Posted: September 01, 2012
Colorado craft brewers are independent by nature
New Belgium founder says the industry is bound for consolidationBy Mike Cote
The decision by Molson Coors and SABMiller in 2007 to merge their U.S. and Puerto Rican operations to better compete with Anheuser-Busch represented a watermark in the increasing consolidation of the brewing industry – and modified the moniker yet again of Colorado’s iconic brewer, which began operations in 1873 as the Adolph Coors Co.
That stands in stark contrast to the craft-brewing industry, where independence remains a badge of honor as strong as the high-alcohol content varieties these breweries champion. While the major players have made investments in boutique breweries, such as Anheuser-Busch’s $38.8 million purchase last year of Chicago’s Goose Island Brewery, the country’s 1,900 craft breweries tend to be owned by people who joined the business for the love of beer rather than money.
"I was a home brewer. It’s been my hobby and my dream to start a brewery," said Brian O’Connell of Renegade Brewing, a Denver brewery he founded with his wife, Khara. Renegade recently began canning its flagship brand, Ryeteous Rye IPA (India Pale Ale), for retail sale.
O’Connell, who says his last job involved research and statistics for an unrelated industry, financed his company thus far without outside help. "In the future, we’ll get to a point where we will need a large cash infusion. Whether that comes from a bank or a private investor, who knows at this point? For now, we’re happy that we’re doing well and that we have the money to do some expansion."
O’Connell was among a small group of Colorado craft brewers gathered recently on the rooftop bar of a Denver tavern when the Colorado Brewers Guild announced the results of an economic impact study. According to the University of Colorado Business Research Division, Colorado’s 139 craft breweries contribute $446 million annually to the state’s economy plus pay an additional $9 million to the state through a beer excise tax. Craft brewers create at least 5,800 Colorado jobs, the study reported.
"Statewide we’re seeing success everywhere. From Fort Collins down to Durango, breweries are growing. They’re adding jobs," said Steve Kurowski, who directs marketing for the trade association. "We’re adding construction, buying equipment. It’s a real significant industry. No question about it. Craft brewers represent about 4.4 percent of sales in Colorado, but we represent about 60 percent of the beer jobs in the state."
While those numbers might sound impressive you need to look beyond them to get a clearer view of Colorado craft brewing. Of those 139 breweries, only a handful produce enough volume and have strong enough distribution to be on their way to becoming regional or national brands. Fort Collins-based New Belgium Brewing – the nation’s third-largest craft brewer behind Boston Beer Co. and Sierra Nevada Brewing Co. -- distributes its beers in more than two dozen states. It recently announced plans to build a brewery in Ashville, N.C., to be able to increase distribution on the East Coast.
New Belgium CEO Kim Jordan, who founded the brewery in 1991 with her then husband, Jeff Lebesch, has nurtured a company culture that champions environmentalism and social responsibility while keeping a steady eye on profits. Upon their first anniversary of employment, workers receive an ownership stake in the company and a cruiser bicycle, which celebrates New Belgium’s flagship brand, Fat Tire. Upon their fifth anniversary, employees travel with Jordan to Belgium, the inspiration for the company’s eclectic brews.
While Jordan oversees a company known for its maverick nature, she says consolidation in the craft brewing industry is inevitable as the founders of breweries who have been in the business up to 25 years begin reaching their 50s and 60s.
"They’re going to say at some point, ‘I’m trying to figure out how to get out of this,’ whether that’s through acquisitions or a strategy to pass it down in the family. There will be straight-up strategic buyers," said Jordan, who said it’s "reasonable to assume" that about 30 percent of microbreweries will choose an exit strategy in the years ahead.
That’s not the song Kurowski of the Brewers Guild was singing upon the release of the impact study.
"I don’t see too many of these craft breweries joining forces or merging together. They’ll share ideas, and we’ll build as an industry. But I don’t see too many of these breweries selling out to big corporate breweries or even merging together," he said. "They all have their own plans, their own direction, their own way they want to go. And they’ll stick to that."
That largely has to do with the people who are drawn to combine Colorado’s high-quality water with hops, malted barley and other ingredients to create original brews that excite the palette more than the corporate varieties do.
"We have ex-rocket scientists and IT (information technology) directors. We have people who are overeducated," Kurowski said. "They come to beer because they love this, and they have a true passion. Nobody is in the craft beer industry without loving craft beer. And that’s what makes us stand above any other industry around. These people are in this for life. This is what they want to do for a long, long time."
You could count Dale Katechis, founder of Oskar Blues, among those likely to be in the business for life. Katechis founded the company 15 years ago as a restaurant in Lyons. Two years later, the restaurant began serving Dale’s Pale Ale, a hops-rich bitter brew Katechis first began making in his bathtub in college. While Katechis says his company is five times smaller than New Belgium – it was ranked No. 29 last year among the top 50 craft breweries in the country – Oskar Blues’ brands are distributed in about the same number of states.
Katechis, who owns 100 percent of the company, also has considered building a plant in the Northeast and once considered North Carolina as a possible expansion destination. Oskar Blues, which pioneered the idea of putting microbrews in a can, built a brewery in Longmont a few years ago, where it also operates a second restaurant nearby. Revenues were up 43 percent last year, and Katechis says they’re on track to hit as high as 70 percent this year.
That is in line with the craft brewing industry as a whole, which has marked gains throughout the recession while overall sales of beer in the U.S. has remained flat or declined. The craft brewing industry grew 13 percent by volume and 15 percent by dollars in 2011, according to the Brewers Association, the national trade association based in Boulder that organizes the Great American Beer Festival every year in Denver. Beer sales overall decreased 1.3 percent.
And the craft brewers have done this through selling a product that retails for about 30 percent more than large-production brewers. A six-pack of Dale’s Pale Ale typically retails for $9 to $10. Oskar Blues, New Belgium and other craft brewers also produce four-packs of specialty varieties, some packaged in 16-ounce rather than 12-ounce cans, that typically sell for a several dollars more.
"We’re very strict that the margins are healthy, and those margins help provide jobs and growth," Katechis said during an interview at the company’s Longmont headquarters. "I think the easy way out is to dump price and sell more, but I don’t think that it is a long-term solution for any healthy company."
Katechis says consolidation in the craft beer industry will occur naturally, but it’s not something he’s contemplating.
"I still enjoy coming to work every day. An hour before I got here I was on my mountain bike. I love being able to write my own schedule and come to a place that is fun to work and provide opportunity for our employees," said Katechis, who employs 230 people. "We recently started some profit-sharing plans and some aggressive 401(k) plans and health and dental insurance. My goal is to continue to add things in the bank for our staff so that I can retain good people who enjoy what they do."
Craft brewers are evangelical in their love for rich, full-bodied beers and enjoy creating converts. Tim Myers, who co-founded Strange Brewing Co. with fellow Rocky Mountain News information technology worker John Fletcher, laughs when he talks about luring football fans to the brewery from nearby Sports Authority Field after Denver Broncos games. When patrons ask for something "light," Myers introduces them to Farmhouse Ale, an 8.5 percent alcohol Belgian "saison"-style brew.
"Football season is a good time for us. I wasn’t going to write the business plan around 10 Sundays a year," Myers said. "But we get a lot of crossover – there are a lot of Bud Light drinkers who are drinking a lot of Farmhouse now.’
Strange Brewing has no plans to can or bottle its beers. Myers and Fletcher, who take turns spending time behind the bar at night after brewing beer all day, struggle just to meet demand at their draft house, where they produce about 300 barrels a year. (One barrel equals 31 U.S. gallons.)
"People meet the brewer and talk to the brewer. They’re asking questions about the beer that they’re drinking," Myers said. "But putting in a six-pack? That’s a lot of extra work. We’re pretty tiny. We’re only 1,700 square feet. To put a canning line would cost more than what we opened with. Maybe down the road, we’ll talk to a couple of our neighbor brewers … and all go in and start canning together. But right now, we’re doing all we can to supply the demand in pints."
That’s a problem Danny Wang would love to have. The co-founder of Caution Brewing Co., which after a year in business opened a tap room in May, was inspired to found the Denver brewery with his fiancée, Betty Fey, after they toured the New Belgium plant.
"What I really find interesting about the craft brew business and the reason we got into it is because there’s a symbiotic relationship between all the brewers," said Wang, who began brewing Asian-style rice beers to complement dishes at his parents’ restaurant, Lao Wang Noodle House. "Except maybe for the big guys, no one is out there to take each other’s market share. … Our challenge has been finding our niche, finding the people who really love what we do, sticking to our guns and brewing beers that we love to drink."
Among Cautious Brewing’s varieties is a brown ale brewed with wildflower honey produced by a farm in Erie just a few towns away – typical of Colorado brewers’ penchant for buying locally grown ingredients and working with local vendors to build fermentation tanks and canning or bottling systems.
Wang hopes to soon be bottling or canning his brews for retail sale. For now, he enjoys being able to self-fund the operation.
"I’m a big fan of not having to do the investor thing. At some point I know we will. At some point we will need capital to grow," he said. "We have a five-year plan to make things big, and so far we are right on track."
Great American Beer Festival turns 20
More than 450 breweries,
more than 2,000 beers.
Denver becomes a mecca for craft beer lovers every fall when The Great American Beer Festival rolls into town. The tasting competition and summit, which celebrates its 20th anniversary this year, is set for Oct. 11-13 at the Colorado Convention Center. The event attracts nearly 50,000 people and typically sells out weeks in advance. Check www.greatamericanbeerfestival.com for ticket information and an event schedule.
Mike Cote is the former editor of ColoradoBiz. E-mail him at firstname.lastname@example.org.