Arizona craft beer scene hopping after slow start | Crain's Phoenix

Arizona craft beer scene hopping after slow start

Since launching in 2011, O.H.S.O. Brewery & Distillery has three locations in the in the Valley and plans to open a fourth soon. | Photo courtesy of O.H.S.O. Brewery & Distillery

Just a few years ago, craft brewing in Arizona was a lonely endeavor. Only a couple dozen independent brewers existed, too few to gain much notice from anyone but the most ardent fans.

But the craft brewing scene is hopping now. Since 2013, the Arizona Craft Brewers Guild has grown fourfold to 90 independent brewing companies, and members are building a solid reputation: Four Arizona breweries from metro Phoenix medaled at the Great American Beer Festival in October.

“Everyone wants to know how we compare to San Diego or Portland or Denver, but you can’t really compare,” according to Rob Fullmer, the Guild’s executive director. “We are who we are. Like all things in Phoenix, we have everything; you just have to find it.” 

The craft brewing culture has become established and large enough in the state that the breweries are now learning from each other, Fullmer says.

More importantly, Arizonans are embracing local craft brews and the nightlife surrounding homegrown breweries.

“They’re really excited that they can sometimes go to two or three breweries that are within walking distance,” Fullmer says. “These breweries are defining and adding value to neighborhoods.”  

However, locally brewed beer brands are still underdogs, occupying a very small share of the market. Craft beer represents about 10 percent of all beer sales in the state, and Arizona brews account for a very small portion of that, says Fullmer.  

“It’s going to take a while to overcome the changing nature of Arizona and the consolidation that we’re seeing with ABI, Constellation Brands and MillerCoors, which are capturing shelf space, sometimes under the guise of being local or small, even when they’re not,” Fullmer says.

Still, local brewers say they’ve seen enough change in recent years to remain optimistic.

“I think we’ve come a long way,” says Jon Lane, who is opening his fourth O.H.S.O. Brewery & Distillery in the Valley since he founded the business in 2011. “Before, there were only a few that had high standards and good quality. Now, nine out of 10 of us have high standards and quality.”

O.H.S.O. primarily brews for its own restaurants and expects to sell 5,000 barrels this year, 4,000 of which will be sold in-house. Distribution is a secondary pursuit and, at this point, O.H.S.O.'s brews are only available within the state, Lane says.

Lane has a relatively small operation, but he says he hopes to grow it over time. Though producing for in-house consumption is his primary focus, Lane intends to add capacity, as well as more product for distribution. However, the latter is an uphill battle.

“Those who distribute see that it’s getting tighter and harder to place your beer. And the quality has gone up so much that a lot of local brewers tend to fight for the same taps,” Lane says. “The conglomerates, the big boys, have a lot more workforce, so it’s definitely a challenge to find space.”

While Lane sees distribution as a profit channel, it also has plenty of costs. He says that once you go through the canning and bottling process, and the distributors take their piece, the margins are small.

“The multinationals do pretty well, but even they’re struggling a little bit because if they don’t hit their numbers, the tipping point is pretty big from cost to margin,” according to Lane.

The margin on in-house sales is much greater than for distribution. Lane makes about $50-$60 per barrel on the former, while earning just $25 per barrel for the latter.

Another experienced veteran of Arizona’s craft brewing industry, Barry Tingleff, says he’s seen a major transformation in the local brew scene.

“When I first started as a home brewer in ’95, I think there were two or three different breweries in the metro-Phoenix area. Most of them were in northern Arizona,” according to Tingleff, the sales manager of Phoenix-based SunUp Brewing Co. “It’s exploded since then. I think there are now 65 breweries in metro Phoenix and the majority of them have sprung up the last four to five years.”

Tingleff says local brewers face a series of challenges, including the perception that craft brews are expensive. It’s also difficult for them to get tap handles and to get distribution through grocery chains and other major retailers, such as Total Wine and BevMo.

It’s also difficult for local breweries to get their product out to customers because not only are they competing with each other, they are up against craft breweries from the entire western region. 

SunUp used to have a large local distributor. But since October, it now self-distributes exclusively in Arizona. The company has designs on expanding distribution outside the state, and Tingleff says the brewery has the potential to expand considerably.

At present, SunUp sells about 1,200 barrels a year, but has the capacity to produce 3,000. They also have plans to build a brewery in the future that could produce 10,000-15,000 barrels annually. 

“We were a restaurant first and then became a brewery,” says Tingleff. “But now we’ve become a brewery that has a restaurant.”

December 11, 2017 - 2:42pm