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Brewing Scene Experiences Changes as the Sector Expands

Santee’s Twisted Manzanita Ales & Spirits recently pulled the plug on its beer operations to focus on craft spirits, and the multivenue URBN Restaurant Group shut down brewing operations at its El Cajon brewpub.

Meanwhile, companies including Mira Mesa’s Green Flash Brewing Co. continue to double-down on beer, with its CEO recently stating at a public forum that the brewer is in the process of acquiring an unnamed competitor, which would be a follow-up to its 2014 purchase of East County’s Alpine Beer Co.

Also a sign of maturity in the local region’s craft beer industry, 10 Barrel Brewing Co., a Portland-based brewer acquired in 2014 by global brewing giant Anheuser Busch InBev, recently received San Diego city approvals to open up a planned new brewpub in East Village. It would be the first local brewing operation owned by a major macro beer-maker.

Recent expansions, contractions and strategy recalibrations serve as reminders that the relatively young industry will not be immune to the financial and competitive laws of gravity impacting most other business sectors.

“You need to have the good locations and the right demographics, but there’s a lot more to it,” said Vince Vasquez, a senior policy analyst who covers craft beer among several areas for National University System Institute for Policy Research in San Diego.

The Craft Crowd

The sheer number of current local craft brewers, with more on the way, mandates that many are already reconsidering their business plans and strategies, in response to challenges as well as new opportunities, to stand out from the pack.

Vasquez noted that as of March 7, San Diego County had 119 brewing locations in operation, including breweries, brewpubs and tasting rooms. There were another 39 sites in planning or application stages, several of which could open before year’s end.

Twisted Manzanita officials could not be reached for comment at press time. Among the first and largest brewers in East County, the company was started in 2010 and produced 3,700 barrels of beer in 2014, up from 2,600 the prior year.

In an April 2015 interview, owner and CEO Jeff Trevaskis told the San Diego Business Journal that sales of the company’s distilled spirits, which began in 2012 with production of offerings such as craft whiskeys, had been steadily growing, reaching about 1,000 bottles annually.

Trevaskis said the company’s global prospects for spirits sales growth included markets such as Canada, Nigeria, Hong Kong and China, and the local spirits industry generally had the potential to reach the same cachet as craft beers within the next eight to 10 years, provided certain regulatory and other hurdles were removed.

Later in 2015, California lawmakers passed the Craft Distillers Act, which took effect at the start of 2016 and gave craft distillers new opportunities to sell their bottled products on premises and directly to the public, as breweries and wineries were already long allowed to do.

Distilling Opportunity

While he did not know the particulars of the Twisted Manzanita decision, Vasquez anticipates that other local brewers in the future, joining a small but growing field of pure-play distillers, may seek to capitalize on the new state laws and replicate the experience of the largest locally based craft distiller, Ballast Point Brewing & Spirits.

Miramar’s Ballast Point was acquired last year by macro-brewer Constellation Brands for $1 billion, though officials said the deal did not include the company’s growing spirits division, which produces items including gins, rums, vodkas and whiskeys.

Vasquez said the industry has a long runway for potential growth, with craft spirits currently comprising 2 percent to 3 percent of all U.S. spirits sales. Craft beer, which is also deemed ripe for more growth, currently accounts for 11 percent of U.S. beer production volume and 19 percent of dollar sales volume, according to the latest data from the Colorado-based Brewers Association.

“There’s the attraction for many people to become the Stone Brewing Co. or Sam Adams of craft distilling,” Vasquez said.

Green Flash is among the largest local craft beer brewers and is in the process of significantly boosting U.S. production, with an East Coast facility opening soon in Virginia Beach, Va. More growth could come from acquisitions of competing brewers.

At a recent local forum on craft beer financing, presented by the law firm Mintz Levin, Green Flash co-founder and CEO Mike Hinkley said his company was finalizing an acquisition of another brewer, though he did not disclose the name or other details.

In the future, Hinkley said, Green Flash will be scouting opportunities to acquire other firms whose cultures and product offerings are compatible with its own. In some cases, it may be able to make the deals pencil-out financially by tweaking the operations of companies that are currently not being run at peak efficiency.


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