Surrounded by hip coffee shops, upscale hotels and trendy music venues in Brooklyn, New York’s Williamsburg neighborhood, Brooklyn Brewery has found itself at the epicenter of the borough’s cultural and economic transformation. The setting is a far cry from the area’s roots, when an industrial landscape and abundance of cheap warehouse space made it a perfect start-up site for the brewery nearly three decades ago.
“It’s hard to imagine now, but when we first moved to this neighborhood, people were afraid to come to Brooklyn,” says Eric Ottaway, Brooklyn Brewery’s CEO. “A lot of people were dubious about using the name Brooklyn Brewery. But if you go back to the late 1800s and early 1900s, Brooklyn was truly a brewing capital. There were 48 breweries throughout the borough in 1900, and New York City overall had about 100 breweries, producing roughly 10 percent of the beer in the country.”
A pioneer of the craft beer movement, Brooklyn Brewery was cofounded by Steve Hindy, a former international correspondent for the Associated Press, and his neighbor, businessman Tom Potter, in 1988—roughly a dozen years after the last of Brooklyn’s breweries, including the F. & M. Schaefer Brewing Co. and Liebmann’s Brewery, which made Rheingold beer, closed their doors. The pair initially partnered with Utica, New York’s F.X. Matt Brewing Co. to produce their flagship Brooklyn lager, whose recipe was inspired by the borough’s rich brewing history. But the beer, with its unique taste and unfamiliar branding, was a hard sell to distributors. So Hindy and Potter eschewed the traditional wholesale route, launching their in-house Craft Brewers Guild distributorship in 1991.
“The distributorship certainly wasn’t the plan from the beginning, but it turned out to be a necessary step to get the product to market,” Ottaway notes. The Craft Brewers Guild unit—which had Massachusetts and New York City branches—quickly gained traction, with a bevy of high-end international and specialty brews joining its stable alongside the Brooklyn Brewery brand. In 1994, brewmaster Garrett Oliver joined the team, and by 1996, Brooklyn Brewery was ready to open its own production facility and offices in Williamsburg. That same year, Ottaway and his brother, Robin, joined the wholesale business, handling operations for the company’s Massachusetts distribution arm. Their father, David Ottaway, was an early investor in Brooklyn Brewery, and Potter, who retired in 2004, eventually sold his share of the business to the Ottaway family.
By 2002, the Craft Brewers Guild unit had grown to a million cases and accounted for a majority of Brooklyn Brewery’s overall business. The company auctioned off the Massachusetts branch to distributor L. Knife & Son that year, selling the New York City arm to Union Beer and Phoenix-Beehive in 2003. “At that point, the Brooklyn Brewery brand was bigger than what our distribution division could handle,” Ottaway explains. “After we sold it, we were able to refocus our efforts on just building up the brand.”
Today, Brooklyn Brewery produces roughly 300,000 barrels annually between its Brooklyn facility and F.X. Matt. In 2016, the company was the 12th-largest craft brewery in the United States, according to the Brewers Association. It has a U.S. footprint spanning 27 states, with the Northeast region—from Boston down through Washington, D.C.—accounting for 90 percent of domestic sales. Brooklyn Brewery’s flagship lager remains far and away its top-selling offering, comprising nearly half of all sales, with the brand’s East IPA and Defender IPA also among its most popular labels.
While Brooklyn Brewery’s success has remained a constant for nearly 30 years, the company underwent a major transition in 2014, with Eric and Robin Ottaway taking on the roles of CEO and president, respectively. “An issue that affects a lot of craft brewers—particularly from our generation—is figuring out a succession plan,” says Ottaway, adding that Hindy remains actively involved as chairman and founder. “People who started breweries in the late ’80s were likely on their second or third career and in their thirties and forties. Fast forward 25 years and they’re at retirement age. But with Steve, Robin and I, we essentially had a built-in generational transition that worked out very well.”
Other changes are also on the horizon. After decades of double-digit growth, the U.S. craft beer market has started to cool, with craft beer sales up just 6 percent in IRI channels through June 12th, 2016, versus a 17-percent advance over the same period in 2015. Brooklyn Brewery has experienced a similar fall-off, and after posting average sales growth of 15 percent a year over the past six years, the brewery carved out a high single-digit gain for 2016.
“The craft beer market is slowing down in the United States, but it’s not because of lack of interest from the consumer standpoint,” Ottaway says. “With over 5,000 craft breweries in this country, plus hundreds, if not thousands, of imported beers, we’ve completely overwhelmed the consumer. There is such a thing as too much choice.” This proliferation of craft breweries and their ever-expanding portfolios has dealt a particularly heavy blow to seasonal beers, whose ability to offer consumers excitement has been eclipsed by a glut of limited-edition, specialty and local offerings. According to Ottaway, Brooklyn Brewery’s seasonal lineup has faced an uphill climb over the past year, with the brand’s Pumpkin ale and Oktoberfest slowing significantly. The company’s Summer ale remains a bright spot, typically outselling Brooklyn lager during the summer months.
As the craft beer category continues to grow more crowded and competitive, Ottaway is predicting a shakeout. “We’re seeing wholesalers starting to push back against the oversupply,” he explains. “They’re not taking on any more brands, and they’re even cutting back. This is also happening at the retail level. There needs to be some weeding done, and I think the overall craft beer segment is going to be healthier for it.”
In the meantime, Brooklyn Brewery remains cautious about expanding further in the United States. Rather than enter new markets this year, the company plans to solidify its existing footprint. “It would be easy to ramp up our U.S. sales just by adding five new states a year for the next four years,” Ottaway says. “But it makes more sense, especially given how crowded it is right now, to focus on the markets that we’re in while things sort themselves out.”
As the U.S. craft boom loses steam, Brooklyn Brewery has been shifting attention toward international markets, which now account for nearly half of its overall business. The brand is sold in over 30 countries worldwide, with Sweden, the United Kingdom, Norway and France among its largest export markets by volume. Much of the brewer’s global success has been built through strategic partnerships, including a long and fruitful relationship with Denmark’s Carlsberg established in 2003, and collaborations with Italy’s Amarcord Brewery starting in 2011. Most recently, in October, Brooklyn Brewery announced that Japan’s Kirin Group had taken a 24.5-percent stake in the brewery for an undisclosed sum, with Kirin pledging to support growth for the craft player.
“We knew that if we were ever going to penetrate some of these Asian markets, we’d have to do it from the inside, and Japan is a great example of that,” Ottaway explains. “Imported beer and craft beer are each less than 1 percent of the Japanese market, but like most developed markets, mainstream beer is on the decline and the only growth is happening in craft. So with Kirin’s desire to get much more involved in the craft beer segment, there’s a nice symbiotic relationship there.”
Brooklyn Brewery is also making moves in South Korea, where the company has partnered with entrepreneur Hyukkee Moon to create the Jeju Brewing Co. Located off the South Korean coast on tourist hot spot Jeju Island, Jeju Brewing Co. will produce its own brand of beers, as well as the Brooklyn brand. It’s slated to begin production in March. Jeju Brewing marks Brooklyn Brewery’s third sister brewery project, joining its existing Nya Carnegiebryggeriet facility in Stockholm and E.C. Dahls brewery in Trondheim, Norway, both founded in partnership with Carlsberg.
Elsewhere in Asia, Ottaway sees notable potential in markets including China and India, where a growing middle class has created favorable trends. “In India, there’s an increasing number of people that are very well educated, travel often and drink a lot of beer already,” he says. “They’re also used to a lot of flavor and spice in their food, so the concept of flavorful beer is something they’re familiar with.” Ottaway adds that Brooklyn Brewery aims to enter the Indian market in the near future. Looking ahead, the company wants to open up one to two new international markets per year.
Just as Brooklyn Brewery has expanded globally, the borough of Brooklyn has also evolved into an international hub, attracting tourists from around the world. According to Ottaway, Brooklyn Brewery welcomes around 3,000 to 4,000 visitors a week, many of whom hail from overseas. “We didn’t move to Williamsburg because we had some brilliant vision that it was going to transform into what it is today,” he notes. “We moved here because this is what we could afford. Fast forward 15 or 20 years, and when you walk around this neighborhood, you could be anywhere in the world. It’s full of French, Scandinavian, Brazilian and Australian people. You almost feel as an English-speaking American that you’re in the minority.”
Williamsburg’s evolution from industrial wasteland to hipster playground has certainly bolstered Brooklyn Brewery’s overall brand, but the neighborhood’s rampant development and skyrocketing rents have also brought challenges. Brooklyn Brewery has lease agreements on its headquarters and 70,000-barrel brewery in Williamsburg running through 2025 and was recently offered the option to renew. As a result, the company scrapped plans to develop a new 75,000-square-foot brewery and company headquarters just south of Williamsburg in Brooklyn’s Navy Yard industrial park. However, Brooklyn Brewery is currently scouting locations for an additional brewery, eyeing Staten Island and the Hudson Valley in upstate New York as potential sites. Ottaway says a decision on that facility—which will have a capacity of roughly a half-million barrels—will be made early this year.
With plans for expansion in the pipeline, Brooklyn Brewery is well-positioned for growth, even as the overall U.S. craft beer category slows down. Ottaway remains optimistic about Brooklyn’s near- and long-term future, with Brooklyn lager serving as a bellwether for the brand’s continued success. “Through this messy period, it’s gratifying to see that Brooklyn lager is still growing, and it’s growing especially well in our home market,” he says. “Even in New York City, where we’ve been for 28 years, it’s up about 8 percent this year. And in markets around the country where our sales may be down, the lager’s still up. I always say we can judge the health of our company by how Brooklyn lager is doing, and we’re happy to see that it’s doing very well, not only around the country, but around the world.”