NEW ORLEANS — This week’s Biz Talks podcast features a conversation about the business of beer with Jacob Landry, co-founder of Urban South, and Tulane business professor J. Cameron Verhaal.
Here are five takeaways from the episode you can use to impress your friends the next time you’re out for a pint.
Louisiana Has the Second-Fewest Breweries Per Capita
Oh, Mississippi, where would Louisiana be without you? At the bottom of all the good lists and at the top of all the bad ones, that’s where.
In this case, Louisiana is the state with the second-least number of breweries per capita in the U.S., only beating Mississippi. Louisiana has about 40, which means one for every 116,220 people. Mississippi, meanwhile, only has 14, which translates to one for every 212,582 people. (Stats courtesy of the website Zippia).
Compare those numbers to Colorado, where there are more than 400 breweries, or one for every 13,550 people.
“That number in New Orleans is up from when we opened in 2016,” said Jacob Landry, whose brewery is responsible for Paradise Park, Holly Roller IPA and Lime Cucumber Gose, among many other brews. “We were maybe the second or third to open, and now there’s about 13 or 14, so there’s obviously been some growth. But there were about 2,500 breweries nationally when we opened and there’s about 9,500 today. Oregon, Washington, Colorado and Vermont are some of the top states for breweries per capita, and Louisiana and Mississippi are at the very bottom.”
Landry Thinks Regulations Need Improvement
Landry said there’s a “pretty clear cut reason” why Louisiana is behind — and it has to do with red tape.
“Our regulatory system is way worse than any other state’s,” he said. “I think, without hyperbole, I can say we’ve got the worst laws in the country for breweries.”
These challenges have led Landry and others to invest elsewhere. Urban South, for instance, operates a second brewery in Houston and, earlier this year, acquired Perfect Plain Brewing Co. in Pensacola, Fla.
“We’ve now invested more money outside of Louisiana than we have in Louisiana,” he said. “And that’s a really unfortunate and sad thing for me to admit to, but it’s 100% due to the laws here. We can do things in Florida and Texas that will lead to much quicker success than we can in New Orleans.”
One example: It’s easier to transfer beer from one facility to another out of state.
“Louisiana made a change to that [law] last year,” said Landry. “It now allows for transfer, but it put in place onerous requirements that still don’t make it as good as Florida, so I can transfer beer that I make in New Orleans directly to my brewery in Florida and sell that beer to consumers there. And as you can imagine, in manufacturing, these economies of scale are a huge part of growing and becoming more profitable.”
‘Authenticity,’ Branding Are Essential for Craft Brewers
“Most people can tell a bad beer from a good beer,” said J. Cameron Verhaal, but since many craft brewers make a highly drinkable product, that makes building a good brand essential to success.
“How you project yourself, what your image is, what your brand is, and how you connect with consumers is incredibly important,” he said.
Verhaal points out that the U.S. craft beer industry, valued at more than $7 billion in 2022 by industry research firm IBISWorld, was born in the 1980s in opposition to the industrial beer industry, which is maligned for producing Miller Lite, Michelob and other tasteless mass-produced brands.
This origin story has automatically baked in a certain amount of rebellion into the identity of many brands.
“It became important to differentiate yourself from the mass producers so that you didn’t have to compete directly with them,” said Verhaal. “That [context] spurred the creativity that you see in the craft beer industry, the playfulness, not only with the beer styles, but with the beer names.”
Craft Brewers, and Beer in General, Face Stiff Competition
According to the Brewers Association, small and independent brewers’ share of the U.S. beer market by volume was 13.1% in 2021. The retail dollar sales total was $26.8 billion, which adds up to just over a quarter of the revenue of the $100 billion market that year.
But Landry said craft brewers’ vision of reaching 20% of the total volume is fading. There are several contributing factors, including shrinking overall beer sales due to competition from read-to-drink cocktails and other new products. Strong sales of Mexican imports, such as Modelo and Corona, is another.
But that doesn’t mean New Orleans won’t see more breweries in the coming years.
“I think there will certainly be more,” said Landry, “but nearly all [recent] growth has been in the small neighborhood brewery model and not through distribution. So in New Orleans, for instance, you’ve got the Courtyard Brewery, Parleaux Beer and Miel Brewery & Taproom. With that model, you’re really just focused on your neighborhood and the on-premise experience. I hate to say it, but I think you’d be foolish to try to go the route we went today, under the current market conditions.”
Inflation Is Big Problem
“It’s crushing us at every level,” said Landry. “Not only inflation, but also weather and war. Grain prices are up 30% to 40%, depending on the grain. And they had another difficult year in terms of harvests, so it doesn’t look like it’s changing for 2023.”
Landry said aluminum prices have been up and down all year, which affects can prices. In addition, cardboard prices rose about 20% and transportation costs are up anywhere from 20% to 50% because of fuel costs and other factors.
“We raised beer prices about six percent this year in lockstep with the big brewers,” he said. “And they’ve got a lot more advantages. They’re way more vertically integrated and way more efficient than we are. … So we’re just going to eat it this year. On the manufacturing side of the business, we won’t make much profit at all this year. Thankfully, we’re big enough to be able to absorb that. And we’ve got the cash flow and the reserves to do that. But we’re just kind of hoping this is an anomaly and that things will level out.”
