Competition has only grown tougher as more breweries come online and the industry continues to mature. Especially for smaller breweries working to grow their business, there’s little to no margin for error at any step of the way. Breweries need to come ready with a solid business plan and perspective, more than enough financing to meet their goals, and the talent and ability to make some really great beer and effectively get it out into the market.
Grow Conservatively and Deliberately
Owners shouldn’t bank on the type of “hockey-stick growth” that many have grown accustomed to from the craft-beer industry, says California’s Figueroa Mountain Brewing Co. Cofounder Jaime Dietenhofer.
“In any market when there’s that much growth, obviously consumption needs to follow at the same rate or there is retraction,” he says. “I think the smartest thing to do is to go slow.”
Figueroa Mountain has concentrated on establishing a strong presence in its local market through great service and quality beer. Its expansions have been based on real demand and not on speculation.
While there are other business models and ways of running the business that would likely result in higher margins, Dietenhofer says, a commitment to quality at every step is what guides any business decision.
“At every brewers’ meeting that we have, we remind ourselves of our mantra that ‘our beer is our god,’ ” Dietenhofer says. “It’s the liquid blood that rules our place and drives everything that we do. We’ve grown organically, and we reinvest every dollar that we have back into the company from a quality standpoint. That means if anything is not up to our standards, then we don’t put it out.”
Matt Linecum, founder of Fremont Brewing (Seattle, Washinton), has a similar caution about growth that isn’t driven by real demand and the ability to consistently deliver a quality product.
“Breweries start today with bank loans and investors, and they’re able to expand way beyond their ability to actually afford it,” says Linecum, who self-financed Fremont to start and invests profits back into the business. “I think the breweries that have grown sustainably will last, and the breweries that have just expanded are going to have a really hard go over the next twenty-four months or so.”
Quality First, Last, and Always
Nearly every brewer we spoke with mentioned quality as a distinguishing factor of craft beer and as a primary driver of decision points in their business.
“That was a big dialogue this year with all of these big-beer purchases and confusion in the market, which is ‘what is craft beer now?’ ” says Alex Tweet, cofounder and head brewer at Central California’s Fieldwork Brewing. “To me it’s trying to make the best beer in the world and not necessarily the most beer in the world. I’m not trying to see how big we can get; I’m trying to figure out how to run a healthy, profitable business that takes care of its employees and makes the best possible beer we can make.”
A reputation for quality is an incredibly valuable asset for any brewery and can directly translate into sales, more so than any kind of discounting or cost cutting. It’s hard to earn and—easy to lose.
“One keg is about 150 pints, and if one bad keg gets out there into the market, that can equal 150 people who think you suck at what you do,” Tweet says. “We’ve dumped plenty of beer. We never let even one bad keg out there, and we never phone it in.”
And because of that reputation, “our bar managers and beer buyers don’t need to try every beer in order to buy it. They just talk to the sales person and say, ‘I’ll take whatever you have,’ and our customers do the same. And that to me is the biggest honor as a brewer, that people trust what we do enough that they’ll just order a Fieldwork without caring about the style or anything.”
Provide Yourself with Plenty of Room to Succeed
“Part of the reason we’ve been so successful and why we’ve been able to get our name out there is that we built the brewery with success in mind,” says Neil Fisher, co-owner and head brewer at WeldWerks Brewing (Greeley, Colorado). “If you’re going to quit your day job and invest money and take on debt and take on investors, you want to plan to succeed.”
Starting off as a smaller brewery in a competitive market such as Colorado is a tough position to be in. “We’re competing against breweries that have tons of capital, tons of backing, and tons of experience, and then they also have position in the market that we don’t have,” Fisher says.
Fisher and partner Colin Jones spoke with a lot of smaller breweries about funding strategies when planning WeldWerks. They didn’t want to take out huge loans and take on so much debt they couldn’t stay afloat, Fisher says, and they also didn’t want to sell off a lot of equity and be beholden to outside investors.
They also knew that they needed a 15-barrel system and enough capacity to allow for between 3,000 and 4,000 barrels annually to make their plan work, as well as a large tasting room that could accommodate bottle releases and events and enough space—a little less than 7,000 square feet total—to add more capacity without remodeling should the demand warrant it.
They ended up selling off some equity while also making a few concessions to trim down their initial budget to strike a balance that positioned them to build the type of brewery they envisioned.
“We decided we’d rather own a little bit less of a bigger company than a whole lot of a smaller company,” Fisher says. “And we also weren’t willing to concede on the brewhouse. We knew we wanted a premier system, so we had to cut $10,000 out of the budget, and we didn’t get the mash mixer that we wanted, which we still don’t have, but we adapted. We use basically a seven-foot stainless mash paddle that provides a good workout in the morning.
“We did just shy of $1 million in revenue last year, which is way more than we planned for the first full year of being in business. That kind of revenue is not possible unless you have the infrastructure, and that’s not possible without capital. So you know, I totally respect every brewery that started up with self-financed 3-barrel nano that grows into a bigger operation, but at the end of the day that’s time and money—the longer that growth, the less you can be capitalizing on your position in the market.
“We’ve been able to bite off another three, four, or five fermentors within a few months’ notice, just the lead time on the tank production, because we were ready for it, and we have this space for it. We still have pretty much the same footprint as when we opened.”
Cater to Consumers’ Love of Trying New Beer
Fieldwork operates a constellation of three tasting rooms throughout Central California, with two more set to open this year. The brewery has one flagship beer, a Czech-style Pilsner, with a wide variety of rotating and one-off beers.
“I describe it to our staff as the solar system,” Tweet says. “The Pilsner is kind of like the sun and everything just rotates around it. We have a few [beers] that are more like Mercury, where they might come around four or five times in a year, and others less often. And then there are the meteors—the random beers that just fly through the galaxy and they’re one and done.”
This strategy not only keeps the brewers engaged and excited about crafting new beers, he says, but it also helps keep Fieldwork’s customers excited about trying new beers and seeing what’s next.
“People have a way of overdoing things that they enjoy and ruining it for themselves, so by not letting them do that with any of our beers, it keeps them excited to come into our tasting rooms and keeps them excited when they see us on draft at a bar.”
Wyoming-based Melvin Brewing is taking a similar approach with its new series of Double IPAs, which will shift in and out of markets seasonally and offer consumers both consistency and variety.
“They’re just as good as 2x4 [‘the best damn DIPA in the world’], and they’ll rotate every three months so beer lovers will have a new beer to try, and then they won’t see it again for nine months,” says Cofounder and Head Brewer Jeremy Tofte.
Invest in Your People
Although the craft-brewing industry is a fun one to work in, employment can be transitory, and some in the industry are very willing to take advantage of labor, Tweet says. But a high turnover rate and lack of buy-in among employees can be a recipe for disaster.
“I had experience with one brewery where they had a pretty bad turnover issue because they just refused to pay more,” he says. “And then they find out that every time they hired a new brewer, there was one certain mistake that most all of them would make, which would result in one to two batches of beer being dumped. If you do the math, you’re talking about a $30,000 to $60,000 financial impact every time that happens. So, you know, the financial impact of that mistake is more than what they’re paying in salary for an entire year.
“We’re trying to break that cycle and give people more so they can make a career out of it and they can stay in long term,” Tweet says. “Give employees more money, treat them better, and give them better benefits, and you’ll get better employees who will stay longer.”
Keep a Close Eye on Your Beer
If there’s one piece of advice Melvin Brewing’s Tofte has to offer new owners, it’s to stay as a self-distributing brewery for as long as you can. And when you do decide to enter into a distribution relationship, make sure it’s an equitable one where both partners are vested in the beer and in the company.
“No distributor is perfect, and no brewery is perfect either,” he says. “But if you can find someone who you can work with and you know that both sides are giving it their all, then it’s a match made in heaven.”
That is not to say that brewers should completely relinquish oversight of their beers and their brands to distributors. That is why Tofte and many other owners hire representatives and sales staff to work in every market in which they distribute.
“Each distributor has like forty or fifty breweries that they’re submitting, and I totally understand that that’s how they make a living,” Tofte says. “But if we have that one person in the market every day reminding people about Melvin and showing them Melvin, that can really help the distributor get our message out there.”
Alex Tweet at Fieldwork agrees that the added cost is money very well spent.
“We have a massive sales distribution team that is out there every day going to all these accounts,” Tweet says. “They’re there to maintain proper quality so that we’re not selling beer to anyone that we don’t want out there, and we’re quick to call it back, too, if we don’t feel that it’s being treated properly. We have no problem explaining to that bar or restaurant that it’s just not a good fit for us.”
Tout Your Success
Being shy about capitalizing on earned merit—such as doing well at competitions, media coverage, and other recognition—is a mistake that owners don’t want to make.
“I talk to a lot of breweries, and I always reiterate that, if you get any sort of recognition, make sure that you share it on social media and anywhere that you can,” says Fisher. “Even those small articles, podcasts, or whatever mention you’ve received. Not only does it help the press tell your story, it also helps raise your stature beyond your immediate market. We barely produced 2,000 barrels last year, which is very small in the grand scheme of things, but you wouldn’t know that just from the media coverage we got.”
The Brewing Industry Guide Spring 2017 from Craft Beer & Brewing Magazine® is available now. Order this complimentary business-focused publication that features strategies for growth, how to position your brand, Stan Hieronymus on hops contracts, small brewery tips, equipment supplier directory, and much more!
PHOTOS FROM TOP: COURTESY FIGUEROA MOUNTAIN BREWING; JAMIE BOGNER; COURTESY MELVIN BREWING; SUNI SIDHU, COURTESY OF FIELDWORK BREWING
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