewer's Alley. "We decided to go for it."
Two months ago, they opened their own brewery, Monocacy, which has plans to produce as many as 3,000 barrels of beer by the end of next year and already has a contract to supply a ballpark, the Frederick Keys' Harry Grove Stadium.
In Maryland, and across the country, brewers are quickly coming around to Brewer's Alley's thinking.
With sales of craft beer far outpacing those of mainstream lagers, they have recognized the makings of what some are calling the second wave of the craft beer movement and are seeking to capitalize on the demand by opening brand-new breweries.
Craft breweries are opening at an accelerated pace, and In Maryland alone, five, including Monocacy, are already in business or will be within a year.
The new businesses reflect a confidence in an appetite for the subtler flavors of craft, but brewers say their growth will be tested by the risks that accompany sales booms and state laws — like July's alcohol tax increase — they call hostile.
Boom and bust
Craft, which generally packs more complex flavors and nuance than average domestics, has been gradually growing in popularity since the late '70s and early '80s, and had a major boom in the '90s that then went bust.
"Every Tom, Dick and Harry jumped in with no idea what they were doing," Flores said. "And people got turned off."
Sales started to rebound in the decade that followed, and have not slowed down, jumping from 7.6 million barrels in 2006 to 10.5 million last year, according to the industry newsletter Beer Marketer's Insights.
Experts attribute the rebound to changes in American taste, with more people preferring to support local and regional businesses. Knowledge about craft, with the advent of beer weeks and more restaurants carrying beer alongside wine, has also created more awareness with the public. As that happens, retailers have been making more space for craft beer, said Paul Gatza, director of the Brewers Association, an industry group.
Craft still claims a small portion of the overall beer market, but while sales for mainstream beer have been declining for several years, a trend that was compounded by the faltering economy, the craft sector has been one of the few in the industry to actually see sales increase year to year, according to Beer Marketer's.
Brewers without a business of their own have been hip to the numbers and have kept up by opening new breweries — 1,587 in 2009 to 1,716 last year, according to the Brewers Association. The pace has accelerated this year.
While three years ago the association would see about 100 new breweries open, this year they're seeing twice as many, Gatza said. Over 760 others are in a planning stage.
In Maryland, one brewer besides Monocacy has opened — Burley Oak Brewing Company in Berlin. And three more are in the works — Milkhouse Brewery at Stillpoint Farm in Mount Airy; Union Craft Brewing, which will operate out of a warehouse in Woodberry; and the owner of Baltimore's The Raven beer, Steve Demczuk, who will install a working brew pub at the old Haussner's in Highlandtown. By February, Delaware's Evolution Craft Brewing will have moved to Salisbury.
That would bring the total of microbreweries in the state to at least 20, according to the Brewers Association of Maryland. Although Maryland used to house many producers of light lagers — Gunther, the National Brewing Co. — the only breweries in the state now fall under the category of microbreweries, which generally produce 6 million barrels of beer a year or less.
"It's unusual to hear about growing industries of any sort," said Mike Franklin, president of the Maryland association. "If it's something in an area that you have a passion for anyway, it smells like an opportunity. Things feed off each other."
Few brewers are as savvy as Flores. Tall and professorial, he's a kind of Indiana Jones of beer, with hands in all kinds of arcana of the trade, from growing his own barley, to recreating the beers of Colonial times.
A scientist by trade — he studied brewing at the University of California-Davis' Brewing and Food Science Laboratory — Flores got his start at what is now Baltimore's Heavy Seas brewery and then moved to Frederick at the height of the '90s boom to work at Brewer's Alley.
Until recently, Brewer's Alley has produced its own beer in-house or contract-brewed out of Frederick's Flying Dog, the state's largest brewery — about 900 barrels a year, or about 1,600 kegs. Careful to avoid the missteps of the '90s, it had been biding its time to expand.
Aware of the national numbers, the brew pub's backers took this to be a decisive year. Flores said craft beers are in the middle of the phase California wines entered after its own bust cycle.
"Out of the wineries that went bust, came out wineries that did know what they were doing, and they built the base for much more enduring and persistent growth of California wine today," he said. "In craft, now we've got this second wave, and it's building on the foundation of the clearing-out that happened in the '90s. The only people who get in the game now are people who are really good."
The brewers bought a former ice cream factory 10 minutes away from downtown Frederick six months ago, and opened Monocacy in September.
With its five tanks, it can brew 20 to 25 barrels at a time for an estimated annual output of 1,000 barrels. It has enough real estate, though, that Flores said could accommodate enough tanks to produce as many as 20,000 barrels a year, or about 40,000 kegs.
"Come next spring and into summer, we'll step into the accelerator to get to the point where we can sell all over the state," Flores said.
An uphill battle
The new batch of breweries is a surprising development for veterans of the regional industry, who describe Maryland as hostile to brewers. The state forbids brewers from self-distributing, a challenge for small businesses because it puts them at the mercy of wholesalers.
The state's franchise laws also make it costly to sever ties to a distributor if the relationship isn't working. In states with laxer franchise laws, like California and Oregon, the craft beer industry has flourished, Gatza said.
And brewers also say the increase of the sales tax on alcohol by three cents on the dollar, which is expected to raise as much as $87 million for school construction and other educational programs, makes them less competitive to other states in the region with robust beer audiences, like Pennsylvania and Delaware.
Advocates of the sales tax argue it will create more competition and perhaps even lower prices for consumers.
Still, these laws haven't stopped new brewers from getting into the business and craft beer sales from escalating. The Mid-Atlantic has seen sales grow faster than any other region in the country except the Southeast, about 16.4 percent from 2009 to 2010, according to the Brewers Association.
Brewers acknowledge that the current laws won't put anyone out of business. But they say a change in the law — like allowing micro-breweries to self-distribute — would encourage more to get into the business.
"We're succeeding in spite of Annapolis," Flores said.
A more pressing matter is whether the current boom will be a repeat of the last one. Franklin said the new brewers are better equipped to survive because they're less capital-intensive than their '90s counterparts, with costs staying under a million dollars in start-up funds.
"If they can gradually build their business while supporting themselves with something else, then they'll have a different outcome than the first wave," Franklin said. The brewers of the '90s were also less beer-savvy than those now, who are coming out from semi-professional backgrounds, and produced more mediocre product.
But, a boom is a boom. "What will happen is the same thing that happened in the last wave. Some will survive; others won't," Franklin said. Referring to the market at large, he said it "probably won't be able to support them all."
Flores plans to cultivate Monocacy just like he does his beer – with patience, and an eye toward the future.
"It took us 15 years to get to this point. I think that says we're not in it for a quick buck," he said. "We fully appreciate that this is going to take a while to make a return."
His first brew for Monocacy will be a rye-based India pale ale, an extension of a project with a Frederick farm to grow his own barley. Eventually, he wants the farm to be its own brewery as well.
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