5 Restaurant Chains Banking on Craft Beer

PORTLAND, Ore. (TheStreet) -- When the first big microbrewing boom began in the late 1980s and early 1990s, one of the first items many brewers found themselves learning to make wasn't a brown ale or IPA, but a hamburger.

At the time, it was tough to get folks to simply try your beer. There weren't a whole lot of small brewers around and shelf and tap space that's at a premium now was basically nonexistent then. Your best bets were to pound the pavement and hope some bars and shops would be kind enough to pick up some kegs and cases or to get the people to come to you. That meant food and entertainment, which meant you had to open brewpubs.

As of June, the beer industry has ballooned to nearly 3,040 breweries, according to the Brewers Association craft beer industry group. That growing community includes 1,237 brewpubs nationwide, which is up from 1,020 in 2009 and includes 82 new brewpubs added within the past last year alone.

The brewpub's looking fairly robust for an establishment that only came into vogue little more than 30 years ago. Prohibition knocked out American brewpubs and brewing taverns that dated back to the Colonial era, but early craft brewers saw them as a means of getting their beer directly to the drinker without going through middlemen such as distributors, bars and liquor stores. In 1982, Scottish import Bert Grant opened Grant's Brewery Pub in a train depot in Yakima, Wash., to brew and promote his pale ale, IPA and Scottish Ale. Though it closed in 2005, Grant's brewpub showed other small brewers the way and is as much a part of the American small brewing legacy as growler fills and heaping helping of hops.

It was only a matter of time before some enterprising individuals took that relatively simple idea and began scaling it up to a full chain. Mike and Brian McMenamin were restaurateurs as early as 1974, but opened their first brewpub -- the Hillsdale Brewery and Public House in Portland, Ore. -- in 1985. Today, McMenamin's has grown into a chain with more than 60 locations including brewpubs, hotels and movie theaters throughout Washington and Oregon. The company brews at two dozen of its sites and helped make the Northwest fertile ground for brewpub chains including The Ram and Golden Valley.

From the Karl Strauss Brewing brewpubs that have expanded throughout California since 1989 to the popular Iron Hill Brewery brewpubs that have swept through Pennsylvania, New Jersey and Delaware since 1996, the chain brewpub has been a key portion of the craft beer movement and has helped bring craft beer to diners who might otherwise give it a pass on a casual dining beer list.

Since the recession, however, brewpubs and beer-based restaurant chains have succeeded where their all-you-can-eat, 2-for-$20-meal dishing competitors have fallen short. Since 2009 casual dining traffic has dropped 2% percent each year, taking roughly 7.1 million visits off the table during that span. In the past six years, big casual dining chains relied on their promotional offers -- including 2-for-$20 meals -- so heavily that they accounted for 29% percent of all visits. As of February, visits to casual dining establishments including Olive Garden and Ruby Tuesday are at a six-year low.

People ages 18 through 47 have been shunning such establishments in huge numbers and have dragged down their sales every quarter since 2010, but the numbers get a little better once there's some beer involved. We took a look around the restaurant landscape and found five establishments that are making either the brewpub or taproom model work, with craft beer as a whole benefiting from their efforts.

BJ's Restaurant and Brewery
Locations: 148

BJ's started cranking out deep-dish pizza in Santa Ana, Calif., back in 1978, but didn't start its brewing operations until 1996, when the chain had just seven locations.

Today, the chain has 150 locations in 18 states and will make 75,000 barrels of its own beer this year through in-house and third-party brewers. While the majority of its locations are in Western states (California, Oregon, Washington, Nevada and Arizona account for more than 80 locations), it's found comfortable niches in Texas (32 locations) and Florida (18) while creeping its way east.

So far this year, BJ's has seen profits rise 4.4% after opening three restaurants in the past quarter. The chain plans to add six locations within the next year, including its first location in New York. Though comparable restaurant sales slid 1.1% last year, they've risen 13.5% for BJ's in the past five years as the chain has added locations and revenue.

What about the beer, you ask? Well the taps are stocked with inoffensive light lager, blonde ale, witbier, amber ale, brown ale, Hefeweizen and semi-bitter Hopstorm and Field Day IPAs, but BJ's still manages to throw in an occasional gem. Its Goliath Imperial Red is as strong as its name claims at 9% alcohol by volume and its Brewmaster's Reserve Double IPA is a nice introduction to the style. A lot of the credit goes to BJ's Director of Beer Operations Michael Ferguson, who also splits time as the host of the nationally syndicated beer show Beer Geeks.


CraftWorks Restaurants & Breweries
Locations: 195

We're just going to put this as plainly as we can: Just about every large chain brewpub in the U.S. not named McMenamin's or BJ's is owned by this company.

CraftWorks formed in 2010 after the Gordon Biersch brewpub chain out of Palo Alto, Calif., merged with the Rock Bottom Restaurants brewpub chain from Denver. CraftWorks is now responsible for 195 Gordon Biersch, Rock Bottom, Old Chicago, Big River Grille & Brewing Works, ChopHouse & Brewery and A1A Aleworks locations and has dual headquarters in Chattanooga, Tenn., and Broomfield, Colo.

That's a whole lot of history under one roof, with the Old Chicago franchise dating back to 1976 in Boulder, Colo., Gordon Biersch celebrating its 25th anniversary this year and Rock Bottom and Big River dating back to the early '90s. It's tough to say how any of them are doing, especially since Centerbridge Capital Partners took the reins after the merger in 2010, but Gordon Biersch has existed separately from its founding brewery since 1999 and Rock Bottom began centralizing brewing operations for many of its once-autonomous brewpubs just before the merger.

What we do know is that their taproom and brewpub empire covers more ground than any other in the nation, and that they've inspired a whole lot of casual dining competitors to take a similar route.

Yard House
Locations: 52

Darden Restaurants International is a mess. It sold off its Red Lobster chain this year and watched as its 837 Olive Garden restaurants -- which make up 56% of Darden's total revenue -- lost 3% of their revenue during the past year despite a complete brand makeover.

Yet Darden shareholders firmly believe that the company could cut Olive Garden loose and thrive on the company's remaining specialty brands. The relatively tiny Yard House chain is a big reason. Founded in Long Beach, Calif., in 1996, the Yard House chain was bought by Darden for $585 million in 2012.

The stockpiles a huge menu of local beers, keeps a small collection of third-party-brewed house beers on hand and keeps the classic rock cranking. The pint prices are $1 to $2 higher than you'd find for the same beers served at their local brewpubs, but Yard House exists to point beer drinkers toward those breweries -- not to act as a surrogate for them. Plus, from a business travel perspective, it's easier to hit a Yard House that looks the same and has the same food menu in each city than it is to hunt down local brewpubs and do the legwork.

Besides, the local brewers get their beers in the hands of people who might never try them otherwise. Meanwhile, Yard House generates $8.2 million in annual sales per location. That's more than double the $3.1 million generated per restaurant by Darden's LongHorn Steakhouse chain and nearly double the $4.4 million generated per Olive Garden location.

Same-restaurant sales were only up 0.3% at Yard House last year, but when you're squeezing that much cash out of your clientele, even flat looks fizzy.

Brick House Tavern + Tap
Locations: 20

Twenty locations doesn't look like a whole lot to be excited about, but it is if you're a restaurant chain whose big casual dining brands are dying a quick, painful death.

Ignite Restaurant Group watched sales at its Joe's Crab Shack chain drop 6% last quarter from a year ago, while its recently acquired Romano's Macaroni Grill saw sales slump 4.3% over the same period. It's not as if either were exactly setting the world on its ear before that, as Joe's sales were flat last year while Romano's Macaroni Grill saw sales slump 6.5%.

Brick House Tavern + Tap, however, is an absolute superstar. Founded in 2008 and based on a model that prizes an extensive tap list and lots of televisions saturated with sports, this "gastro pub" saw same-store sales jump 10% over the past year and its number of locations increase 33% over that same span.

The company knows it has a winner on its hands, which is why it's focused on turning its poorest-performing Joe's and Romano's locations into Brick House Tavern + Tap restaurants in the next few years. Considering that Brick House's average weekly sales per location are about 12% than sales at Joe's and almost double the take of a typical Romano's, the beer-and-ballgame plan doesn't seem half bad, especially since it's already working well elsewhere in casual dining.

Buffalo Wild Wings
Locations: 1,025

It isn't a brewpub or even a taproom, but brewers have no problem treating it like one.

Last year, Craft Brew Alliance's Redhook teamed with Buffalo Wild Wings to brew Game Changer American Pale Ale just for the franchise. Buffalo Wild Wings has since made it a staple on its craft taps and helped Redhook continue its rebirth as an accessible, sports fan's craft beer, but helped it increase overall sales and become the second-best-selling brand in the CBA portfolio behind Kona.

Craft beer brewers including Deschutes and Bell's have followed suite by hosting events and tap takeovers at Buffalo Wild Wings locations. That's lent a bit of craft beer credibility to a chain that still puts Anheuser-Busch InBev's Michelob Ultra front and center and still considers MolsonCoors/SABMiller beer Redd's Apple Ale a “craft” beverage.

It's also great exposure for small brewers from just about the only casual dining chain that's getting bigger. Same-store sales last quarter increased between 7% and 8% from a year earlier, while the number of Buffalo Wild Wings locations has soared from 665 during the same period in 2010.

Buffalo Wild Wings makes casual dining work because it isn't out to serve mediocre fare at just about no value to the consumer. It's there to hawk beer and wings during sporting events, and that gives its beer partners something to cheer about.

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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