Why Retail Space?
As these beverage markets become more crowded, producers who rely only on distribution are finding it harder to get placement, said P.T. Wood, an alchemist with Wood’s High Mountain Distillery. When Wood’s High Mountain Distillery received its distilled spirits plant license in November 2012, it was the 23rd company in the state to do so. Today, there are almost 90 licensed DSPs, he said.
“There’s a limited amount of shelf space out in the world, so the tasting room or farm-distillery destination type model gives you the ability to make a pretty good living in this business, even without a ton of outside distribution sales,” said Wood.
At Wood’s distillery in Salida, the 4,000-sf building dedicates about 20 percent of the square footage to a tasting room, which sells bottles and cocktails made out of the distillery’s gin, whiskey and liqueurs, and features garage doors that open onto First Street and windows looking into the production area.
However small, that tasting room brings in close to 60 percent of the distillery’s revenue, he said. “Before we went with a distributor, we really didn’t have any sales or marketing, and we were in 100 to 125 retail outlets across the state. Virtually all of that was driven from our tasting room.”
The same can be said for many of Colorado’s small wineries. “A 2013 CSU Economic Impact Study showed that on average, [wineries] sell more than 60 percent of their product direct to consumers through the sales room or at events,” said Doug Caskey, executive director with Colorado Wine Industry Development Board. “A large winery would sell a greater share of its product at wholesale, but a smaller winery without much distribution will sell an even larger percentage of its product out of its sales room.
” Some wineries find success in retail locations when grouped together in order to do joint marketing and collaborative events, he said.
Several Colorado breweries are taking their expansions one step further and creating “destination breweries.” These locations pair the brewery experience with tourist attractions, Strunk said. New Belgium Brewery is credited as one of the first to adopt this model, followed quickly by Breckenridge Brewery, Avery Brewing Co. and Great Divide Brewing Co.
“Generally, destination breweries offer a number of tourist attractions, including the brewpub, restaurants, special tours, gift shops, private event spaces and beer gardens,” she said.
Avery Brewing opened a destination facility in Gunbarrel in February 2015. The 23-year-old company found itself bursting at the seams at its Boulder location about four years ago and set out to build a new facility, said Ray Decker, Avery Brewing’s general manager.
The 5-acre plot features a 67,000-sf brewing/production facility. Inside the facility, in addition to the production area, is a 5,000-sf restaurant that is spread across two floors, the ground floor features the taproom and the upstairs space features a traditional restaurant setting, Decker said. There is a patio that seats about 60 people as well.
Alex Avery’s vision was for the brewery to be 100 percent transparent, Decker said. He achieved this by building a catwalk that spans the production floor, allowing guests to walk out at any time during the day and watch what they’re making.
The opportunity for transparency in a retail setting, in one form or another – Avery’s catwalk, windows facing into the production area, specialty tours, etc. – helps build brand and identity in a crowded market.
If a retail landlord is interested in acquiring a brewery, distillery or winery as a tenant, there are several things to keep in mind. First, be prepared for the tenant to have contingencies that they must have in order to commit.
Similar to procuring a liquor license, these tenants must have a lease signed before they can submit to the local and regional authorities, as well as submit to more far-reaching authorizes – label approval, for example. All these approvals could take six to nine months before the deal is ready to go, Heckel said. And most of these leases will have a clause that says, “If these approvals don’t happen in X amount of time, then the deal is off.”
“The advice to the landlord is if you have that building that would work, then you need to be prepared for a time of uncertainty for that deal to actually be approved by the different authorities,” Heckel said.
There also are important considerations for the lease.
“You have to be aware of the nature of the tenants that you’re taking on,” said Justin Pless with Pless Law Firm LLC. “You see a lot of these places in retail, and that’s all well and good, but there are different concerns because of the production component. It’s sort of a hybrid thing.”
When attempting to marry the industrial and retail, it is important to remain mindful of the other retail tenants in the center. The lease must address certain production side effects that could disturb the other retail tenants, such as unwanted noise and odors, he said.
Parking is another important consideration. Not only are the parking demands less consistent than traditional retail, but also partnerships with food trucks create more parking challenges. Food trucks in a retail center present a bigger possibility of problems than a food truck-brewery partnership at a stand-alone or industrial facility, Pless said.
A few other important considerations for converting traditional retail into alcohol-production spaces include building modifications, such as higher clear heights, and increased capacities for water, power and utilities. Zoning also can be an issue, depending on the municipality.
However tricky the details appear, the trend of alcohol producers moving into retail space will continue. One of the driving factors for this is the shift in consumer demands to favor locally sourced and craft-style products that focus on quality ingredients, said Strunk.
“I think that it’s wonderful to see this kind of adoption of the local brewer in the community,” said Heckel. “It’s something that is a little bit unique to Colorado and is something that we should be excited to be a part of and embrace this change.”
Read about notable brewery real estate expansions and openings in the May 2016 Retail Properties Quarterly.