In 2012, Cigar City Brewing was finishing a year of 77% growth, selling about 17,000 barrels with a plan to get to at least 50,000 in 2014. While the brewery continued to invest in itself and employees, the plan to achieve such an ambitious goal wasn’t to order a bunch of stainless steel, but a new partnership.
In May 2013, Cigar City began supplementing its own brewhouse by contract brewing at Lakeland, Florida’s Brew Hub, then a new facility geared toward providing large-scale production batches for breweries in need of extra capacity. A reported five-year contract to produce 20,000 BBLs a year would allow the Tampa brewery to meet a continuously-growing demand by shifting brands like Maduro Brown Ale and Hotter Than Helles Lager from Tampa to Lakeland.
“Our approach is to be prolific, to make lots of different beer,” founder and CEO Joey Redner told the Tampa Business Journal at the time. “But if 50 percent of my fermentation capacity is dedicated to Jai Alai (IPA), that limits what I can do. We still want to make new beers on a whim. We need to have that playground where we can have fun.”
This path has become more well-worn for many breweries looking to make such a jump from “local” to “regional” status. Despite Brewers Association-member breweries only using just more than 60% of their capacity on average, large contract brewing facilities like Brew Hub are flourishing, offering 100-barrel batch sizes, state-of-the-art quality control, and most importantly, cost savings. Instead of investing in their own tanks, breweries essentially pay to “rent” others—an easier way to increase overall production numbers to sell on the market.
Two years ago, “you had banks and equity guys climbing all over you to build a brewery and buy a canning line,” says Tim Schoen, CEO of Brew Hub. “That’s not happening anymore.”
Instead, businesses are embracing a similar path that has taken place in countless other industries: one of efficiency.
“There are definitely components that we can do in a much more cost-effective way,” says David Avram, CEO and co-founder of Chicago’s Great Central Brewing Co., a contract brewing facility that makes minimum 100-barrel batches for partner breweries. “Some clients are using 20% less malt to get the same yield as a batch from their system. We’re giving freedom to clients to allocate resources to other components in their business so it’s not just millions invested in equipment. They can pick things that will grow their brand, not just production.”
At Great Central, like Brew Hub and others, the 100-barrel batch is a typical starting point, and Avram says the company has worked with a variety of brewery sizes, “from 1,200 to 12,000.” A current lineup of partners includes hometown beer makers like Maplewood Brewing and Begyle Brewing, as well as Pennsylvania's Funk Brewing and the 3 Floyds/Mikkeller collaboration, WarPigs. The beers range from a Blonde Ale and Pilsner to Hazy IPA.
The pitch to potential clients can circle ideas of cost saving and efficiency, but the project hasn’t been cheap for Avram. After a $10 million initial investment for real estate, equipment, and to staff up, he's putting another $1.2 million into a new expansion to double volume capacities. Great Central has 10 active clients at the moment, with expectation of adding at least three or four more this fall.
“The cost of brewing equipment and real estate certainly hasn’t gone down in the last 10 years,” Avram says. “We take the risk off the table for people.”
Companies like this also present a unique opportunity. It’d be hard to find other partners that could brew the scale needed for something like Stroh Brewing's Perseverance Session IPA, a Michigan-only, hop-forward beer made for the legacy brewery at contract facility Brew Detroit. The contract company has total capacity of 80,000 BBLs and currently serves seven clients ranging from Stroh's to Greenbush Brewing, Lake Brothers Beer, and Kid Rock's own Badass American Lager.
“The most frequent customer we see is the one that has grown a flagship brand to the point where it’s overwhelming their entire operation and they can’t do the things they want to with one-offs or brand and style extensions,” says Joe Thorner, brewmaster and operations director at Brew Detroit. “It’s a good problem to have, but can inhibit creativity and business growth.”
Whether straight contract brewing or an alternating proprietorship, which allows a brewer from a partner company to actually use equipment to brew, Brew Detroit’s benefit can easily come back to cost efficiency. Two years ago when Greenbush was making about 10,000 BBLs a year, co-owner Scott Sullivan told MiBiz he wanted to start an alt-prop to avoid taking on a debt load and more easily enter new markets without straining his own capacity.
“Now, we’re able to put a bunch more beer on the street and the margin is still good on it,” he told MiBiz. “It allows us to bank money and sit back and decide how big a system we might want to eventually put in for ourselves and build capital.”
Both Great Central and Brew Detroit also tout an ability to help breweries stay on trend through packaging equipment like canning lines and quality assurance, two areas of investment that may not come right away for start-up businesses.
But for as much runway as these large-scale contract brewers have seen, there’s still external reasons to consider growth trajectories. Great Central and Brew Detroit benefit from being focused on breweries in their own cities or states, but Brew Hub, one of the leaders of this new wave of contract facilities, has adjusted its once-ambitious plans for a national network of locations.
When first announced in 2013, Brew Hub expected to spend $100 million to build five production spaces across the country through 2018. As craft’s growth has slowed to single digits in recent years, Brew Hub leadership re-evaluated expectations. Fittingly, the company did what so many craft breweries have chosen to do: focus on own-premise sales through a taproom.
Along with its 100,000-barrel brewery in Florida, Brew Hub recently opened a taproom and restaurant in St. Louis in lieu of a $20 million production space.
"The thing that has changed is the economics," says Time Schoen, a former Anheuser-Busch exec who acts as CEO for Brew Hub, noting that 100,000-barrel regional or national breweries are "becoming fewer and farther between" among companies now. "We had to pivot."
So along with 16 breweries who have contracted beer in Florida, including Toppling Goliath and Orange Blossom Brewing, Brew Hub will serve partner beers in St. Louis, many of which have never been available in the market before. On top of that, Brew Hub has had success with its own brand of beers, which includes Rome City IPA, which won a gold medal in the Session IPA category at the 2017 Great American Beer Festival.
In essence, Brew Hub has embraced the idea of vertical integration, running its large-scale production facility and also finding ways to connect directly with customers. It’s a familiar refrain echoed by many other breweries, except when you hear about future plans. The company won’t be building its state-of-the-art facilities, instead opting to eye potential failures they could purchase for what could amount to turn-key operations.
“Once we are maxed out at Florida, then we can do something to get expansion in a key region we had in our plan from day one,” Schoen says. “But the days of me building from scratch will not happen again because there are so many [breweries] that could default. Some brands have gotten soft.”
Schoen emphasized that’s not a predatory point of view, but rather the acceptance of the state of the industry. It doesn’t hurt that Brew Hub is backed by Yucaipa Companies, which is run by billionaire Ron Burkle.
Taken together with the success of Great Central and Brew Detroit, it's clear that what is working for small breweries could work for these large ones with a very specific niche. If they focus efforts on locality or at least take patient growth, there’s bound to be some ambitious brewery looking for some help.
“We’ve proven that by spending the right money on the right process with the right people can work,” Schoen says. “We’ve broken down that barrier of contract brewing as an evil or ugly term.”
On the Dotted Line, Pt. 1 — Contract Brewing Sheds its Negative Reputation
On the Dotted Line, Pt. 2 — Contract Brewers Find Their Own Home
On the Dotted Line, Pt. 3 — Big Contract Breweries Grow as Industry Slows
On the Dotted Line, Pt. 4 — Details and Fine Print with a Former Contract Brewer