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May 13, 2024 Focus: Small Business

Thimble Island Brewery embraces customer-loyalty growth strategy with new taproom

HBJ PHOTO | STEVE LASCHEVER Justin Gargano, founder and CEO of Thimble Island Brewing, stands next to a pallet of the brewery’s flagship New England IPA, Sea Mist. He recently opened a new taproom in Old Saybrook.
By Andrew Larson
Thimble Island Brewing Co. at a glance
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At a time when the craft brewing industry is shrinking, Branford-based Thimble Island Brewery is expanding, but not in terms of manufacturing capacity — the goal is to attract more brand loyalty.

Justin Gargano, CEO and founder of Thimble Island, has opened a new taproom at 75 Main St. in Old Saybrook — about 22 miles south on Interstate 95 from the brewery’s main location at 16 Business Park Drive. He signed a lease with the property owner in September, and the new taproom opened May 3.

The space has a 3,000-square-foot seating area and 35-foot wide bar, with Thimble Island’s core beers readily on tap, along with Bishop’s Orchard cider and several wines. It also features a kitchen and small brewing system, which he will use to produce experimental and limited batch beers.

There is an outdoor patio with seating for about 35 people.

He said he invested several hundred thousand dollars to renovate the brick building in downtown Old Saybrook, which previously housed his family’s business, Gargano Pasta & Italian Market.

Gargano started Thimble Island with a friend in 2010. Since then, it has become the sixth-largest craft brewery in Connecticut, according to Hartford Business Journal’s Book of Lists, producing about 12,000 barrels a year and employing 35 people, which increases to 45 in the summer.

He said the Old Saybrook location will employ another 10 people.

Thimble Island’s expansion comes as craft breweries continue to rebound from a pandemic lull — when bars, restaurants and taprooms were forced to close, and excess inventory accumulated. That followed nearly a decade of exponential industry growth.

“The business has changed a bit, where there’s a lot of great craft beer in Connecticut,” Gargano said in a recent interview with the Hartford Business Journal. “And there’s a lot of stuff that’s on the shelves. So, we’re trying to diversify ourselves to minimize risk.”

He said he sees opportunity in craft beer retail sales, where profit margins are higher and he can interact with customers directly.

For example, he can sell a half keg to a restaurant for $185; however, if he sells it from his taproom, he can generate $1,200 in revenue by charging $5 to $9 per glass.

Large breweries have profit margins around 12% to 14%, Gargano said. But for Thimble Island, he said profit margins are about 8% to 10% on the manufacturing side — whereas he can make a 30% margin selling his products from a retail outlet.

Several other breweries in the state have opened new taprooms to extend their reach beyond their hometown.

Last year, Milford-based Dockside Brewery received zoning approval to open a taproom in Hamden. Beer’d Brewing Co., based in Stonington, opened a taproom in Groton during the pandemic.

Brand loyalty

Gargano said craft beer drinkers tend to be loyal to a brand they like — and that is located near their home. Thimble Island’s highest density of customers is based within a small radius around its Branford brewery, even though the company’s products are distributed across the state, he said.

In this market, he said it wouldn’t make sense to distribute outside of Connecticut.

“We’ve dabbled in a few different markets, but we’ve pulled out of them,” Gargano said. “It doesn’t make sense. It’s in your own backyard where you do well. The craft beer industry is going to shrink. And when that occurs, there’ll be more market availability for other products in other states.”

A plethora of craft breweries in Connecticut provide consumers plenty of choices, so breweries have to compete for their attention.

“Every town now has a brewery,” said Rachel Diamond, executive director of the CT Brewers Guild, which advocates on behalf of the state’s craft beer industry. “Just as regions have sports teams they support, people are loyal to their local breweries.”

The new taproom will give Thimble Island more brand recognition on the shoreline, which Gargano hopes will lead to more loyal customers who choose to buy their products on a regular basis.

Industry struggles

The craft beer industry is still struggling. According to the national Brewers Association, the number of breweries in Connecticut rose from 16 in 2011 to a peak of 130 in 2022. In 2023, five breweries in the state closed.

Part of the reason is that craft beer is relatively expensive compared to its mass-produced counterparts.

Thimble Island’s products, including its popular Ghost Island double IPA, are priced in the “commodity craft beer range,” below the top-tier craft beers, but higher than the national brands.

A six-pack of Ghost Island bottles sells for about $12.99 at package stores. Top-tier craft beers may sell for $20, or more, for a four-pack of 16-ounce cans.

“If you build your business model on high-margin products, you’re selling a four-pack for $21,” Gargano said. “That is not realistic to what beer is supposed to be.”

Even at a lower price point, Gargano said inflation has caused some consumers to switch to less expensive non-craft beer.

Also, a cultural change has led to a decline in interest in craft beer overall, Diamond said.

Several years ago, craft breweries were packed with patrons in their early 20s. But young people are increasingly opting for alcohol-free alternatives, or “alcohol-adjacent” offerings like hard seltzers and teas, she said.

Also, there’s competition from the cannabis industry, Gargano said, which is leading some would-be drinkers to quench their thirst for an intoxicating substance with marijuana products instead.

He’s optimistic the new taproom will help build on Thimble Island’s success.

Technological edge

Gargano, who has a background in software development, said part of what gives Thimble Island a competitive advantage is an in-house customer relationship management system, which he coded himself, that helps keep track of sales and inventory data.

“It does predictive planning on what products need to be made and when, and allows us to then put a lens back to what we did the year before, to see if we should be sticking with something that worked, or if it didn’t work, and we need to make a change,” he said.

The Branford and Old Saybrook locations are connected to the same system using newly installed Comcast Business fiber internet.

“As a tech geek, I still like to write code and try to keep up with things,” Gargano said. “I like data. And I like analytics. I’m excited to see what I can do with AI, with all the data we have.” 

At A Glance: Thimble Island Brewing Co.

Industry: Craft brewing

Top Executive: Justin Gargano, Founder & CEO

HQ: 16 Business Park Drive, Branford

Website: thimbleislandbrewery.com

Contact: 203-208-2827

 

 

The taproom debate

Craft brewery taprooms have been a hot political issue in the state legislature over the years.

  • A 2019 proposal that would have required breweries to choose between on-site or off-site sales — meaning they couldn’t have taprooms if they sold their beer in package stores and restaurants — quickly died in the face of intense opposition from craft brewers.
  • That same year, lawmakers passed major industry reforms that significantly increased the amount of beer breweries can sell to customers for off-premise consumption, but also added a new excise tax on taproom sales.
  • In 2020, the state’s craft beer industry unsuccessfully lobbied to reduce or eliminate food requirements at places that serve alcohol.
  • A year later, Connecticut legislators voted to allow self-pour technology at places legally permitted to sell beer for on-site consumption.

 

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