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Craftbrewing: A bubbling area for new small business

By Mark Taylor | Small Business

A new breed of craft brewers is among more than 3,000 businesses now producing beer in the U.S. Some are seeking to become the next Boston Brewing (Sam Adams beers) or New Belgium Brewing (Fat Tire Beer), whose popular brews are widely distributed throughout the country.

Increasingly, however, more are carving their own unique paths.

Gabe Fletcher, owner of Anchorage (Alaska) Brewing Company, only produces 2,000 barrels of high quality, high-end beer capable of aging like fine wines. He distributes his beers around the country and throughout the world.

John Kimmich of The Alchemist Brewery in Waterbury, Vermont, doesn’t distribute his Heady Topper Double IPA (India Pale Ale) further than 20 miles from the brewery and insists distributors and retailers keep the unpasteurized beer cold.

Jeff Hancock of DC Brau Brewery, the first production brewery in the District of Columbia in nearly 60 years, said his brewery is growing by leaps and bounds, from 1,500 barrels the first year of production in 2010 to 5,000 barrels the following year and a projected 13,000 to 15,000 barrels this year.

'Home' Brew, Big Business

U.S. craft brewing is experiencing a renaissance. In 2012 craft brewing contributed $33.9 billion to the U.S. economy in overall economic impact and provided more than 360,000 jobs direct and indirect jobs, according to the Brewers Association, a trade and lobbying organization for craft brewers. As of Aug. 8, there were 3,084 breweries operating in the United States, more than half opening in the last five years.

Kevin Lapoint, an insurance company financial analyst who conducted a 2012 study of the microbrewing industry, said the market for craft brews is exploding with many new brewers entering the business, often with no blueprint.

“Many people are going out on their own,” said Lapoint. “I think the biggest difference between today and the bubble of the late ‘90s and early 2000s is that instead of everyone trying to get huge all at once, there is more focus on small, high quality local brews. Most of the new microbreweries are not trying to grow as fast and have more realistic expectations. They’re not necessarily aiming for wild, crazy profits.”

He said while the number of microbreweries has continued to rise, it doesn’t mean that all or even most of those brewers will sell and distribute their products regionally or nationally.

Brewers Association Director Paul Gatza agreed that most of the new craft brewers are aiming at pleasing local markets. Gatza said that the character trait all successful craft brewers have in common is passion for good beer.

“Over 95% have home-brewed at some time, experimenting with beer flavors and styles and perfecting their craft,” he said. “Many are entrepreneurs who have rejected the status quo definition of what beer could be. Maybe they traveled abroad, worked for another microbrewery or just thought they could do better than what’s out there now.”

He said most craft brewers, like many other small businesses, exhibit a fierce independent streak.

“Some are so passionate about beer, but the business side doesn’t come naturally. They’re learning on the job and figuring out what it takes to find the right distributor to get their beer out there.”

He said many craft brewers launch their businesses for under six figures and expand as they go, selling as much beer as they can make to pay for new production tanks. Others believe if they start bigger to begin with, they won’t have to pay to expand as quickly.

It starts with great beer

“To become wildly successful you have to have something special. Beer drinkers more knowledgeable today than they were five years ago,” Gatza said. “You have to have great beer or people will not try your product a second time.”

Gatza said there is no unique formula for profitability.

“I’ve seen companies that are profitable at 200 barrels a year and companies losing money producing 200,000 barrels a year,” he said. “It depends on so many things - your business plan, the quality and reputation of your beers, marketing, on business plan, how many people working for you and how you’ve invested your money.”

He said some breweries augment their sales with brewery pubs, restaurants that serve the beers they produce. Others offer tasting rooms where consumers can buy beer to go after paying to sample brews.

“Cash flow is important to these small businesses and making a few hundred or few thousand dollars daily helps their other business operations,” he said.

DC Brau co-founder Jeff Hancock, said he and his business partner, Brandon Skall, had no marketing or design skills or training. Skall previously worked for a wine distributor and Hancock, the brewery’s beer master, worked for several successful microbreweries in Maryland and Michigan.

“We do what we call ‘guerilla marketing.’ We’re both heavy metal fans and were former DJs. We call our products heavy metal beer, extreme beer. We also embraced the city’s political culture, calling our pale ale The Public and our IPA The Corruption.”

Even though the friends launched at the height of the worst recession in 50 years, they felt confident they could succeed.

“Washington didn’t feel the recession as badly as the rest of the country. And while the rest of the country was undergoing this craft brewing revolution, nothing was happening in D.C. We saw a gap in the local market. We’re both D.C. natives thought this was a good idea and so did our investors.”       

Contrast DC Brau’s model with The Alchemist, a small, Waterbury, Vt.-based craft brewery best known for its award-winning fresh, un-pasteurized IPA, Heady Topper. The brewery began with a brew pub of the same name in 2003 that was destroyed eight years later by Hurricane Irene, rebuilt and recently sold.

But brew master John Kimmich and his wife, Jen, knew they had something special in Heady Topper.

“We never packaged it or even sold growlers (large to-go bottles) at the pub, but people needed that beer. People were going to the restroom with mugs of it and emptying it into collapsible bottles they hid in their coats and then manufacturing labels and selling and trading it online. People were crazy about it. It really angered me because I knew and they knew the beer would be oxidized and ruined. That’s what drove us to start the cannery.”

Kimmich said his brewery doesn’t market or advertise.

“For us the big driver is the people who drink it. People want to share it and word spreads on its own. Naturally, that’s exciting to us,” he said. “There’s never a shortage of demand for greatness in anything. Social media will accelerate that word of mouth. People will find it because they are hungry to discover new things. But social media won’t make you. It’s what you do that will make you.”

Since opening the cannery, The Alchemist has expanded from producing 1,500 barrels per year to 9,000. Now the firm is breaking ground this fall on a second brewery.

“Nine-thousand barrels is all we’ll ever make of Heady Topper,” he vowed.

Kimmich said The Alchemist’s sole goal from day one was “to make the absolute best take on what I love most--- hoppy beers--- and get them out to people in absolute perfect condition. We had to educate not just our consumer base but our distribution base, who didn’t understand what unpasteurized unfiltered beer is. We dug our heels in and said you have to do it our way or you won’t get our beer. And it’s worked. People show up with coolers. We want that customer opening that can of beer to experience our beer the way it should be.”

Anchorage Brewing’s Fletcher has only one other employee. His brewery is not open to the public. There is no brew pub or tasting room. But his award-winning beers have drawn acclaim throughout the U.S. and the other nations where it is distributed. Fletcher, who ran another Alaskan brewery for 13 years, produces small batches of high quality beers from the best ingredients. He’s never spent a dime on advertising, relying on social media, prize-winning products and word -of -mouth to drive demand. He crafts aged beers in oak barrels that he likens to fine wines, wines that can be cellared with shelf lives of four to 10 years. He contracts with only two distributors, one an international import and export firm. His growth has financed the construction of a tasting and sampling room facility, which breaks ground this year.

“I produce super high end, niche beers in small quantities. Instead of flooding one market with lots of products, I focus on making the kinds of beers I love and selling them all over,” he said, explaining his business model. “I produce small batches that come with corks and cages and unique tastes. The profit margins are higher, so I don’t have to make a million barrels to be successful.”

Brad Johnston, director of Charlotte, N.C.-based Tryon Distributing, which distributes wines and craft beers in North Carolina and South Carolina, said his firm jumped on the craft beer wagon early on.

“I have to be able to sell the sizzle, otherwise, it’s just another IPA among hundreds of other IPAs out there,” he said.

He said social media in craft brewing is a big thing.

“It’s all about who is drinking your beer at what time,” Johnston pointed out, while noting that quality has to trump marketing. “Honestly, one of the best things they can do is enter into these beer competitions and win something. That’s when it just goes off the hook.”

Read More:

Cafe Culture: The rise of the specialty coffee small business

Expert Advice for Aspiring Craft Brewing Business Owners

Microbrewing in America

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