Brewer looks to keep beer local

FREDERICK, Md. -- Some craft brewers are growing by shrinking.

After years of shipping beer farther and farther away, many small brewers now are shrinking distribution to sell beer more profitably at home.

The strategy reflects the nation's growing thirst for boutique beers from independent breweries that simply can't produce enough to meet the demand of a larger market -- so they're putting local customers first.

"The idea of leaving sales territories is not ideal, but demand locally is necessitating it," said Paul Gatza of the Brewers Association, a craft-beer trade group in Boulder, Colo.

It's a good problem for Frederick-based Flying Dog Brewery, known for highly-hopped ales with naughty names like Doggy Style and Raging Bitch. Chief Executive Jim Caruso announced in June the company was halting distribution in 13 Southern, Midwestern and Western states to bolster its position in what he called "the new world of craft beer."

The pullback leaves Flying Dog in 33 states -- but probably not for long. In a July interview at the company's brewing plant in an industrial park, Caruso said he aims to shrink distribution further, with a goal of selling 70 percent of Flying Dog's output in Maryland, the District of Columbia and Northern Virginia within three years.

The region currently accounts for about 50 percent of the 1 million cases Flying Dog sells annually.

"If the market in Frederick were such that we could sell a million cases in Frederick, that would be my strategy," Caruso said.

At the same time, he's considering building a new brewery, three to five times bigger than the current plant.

And Caruso figures he can sell virtually all that beer within a few hundred miles of home.

Brewers like Flying Dog are betting on local growth because there are so many drinkers left to convert. Craft breweries -- those selling 6 million barrels or less a year -- accounted for just 5 percent of the 204 million barrels of beer sold in the United States last year, according to the Brewers Association. A barrel holds 13.8 cases of beer.

And craft beer's growth is heady. Sales rose 11 percent by volume in 2010, at a time when overall beer sales slipped 1 percent, the association said.

Demand is so strong that craft brewers who've spread themselves too thin must ration their beer -- supply some distributors and leave others short.

That can get annoying for tavern owners like Kathy Reeder. Her Hempen Hill BBQ in Hagerstown, Md., has a Starr Hill Brewery sign in its front window, but she had none of the Virginia-made beer on tap one recent July night.

She said occasional shortages are acceptable; they can even heighten a brand's mystique. And she wants to support regional craft brewers. But she can't let a t

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