By Brigid Sweeney February 09, 2018
Jason Klein and Brad Shaffer, buddies since their 9-year-old hockey-playing days in the northwest suburbs, started talking about opening a bar in 2009. But after assessing the competitive landscape and the capital required, they nixed the idea. At the time, Klein was a dedicated Miller Lite drinker.
Today, his drinking habits and career ambitions have shifted considerably. Klein, 35, and Shaffer, 34, own Spiteful Brewing, a two-month-old brewery and taproom next to Half Acre Beer in the city’s Bowmanville neighborhood. More than a decade after its founders opted out of the bar scene, Spiteful is one of the small, no-frills taprooms that are gaining fans and making traditional taverns and Big Beer nervous.
“The beer category has been soft the past couple of years, and on-premise (the industry term for bars, stadiums and other places people consume booze) has been down while taprooms have been gaining in prominence,” acknowledges Pete Marino, president of Chicago-based MillerCoors’ craft and import division. “It’s been a zero-sum game.”
The number of taprooms—similar to brewpubs, minus the restaurant component—has exploded over the past decade as states have amended laws, allowing small brewers to distribute directly to consumers.
In Illinois, a 2011 law gave small brewers the right to self-distribute 7,500 barrels a year, provided they made no more than 15,000 barrels annually. (It’s tough to estimate the number of taprooms in Illinois because, though they’re regulated, they’re not tracked as a separate category by the state. There are an estimated 6,000 craft breweries in the country.) The law has twice been amended to take into account breweries’ rapid growth; today, brewers can self-distribute as long as they produce fewer than 120,000 barrels each year.
That’s led to the demise of some neighborhood bars, data suggests. The national number of “on-premise drinking establishments” has fallen 6.3 percent since 2010, to 43,118 last year, per the Bureau of Labor Statistics. Traffic to these places fell 3.6 percent in 2017, according to Nielsen data analyzed by MillerCoors. At the same time, an estimated 9 percent of national bar traffic is now going through taprooms and brewpubs. In Chicago, it’s 12 percent.
“Creating new places to drink does not create more drinkers,” says Lester Jones, chief economist at the National Beer Wholesalers Association. Even as taprooms have exploded, “demand for alcoholic beverages has been steady for a number of years, at roughly 2.5 gallons per drinker per year.”
Some in the craft industry argue that’s not quite right. “A lot of people complain about taprooms taking away business, but I don’t think that’s the case,” says Spiteful’s Klein. “It’s a different experience. Bars are losing market share because customer tastes and palates are changing, not because we’re stealing their business.”
He says that Spiteful and other taprooms, with their industrial-simple interiors, relaxed vibe and dog-friendliness, bring in young families with strollers, older couples on early weekend afternoons—not an average bar’s typical clientele. They are also likely to offer food trucks parked nearby, board games and flights of beer that allow patrons to taste several offerings in a sitting.
HELPING DEMAND
Taprooms can help increase demand for craft beers also sold in bars, Klein says. Data from the Brewers Association, craft beer’s trade group, backs up his point. A 2017 study conducted with Nielsen showed that 40 percent of taproom visits did not replace a planned trip to a bar. Another 24 percent of visits came in addition to bar visits. Still, 30 percent of taproom trips do replace bar visits, the study found.
MillerCoors is responding to the issue by embracing taprooms at the same time it provides its bar customers with technology to optimize its beer mix and win back drinkers. The beer giant owns a handful of taprooms after buying craft breweries, including Saint Archer in San Diego and Hop Valley in Eugene, Ore. It also operates a 30,000-square-foot brewpub in Denver, which serves as an innovation facility for its Blue Moon brand.
Taprooms offer “a great opportunity for customer feedback,” Marino says, noting that two recent Blue Moon releases—Mango Wheat and Pacific Apricot Wheat—were created and tested at the Denver taproom.
He’s quick to point out, however, that nothing can replace the role played by bars. The 2.8 million barrels of beer sold via brewpubs and taprooms still represent only 1 percent of overall U.S. beer sales volume. “We firmly believe beer brands are built in the on-premise world,” Marino says. “It’s where we walk around with a branded vessel in our hands.”
To help its bar partners fight back, MillerCoors invested in software-based analytics tools that help each bar determine its optimal beer mix and a promotion schedule based on demographic information. That might mean introducing more sessionable offerings, which have an alcohol by volume of no more than 4 percent—which keep people in bars longer instead of “ordering one huge hop bomb and going home,” Marino says.
Back at Spiteful, Klein couldn’t be happier with his taproom, hard-won after years of brewing in a 400-square-foot Ravenswood basement. “It’s been really exciting to have a space to interact with people who have been drinking our beers for years, and it’s been gratifying to see the diversity of our customers,” he says. “We set out to open a bar, and now we’ve closed the loop.”