Guinness and The Power of the Pint

On September 26th, Guinness threw a party in Chicago. It was the grand opening of their second American brewery and destination pub. It followed their more ambitious project in Baltimore, which was an experimental foray into the world of American craft brewing. With the Chicago project, they replicated the part of the formula that worked in Baltimore, and extended their reach into one of their best US markets.

The opening comes at a favorable moment for the venerable brand. The American beer market isn’t especially healthy, but Guinness has bucked the trends. For years imports have been the bright spot in the beer market, but that has mostly meant Mexican brands. Guinness has quietly prospered as well, however, and sales are up 9% this year in North America.

Always late to a party, I managed to see the new place only last weekend. My visit to Chicago was partly to satisfy my completist urge—I’ve seen St. James’s Gate in Dublin, the Baltimore brewery (twice)—so I had to see Chicago. But it was also a way of deepening my understanding of the city they chose—and what that choice tells us about beer at this moment. Guinness has been the sponsor of this site since before the Baltimore project, and it has given me some insight into the way this company thinks and acts. In my next post, I’ll discuss the new facility itself, but today let’s have a look at the larger context.

Lessons From Baltimore

When Diageo greenlit the Baltimore project in the mid-teens, beer was in a very different place. Domestic lager brands had been declining for years and big breweries were desperately trying to find products to bring drinkers back. Craft beer appeared to be at least a part of the puzzle. The craft segment had tripled its volume in the past decade and had the advantage of commanding a premium price. We all know what happened next—big international brands began acquiring craft breweries to shore up their lost sales.

Guinness has always had a slightly different status and place in beer than any other brewery. It is a fixture in every Irish bar on the continent (every continent, actually), has a built-in holiday that creates a massive sales windfall, and is known for its iconic beer style and nitrogenated pour. In terms of sales, it’s a mass market beer, but it tracks to the consumer as a craft beer. Perhaps because of that, during the heyday of craft growth, Guinness’s growth slowed. The brand wasn’t sinking like some domestic lagers, but it wasn’t growing as fast as craft, either. Worryingly, dark ales were seeing a slide as consumer preferences shifted to lighter beers.

The logic behind the Baltimore project was straightforward. Since craft was strong, and since Guinness functioned effectively like a craft brand, why not extend the product lines in-house? They understood beer and didn’t need to buy craft breweries—they could do it themselves. In Ireland, they’d seen success with brand extensions like Hophouse 13 and in the US, Guinness Blonde was doing well. Even Guinness IPA had a decent outing.

If you’ll recall, Guinness built two brewhouses in Baltimore. Brewers used a ten-barrel kit to populate the taps in the pubs and restaurants, and the company could scale up popular beers for regional distribution, brewing them on a 100-hectoliter system. The site they chose was an old distillery owned by parent company Diageo, and they refurbished an old rickhouse (where they once aged whiskey). If everything worked out, they’d create a beautiful site people would visit, establishing a local presence and strengthening connections to the brand—which would in turn improve sales in Maryland. They could use the small brewery to identify popular beers and sell those regionally as well. The project debuted almost exactly five years ago.

Countercyclical Trends

In the main, the Baltimore site has been a big success. It has become a popular destination and people treat it like a typical craft brewery, spending most of their money on beers made onsite. It has enhanced the brewery’s reputation locally, and sales of Guinness have trebled in the region since Baltimore opened. Going back to Diageo’s strategy, they were correct on two of the three hypotheses. The only thing that didn’t work was the plan to sell brand extensions in the region. A year and a half after the brewery opened, Covid hit and that plan didn’t pan out like they’d hoped. Instead, Guinness decommissioned the 100-hecto brewery and stuck to their (very grand) brewpub model.

Of course, this didn’t happen in a vacuum. Trends in the industry, combined with the shock of Covid, have put the breaks on double-digit growth. The craft market has been trending down—or at best has been flat—for two years, and the competition of nearly 10,000 breweries has made it challenging to sell any products at scale. In fact, the intense churn that characterized craft beer in the mid- to late teens had shifted as breweries began focusing on their key products and lines and stopped churning out new beers every week. Breweries are scaling back and doubling down on local markets and focusing on core beers or lines. Customer interest in churn has slowed, and the growth in classic brands like Guinness and Modelo suggest they have swung to reliability over novelty.

Chicago

Chicago is a very different kind of city than Baltimore. It has a long brewing history, is in the region most historically identified with beer, and has one of the most vibrant local brewing scenes in the country. It also has an older and more intact drinking culture than most places in the US. People drink in Chicago. The neighborhood bar is a fixture of the town. It’s an obvious choice for Guinness because of the Irish connection. Even though the city is one of the most diverse in the country, it really celebrates its Irish heritage. Look no further than the brilliant green of the river running through town every March.

Maybe the best example is Malört. Very few cities could elevate such a controversial digestif to local tradition, but in Chicago, Malört is a thing. People love it partly because it’s so, errr, intensely flavored, and because it’s local and because drinking it is an act with no less meaning than cursing the Packers. A town where Malört could become a beloved institution is a town that loves to drink.

All of which is why Chicago made such sense as a follow-up to Baltimore. When I arrived on Saturday afternoon, Ryan Wagner, a veteran of the Baltimore project who was a key player in making Chicago happen, greeted me with a tour. The place was packed, and trays of Guinness sailed by on a constant flotilla to waiting tables. Every beer sold there is Guinness beer, of course, but I mean the classic—Guinness Draught, each one a perfect pint of black and cream. Ryan was staggered by their sales. In the first week, 80% of the beers they poured were Guinness Draught. The public made such a rush on it that they briefly ran dry. The pace has slowed, but it’s still about 60% Draught and 40% everything else. In Baltimore, it’s just 20% Draught.

This does not surprise me. That’s how Midwesterners are—they appreciate the classics. The brewery has only been open for a few weeks, and things will change. One of the beers that most impressed me was brewer Megan Schwarz’s Cream Ale, made with Illinois corn. It’s a big part of the palate, in a familiar, crisp way that makes you immediately appreciate our native grain. I could easily imagine it or another locally-made style finding a place in local’s hearts. (Given the importance of that creamy head on Draught, there’s something satisfying about seeing a cream ale on the menu.) On the other hand, it wouldn’t shock me to see Draught lead the way for years to come. Chicago, however it evolves, will look different than Baltimore, reflecting the diversity of the United States.

The Power of the Pint

When Guinness launched the Baltimore project, the beer world saw it as more a curiosity than anything else. It wasn’t the kind of splashy move other companies made in buying American breweries like Lagunitas or Ballast Point or Goose Island. These other breweries bought brands to plug into systems they already understood—using scale to lower costs, their national distribution networks to put them in front of consumers, and selling them at volume.

With Baltimore and Chicago, Guinness is trying something different. It’s not a mass market strategy, it’s a grassroots approach. A focus on the pub also makes sense for a brewery that has relied more on draft sales than other large breweries in the US. When you think of a Corona or Miller Lite ad, you see a bottle with a lime in it or a can. But with Guinness it’s always a pint.

If you talk to anyone at Guinness for more than a few minutes, they almost invariably start delving into company lore. They may invoke the ritual of pouring the beer, or talk about perfect pints and where to find them, or reference Gilroy or Foreign Extra Stout or the 9,000-year lease or any of the myriad artifacts of a brewery that has been making ales and stouts for 264 years. The lore and the ritual are a more interpersonal way of selling beer. For a company like Guinness, building pubs is a far more natural fit than buying craft breweries.

I asked Ryan if we could look forward to another Guinness in another city, and he demurred. I get it. The beer world moves fast. Who knows what it will look like in another five years. But Diageo is betting that, at the very least, the people of Maryland and Chicagoland will still be buying pints of Guinness, whether they contain Draught or Cream Ale. That’s been a pretty good bet over the six-plus decades since Draught launched, and it ought to be a good bet for at least a few more.