Rocky Mountain Brewery owner Duane Lujan pours a glass of Eat a Peach beer. Lujan said independent breweries must establish their identities if they’re to survive in the current marketplace.

With full-strength beer seemingly “on every corner” thanks to new state liquor laws, some Pikes Peak-area retailers are feeling the squeeze more than others.

“The meat department, the produce department, the bakery — it’s everywhere, in front of everybody,” said Jack Bachman, owner of Cheers Liquor Mart on Circle Drive. “The Safeway behind me [at 1121 N. Circle Drive] put in a 40-door cooler. How can we not be affected?”

A statewide law allowing retail locations to sell beer over 0.5 percent alcohol by volume, where previously they could only sell 3.2 percent ABV beer, took effect Jan. 1 after nearly a decade in the making. The changes to the state liquor laws were a piece of legislation passed in 2016 as part of SB16-197. They were expanded upon in 2018 with SB18-243.

Touted as the biggest change to the state’s liquor laws since Prohibition, Senate Bill 197 allows grocery chains and convenience stores to expand wine and liquor sales to up to 20 locations starting in 2032, with full-strength beer replacing the  3.2 percent ABV product previously sold in grocery stores.

The law puts corporations such as Walmart, Safeway and King Soopers in direct competition with independently owned liquor stores such as Cheers. The convenience of grabbing a six-pack during a customer’s weekly grocery shopping session has eliminated about 10 to 15 percent of the store’s beer sales, which account for about a quarter of overall revenue, Bachman said.

“We still have a larger selection and lower prices, but the customers that need groceries, they’re going to shop there right now,” he said. “Maybe they’re just trying it for now and they’ll be back, but who knows?”

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Many craft breweries recently began investing in canning lines in anticipation of the changing liquor laws.

A study conducted by Colorado Springs-based Summit Economics LLC estimated that 40 percent of the state’s 1,650 independent liquor stores would be forced to close their doors within the first three years of the new laws taking effect, resulting in the permanent loss of 8,600 jobs.

“A lot of people are losing their life savings and what they’ve worked for,” Bachman said. “They’re seeing their future go up in smoke.

“These grocery stores are not hiring extra people because they have full-strength beer. That stuff gets stocked by the distributor.”

Bachman currently has five employees staffing his store’s beer department. He does not plan to lay off any of those five people, but the downturn in sales means he will likely not replace the next employee to leave.

“It’s hard to say since beer is a seasonal product — we usually start selling more once it gets warmer,” Bachman said. “We may still need them, but these guys are stepping on top of each other because there’s nothing to do.”

Even with the hit to his bottom line, Bachman said his company is among the more fortunate in the Colorado Springs area. Some smaller liquor stores, particularly those located near a chain grocery store, have seen their sales cut in half since January, he said.

“We’re fortunate because we sell more spirits and wines than we do beer,” Bachman said. “Some of these smaller stores, all they sell is beer.”

FINDING THEIR IDENTITY

Colorado has long been seen as a breeding ground for craft beer, a place where intrepid would-be brewers could carve out a niche for themselves alongside other like-minded entrepreneurs.

Those niches may no longer be enough for independent brewers to survive, said Duane Lujan, owner of Rocky Mountain Brewery on Paonia Street.

“It’s not as easy as just brewing great beer and selling it anymore,” said Lujan, who opened his business in June 2008. “The little guys are really going to have to figure out what their identities are.”

About 80 percent of Rocky Mountain Brewery’s profits come from distribution, which also puts them ahead of the curve in the changing landscape.

Most of the Pikes Peak-area breweries have opened in the past three to five years, which gives them both an advantage and a disadvantage over Rocky Mountain Brewery in light of the new laws, Lujan said.

“Like everybody says, they don’t want to drink the same beer twice. That makes it tough when you have flagships, but some of the advantages is us not having any debt and being able to have our canning operation,” Lujan said. “That’s going to enable us so we can distribute.”

Many craft breweries recently began investing in canning lines in anticipation of the changing liquor laws. Rocky Mountain Brewery first started canning four years ago, buying its first large canning system two years later, Lujan said.

“Three years ago we started distributing, but it’s really picked up in the last two years,” Lujan said. “We’re continually expanding that every day.”

Rocky Mountain Brewery currently offers 12 of its beers in cans, both in a cooler at the back of the taproom and on the shelves of various liquor stores in Colorado Springs, Lujan said.

“We’ve been working towards that long-term goal, so… it didn’t seem like we changed, but we were gearing up for it whether it changed or not,” he said of the brewery’s canning process.

The extra competition, both from outside industries and other breweries, is turning the craft beer industry into a “survival-of-the-fittest” game — one that business owners are not likely to win without turning to distribution, Lujan said.

“The plain fact is that there are 39 breweries in Colorado Springs and there are not 39 times more beer drinkers,” he said. “Even if everybody did what they said and wanted to support every local brewery and went every day to a different one … there are only 30 days in a month. Most of them aren’t getting visited.”

About 80 percent of Rocky Mountain Brewery’s profits come from distribution, which also puts them ahead of the curve in the changing landscape, Lujan said.

“Since we make the vast majority of our money through distribution and not our taproom, I don’t think we’re going to be in as big of a hurt as the real small guys,” he said. “Where we were able to build our business with a taproom, I think it’s going to be very difficult for breweries to build on that model alone.

“Six years ago, this would be half full right now,” Lujan added, gesturing to the only occupied table in his brewery’s taproom. “There’s just not that many people.”

ROLLING WITH THE PUNCHES

This June marks 24 years since Cheers Liquor Mart opened in Colorado Springs and Bachman does not intend to let new legislation cut his run short.

“It’s going to get worse before it gets better,” Bachman said. “We’re not going anywhere but we’re battling, that’s for sure.”

Bachman is concentrating on cultivating a more diverse selection on his shelves, both in craft beer and other spirits not sold at grocery stores.

“We’re reminding customers what we do for them that they don’t get [at a grocery store]. They don’t have that service that we have,” Bachman said. “We’re not giving up on it. We’re trying to figure out how our niche is going to grow amongst this.”

Another advantage liquor stores and craft breweries have over grocery stores is the product knowledge their employees bring, Lujan said.

“With the grocery stores getting it, it hurts the craft beer in the sense that you don’t have anybody knowledgeable to explain things, like what all these weird new styles are,” Lujan said. “I think that’s where the liquor stores will have the advantage — people who want the knowledge.

“The grocery stores are putting these things on sale to develop a habit because they know people will chase prices with the economic times not as prosperous as other times, but I think what you’re going to see is a pseudo-selection,” Lujan added. “Like with all the stuff New Belgium does — you’re only going to see one or two top-selling brews. You won’t get a lot of the exciting stuff that some of the craft breweries do.”

Regardless of the laws, Lujan said, ultimately the companies with the best business models will be the ones to survive the changing tides of the industry.

“Some will be good, some won’t. Some are going to struggle just for the fact that they don’t control their real estate,” Lujan said. “I think really what it’s done is, you’re going to see a fallout from the poorly run businesses. …

“The better-run businesses will do well and diversify.”