When breweries grow, do bars lose business?

Nearly 20 years ago, McGillin’s Olde Ale House stopped pouring Guinness Stout because the brewery’s parent company had a corporate relationship with a restaurant that was opening a few blocks away in Center City.

Most of the publicity surrounding the boycott focused on the unnatural spectacle of an Irish bar declining to sell Ireland’s signature beer. It was as if the Eagles had decided they’d no longer play with a football.

But beneath the controversy was an uncomfortable tension between a brand and a retailer who sells it – one that may be rearing its head again with the explosion of brewery tasting rooms and pubs throughout the region.

Troubled by what they see as competition for a dwindling share of patrons, some bar owners have quietly begun removing tap handles from breweries that operate local tasting rooms and restaurants.

At the forefront of the movement, once again, is McGillin’s, the city’s oldest bar and one of Philadelphia’s strongest supporters of locally brewed beer. It has notably removed Yards from its draft selection, following the opening of Yards’ new brewery restaurant in Northern Liberties. The bar also pulled taps from Evil Genius and Roy Pitz, which also operate nearby restaurants.

“The bottom line is, if you want to partner with us, you can’t compete against us,” said Chris Mullins Jr., whose family owns McGillin’s. “If Dietz and Watson opened a deli down the street from us, we wouldn’t be serving cold cuts from Dietz and Watson. It’s the same thing with beer.”

Mullins said he spent a day recently visiting neighborhood breweries to see their operations for himself.

“It’s becoming so apparent that breweries are getting out of the make-and-distribute business model and getting into the make-and-serve-and-sell-t-shirts business,” he said.

He draws the line at breweries with full-service kitchens. Mullins is OK with the new Love City brewery, which opened this spring just eight blocks away from McGillin’s, because “they’re not trying to be a restaurant.”

“We were OK with Yards at their old place [on Delaware Avenue], too,” he said. “They really didn’t serve food. But now…”

Yards’ new brewery restaurant provides more than 200 seats, a large event space and a full menu.

“Look, it’s nothing personal. In fact, I think Yards’ new brewery is awesome for Philadelphia. It’s just not awesome for McGillin’s.”

Yards representatives have met several times with Mullins to persuade him to reconsider.

Brewery founder and president Tom Kehoe said that, even before the company opened the restaurant, Yards was concerned how the operation would be received by local bars.

“We were conscious of them,” Kehoe said. “Our customers are absolutely the most important thing to us. But at the same time, we are marketing a product, and there is no better way to market your brand than to have people coming into your brewery and having a good time.”

Kehoe believes that pays dividends at the retail level. Someone who enjoyed a Brawler at Yards’ brewery on Spring Garden Street is apt to buy it again at his or her local pub.


Read: Meanwhile in New Jersey…

Read: Let’s settle this before it gets out of hand.

Read: Why we drink in tasting rooms.


On-site beer sales has been one of the most important factors in the recent growth of breweries, particularly in the Philadelphia region. Previously, breweries were generally required to sell their beer through a distributor. Once the limitation was lifted, breweries began reaping a windfall of new cash. Suddenly, a keg that might earn a brewery only $150 wholesale could be sold for $600, pint by pint, in its tasting room.

The Brewers Association, which lobbies on behalf of small, independent breweries, estimates that nearly one out of every 5 pints produced by small breweries nationwide is sold on site. These sales accounted for about one-third of the sector’s growth in 2017, according to the association.

There are a couple ways to look at this new economic model:

On one hand, tasting rooms have spawned growth. In the four years after New Jersey OK’d on-site sales, for example, the number of breweries tripled. That’s great for consumers, who benefit from more choice. It’s good for the communities, who’ve seen more jobs and taxes, as well as an uptick in civic pride.

On the other, tasting rooms are spawning resentment. Longtime retailers and wholesalers – many of whom helped build these brands in the first place – now fear being edged out of the sector.

McGillin’s, for example, was one of Yards’ earliest retail accounts, selling kegs of ESA before we even knew to call it “craft” beer. As recently as last fall, it was giving bottles of Yards Love Stout to guests at wedding receptions held in its bar.

There is a good bit of disagreement over whether brewery tasting rooms really take away business from conventional bars. Many tasting room patrons might never set foot in a bar, according to one B.A. study.

“I’m not sure all bar patrons are suddenly going to brewery tasting rooms,” said Dominic Capece, general manager at Free Will Brewing in Perkasie, Bucks County. “I look at the people in my place. These are not people who are going out for late-night beers and shots.”

That may be true, but if you listen to beer chatter these days, it’s no longer about which bar is serving which great beer. It’s about visiting the latest, greatest new brewery.

McGillin’s position is hardly universal among bar owners. Kehoe told me he’s met with other bars who have no problem with his company’s new restaurant.

But other bar owners told me they’re worried that brewery tasting rooms are compounding already declining sales.

“I support the [brewing] industry,” said Ken Correll, a partner at Memphis Taproom in Port Richmond.  “But it’s becoming increasingly hard to support only local stuff.

“We’ve got Philly Brewing three blocks away, Yards a mile away. So one of the things I’ve done is take a new look at our beer list. Maybe put on more beer from [out-of-towners] Bell’s or Perennial or Cascade. I’m still going to sell everybody who’s local. Just not all of them at the same time.”

Another veteran of the local craft beer scene, Mike “Scoats” Scotese of Mayfair’s Grey Lodge Pub, calls it “a tricky time.”

“Beer bars have been hit with a double-whammy,” Scotese said. “The tavern industry is much less relevant than it used to be, and that’s happened in the last two years” – a problem he blames on competition from online streaming and other at-home diversions.

“And now our suppliers are competing against us… People who used to come to the Grey Lodge are now going to Double Nickel or Evil Genius or Yards,” he said.

Scotese said he is not boycotting any local breweries because “I don’t want to be that kind of person.” But he said he might begin brewing his own beer, to spark new interest, or shift his emphasis to the food side of the business.

“That’s been our only growth, food,” he said. “Unfortunately, that’s a lot less fun than the beer business.”

-30-


Read: Meanwhile in New Jersey…

Read: Let’s settle this before it gets out of hand.

Read: Why we drink in tasting rooms.

 

Comments

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  • Gary
    July 3, 2018 at 10:42 pm

    I would have loved to have chatted with you on this subject.

    • Donald Russell
      July 5, 2018 at 10:33 am

      Feel free to add any comments here, or use the contact form below to reach me. I’m sure this won’t be the last time I cover this issue. Thanks…

  • Joseph Ruvane
    July 8, 2018 at 3:28 pm

    Opened Barley Creek Brewing Company in the Pocono Mountains in 1995. Yes some local taverns and bars may never see any upside in carrying our beer. However, More and more think it’s the best thing that could ever happen to a local economy. A good brewery/distillery helps make the pie bigger!!

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