Monday, 01 October 2012 10:52

As Michigan breweries expand, industry sees opportunity for growth

Written by  Nathan Peck
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Chris Andrus and Max Trierweiler know good beer.

The childhood friends and home brewers are seeing two years’ worth of planning come to fruition as they prepare to open their sports bar and brewpub, Mitten Brewing Company on Grand Rapid’s West Side. As they put the finishing touches on their 55-seat restaurant, Andrus sees opportunities for small craft breweries as beer consumers become more discerning about what they drink.

”What’s unique about the craft brewing industry is that they don’t compete really at all. You’re not trying to undercut each other’s price point. Craft beer doesn’t pride itself on price – it’s quality,” Andrus said. “It presents unique opportunities for collaboration that you wouldn’t see in other industries.”

What was once a basement hobby for a dedicated few now has many in the state viewing craft brewing as an economic engine for the state.

The growth of the craft beer industry is outpacing that of the rest of beer industry. Craft beer sales grew 13 percent in 2011 compared to an overall 1.9-percent decline within the beer industry as a whole, according to data from the U.S. Brewers Association. Michigan’s craft beer industry generates $133 million in economic activity, and the state ranks fifth in the nation in the number of breweries, according to the Michigan Brewers Guild.

There’s still plenty of room for growth as just three out of every 100 beers sold in Michigan are brewed in the state – half the national average, said Scott Graham, executive director of Michigan Brewers Guild.

”We are as a whole very healthy and are seeing great growth. Breweries have opened that I’ve never heard about,” he said. “I’ve not even heard that (some breweries are) in-progress, but they’re already open.”

With more than 100 brewers in the state, and a spate of new breweries opening over the next six months, Michigan’s craft beer industry has caught the eye of the state’s economic developers. Rick Chapla, vice president for business development at The Right Place Inc., said the organization works to help foster a healthy environment for brewers.

”We look at craft brewing as a form of food processing, which in reality, it is. Given the explosive growth that many of those companies are experiencing ... it is a segment that has diverse workforce needs,” Chapla said.

Chapla sees heady times on the horizon for the industry and views Perrin Brewing Company, which opened in Comstock Park in mid-September, as emblematic of that growth.

”I’m mightily optimistic about its opportunities for success. They have an outstanding variety of beers,” Chapla said. “What started as a conversation three years ago has now grown into a multimillion dollar investment.”

It’s not been all sunshine and smooth sailing. Amid the flurry of new activity as breweries such as Mitten Brewing Company, Our Brewing Company in Holland and Perrin Brewing open their doors, there have been casualties. In June, the assets of Michigan Brewing Company were auctioned off after the company defaulted on its debts, after a string of legal troubles dating back more than a decade, according to reports by the Lansing State Journal. Grand Rapids Brewing Co., shuttered since 2011, is being resurrected by Mark Sellers and will open near his other properties along Ionia Avenue in late 2012.

“It is unfortunate that a few breweries have gone out of business, but I don’t know we’ve ever seen this many openings,” Graham said.

The closing of Michigan Brewing and Grand Rapids Brewing – and the recent sale of Hideout Brewing Co. to Scott Colson and Nick Humphrey – is an indication of volatility within the industry, said Dan Slate, principal with H&S Companies, a CPA and consulting firm. That investors like Humphrey – who helped found Michigan Beer Cellar in Sparta with his father Dan Humphrey – and Sellers are investing amid the volatility indicates a maturing industry, Slate said.

Slate helped found the Brewers Professional Alliance, a consulting service catering to the unique needs of the craft brewing industry. He said startups are still experiencing difficulty finding bank financing. Many of the new cadre of craft breweries are coming to the industry as a second or third career, bringing business acumen, but not necessarily the breadth of skills needed to understand the intricacies of sometimes arcane local, state and federal laws governing brewers, say nothing of the equity partnerships and other unique financing agreements necessary to get the beer flowing.

”Many have a lot of business savvy, but understanding the different types of financial instruments may not be the forte of many. Creativity is the key word,” Slate said.

Investors are beginning to take a look at the growth potential of the industry, and some brewers are looking at convertible divesture agreements to generate capital.

”There is a lot [of opportunity] out there, if you are creative,” Slate said. “You have to be mindful of how that will affect you down the road.”

The decision to get creative with financing was one of necessity for Kris and Jason Spaulding, one of the founders of New Holland Brewing Company.

The Spauldings opened Brewery Vivant in Grand Rapids in late 2010. In the midst of the credit crisis, bank financing dried up and the couple formed a private equity group to finance the project. Nearly two years later and with an expansion that brings Brewery Vivant’s capacity up to 5,000 barrels annually completed, Jason said the industry is growing due to an increasingly sophisticated consumer base.

”I have somewhat of an interesting perspective, being part of New Holland Brewing when we opened in 1997. The craft beer industry has changed very much since then,” he said. “In the five-year window I had been away (from the industry, between 2005 and 2010), it’s amazing how much the consumer has changed. We spent a lot of time back then explaining to people what pale ale is. Now, fast forward to 2010 to 2012, we are able to do a brewery that specializes in French and Belgian beers. The consumer is much more informed and that drives stores to do more with local brewers.”

While the Spauldings took the approach to remain small, on the other end of the craft beer spectrum, Bell’s Brewing Inc. recently completed installation of a new 200-barrel brewhouse in its Comstock Township brewing facility. The state’s largest craft brewer is on pace to brew 220,000 barrels in 2012. The company also recently set its sights on local sourcing of its ingredients, having recently purchased an 80-acre barley farm in Stafford, Mich., near Mount Pleasant. The barley, once it is malted, will make up a tiny portion of the total malt used by the brewery, but will go into Bell’s Christmas Ale, Harvest Ale, and its revamped Pale Ale, which is to be rebranded as Midwestern Pale Ale, said Laura Bell, Bell’s Brewing marketing director.

”We’ve learned a lot of things with our involvement with the American Malting Barley Association. That is one thing, [but] it is another to own a farm, learn how to grow barley, [to understand] how that impacts the quality,” Bell said.


Three breweries, three different approaches to growth


Laura Bell
Bell’s Brewing Inc. has been on a tear of late, realizing 20-percent annual sales growth in recent years, creating challenges and opportunities for the nearly 30-year-old brewer. “As we continue to grow, one piece becomes like a waterfall. We expand in one place and see impacts in another,” Bell said. “We haven’t opened any new states recently. Our focus is to keep supplying the states we do, then maybe we’ll start thinking about other states. We’ve really grown organically. We’ve looked at what production can bear, what sales can do. Our main goal is growing orders, but there is a little bit of concern about growing too large too quickly. We are taking the growing thing one year at time.”

Jason Spaulding
Brewery Vivant was founded with the goal of remaining small. Yet tremendous sales growth has meant that the brewery was able to double its brewing capacity to 5,000 barrels annually, meeting a five-year growth target in less than two years. Spaulding has no plans to expand beyond that capacity. “We planned that in four or five years we would add new equipment and get to the 5,000-barrel mark in five years. We got a much better, stronger response than we thought we could have. We are ahead of our business plan,” Spaulding said. “We are not looking to grow beyond what we have in house now. Now we have the ability to make the beer, the question is what brands to concentrate on. It doesn’t bother us to have that end in mind.”

Chris Andrus
Mitten Brewing Company is first focusing on its brewpub over building its distribution network. That hasn’t stopped Andrus and partner Max Trierweiler from developing a relationship with B&B Beer Distributors, a Grand Rapids-based company looking to grow its craft brew portfolio. The relationship has borne early fruit – Mitten will supply beer to the Fifth Third Park for West Michigan Whitecaps games. “Distribution really isn’t in our immediate future – it is such a lower margin thing than selling it in a pub. Once we reach maximum capacity in pub, then we’ll look to expanding our capacity,” Andrus said. “Our goal was to get a few key accounts, then increase penetration eventually. B&B came to us as their craft beer portfolio isn’t really that deep. We wanted to go somewhere where we will be highly visible.”


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