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Craft-Brew Makers Share the Recipe for Success

WSJ-Craft Brew Makers_01-27-15Talk about a beer buzz.

America’s craft brewers are riding a wave of success: ever-expanding craft-beer sections in supermarkets, craft-beer festivals in most major cities and even university programs in the art and business of making craft beer. In 2013, sales from craft brewers hit a record $14.3 billion-an increase of 20% from the previous year, according to the Brewers Association, a trade group. (The pace continued in 2014, with 18% growth through midyear, according to the association.)

Still, craft brewers face their share of challenges. Like many small businesses, they’re not big enough to benefit from certain economies of scale. Plus, they face challenges unique to their business, from dealing with federal, state and local laws governing the sale and production of anything alcoholic to fighting large-scale brewers for market share. (The major beer brands still control more than 90% of the U.S. beer market, as measured by volume.)

With that in mind, we asked three prominent craft brewers how their business came to be and how they rose to the challenge. Here’s what they had to say.

Odell Brewing Co., Fort Collins, Colo.

Number of employees: 107

Year founded: 1989

Annual sales: Company doesn’t release dollar figures but says it sold close to 100,000 barrels in 2014.

How the brewery came to be: Odell started as a family affair and remains so to this day. Doug Odell was a home brewer; his wife, Wynne, was a “bored banker” (her words). They pooled their beer-making and business skills and started the brewery with Corkie Odell, Doug’s sister, with an initial outlay of $135,000.

The trio felt confident that the college-town location of Fort Collins would provide a good base. But it wasn’t easy at first. “We had no distribution options other than delivering from our own Toyota pickup truck,” Wynne says.

A business challenge: The price of expansion is a big one, since breweries “are obscenely capital-intensive businesses,” says Wynne. A case in point: A new German-made brewing system, installed in 2013, cost Odell $2.5 million. But it was a necessary purchase because it allowed the brewery to ramp up production beyond 80,000 barrels, and Odell had already made a commitment to expand into the Texas market in 2014, almost doubling its customer base. (Odell Brewing is in 11 states in all.)

The plan for growth: Though the brewery is a mature business that has marked its 25th anniversary, the Odells still anticipate 20% annual growth in the near term. They are looking to add a new barrel room (barrel-aged beers are becoming hot) and bottling facility to keep up with demand.

Jack’s Abby Brewing, Framingham, Mass.

Number of employees: 25

Year founded: 2011

Annual sales: Company doesn’t release dollar figures but says it brewed 14,500 barrels in 2014.

How the brewery came to be: This is another family affair: Brothers Eric, Jack and Sam Hendler say they always planned to join forces in a business after having grown up alongside each other in their father and uncle’s packaged-ice company. “We knew we wanted to work together. The beer part came later,” says Sam. The trio benefited from Jack’s beer knowledge-he actually got a degree in brewing technology-and pooled $1 million of family money to open Jack’s Abby. (The name refers to Jack and his wife, Abby, but it is also a play on abbey, since some of the greatest brewers of all times were monks.)

Jack is the trio’s brew master, while Eric handles the business side and Sam takes charge of the sales. To complete the family picture, the business sources some of the ingredients in its beer from its 80-acre family farm, such as the pumpkins that go into the brewery’s pumpkin lager.

A business challenge: These days, it’s particularly hard for craft brewers to find the best hops (the flowers that impart that signature bitter taste to beer). Hops “need to be secured with contracts multiple years in advance,” says Sam-and that’s a major challenge when a business is expanding so rapidly that it can’t predict what supplies it will need down the road. Since its inception, Jack’s Abby is averaging 150% annual growth.

The plan for growth: The company would like to expand beyond its current small base of three states (Massachusetts, Connecticut and New York). “Ultimately, we see ourselves as a regional brewer” throughout the Northeast, says Sam.

The Commons Brewery Portland, Ore.

Number of employees: 7

Year founded: 2010

Annual sales: $845,000

How the brewery came to be: Founder Michael Wright was an IT project manager by day and a home brewer by night. But his beer-making obsession got the best of him, so he gave up his job and pursued his dream.

Mr. Wright started out by running the craft operation out of his garage and within a year, he was able to lease a 1,500-square-foot space and “become a legitimate small-production brewery,” he says. He admits his initial investment was minuscule compared with that of other brewers-just $85,000: “We had the minimum necessary equipment and space to produce small-batch beers..I didn’t have more [money] than that, so it just had to work.”

A business challenge: Being in the business of making alcoholic beverages typically means dealing with a three-tier distribution system that’s been in effect since Prohibition-as in the brewery sells to the distributor, who then sells to the retailer. The process adds a middleman to the equation to theoretically keep business practices in check and curb abuses.

But for craft brewers, it just makes things all the more difficult and costly, says Mr. Wright: “Getting product to market is complex.”

The plan for growth: Given that he purchased a $1.5 million building in June 2014 to expand the business and grew at a 30% clip in the past year, Mr. Wright feels that his trajectory is in place. He does plan on buying some new equipment in the next year. But he’s hesitant to do anything with the support of outside investors-or to sell The Commons altogether. “I’m enjoying this journey far too much to give it up,” Mr. Wright says.

Source: WSJ