Diageo (NYSE:DEO) subsidiary Guinness recently opened its first brewery in the U.S. in over 60 years. The new location just outside of Baltimore won't be making the famous Irish stouts or porters, though. That will remain an enterprise of the old country. Instead, Guinness plans on using its new brewery to make a push into the booming U.S. beer market.
What is it?
Guinness took over the building that housed Maryland's first whiskey distillery after Prohibition. The company has transformed it into a tap house where visitors can take a tour and try both familiar and new Guinness beer. The thrust of the operation, though, is a new 100-hectoliter (or 2,640-gallon) brewery where the new Guinness Blonde will be produced. The lighter beer has been around since 2013, but the new brewhouse dedicated to its production represents a new push to increase sales volume in the U.S. beyond the company's classics.
Also on-site is a small-batch, 10-barrel experimental brewery, as well as a facility where Guinness beers will be aged in barrels from various spirits. Visitors can taste the results from all three beer-making operations at the tap room.
Will it move the needle?
Guinness stout was first shipped to the U.S. 200 years ago, and while its presence has been pretty small over the years, Guinness has progressively built up a fan base among Americans. Now that the Irish beer maker has a solid foundation in place, it's ready to test the waters to see if it can build on the popularity of its darker brews.
There's just one problem: The American beer industry has gotten really crowded. According to the Brewers Association, an industry advocacy and research group, the number of breweries in the U.S. has gone from 1,574 in 2008 to 6,372 at the end of 2017. A lot of that growth has been in the brewpub segment -- direct sales to consumers on-site. That bodes well for Guinness' new Maryland location as it offers tours of its operations and sells beer by the glass at its tap room.
Guinness and its parent, Diageo, are big alcohol producers, though. During its fiscal year that just ended in June 2018, Diageo's sales were 12.16 billion pounds. In North America, Diageo's most important market at 34% of total revenue, Guinness sales fell 1% during the year. That contrasts with increases in Diageo's spirits and ready-to-drink segments, which increased 1% and 11%, respectively.
Thus, even though it doesn't have a huge presence in America, the proliferation of choices has put Guinness sales under pressure -- much like some of the megabrewers such as A-B InBev's Budweiser. Tap room sales are unlikely to get all the work done to return the brand to growth. The good news is that Guinness is still a small player in North America, with most of its sales coming from essentially one product. So even though the beer market may be getting crowded, there's little risk of the company cannibalizing itself -- at least not in the beer segment, anyway.
It's a little late to the party, but Diageo could reap some marginal benefits from the same movement small-craft brewers have in recent years: by appealing to consumers looking for variety. If it can successfully introduce a new beer or two in the U.S. and steal sales from competitors, its new operation in Maryland could be easy money.