An understanding of the business of producing perishable goods;Making a Mark in the Craft Alcoholic Beverage Industry
Craft rewards revolutionaries, those remarkable individuals who are never satisfied with the world as it is and fearlessly seek a better way. By playing to their own strengths and believing in themselves, some of these revolutionaries become leaders.
Two of craft’s earliest revolutionaries are today’s undisputed leaders of the craft beverage industry—Ken Grossman, founder of Sierra Nevada Brewing, and Jim Koch, founder of Boston Beer. They are the two remaining original craft pioneers who still own and control the companies they started. Grossman’s and Koch’s breweries are the top two craft producers in America. Yet it would be difficult to find two more different men. They are not close friends.
Grossman launched Sierra Nevada Pale Ale in 1981 in Chico, California, and it is today’s number-two craft beer brand. Koch launched his flagship Samuel Adams beer in Boston in 1985, and it is the number-one craft brewer in America. One man shuns the spotlight while the other is the consummate salesman. One is self-educated, and the other is an Ivy Leaguer. While no one is a success on their own, both of these brewers were the singular architects of their enterprises. Take a look at their varied pedigrees and you’ll find that, though different, they share a vibrant passion for the world that is craft brewing.
Get to Know Ken Grossman and Jim Koch
Ken Grossman dropped out of college to repair bicycles and then opened a shop for homebrewers in Chico, California, before building his brewery by hand from old dairy equipment he salvaged from junkyards. He put every penny he had into his brewery, which did not add up to a large investment. He and his now former partner did all the work themselves. Each of the many early expansions of Sierra Nevada—which needed to be undertaken constantly to keep up with demand for the beer—was a do-it-yourself job with Grossman holding the hammer. It was years of 12-hour days, seven days a week.
A quiet, self-effacing man, Grossman brewed Sierra Nevada Pale Ale with a skeleton staff and sold it by word of mouth. If people liked it, he figured they would tell their friends and they’d buy his beer, too. To this day, he does not buy time or space in national media. Building an environmentally sustainable brewery and providing extraordinarily generous benefits to his workers is a priority for Grossman. He is revered within the craft beer industry, although he maintains a lower profile than other brewers.
Starkly different in pedigree, Jim Koch was a Harvard MBA and Boston Consulting Group-trained entrepreneur with enough capital to believe he could conquer the beer world. Building a brick-and-mortar brewery seemed crazy to him when he could contract with existing regional breweries to make his beer. Koch saved money and still was able to brew as much beer as he could sell. That beer was consistent from the first batch, something no other early craft brewers could claim.
Koch made sales his top priority, getting Sam Adams into stores across the country. He built a sales force that remains the envy of the craft beer industry, and he supported them with national advertising in print and on television. A fierce competitor, Koch took a David vs. Goliath approach to Big Beer, happily slinging stones at the Big Beer companies from his earliest days in business. Other craft brewers considered him an equal opportunity offender. When he slapped “Best Beer in America” on his label after winning an early craft beer contest, he also made enemies within the craft ranks.
Both Grossman’s and Koch’s companies grew quickly in the years up to 1995 when Wall Street discovered craft beer and investment money started to flow freely. Koch took Boston Beer public that year, raising $86.1 million for a company with net income of $5.9 million on revenues of $151.3 million, producing roughly one million barrels of beer annually.
But there was a price to pay for his bravura. When Anheuser-Busch launched an aggressive national ad campaign slamming Boston Beer for brewing Sam Adams at industrial breweries in, gasp, Philadelphia, his fellow craft brewers distanced themselves from Koch. The whole craft sector lost steam, with sales hitting a plateau that lasted nearly a decade.
At the same time Koch launched his IPO, Grossman desperately needed $30 million to build a new brewery that could produce the 600,000 barrels a year necessary to sustain Sierra Nevada’s then double-digit growth rate. For two years, he talked with investors and considered launching an IPO himself. Ultimately, he rejected the idea of answering to outside investors. In 1997, he took out an expensive bank loan, severed ties with his partner and soldiered on alone.
That bet paid off. At the end of 2014, privately held Sierra Nevada Brewing’s revenues increased 25 percent to reach $250 million on 1.1 million barrels of beer, according to the company. That year, Sierra Nevada represented more than 4 percent of the overall craft beer market, according to IBISWorld analysts. Grossman opened a second brewery in North Carolina in 2014 to support national distribution of Sierra Nevada, and he revamped his main brewery in Chico, California, to increase production. The company produced beer with no sideline businesses.
Koch controlled the publicly traded Boston Beer Company and, by the end of 2014, owned many of the breweries he originally contracted to produce his beer. Boston Beer produced 2.5 million barrels of beer and commanded 18 percent of the American craft beer market in 2014, according to IBISWorld analysts. Koch created subsidiary Alchemy & Science to develop a network of microbreweries to give the company a foothold in niche markets. Boston Beer’s Angry Orchard Hard Cider became the fastest-growing product in that white-hot sector with 38 percent of the market in 2013. Today, with eight different ciders, Angry Orchard is the best selling hard cider brand in the country commanding 56 percent of sales, by volume.
To thrive in today’s craft alcoholic beverage business, you will need to bring brains, heart, and brawn to your venture, one package with everything these two revolutionaries had individually. While your entrepreneurial personality may trend one way or the other, it’s perfectly fine to identify with individual parts of each of these brewers’ stories. So what if you didn’t go to any Ivy League school? Who cares if you start in a basement or a converted office space? What matters is how you take those small identifiers in your own story and work them in your favor. You will need to find partners who have those qualities and skills you do not possess. You are jumping onto a very fast-moving train.
There is no time to learn on the job these days. You may not need specific credentials, but you need to come to craft with enough business savvy to stay ahead of the throngs of other newcomers. Ask yourself, do you and your partners have:
An understanding of the business of producing perishable goods;
Detailed knowledge of alcoholic beverage production processes;
The marketing savvy to stand out from a boisterous crowd of competitors;
The legal skills to navigate byzantine federal, state, and local regulations;
The physical strength to shoulder labor-intensive tasks;
Access to a minimum of, respectively, $250,000 to open a brewery, $2.5 million to open a distillery, and an apple orchard to launch a cidery?
If the answer to any of these is “no,” it may be useful to do a bit more legwork in terms of familiarizing yourself with the craft world. If the answer to all of these is “yes,” then close your eyes and get ready to take the leap. You’re on your way to a life in craft.
Vision and stamina are the hallmarks of a successful entrepreneur. In the craft business, character counts, too. The people really do make the business, and you’ll find that marketing your brand often means marketing yourself. Craft producers are self-motivated strivers who take devotion to producing high-quality specialized products to extremes. To compete, consider if you can be:
Fearless when you face far better equipped and educated competitors;
Steadfast in your vision despite failures and disappointments;
Honest about your product and transparent in your operations;
Devoted to your customers and able to honor their loyalty.
These are the hallmarks of the entrepreneurial craft spirit. Be honest with yourself about whether they are also the hallmarks of who you are as a person. Identity is everything in this business, so know yours well.
Craft exists as an alternative to industrial production. Craft producers sell more than their own products; they sell the idea that craft offers a better way forward. These are insular craft communities populated with idiosyncratic folks who may have gravitated to craft because, well, they didn’t really fit in elsewhere. Do you have:
The generosity to embrace the craft beer tradition of supporting craft competitors;
The forbearance to wait for craft distillers to establish a meaningful code of ethics;
The curiosity to learn absolutely everything about your corner of the craft world;
An appreciation for obsessive-compulsive colleagues who actually do know it all;
The wisdom to see the coming ethnic and gender integration of craft?
Starting to see a pattern here? If so—then great. That’s because there is one. Though everyone involved in the craft business brings a unique entrepreneurial story to the table, each has his or her own approach to the application of it to everyday business.
In addition to evaluating your strengths and weaknesses, it is important to define your business goals. For some people, the goal is the freedom to do what they want when they want, without anyone telling them otherwise. For others, the goal is financial security. When setting goals, aim for the following qualities:
Specificity. You have a better chance of achieving a goal if it is specific. “Raising capital” isn’t a specific goal; “raising $10,000 by July 1” is.
Optimism. Be positive when you set your goals. “Being able to pay the bills” isn’t exactly an inspirational goal. “Achieving financial security” phrases your goal in a more positive manner, thus firing up your energy to attain it.
Realism. If you set a goal to earn $100,000 a month when you’ve never earned that much in a year, that goal is unrealistic. Begin with small steps, such as increasing your monthly income by 25 percent. Once your first goal is met, you can reach for larger ones.
Short and long term. Short-term goals are attainable in a period of weeks to a year. Long-term goals can be for five, ten, or even 20 years; they should be substantially greater than short-term goals but should still be realistic.
The most important rule of self-evaluation and goal-setting is honesty. Going into business with your eyes wide open about your strengths and weaknesses, your likes and dislikes, and your ultimate goals lets you confront the decisions you’ll face with greater confidence and a greater chance of success.
Grossman and Koch live the craft creed of supporting their fellow craft producers. Both have established mentorship programs that provide training and opportunities to fledgling craft producers. They believe their own success is enhanced when other craft producers succeed. They open their breweries to tours and put freshness stamps on their products because they believe consumers should be guaranteed the best quality they can offer. They share what they have learned with the rest of the craft community because it speeds the growth and development of the sector. A rising tide lifts all boats.
Ken Grossman: Be Nimble, Be Smart
The “no failure” days are coming to an end with so many new producers jumping into the craft market. Failure can happen, and success is not a foregone conclusion in craft. According to Grossman, you will need to think fast and move quickly. Heed the words of one of the businesses’ craft masters:
“Craft breweries are beginning to compete with each other on price, which has never happened before. Only the large craft brewers can afford to play that game. The national tier of craft will continue to grow, but I don’t see room for dozens of brands.
“The majority of new breweries are very, very small, or they are brewpubs. At that size, they can scrape along for a long, long time. But there will be casualties, not tomorrow but two years from now. It isn’t sustainable to have two new breweries open every day.
“Distribution is a challenge. There is a lot of consolidation among beer distributors, shelf space is limited, and the market is crowded. Self-distribution is a rational option for a new brewery in the right community, but it is limited.
“In the early days, we could expand pretty easily without someone on the street selling for us. That’s no longer true. Distributors want you to spend money marketing and provide sales support or they won’t handle your beer. You cannot start now without a decent marketing plan, unless you are a stealth brewery with cache. There are not a lot of players like the 10,000-barrel Russian River Brewing Company (http://russianriverbrewing.com) making Pliny the Elder.”
Big Beer is a fierce competitor with a lot at stake. Never forget your beer must taste great. You have to be better than Anheuser-Busch, always one step ahead of the big guys. Koch says one of the best ways to do that is to unite with other brewers.
“Life is a whole lot better if you respect and enjoy the company of your peers and colleagues. Embrace your fellow brewers with magnanimity. We will succeed together or not at all. We need to focus on growing the overall craft market.
“We should expect vigorous, effective competition from big brewers. They are good at what they do. They know how to deliver refreshment. When it comes to marketing, none of us can afford to compete with what they do. When AB went after us in 1996, we got kicked out of dozens of AB wholesalers. They launched an advertising campaign attacking me personally. I couldn’t afford to take them to court. The Better Business Bureau stepped in and made them stop, but the damage was done. The whole craft category stalled. Would they do it again? I don’t know. I’m sure they want a piece of what we have.
“Don’t get caught up in the romantic image of craft brewing and forget about the beer. No one is buying your story. They buy your beer. Don’t take your eye off of quality. Direct sales to consumers are the model for new breweries. It preserves your margins.”
New Craft Brewers, Distillers, and Hard Cider Makers
To choose the right craft business for you, it helps to understand your options. Enroll in classes and learn more about each of the sectors. Discover what piques your interest.
“So many of these businesses are very, very small,” says Keith Lemcke, vice president of Chicago-based Siebel Institute of Technology (www.siebelinstitute.com) and marketing manager for the World Brewing Academy (http://associate.wba-online.com). While the failure rate is effectively zero, becoming a craft producer is more costly and competitive than it was five years ago. “People come to us to start their careers. They are in their mid-20s and want to get their foot in the door by gaining some experience.
“Siebel has the highest enrollment we’ve had in our 140-year history. Our students are more driven, study more seriously, and their level of enthusiasm is higher with a clear focus on artistic expression and technology. Ten years ago, brewers had to hire people who offered little more than enthusiasm. Today, they can hire people with proper training.”
Hard cider is such a small sector, and growing so incredibly fast, Siebel doesn’t see many people willing to take the time to sit in a classroom. Distilling classes, however, are growing. It is a different crowd from the brewers, Lemcke says. “You don’t find the need to share that you find in brewing.”
All craft production operations create opportunities for tourism. Brewpubs, in particular, can change the nature of a neighborhood. So there is a premium on people who are outgoing enough to build connections with their communities. This comes more naturally for the brewers than the distillers, who tend to be more independent, more cerebral, says Lemcke.
“Homebrewers are 40-year-old white males,” says Larry Clouser, northwest sales manager for Brewcraft USA (www.brewcraftusa.com), a major supplier of equipment and supplies to homebrewers and the full range of craft alcoholic beverage businesses. “They turn their hobby into income by starting a brewery.
“The younger generation isn’t homebrewing. Their first beer was probably a craft beer, and they are going straight to starting a brewery. The ones who think there is money in beer will quickly learn the hard way that this is not a ‘get rich quick’ business. It takes blood, sweat, and tears to open a brewery. But there is opportunity in the South and Southwest, where craft breweries were slower to gain traction. Kansas, Missouri, Arkansas, Oklahoma; there is nothing much there yet.”
Across the board, craft producers are the same people, says Jake Keeler, director of sales with BSG CraftBrewing, a leading supplier to craft breweries, distilleries and cideries. “First and foremost, they are passionate about their particular beverage. They have a personal commitment to it and the community that surrounds it. They are believers and hold true to it. It has been overwhelmingly white men, but we’re seeing more ethnic diversity and more women. Craft comes out of a European tradition with a lot of manual labor, welding, cleaning, moving stuff around, electrical work. That’s all the nature of the beast. There are also a lot of artists and musicians.”
Interest in opening a brewery has never been higher, says Professor Emeritus Michael Lewis of the University of California, Davis, Brewing Science program. Classes in the brewery program he created are sold out through 2016. With so much competition, it will be harder to succeed, he says. “You have to have a business plan, to know why you are doing this project. The brewpub still has potential. The real opportunity is to train to be a top quality brewer, to be a valued employee at someone else’s craft brewery. That’s the ambition of many of our students.” For more information, visit https://extension.ucdavis.edu/areas-study/brewing.
If you are interested in the beer business, homebrew some beer and get a feel for the process along with some expertise. Short of taking classes at one of the many state universities now offering master brewing programs, or enrolling at the Siebel Institute in Chicago, pick up a copy of Charlie Papazian’s, The Complete Joy of Homebrewing (Harper Collins, 2014). For more information, check out Papazian’s second volume, The Homebrewer’s Companion: The Complete Joy of Homebrewing, Master’s Edition (Harper Collins, 2014).
Distilling dreamers, in a perfect world, would buy a small still and experiment in the backyard. Unfortunately, it’s illegal and dangerous. But it is the time-honored way to learn the ropes. Start by picking up a copy of Colin Spoelman and David Haskell’s The Kings County Distillery Guide to Urban Moonshining: How to Make and Drink Whiskey (New York: Abrams, 2013). The founders of Kings County Distillery tell their story and provide detailed how-to instructions. They will help you avoid blowing up the family home.
For wannabe hard cider makers, make a press and home ferment cider. Volunteer to help a cider maker who produces quality cider. Artisan hard cider is easy to make, even if it is difficult to make well. Pete Brown and Bill Bradshaw’s World’s Best Ciders (Sterling Epicure, 2013) brings the story of hard cider to life with profiles of many modern masters of the craft.
Take classes. There are new brewing, distilling, and cider-making programs opening every day in community colleges, state colleges, and universities. Here is a list of some of the more established American schools with links.
American Distilling Institute Certification Program (http://distilling.com/resources/craft-certification/)
Appalachian State University, North Carolina, Fermentation Sciences Program (http://fermentation.appstate.edu/)
Better Beer Society University, Minnesota, Beer School (www.brownpapertickets.com/event/267722)
Central Michigan University, Fermentation Science (http://media.cmich.edu/news/cmu-leads-the-way-in-michigan-and-brews-up-certificate-program-in-fermentation-science)
Central Washington University, Craft Beer Trade Certificate (www.cwu.edu/ce/craft-beer-certificate)
Cicerone Certification Program (http://cicerone.org)
Colorado State University, Beverage Business Institute (http://biz.colostate.edu/bbi/Pages/default.aspx)
Colorado State University, Zymurgy Institute (http://colostate-pueblo.edu/Communications/Media/PressReleases/2012/Pages/2-6-2012.aspx)
Northwest Agriculture Business Center, Washington (www.agbizcenter.org/)
Oregon State University, Professional and Continuing Education and Fermentation Science (http://oregonstate.edu/foodsci/fermentation-science-option)
Paul Smith’s College, New York, minor in craft beer studies (www.paulsmiths.edu/academics/cala)
Portland State University, Oregon, Business of Craft Brewing (www.pdx.edu/cepe/the-business-of-craft-brewing)
Regis University, Colorado, Applied Craft Brewing Certificate (www.regis.edu/RC/Academics/Degrees-and-Programs/Certificates-and-Licensures/Certificate-Craft-Brewing.aspx)
San Diego State University, California, College of Extended Studies (www.ces.sdsu.edu/Pages/Engine.aspx?id=40)
Siebel Institute, Illinois (www.siebelinstitute.com/)
UC Davis Extension, California, Master Brewers and Professional Brewers Certificate
UC San Diego Extension, California, Brewing Program (https://extension.ucdavis.edu/areas-study/brewing)
If your community college doesn’t offer any craft classes, ask them to work with local producers to create one. Tell them to get with the program. It’s a moneymaker.