In a market like Seattle, surviving in the craft-beer market is a challenge.
Seattleites know beer. It is one of the country’s top cities for craft beer, and the region has dozens of microbrewers.
But even in a market like Seattle, surviving in the craft-beer market is a challenge.
Pyramid Breweries, a 20-year-old company, is a Northwest original that has distinguished itself with its unusual wheat beers. With its line of seven Pyramid beers, Thomas Kemper Sodas and products it acquired in last summer’s purchase of Portland Brewing, Pyramid faces the challenge of becoming a profitable business while maintaining its hometown feel.
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The beer market in Seattle has changed since Pyramid started, said its chairman, George Hancock. Two decades ago, craft-beer drinkers were enthusiastic about experimenting with new beers, but now they focus more on quality.
“We have to appeal to a new generation of beer drinkers, and that’s a marketing challenge,” Hancock said. “We think our customer is looking for choice, for full flavor, interesting flavor, rather than an alcohol soda. A lot of beers are, frankly, consumed because they’re cold and wet.”
While national expansion is a possibility, Pyramid aims to further penetrate its markets by strengthening its brand name, said John Lennon, who became chief executive in August.
Pyramid runs ale houses in Seattle, Sacramento and Walnut Creek, Calif., and distributes its products in Washington, Oregon, California, Idaho and Arizona.
Chief executive: John Lennon, 50
Products: Pyramid Ales, Thomas Kemper Sodas, Portland Brewing Company beers. Top seller is Pyramid Hefeweizen.
Locations: Breweries: Two in Seattle and one in Berkeley, Calif. Alehouses: Seattle, Sacramento and Walnut Creek, Calif.
Sales: $34.6 million in 2003. $29.5 million in first nine months of 2004.
Profit/Loss: $1.2 million loss in 2003. $1.3 million loss in first nine months of 2004.
Ticker symbol: PMID
The company had sales of $34.6 million in 2003 but lost $1.2 million for the year. Sales have grown by about 28 percent over the past five years, but the company’s ability to remain profitable has been inconsistent.
Lennon, a beer-industry veteran of more than two decades, has identified three ways to help Pyramid’s profit margins: improving product lines, reducing overhead costs and increasing productivity at its three breweries.
He also is setting up a marketing team to strengthen the Pyramid brand name.
“Brands really need to stand for something,” Lennon said. “The Pyramid brand will stand for a competency in wheat beer.”
Few breweries in the U.S. make wheat beers. The practice died out before Prohibition, Hancock said.
Wheat beers are unfiltered, giving them a thicker consistency. Pyramid’s most popular product, Hefeweizen, is like “a Corona on steroids — refreshing but flavorful,” Hancock said.
Lennon is convinced Hefeweizen can succeed nationwide, and Pyramid’s board supports the idea.
Pyramid has been a small, local brewer, but its business has matured, Hancock said, and it must grow to stay competitive.
Pyramid bought Portland Brewing in August for $4.2 million in cash and stock. The deal increased Pyramid’s variety of products and production volume.
“The Portland purchase was a way for us to get bigger and to provide the servicing distributors are looking for,” Hancock said. “It’s a response to what’s happening in the marketplace.”
Craft brewers operate in a different beer universe. Their market is a tiny fraction — about 3 percent — of the total beer market, which is dominated by popular domestic companies such as Coors, Anheuser-Busch and Miller Brewing.
But the amount of craft beer being consumed in the U.S. “has grown every year for the past 34 years; it’s a slow progression of customer awareness,” said Paul Gatza, director of the Association of Brewers, national craft beer organization based in Boulder, Colo.
Craft brewers can forget traditional marketing techniques, Gatza said.
He has seen companies use e-mail lists, odd Web sites and counterintuitive slogans.
Stone Brewery, based in San Diego County, Calif., for example, asks “Are you worthy?” when entering a Web site for its Arrogant Bastard Ale.
When marketing craft beer, “the weirder the better,” Gatza said.
“Things that don’t really follow the mainstream seems to be the approach a lot of the successful breweries are doing.”
The primary strategy is to make a personal connection with the consumer. Mass marketing simply doesn’t work, Gatza said.
But ale houses are perfect marketing tools, he said.
“We think (ale houses) are really important,” Hancock said. “It’s a way people can connect with the beer, feel ownership with the brand.
“They taste the beer at its freshest, have people talk to them about it and explain it to them.”
Larger regional brewers like Pyramid and Redhook are the fastest-growing craft brewers, Gatza said.
They have built some customer loyalty and have access to more consumers.
“It’s not an iffy proposition, Gatza said. “When you buy a Pyramid, you know you’re going to get a great beer.”
Craft brewers compete for a select group of consumers who are willing to experiment and are extremely picky.
While most of the beer industry goes after the customer who will sit down with a favorite six-pack night after night, craft brewers target a different consumer.
“I’m not looking for someone picking up a 12-pack every other week,” said Daniel Del Grande, owner and chief executive of Bison Brewery in Berkeley, Calif. “I’m looking for consumers who will buy a six pack every two or three months. It’s more realistic to find 30 customers who buy my beer less often.”
His company makes four kinds of organic beer, including a chocolate stout. Making unique beers is a marketing strategy, Del Grande said, because craft-beer consumers look for the unusual.
“If you can put out a high-quality beer, you should have some staying power in the marketplace,” Del Grande said.
“You can get a lot of first-time buys, but [whether you can] get repeat buys on an ongoing basis is a real business challenge.”
Blanca Torres: 206-515-5066 or email@example.com