Ah, spring! The return of baseball, barbecue and beer! We Minnesotans love our beer, and on this St. Patrick’s Day, I thought we’d tour Summit Brewing, Minnesota’s largest craft microbrewery.
“We are a 24-year-old overnight success,” Summit founder and CEO Mark Stutrud said. Describing the St. Paul company as “very small by industry standards,” the North Dakota transplant explained that the local brewery “seems bigger than we really are” because of the pervasive Summit tap handles at local watering holes, as well as the familiar logo in liquor stores, music and sports venues.
With more than 80 percent of Summit’s total sales within the metro area, Stutrud is comfortable with a regional growth strategy. “If you can’t make your business go at home, it doesn’t make sense to brew beer here and ship it to Boston or Seattle.”
Boasting a 38 to 40 percent market share in craft beer statewide, not including imports, Summit’s $17 million in sales in 2009 gave the St. Paul brewer a “pretty respectable” 2 percent share of the total Minnesota beer market, Stutrud said.
Well-known national brands have a different business model, with national distribution, he observed. Sam Adams produces 2 million barrels a year and Fat Tire produces half-a-million barrels. “Last year, we did 89,000 barrels,” Stutrud said.
Several factors caused Summit’s growth to slow over the last five years from its healthy double-digit growth to under 10 percent: Minnesota lowered the legal blood alcohol limit from 0.1 percent to 0.08 percent in 2005, and the public smoking ban was signed into law in 2007, both affecting sales, he said. He also pointed to the challenge of continuing to post double-digit gains against the company’s large revenue base and leading market share.
In addition, the local market continues to attract new entrants, such as Surly, Lift Bridge, Flat Earth, Fulton and Mantorville, which aim to take sales from Summit. With Anheuser-Busch and MillerCoors holding an 80 percent combined market share, “the tendency is for craft beer brewers to compete against ourselves,” and Summit has a “target on our back,” he explained. “Some of those guys show strong double-digit increases” in their early years, achieving a market share he described as “one or two drops in a big beer bucket.”
In 2007 and 2008, Summit felt the full impact of the recession as revenue growth slowed dramatically to low single digits and volume grew 5 to 8 percent. “On-premise” sales in bars, taverns and restaurants was particularly hard hit, Stutrud said. That segment slipped to about 45 percent, from a typical 50-50 split with liquor store “off-premise” sales. In addition, oil prices and a shortage of hops drove costs up, further squeezing Summit’s business.
Stutrud had to play defense to weather the slowdown. He “put the brakes on capital spending,” going from a typical $800,000- to $1 million-a-year to less than $1 million combined over the most recent two-year period. Summit typically would add one or two new positions per year, but in 2008, Stutrud had to cut one position from his 50-person workforce, the first time the firm has actually had a layoff, he said.
In 2009, the firm had “a pretty good year,” with volume growing 8 percent and revenue 12 percent — both “beyond expectations.” Now he is back on offense, with capital spending projected to reach $1.4 million this year. He added one position at the end of 2009 and wants to add two more this year, one in sales and one in production.
A hobbyist home brewer and self-confessed beer lover, Stutrud launched Summit by a circuitous path. A social worker focused on young adults struggling with chemical dependency, he found himself “stuck in middle management.” Getting laid off in 1983, Stutrud said, “propelled me to take a risk.” He started the business the following year and made his first sale in the fall of 1986.
At the time, regional breweries Hamm’s, Schell’s and Stroh’s offered traditional light lagers. Moosehead Beer out of Canada dominated the small import market with a barely noticeable presence by a dark and heavy Irish beer called Guinness Stout. Introducing handcrafted beers with different flavors into a market accustomed to lighter lagers, Stutrud said Summit was viewed as “a group of deviants … coming out with weird beer.” One writer “described us as ‘esoteric,’ ” he painfully recalled.
But he was positively surprised at how independent restaurants and liquor stores embraced the new brewer. “They saw parallels in what was happening in the wine industry with the emergence of varietals.”
Today’s beer drinkers are “more educated and discriminating,” he said. “Now we have a generation of people brought up on Summit … and craft beer.”
Future market share growth will have to come at the expense of major national brands, Stutrud predicted. “We’re going to remain fiercely independent. We’re not for sale, not looking to be acquired. Somebody has to tease and torture the big boys.”
More information about Craft beers
What is Craft beer? “It depends on who you ask,” explained Summit marketing coordinator Carey Matthews. Craft beer is typically defined as beer brewed using traditional methods and ingredients while avoiding additives such as corn syrup or corn and rice mash, she explained.
Local author Doug Hoverson chronicles the history of Minnesota breweries, reaching back to 1849, in a University of Minnesota Press volume, “Land of Amber Waters.”
Here are links to Minnesota’s breweries and sources of information about home brewing:
August Schell Brewing — New Ulm
Cold Spring Brewery — Cold Spring
Flat Earth Brewing Co. — St. Paul
Fulton Beer — Minneapolis
Lake Superior Brewing — Duluth
Lift Bridge Brewery — Stillwater
Mantorville Brewing — Mantorville
Minnesota Microbreweries — list of breweries and brewpubs
Summit Brewing — St. Paul
Surly Brewing — Brooklyn Center
Barkingside — Minneapolis
Midwest Homebrewing and Winemaking Supplies — St. Louis Park
Vine Park Brewing Co. — St. Paul (do-it-yourself brewing on premise)