Brewery of the Month – Four+ (Salt Lake City, UT)

Sleek. Stylish. Modern. Trendy. These are words that come to mind when describing the hottest new restaurant in Manhattan, but aren’t necessarily what you’d typically associate with craft beer – until now.

Uinta Brewing in Utah is a classic craft brewery – pictures of fish, mountain ranges, and outdoor sports grace their bottles. But in 2005, Uinta took a dramatic step into the realm of brand extension and created Four+ Brewing – a separate product line that took craft beer marketing where it hasn’t been before – into the realm of the uber-hip and trendy.

“The initial concept was let’s be creative and think differently about beer.” Lisa Kuftinec, who is in charge of communications at Uinta, and if you haven’t seen Four+ marketing, you’re in for a shock. The typical craft beer package design is out the window and replaced by chic, minimalist design. “It’s stripping things down, it’s elemental.” Lisa’s goal is to focus on a sleek look that ‘pops’ at the consumer. And the elemental aspect to their packaging works well with the Four+ message – four elements (hops, barley, yeast, and water) to make great beer. The Four+ brand extension was born out of the idea that beer doesn’t have to fit into set categories, and the packaging aligns with this. “(We want) to be creative with flavor profiles and blur the lines of beer.”

Another advantage of the brand extension is that it allows Uinta to have more beers on store shelves. By diversifying from the traditional Uinta name, it creates more differentiation and a perception of two separate breweries. This gives the brewery flexibility to experiment more – for instance when they released a pumpkin ale, it was more suited to the Four+ brand than the Uinta brand.

Lisa believes that the target markets of Uinta and Four+ overlap somewhat, but still offer something different to the consumer. “In some ways the target markets are the same, people who love beer. However, I think that Four+ is for people who are looking for something different. It’s also a good avenue for crossover – maybe if you’re not a big fan of beer, this offers something different to try – it isn’t just your standard beer selections. It’s an entry way into new and different things. It can open up the possibilities for people who want to try something different and they can say ‘oh, this is what a beer can taste like! Let me try other things!”

By expanding their range of target consumers with the Four+ extension, Uinta has opened their market opportunities to an entirely new crowd – people who are just beginning to experiment with craft beer. The marketing and label design reflect this and it is easy to see how the packaging would appeal to new craft beer drinkers.

The most important question though is how has Four+ impacted Uinta’s bottom lines. I asked Lisa if it has hurt or helped Uinta. “In a lot of our out-of-state markets, we’ve  been approached by those markets because of Four+.” It turns out that this brand has actually allowed Uinta to expand the distribution of their core portfolio. There has no doubt been some cannibalism between brands, but the overall affects have been positive in helping drive the growth of Uinta Brewing. Lisa added, “The Four+ brand has generally been received very positively. It offers something in addition to the core portfolio. It surprises people  when they see that someone is approaching it differently. It’s been really well received so far.”

One of the main goals of Four+ was to be creative and blur the lines of craft beer. With their eye-catching package design and labeling, they have no doubt created a new image of what a craft beer can be.

Does the iPad Mean Anything for the Beer Industry?

Amid much fanfare, Apple released their long awaited tablet computer today – the iPad. Initial reactions on this product are mixed; some people see it as a game changer while others think the device is severely limited. I’m particularly interested in how (or if) this device can change business-as-usual in the beer industry.

The most obvious application for the iPad would be in beer distribution. It could be used as the all in one tool allowing delivery employees to track inventory, customer files, invoices, and order records. For companies that run on Apple software already, its tight integration with iWork is certainly a bonus. I could also see this being a potentially valuable tool to brewery sales representatives. They could now carry around a lightweight display to new bars and restaurants with graphs, figures, pictures, presentations, etc. With its wireless and 3g capabilities, they would also be able to pull up websites for a quick and easy reference.

However, beyond these two uses, I don’t see much application for this product in the beer industry. To be honest, beyond a few experimental breweries and distribution firms, I don’t even believe this product will see widespread use by the two groups I mentioned. Time will tell how the public and the beer industry utilize this new technology. While I certainly think this it’s exciting, I don’t believe it will be a game changer in the beer industry.

Do you think the iPad can (or will) be used in the beer industry?

The Startup Dialogues: Real Estate Selection (Fullsteam Brewery, Durham, NC)

In this edition of The Startup Dialogues, I talked with Sean from Fullsteam Brewery. Fullsteam is a new brewery set to open in 2010 in Durham, North Carolina. With a focus on local ingredients and developing a Southern style of beer, this will definitely be an exciting brewery to watch in the coming year. For this interview, we talked about real estate site selection when choosing potential brewery locations. When you’re done here, make sure you visit Fullsteam’s website here.

1.  For what specific reasons did you decide to locate your brewery in Durham, North Carolina?

I’ve been mulling over this concept for three or more years, vetting spaces and refining my concept as I learned more about the industry (my previous experience was in craft beer lobbying; I’ve not worked for a brewery before).

Our concept is to develop a Southern beer style using locally-farmed ingredients. So the first several sites I considered where in more rural locations in the fringes of the Triangle (Durham, Raleigh, Chapel Hill) area of North Carolina.

Ultimately, I realized Fullsteam would do best if it was located in a more urban area. My vision for the brewery is to be both a production brewery and an on-premises tavern — the best of both worlds. We’re lucky that North Carolina law allows breweries to serve on-site and distribute off-premises; many Southern states don’t allow breweries to do this.

Why Durham? Tons of reasons, really. Durham’s home to Duke University and I believe it has more PhDs per capita than any US city. It’s plenty large to support a thriving on-site tavern. Historically, it’s a manufacturing town, so it has plenty of stout, warehouse-y buildings to choose from. Durham has a booming food scene that reflects Fullsteam’s interest in celebrating the union of great beer and great food. I attended grad school at Duke. I love Durham’s authenticity and diversity. It truly is the ideal city for Fullsteam.

2. Were there specific neighborhoods or areas within Durham that you wanted to be located in? If so, what about these locations attracted you?

We looked at downtown, East Durham, and the Central Park warehouse district near downtown. While downtown is going through an exciting revitalization period, locating in city-center would have pushed us to a brewpub model. The more economically-distressed area East Durham would be a challenge for a tavern-minded brewery, though not impossible — in fact, there are some excellent development projects in East Durham that we strongly considered.

We honed in on the warehouse area of Durham just four blocks north of downtown. During the boom times of two years ago, Central Park was becoming “speculation central,” with tons of proposed condo projects and mixed-use facilities. It’s since slowed down, but it’s widely seen as Durham’s next up-and-coming area. There’s no better place for a brewery to get up-and-running, especially given that we want people to come on-site.

Every site I looked at during the site selection process, I asked myself two questions:

1) Can it fit a forklift?

2) Will they come on a Tuesday?

That is, is the space “industrial” enough for a forklift…but accessible enough for a Tuesday night crowd? 726 Rigsbee is a resounding YES to these two simple questions.

3. What were the ‘must haves’ in a potential location?

Every brewery is going to have a different answer for this. For us, it was mostly the above two questions, supplemented with this like: strong concrete floors (or the ability to make them strong). Tall ceilings. Big doors to bring in tanks. Three-phase power. Oh, and affordable rent!

But again, this differs based on a brewery’s business model. A brewpub can thrive in a walkable downtown region where rent is $20 a square foot. Scrunch in a 7 barrel brewpub system in 500 square feet and you can do well. But we’re not a restaurant; we’re an 8,000 square foot warehouse split between production brewery, event space, and tavern.

4. You selected an existing building for your brewery, correct? Did you also look at building your own or were you only looking at existing locations?

We briefly considered a “build to suit” site in Central Park, but we liked the idea of adaptive resource of an existing building. One nice thing about our space: it’s a steel-framed Butler building — an 1980s extension to a 1935 bottling plant. It’s very utilitarian and easy to upfit. Very much a blank slate.

5. What square footage requirements were necessary for the brewery? How flexible could you be with square footage?

We explored sites as small as 4,000 square feet and as large as 10,000. It can be dangerous to take on too big of a space. We decided on an 8,000 square foot mixed venue that has a 3,500 square foot brewing space, 3,000 square feet of unconditioned event space, and a 1,500 square foot tavern and future kitchen. We have an option on the next bay over, which is 6,000 square feet. Our hope is to eventually expand brewing operations into all 8,000 square feet of the big steel building and expand the public space into the lower-ceilinged, more “charming” 6,000 square foot bay. We’ll see. Right now we have a lot of operating space for both the brewery and the public space, and a lot of hard (but exciting) work ahead to build interest in our Southern-style beer

6. Some production only breweries are located in very industrial areas (cheaper rent) vs.  brewpubs which can often be located in high traffic retail areas with much higher rent. You will have a tavern at your brewery, so how did you decide to balance visibility vs. rent? Which is more important for your concept – more visibility or cheaper rent?

Cheaper rent.

Our visibility isn’t that great, and parking may present a challenge (though I keep telling myself that hundreds, sometimes thousands, of people attended the Durham Bulls games just a block away at the old stadium).

We’re walking/biking distance to two neighborhoods that we believe can sustain us. We’re not that far from downtown. And there will always be a certain percentage of tourists and beer enthusiasts seeking out a brewery. Plus, our plan is to do weird stuff at the warehouse that may attract a following: frequent showings of Terrible Movies (”The Room” is my favorite), a communal pig pickin’ or red beans and rice, and a diverse range of music and mini-festivals. Durham doesn’t have a “warehouse district” like so many other cities have. I spent some time as a twenty-something in Dallas, where Deep Ellum had both a mix of great food, art, and music. That’s the potential of Central Park (not that Durham needs to emulate Dallas…it’ll be it’s own thing, of course).

But getting back to the question: cheaper rent.

7. Are there special zoning codes for breweries? Did these limit you in what sites you could select or did you have to try and get zoning changed?

Man, you’re asking the right questions. Yes, we had to be mindful of city and state ordinances that regulate brewery and tavern locations. Sites that serve or brew alcohol have to be located a certain distance from a place of worship. This can be a challenge in an urban area, because storefront churches often take advantage of cheap rent — the same cheap rent a brewery is looking for. Luckily, that wasn’t an issue for us.

What was a concern was zoning: we looked at a location across the street from where we ended up. Though it was literally just across the street, that site was zoned by the city as Commercial General (we’re zoned Industrial). A CG zoning meant that half of the site’s square footage would need to be dedicated for “public use.” In other words, it would have to be a brewpub to work. This would have limited any plans for expansion. It’s very important for us — I imagine most breweries — to not be handcuffed when there’s an opportunity for expansion.

8. Did you consider a historical building for your brewery? If so, are there special considerations to take into account when you’re located in an older building?

We’re in a newer section of an old building. The biggest expense associated with older buildings is the wiring and code issues. Often times old buildings will have strong floors and excellent support — they were often oversized compared to modern standards. Again, breweries need to be very mindful that they’re not romanticizing the location. There’s a reason that most breweries are located in plain, utilitarian warehouses.

9. Are you leasing or did you buy your building?

Leasing. Maybe someday we’ll buy, but that’s not in the cards for us right now.

10. What specific demographic parameters (employment, population, education, age, etc) did you consider when choosing a location?

A friend of mine gave me some computer-generated demographic information for some sites that we looked at, but it comes down to gut instinct. And asking a lot of locals what they want. When I first started exploring Durham, I looked at an old church for sale in a nice neighborhood. A freakin’ church. The idea was to specialize in farmhouse and abbey-style ales. I learned pretty quickly that the neighbors did not want a brewpub in their upscale neighborhood. And that, more broadly, Durhamites wanted a “brewery” more than they wanted a “restaurant that brewed beer.” All it took was a move *four blocks away* from the church, and Fullsteam became such a different business: one that the neighbood would embrace rather than fight. That became a “Brewery” versus a “Restaurant.” On paper, a demographic analysis of 726 Rigsbee would hardly be different than the old church in the upscale neighborhood. But the feel of the site is so very different, and perfect for what we ended up deciding to do…and want the community wanted.

The Startup Dialogues: Social Media (Pateros Creek, Fort Collins, CO)

In this edition of ‘The Startup Dialogues,’ I talked with Steve from Pateros Creek Brewing – a new brewery opening in Fort Collins, Colorado. Steve and I talked about how new breweries can utilize social media tools such as Facebook and Twitter.

1. You obtained your brewery name through ‘crowdsourcing.’ Can you provide a little background on the process behind this?

We had an unintentional conflict with a local business in town with the original name we

had picked for the brewery (Horsetooth Brewing Company). Because of this we needed

to change our name but we didn’t want to change our brand image. We started

brainstorming local names that would be good for the new brewery name but couldn’t

decide on what to use. My wife Cathy who has experience with social media,

marketing, and PR, suggested we get the community involved and hold a contest to see

if we could get some better name suggestions. So we wrote up some official rules and

posted them on our website, but in order to get people to notice the contest, we needed

to spread the word. We posted on Facebook.com and Twitter.com that we were holding

a contest for our new name. The local paper caught wind and they also wrote a story

about the contest. We would get feedback from Twitter followers and Facebook fans

during the process and it helped us realize that the community was really getting excited

about the prospect that they could rename a local brewery. Social media helped us to

attract the right audience and get instant feedback from fans.

2. Which social media applications do you utilize for Pateros Creek Brewing?

At this point we are only using Facebook and Twitter

3. When you started your brewery, how did social media fit into your marketing and promotions strategies?

Any time there is a new thing (big or small) happening with the brewery, we are able to

tell our fans immediately. Whether it is to tell them of a beer tasting event or just that we

are brewing a new batch of beer, it helps the fans be “in the know” of Pateros Creek

Brewing Company. So, as new events come to be, we will be using social media to get

the word out to the fans of PCBC.

4. What strategies have you used to increase the number of relevant fans (read: fans who actually pay attention) of Facebook? How does Facebook fit into your strategy?

We had made up some T-shirts and tried to get people to post pictures of them wearing

their shirts in different parts of the world. Sort of a Flat Stanley type of promotion to see if we could get more people wearing the shirts out in public and come to the Facebook fan page more often.

5. What strategies have you used to increase the number of relevant followers (read: followers who actually pay attention) on Twitter? How does Twitter fit into your strategy?

Twitter is a different beast than Facebook as it is not so much personal interaction but

more of a micro-blogging tool. Because of this, we follow other breweries, beer bloggers, and beer related business to re-tweet their findings and get on tweeple’s lists.

6. Have you been able to measure the effectiveness of social media? Have you been able to convert social media marketing efforts into tangible results?

Because we are so new, not much can be measured. The name contest, people wanting to buy T-shirts, and people wanting to try the beer (sending emails as well as posting online) has been the only real results achieved from our efforts so far.

7. Have you looked at how any other breweries handle social media as an example? If so, which ones, and what do you admire about their online presence?

We like to follow the local breweries and see what they are up to since many of their

customers are the same as ours. One brewery in town did a Twitter contest to have

people submit names for their newest beer coming out and then they voted on the best

name. Other breweries use a lot of pictures of them pouring beer or brewing, making

fans thirsty and putting their products to the front of people’s minds.

8. Why is social media important to a brewery?

Especially with our brewery, where we are trying to be a part of the identity of the local

community, it is important that we connect with our customers. Beer is a social beverage

that sparks conversation and brings friends together. Using social media helps us to

bring the customer closer and discuss the beer and the brewery to make it more of a

friendly setting.

9. What are the components of your social media marketing strategy leading up to the opening of the brewery (high level view)?

We would like to get more fans and followers as we head toward the opening of the

brewery. If the buzz is high, then we should be able to introduce people immediately to

our offerings. The hardest part about starting a new business is letting people know you

exist. This is where social media will play a large part for us.

10. How do you see your social media strategy changing (if at all) after the brewery opens and as you continue to grow?

As technology changes, so will social media. Blogging used to be the main way to

interact with people on line but social media has opened a whole new door. As the

brewery grows, so will our efforts to connect with the fans. To do this, we will be posting

more pictures of our operations and events that will show our passion for beer and invite

other people to join in. Beer is a wonderful part of life, and we think everyone should be

part of the fun!

Thanks again to Steve from Pateros Creek Brewing!

VICTORY!!!

A few weeks ago I wrote a post about how New Belgium Brewery had closed off their Facebook wall so that fans could no longer post. New Belgium was closing the dialogue with their fans – and participating in this dialogue is one of the best uses of Facebook for a company. Now, New Belgium has reopened their Facebook fan wall! That’s right, they listened and I’m declaring VICTORY! In all seriousness though, this is a great move by New Belgium to interact more with their fans. Good job, New Belgium – I’m looking forward to the future dialogue.

Brewery Finance

I recently ran a survey to see what you (the readers) wanted to learn more about. Through the results, I found out that one of the topics readers wanted covered was brewery financing. This was a topic I knew absolutely nothing about, so I found a willing partner who did – Rick from Brewery Finance; a company that specializes in brewery equipment leasing. Rick has worked with breweries like Maui, Ska, Del Norte, and Oskar Blues. I talked to Rick about some of the aspects of the brewery equipment leasing business, including what it takes for a brewery to get approved for financing and how the recession has affected his business. If you’re interested in learning more about Brewery Finance, you can visit their website here.  

1. Can you take me through a typical lease from the application process to the end of its life cycle?  Typically, I’ll receive a call from a brewery that is in need of equipment for an expansion, etc…They may need kegs, fermenters, a forklift…you name it.  I’ll ask them to fill out an application and fax it back to me along with a copy of the last three bank statements for the business.  From here, I can typically get the customer approved for up to about 75k.  If they need more than 75k, I’ll need to collect additional information which would include full financials for the last two years.  Once I have an approval, I’ll present the customer with a few lease options and ask them to pick the option that works best for their business goals.  Some want the smallest possible payment, while others just want to pay it off as quickly as possible.  Once the customer has picked a lease structure that works for them, and once they’ve settled on the equipment they want and the vendor that they want to purchase it from, we’re ready to move forward.  I’ll generate the lease documents, email them to the customer who will need to print and sign them.  They’ll return the originals to me along with a check (typically in the amount of their first and last payment).  Once I have the original documents and have verified that all signatures are in the right place, etc…we’ll pay the vendor up to 50% so they can start manufacturing the equipment, etc.  At this point, the lease starts and monthly payments will be billed to the customer.  Once the equipment has been delivered and the customer is happy with it, we’ll pay the vendor the remaining 50%.    At this point, the customer will continue to be billed for their monthly lease payment until the end of the contract term (typically between 36 and 60 months).  At the end of the term, the customer will usually have the option to purchase the equipment for $1.

 

2. Can you give me a view of what a typical lease structure looks like? Typical leases will be anywhere from 36-60 months in length, will terminate with either a $1 buyout option, Fair Market Value buyout option, or 10% PUT (Payment Upon Termination).  In most cases, at least one payment will be due up front and may be held as a security deposit.  Higher risk transactions may require larger amounts of money up front.  Specific numbers are going to be tough because the payment is going to be driven by credit (business and personal), time in business, average collected bank balances, etc…in other words, there isn’t a “black and white” answer, but rather all shades of grey.  Generally speaking, the longer a brewery has been in business, the more attractive the terms are going to be.  Start ups are extremely difficult to finance right now and the money is pretty expensive.

 

3. What are the incentives for a brewer to lease through your company as opposed to getting a loan from a bank for the equipment? Banks are a great place to get your working capital or an SBA Loan, but banks typically don’t understand the brewing business and seem to have a difficult time wrapping their heads around financing a fleet of kegs or a fermenter.  They don’t know the value of this equipment to a brewery and they certainly are not likely to loan you money to purchase an asset that is difficult to track, such as kegs.  Banks are going to require a large down payment and may require that you carry an off-setting balance in your account at all times.  In other words, if you get a $100,000 loan, and the bank requires a 20% deposit, they are really only loaning you $80,000.  However, your payment will be based on $100,000!  And that’s IF you can get a bank to lend you money right now.

A leasing company will finance 100% of the invoiced amount.  If you need $100,000 for a few new fermenters, we’re going to finance the full amount…plus the shipping.  Also, we don’t put a lien on your business the way a bank does.  We’ll just put a lien on the asset that we are financing.

 

4. How does your company differ from a traditional small business leasing company?  Most leasing companies are not focused on a specific niche.  They take a different approach to doing business.  Their philosophy is to get business from as many different customers or industries as possible.  This is fine and works for many equipment leasing firms.  However, I took a different approach.  I love the beer industry and want to work only with breweries.  Understanding the industry the way I do gives Brewery Finance a real advantage over other small leasing companies that might dabble with soliciting business from breweries.  I know the vendors, I know the brewers, I understand the equipment, but most importantly, I’m passionate about helping small breweries grow.  As a beer geek, nothing gives me greater satisfaction than enjoying a good beer that came out of a fermenter I financed.  Rubbing elbows with creative, innovative, and interesting people is a great way to make a living and I believe my passion for the industry and my ability to bring a great service to my customers is what sets Brewery Finance apart. Someone that doesn’t specialize in this industry will have to take a long time getting educated about it before they can bring the same value to their customers that I do.

 

5. How often do you have to deal with defaulting lenders or borrowers?  With all the financial turmoil over the last year or so, I’ve actually lost more lenders whose credit lines dried up or whose portfolios went bad than I have had customers who have stopped paying.  The craft beer industry is doing great.  My biggest problem is finding enough money to satisfy the demand for my customers’ growth (especially in the current lending environment).  Thankfully, in the last 4 years, I’ve only had one or two customers that were not able to meet their obligations.

 

6. How has the recession affected your business?  Significantly.  Not because my customers are struggling, but because my lenders are suffering.  The availability of money isn’t what it used to be just 18 months ago.  Underwriters are scrutinizing credits with much more vigor.  Credit windows have tightened up considerably.  Many of my underwriters simply have closed their doors.  Demand for financing is still high and I’m dedicated to finding the money for my customers, but to say that the recession hasn’t had a profound impact on my business would be a lie. However, I do feel momentum building again and I am optimistic for the future.

 

7. What are your application approval standards?  I work with a large network of underwriters.  The standards vary depending on the needs of the customer.  Obviously, a brewery in need of a $500,000 expansion is going to be under much higher scrutiny than a brewery looking to finance a small order of kegs for $5,000.  Suffice it to say that the longer a brewery has been in business, and the stronger the credit is of the business and the owners, the more money they’ll have access to when they need it, and the less they’ll have to “give up” in order to get that money.  If the credit is weak, or the time in business is under 2-3 years, the money is going to be more expensive, and there is less of it to go around.

 

As a general rule, a “good” risk will be a brewery that is over 3 years in operation, has good pay history on existing trades, carries a strong average bank balance (at least $10,000), and whose ownership has a personal credit score of over 700 with homeownership and low revolving debt.  A company like this can qualify for up to $75,000 in equipment financing based on just a one page application.

However, a company with under 3 years in business, or a company with some hiccups surrounding their business or personal credit is going to have a tougher time.  We still may be able to get them qualified for all the equipment financing they need, but it will come at a higher price. 

Thanks again to Rick from Brewery Finance, if you have any further questions or want to learn more, make sure you check out their website here.

Cross Country Brewing

A typical distribution strategy for a national (or a large regional) product-based company is to locate warehouses all over the country in order to lower the cost of shipping and transportation. Companies such as Hewlett-Packard are masters at this and these large companies have the luxury of determining where to locate their warehouses to take advantage of geographic efficiencies. The macro breweries have utilized this strategy and have opened breweries across the country. Think all Budweiser is brewed in St. Louis? Of course not. In addition to St. Louis, Anheuser-Busch has plants in Newark, Los Angeles, Houston, Columbus, Jacksonville, Merrimack, Williamsburg, Fairfield, Badwinsville, Fort Collins, and Cartersville. One of the motivations behind the Miller-Coors joint operating agreement was the opportunity to take advantage of each others’ brewing facilities and distribution networks. But how can craft breweries benefit from the same distribution strategies, and what do they risk compromising in doing so?

One strategy is to take the approach of the big breweries and open up another brewing branch. Originally founded in Colorado, Flying Dog ran their brewing operations out of Aspen and then Denver. The brewery expanded and the demand for their beer on the east coast grew.  Flying Dog responded to this new distribution challenge by opening a second brewery in Frederick, Maryland in 2006.  By 2008, the last bottles rolled off their Denver line and they moved all production to their Frederick plant, while still retaining corporate headquarters in Denver. Now Flying Dog only operates one brewing facility, but it is in much closer proximity to the bulk of their customers as opposed to the relative isolation of Denver.

Another strategy taken by craft breweries is entering into alliances, partnerships, or mergers with one another. In 2007, Widmer Brothers and Red Hook merged to form the Craft Brewers Alliance. These two breweries (along with two smaller ones included in the deal – Kona and Goose Island) instantly became one of the largest craft brewing companies in the country with one of the most sophisticated production and distribution networks. The newly formed company now had brewing facilities in Seattle, WA, Portland, OR, Chicago, IL, Kona, HI, and Portsmouth, NH. Now, any of these four “separate” breweries’ beers can theoretically be brewed at any one of the five locations across the country.

Let’s look at some hypothetical numbers for a thirsty customer who wants a Widmer Hefeweizen in Philadelphia, PA. Before sharing brewing facilities, Widmer would have had to pay a much higher distribution cost to get the beer from Portland, Oregon to Philadelphia, Pennsylvania. In order to ship a truckload of beer, it would cost Widmer:

$2.89 (average price per gallon of diesel fuel) x 2,684 miles (distance between Portland and Philadelphia) / 8 miles per gallon (average gas milage of a semi-truck) =$970

The high cost of fuel is passed along to our thirsty friend in Philly. Now let’s assume that Widmer’s Hefeweizen can be brewed at the Portsmouth, New Hampshire brewery. In order to ship a truckload of beer from Portsmouth, New Hampshire to Philadelphia, PA, it would cost Widmer:

$2.89 (average price per gallon of diesel fuel) x 362 miles (distance between Portsmouth and Philadelphia) / 8 miles per gallon (average gas milage of a semi-truck) =$130

This creates a savings of $840 (or roughly 100 six packs of beer) on EVERY TRUCKLOAD SHIPPED.  Of course, this example is overly simplified and doesn’t include many other variable costs that exist, but you get the idea. The bottom line is that in this example, the savings will likely be passed along to the consumer in Philadelphia (not to mention the benefits of beer that hasn’t been sitting on a truck for days).

Where these savings are even more pronounced is with Kona Brewing. Kona’s original production brewery is still on the big island of Hawaii – more than 2000 miles from receiving facilities on the west coast. Add this cost to the cost of shipping it across the mainland and the total shipping costs for a Kona Beer would be much higher than industry averages. But now because of this alliance, all Kona beers served in the continental United States are brewed at the brewery in Portland, creating a greater cost savings per unit shipped.

It is clear how these arrangements can help a brewery – by working together they can reduce transportation costs, packaging costs, and distribution costs. But, how can these types of deals potentially hurt a brewery? In Flying Dog’s case, when they closed the Denver brewery and moved production to Maryland, they took a beloved Denver institution away from the city – along with some of the jobs that went with it. At the end of the day, the numbers made sense for Flying Dog and it was probably worth the risk of alienating some of their hometown crowd. With a steadily growing following, it seems to be working out well for them. With the Craft Brewers Alliance, they also risked alienating their fans and their communities. We could argue whether or not the same recipe brewed on a different system creates any real taste differential, but the only thing that matters is perceived differentiation. When you drink a beer from Kona Brewing, does it bother you that it wasn’t made in Hawaii? This is one of the factors that Maui Brewing Co. has capitalized on – they offer an alternative to Kona; an authentic Hawaiian beer. There was initially some consumer backlash when the Craft Brewers Alliance was formed (though this could partially be due to Anheuser-Busch’s partial stake in the company). Time will tell whether the cost savings outweigh the potential lost revenue.

When breweries decide to start brewing their beer in other locations, it will ultimately bruise some relationships with their hometown fans. No longer can their communities claim to be the origination of every bottle of beer from that brewery. However, the potential upsides and cost savings could be worth risking a few bruised hometown egos.

Featured on ‘Drink With the Wench’

If you haven’t checked out the website http://www.drinkwiththewench.com, make sure you go and take a look. Today, I am the featured beer blogger and you can read all about my adventures in beer. You can also check out some of the other beer blogger interviews, and if you haven’t bookmarked or subscribed to Drink With the Wench, make sure you do. Thanks again to Ashley for the interview!

The Startup Dialogues: Finding Investors (Grimm Bros. Brewhouse, Loveland, CO)

In this edition of the The Startup Dialogues, I talked with Don from Grimm Bros. Brewhouse, a new brewery opening in Loveland, Colorado. Grimm Bros. is in the process of finding investors to seed their dreams of opening a brewery. This is a very relevant and important step for startups that can sometimes catch starry-eyed entrepreneurs off guard. Thanks again to Don and make sure you check out their website here. If you are interested in becoming an investor, you can contact Grimm Bros. Brewhouse at don@grimmbrosbrewhouse.com

What is your brewery concept, and why should someone invest with you?

Our mission statement is as follows:  “The mission of GBB (Grimm Brothers Brewhouse) is to provide fresh, exciting, and flavorful beer to consumers. It will focus on German-style Lagers and Ales but not limit itself to any one style. GBB is a result of a passion for beer and beer education and will endeavor to spread this passion at every opportunity.”

As we took a look at our local market we saw a hole that we felt we could fill by brewing German style beer.  The craft beer market has shown a consistent growth over the last 5 years reaching as high as 12%.  Even in our rough economic times the craft beer industry continues to grow at an incredible rate. When looking at market growth per person, the mountain west region is historically the second fastest growing in the United States.  Investing in our brewery not only gives investors a chance to place their money behind a credible market, but it also allows them to invest in a local business, a place they can congregate and be a part of.

What steps did you take before you began seeking investors in order to build credibility? (business/marketing plan, etc.)

When we became serious about opening a brewery, we spent a good 12 months researching the market, learning about the industry, talking to breweries and brewers, and writing our business and marketing plans. We had been home brewing for quite a few years by this time and felt we at least had a handle on brewing, but through this process we really started to understand the business side of operating a brewery.  By the time we had finished our business and marking plans we were able to approach our potential investors not only with confidence in our plan but with enough knowledge to answer any questions they asked.  We think this is our biggest source of credibility.

The beer helps too!

Who are your main target sources of investors?

Our main target sources at this time are private individuals who want to be part of a brewery in some way.  Most of our investors are people who enjoy beer and are passionate about it.

Are you working with Venture Capital firms or Angel Investors?

We looked into this, but decided that we would rather not proceed down this road. We currently own the brewery 50/50. If we would have gone with an angel investor or venture firm, the majority of the company would have gone to that investor.  While this would have made it possible to start at a much larger level, we feel that we can afford to start a bit smaller and work our way up without giving away a majority of the ownership.

Do you have an ideal ratio of investment capital to other capital (loans, out of pocket)?

Ideally we would like to see 2/3 of our initial capital investment come from private investors.  The rest will be handled via a combination of loan and out of pocket expenses.

What strategies have worked best in finding potential investors?

We have tried several; we have had some investors show up via word if mouth, we have had a couple hits using Craigslist, we even hosted a beer tasting with a local restaurant in order to drum up some potential investors.  By far the best contacts we have are people that we have met and have had a chance to talk with face to face, like friends, family, and co-workers.  Not only has this proven to drum up investment, it has also spawned additional contacts that we can follow up on.

What strategies have worked best when making your sales pitch to potential investors?

We have tried hosting beer tastings for potential investors and powerpoint presentations, however we have found that the best strategy is sitting down with a potential investor over a beer face to face, explaining our idea, sharing our business and marketing plans and answering questions.

Have any strategies backfired? If so, how were you able to turn them into a learning experience?

Yes, at one point we were going to work with the local businesses in our town to have an Oktoberfest celebration.  We had a meeting with everyone involved and agreed we would proceed.  We began brewing a massive amount of beer for a home brew system.  Once we had all of the beer underway, however, we found out that the Oktoberfest celebration was not going to happen and we were stuck.  We were able to turn around and work with a local restaurant to host a beer tasting that allowed us to share this with the public that ended up being a very positive experience.

We did learn that you have to be flexible; the best plans can sometimes fall through especially when it involves multiple parties.

How has your investment product (a brewery) affected your ability to raise capital? Are investors eager to get involved with such a ‘fun’ company concept? Or are they wary?

Most definitely, all of our investors are people who want to be involved in a “fun” project.  People love beer and our investors are people who want to be involved not only in a brewery, but also a local business that will be part of their community in years to come.

We have also seen the other side of this as well though, where people are a bit wary to enter into a new market, some of the people we have spoke with are just not familiar with the brewery market and are therefore timid about jumping in (especially in our current economy).

What is the investment structure you offer? What is the security offered?

We are offering a 7% annual interest on a 5 year unsecured promissory note. Our payments will be applied to interest first and principle second. Our first payment will be on September first of this year and the final payment on September first of 2015. After working with our business consultant and lawyer, we decided that this would be the most effective route given our limited budget.

If you have any other questions or issues you would like to see covered regarding the financing of a brewery, let me know in the comments and I will do my best to find answers for you. Thanks again to Don from Grimm Bros. Brewhouse.

The Startup Dialogues: Ocean State Hops (Rhode Island)

For this edition of The Startup Dialogues, I caught up with Matt from Ocean State Hops – a new hop farm in Rhode Island. Ever wonder what goes into starting a hop farm? Check out Matt’s interview below to find out.

How did you decide you wanted to grow hops?

We have been brewing beer at home together for a while now and both love hoppy beers so three years ago we planted a few plants so we could grow some of our own hops to brew with.  Right around the same time there was news of a world-wide hop shortage so we decided to plant a few dozen more plants the next year (we really like hoppy beers).  After we started hearing more and more stories about the smaller microbreweries and homebrewers not being able to purchase the hops they needed we decided to plant enough plants to start selling commerically.

What are the various startup expenses associated with a hops farm?

With a farm our size, the main startup expenses are land, trellis equipment, plants, and drying equipment/space.  We do all of our picking by hand so we don’t have any expenses yet in terms of harvesting equipment, which is a significant expense for larger farms.  Luckily for us, our family owns some land so were able to put money we would have needed to purchase land into the trellis system and plants. And we are still expanding every year at this point so we really haven’t grown out of the startup expense phase yet.

What are the day-to-day expenses associated with a hops farm?

During the growing season, the day-to-day expenses generally are fertilizer, fuel for the lawnmowers and weedwackers, rope for training the hop vines up, maintenance and repair of tools and trellis equipment, and beer for the family and friends that help with the work.  Once harvesting starts in late summer/early fall, there’s also the added expense for packaging equipment and running the freezer to store the hops once they’re packaged.

What special circumstances do you have to take into account when starting an agricultural business as opposed to any other business operation?

Really, the biggest factor you have to take into account in the agricultural business is the weather.  In 2009 for example, we had record rain in June and July in New England that slowed down growth during the early growing season and a few hail storms that could have been really detrimental to the plants.  Next year we could have a drought or a late frost, you never really know.  Hurricane season here on the east coast is a big threat to the plants and the trellis equipment, especially since hurricane season starts right around harvesting time.  A hurricane at the wrong time could wipe out an entire year’s harvest in one storm. Not only can the weather directly affect the plants physically, such as frost, but also indirectly, such as fungal spore distribution and insect hatch and emergence.

What is competition like amongst hop purveyors? How have you differentiated or branded yourself differently in order to become more competitive?

Virtually all of the hops produced in the U.S. used by the bigger breweries are grown on large farms in the Pacific northwest.  Recently though, a number of smaller hop farms like Ocean State Hops have been popping up in areas such as Colorado, the mid-west, and New England.  A lot of these smaller hop farms are teaming up with microbreweries to produce beers brewed with local ingredients or “wet hop” ales brewed with hops that have been harvested within 24 hours of being added to the kettle.  There are a few breweries around New England that grow some of their own hops, but there really aren’t many local hop farms in our area that can offer local hops or whole hops to be used in wet hop ales.  Because of this, we don’t have any competition in our area to speak of and are able to differentiate ourselves that way.

What is your sales strategy? How have you built a client base within the brewing industry?

Our sales strategy has been to make connections with local microbreweries and  homebrewers interested in brewing with locally grown, fresh ingredients.  We’ve been in contact with a few local breweries that are pretty excited about making beer with locally grown hops.  The advantage of dealing with local breweries is that they will take a large quantity of the harvest in a short amount of time which means less packaging and storing on our end.  We’re also big proponents of supporting local farms and businesses so it’s great when a local brewery and farm can collaborate for a quality product like beer brewed with local ingredients.  Being homebrewers originally, we’ve also  enjoyed building a client base with homegrowers.  Since 2009 was really our first substantial harvest we wanted to get our name out there and get some feedback from homebrewers so we have had a promotion going on since November where we are giving away our hops to homebrewers that contact us.  All that we ask in return is that they use our hops to make beer and fill out a questionnaire afterwards about how they liked the hops.  So far we’ve gotten great responses from some pretty excited homebrewers.

How did you select your hop-growing real estate? How much space is required for a profitable hop farm?

Since our family already owned farm land in Rhode Island, the location for our hop farm was a pretty easy decision.  It’s actually worked out great because there are some smaller hop farms in northern New York and Vermont that we’ve heard of but none in the southern New England area so we are able to offer a pretty unique product.  For the smaller hop farms like ours, about one acre is generally the minimum size required for running a profitable hop farm.  Most of the smaller farmers we’ve talked to are growing anywhere from 1 to 5 acres of hops.  Beyond that you start to need some pretty substantial harvesting equipment and room for drying and storage, and anything less than an acre doesn’t produce enough of a harvest to offset start-up and operating expenses.

What type of agricultural/horticultural knowledge did you have going into this?

We both have a pretty good background in agriculture and horticulture.  Joel (the other founder) grew up on a farm and we both worked our way through high school and college at local farms.  We also have degrees in soils and horticulture, so from a general farming standpoint we had a good background.  Hops are a pretty specific crop to grow though so we had to do a lot of research into growing their habits and requirements, general pests we would have to contend with, and things like that.  Since there aren’t any hop farms in our area either we have been growing trials with different varieties to see which would grow well in our area.

What mistakes have you made en route to where you’re at now? How have mistakes helped improve or streamline operations?

Luckily we’ve been patient and have been able to use a trial and error approach.  Instead of buying 100 plants of a certain variety we have bought 5 to 10 and done trials to see if our local environment and conditions would be adequate for that variery before investing in large quantities.  Same goes for the materials needed for the farm.  For the trellis system, for example, we started with a small system to see how it worked before we set up the permanent trellis.  Using this trial and error approach we can easily observe the positives and negatives of our system and tweak it as needed to make it easier on us and the production.

Thanks again to Matt from Ocean State Hops and make sure you check out their website here.