Breakside Bets on Loyalty
A couple of weeks ago, The New School broke some big news about Breakside. They would be opening their first Washington state brewery in downtown Vancouver. In a tweak, they’d be shifting their Astoria menu to barbecue, and in the big news, they would be purchasing the Alit winery in Dundee (the heart of Oregon’s wine country) along with its tasting room. Oh, and they were planning to add a membership club as well. The two new locations would bring Breakside’s now substantial holdings to eight—not counting the 31-acre Gresham plot they have yet to develop—and adding a winery is a bold and unusual move for a brewery.
While this was all big news, especially in a flat or shrinking market, what really caught my eye was the new membership. The idea came from the winery Breakside just bought, where members are invited to join for an annual fee. Unlike many wine and beer clubs, though, it doesn’t give members access to rare offerings. Instead, members spend up-front to get discounts throughout the year. It’s the Costco model, basically, and the goal appears to be the same: building loyalty among their customers. A new location makes for a good headline, but if it works, the “Breakside Collective” might be the more significant news.
Even before the pandemic, inflationary pressures, and the flattening of the industry, one of the biggest challenges in the industry was consumer “promiscuity”—a huge shift from decades earlier, when drinkers had more stable brand loyalty. It wasn’t a matter of quality, either. Years ago, when I was doing some consulting on the side, a brewery pointed out the research they had done on consumer preferences. Their brewery scored very highly on consumer impressions, but when they asked how often those same consumers actually drank the brewery’s beer, it was laughably low. Their strategy was just bumping up the number of times a month their consumers bought their beer.
That’s what Breakside is shooting for. According to Scott Lawrence, their founder and co-owner, “Roughly 85% what we sell is within 45 minutes from the center of Portland.” Breakside has sold within a few percent of 30,000 barrels since before Covid, and about 12% of their sales happen at their pubs. He would like to make Breakside a more reliable destination for Portland beer drinkers. “Let’s say this month on average an average drinker is going to six or eight breweries a month and maybe those are five or six different spots, right? I mean all of our costs have gone quite a bit. But at the same time like we've got these fixed locations and we need to get people in them for them to work.” If they can use the new membership to nudge people to spend more of those slots on Breakside, they can solidify the most lucrative part of their business, the on-premise sales.
Incentivizing Loyalty
Both the Alit Wines connection and the Breakside Collective idea came through Lawrence, who had been a loyal Alit member since 2017. “I love their set up. It's like, ‘Hey, we're gonna charge you an annual fee to cover some of our baseline cost so we can get those out of the way and then we're gonna sell you the wine at below wholesale pricing.’ I thought it was genius idea and I’ve been thinking about bringing it to the beer world, so I've talked about it with Ben in our crew for the last few years.”
When Breakside bought Alit, they bought the Alit Collective—the newly rechristened Breakside Collective. Consumers can sign up for Alit, Breakside, or both. For $99, members get a buck off beer or wine at any Breakside location, 25% off packaged beer, 25% off merch, and, just for fun, they do restrict some beer for members, as is the case in other beer clubs. (Food isn’t included because that part of the business runs on very narrow margins, Scott told me.)
A hundred bucks is a decent investment, so to recoup it, members will have to engage at a significant level. Scott mentioned that at their various locations, they saw about 5,000 people who came in at once a month (or twelve times a year), so he thinks it may appeal to a sizable group. And, if they are superfans, they’ll actually save money—which Breakside would love.
“We might lose money on a bunch of those people but at the same time we're getting more of their loyalty. I think those people will spend more of their dollars with Breakside because, one, they've already put up the funds for that annual investment so they know they're trying to recoup that, but also they're gonna buy a premium beer at like a very reasonable price.”
This might not work everywhere, but Breakside has an interesting set of variables in their business model: a growing group of pubs and breweries, but a tight distribution footprint, along with a reputation as one of the best/highest quality breweries in Portland. With a number of well-distributed pubs (two in Portland proper, four in the suburbs, and two outside of Portland), they have locations near lots of people, so their customers can take advantage in different places throughout the northern part of the state.
That’s not to say that Breakside expects massive numbers. “The vast majority of our beer is sold in Fred Meyer or Safeway,” he told me. “It's not like this is gonna change from where we're selling 12% in-house to 25% in-house. Maybe it goes to 15% or something like that.” It’s a modest effort that will help make the marginal business of selling beer somewhat less so—and in the beer business right now, that’s a big deal. “It’s the thing that we're doing that I'm the most excited about,” Scott said.
We didn’t get into the question of the longterm effects building loyalty might bring, but these could be at least as important as any immediate financial boost. One of the problems breweries face is a disengaged public no longer “excited” about beer. But excitement may be a blind alley. It’s like infatuation, intense but fleeting. Forging relationships with customers is a longer-term plan to connect them to the brewery for years or decades. I don’t know if the average drinker in Munich is excited about their favorite local brewery. But they have a strong connection that keeps them showing up, tens of thousands every year, for regular beers and meals.
Will the Breakside Collective create the kind of loyalty Augustiner enjoys? Well, Americans are less loyal by nature than Germans, so probably not. But if it moves the needle in terms of creating long-term loyalty, it could be a valuable initiative. I will check back in a year or two to see how its going.