In June 2014, Graham MacDonald and Matt Humbard launched Handsome Beer Co., a contract brewing business that would serve Washington D.C. and nearby areas. After a run of more than two years, and with a little profit in their pocket, the pair decided to end the company in December 2017. MacDonald returned to a career in restaurants and Humbard works at the FDA.
As part of our series on contract brewing—read parts one, two, and three—MacDonald spoke with GBH about what it was like operating his business, which ultimately wound up taking on a larger role in his life than expected, part of his reason to step away.
“It was romantic,” he says, reflecting on the effort. “Having this creative process and making a really good product and doing something cool for the city.”
[The following interview has been slightly edited for clarity.]
Why start a contract brewery in the first place?
My thought process was, in a lot of ways, "I want to be involved in the craft beer movement. I know a lot about craft beer." I had a reasonably good network in D.C. to sell the product, and the question on my mind was, "How can I have a brewery if I don’t have the money to open one?" I had been beer director/manager at 2Amys Pizzeria, and one of the brands I was buying super regularly was Stillwater. We had that stuff on all the time and it helped me think I don’t need to buy real estate or tanks. His stuff was really, really good.
You had the inspiration, but what did you actually have to do to start the business?
We ended up talking to 20 breweries. What was in my head at that time, and even more the case now, with all the breweries opening and all the competition in the marketplace, [was that] there aren’t that many at full capacity. When we talked to the owner, brewmaster, or whoever, the vibe I got from a lot of people felt to me like they viewed the situation as not wanting to help the competition. Like, "If I’m going to [contract brew], I’m going to charge you full price so you’re paying for beer at wholesale price." I’d say 25% of folks seemed totally legit, stand-up people, but a huge number were not at all interested. Even if they’d sit down for a meeting, it seemed like the question in their head was, “If I sell to a keg to a distributor for $100, can I sell one to this guy for the same price?”
It seems like, even though the barrier of entry was low, budgeting was still really important.
We each put in $40,000 knowing it wouldn’t take that much to get things off the ground. But if things took off and we needed more money, we’d be OK. I don’t think we ever dipped below $50,000. Regulatory stuff and various permits and bonds were really annoying. We had to get two different bonds for Maryland, where we were licensed, for $1,000 and $5,000. Microstar kegs were $7,500. We were buying ingredients for batches. I think that, depending on state regulatory laws, one could start a contract brewery with around $25,000.
From a marketing perspective, I don’t think anything was too difficult. Any time somebody talked about opening a business, friends and family are like, "Oh my god, that’s awesome" Everyone’s very positive. When you say you want to open a brewery, everyone is super positive because it sounds like so much fun. So we had good support, and on top of that, I spent a pretty good amount of time attempting to get the word out to various publications. I sent a lot of emails.
What I didn’t want was for us to release beers and nobody had heard of us. Even if you get articles in the paper and even if there’s chatter on local beer blogs, how many people are really going to hear about you? Hardly any. You also need word of mouth. For two months, I was doing something every day for it. Looking into who I needed to contact, drafting emails, talking to a friend in PR for advice.
At this point, you haven’t even started selling beer yet. What was it like to actually go to market?
When we launched, I did an event every day for two weeks in D.C. and Maryland. That’s when I ran into one major problem we discovered after about one month or so. When we first released, I wanted to hit a price point for sixtels. We were only selling kegs, no cans, which I didn’t really see any problem with. We were selling for $114, which would give us a decent amount of profit and I felt would not hit a threshold of being psychologically too expensive in the buyer’s mind.
To hit $114, we had to sell to a distributor at about $80, and at the time I came up with those numbers, DC Brau was the biggest local player by far. They had regular pricing of a half-barrel for $160-ish. 3 Stars were only sixtels at the time, and were starting at $150 and went up from there. Stillwater was actually at $120 and up from there. So to me, I’m like, "$114? No problem."
We had taken a broad look at the market, but most people in the product category I wanted to be in—selling high quality, artisanal beer—were charging those higher prices. To me, we were coming in beneath them, but in the couple months after our launch, I started getting so much pushback on price. I was doing a lot of business, visiting 10 accounts four or five days a week, but it was just not moving at a rate we initially expected, so we chose to drop the retail point from $114 to $99 and that made a big difference. We’d sell to a distributor at $70 and it turned out $99 was the actual psychological barrier for retail. It wasn’t necessarily a price that people are looking for the cheapest beer, per se, but the amount of time retailers had to spend being approached by salesmen, it was like, "Here’s another guy today." I’d literally go into places where there are three salesmen in front of me waiting to talk to the guy. Business was good, but I guess I expected more interest in local beer from people in D.C. and it didn’t materialize at the level I expected.
So, what did you do in that situation?
In a way, we shot ourselves in the foot with the business model by contract brewing. I underestimated how important it was to have a physical address. At craft beer festivals, I would bet you money that 99 out of 100 people asked, "Cool, you’re a D.C. brewery, but where is the brewery?" I’d tell them we contract brew, and then it’s just a misunderstanding. I’d say we’re "D.C.-based." A couple times I tried the Cleveland Park neighborhood, where I live, just to get through the conversation.
It was uncomplicated and financially beneficial the way we set up in terms of efficiency and minimal cost, but it made for a very challenging story to explain: "We’re based in the D.C. area, incorporated in Hyattsville, Maryland, we produce our beer in Warrenton, Virginia, and we’re sold through a distributor in Baltimore before shipped back here to D.C. And if you want to buy it, it’s only in sixtel kegs." It’s like, "What the fuck?" It was way too much.
Did that end up being a problem for the business?
We were profitable, which was nice. I walked away with more money than I started with, but at the end of the day, I found that the massive majority of my time was devoted to sales visits. Probably 50-60 hours a week doing just that. If we were making millions of dollars, I would have been OK, but I didn’t like doing that. I had expected the distributor to do a little more to pitch the brand or help explain the brand. Basically sell the brand. But every brewery now, if they don’t have their own sales guys making calls, their beer does not sell. I think that’s absolutely true. For us, there wasn’t quite enough money to hire a guy to do that.
I wanted the business to be more successful, but where it ended up, we were profitable, which qualifies as a success in my own head. We could have taken out a larger investment and built a physical brewery to springboard the brand when we had enough customer recognition.
You had some success, but perhaps not everything you hoped for, so what’s your impression of this corner of the industry now?
Contract brewing is a good foot in the door for somebody who’s really down to get started because the cost of entry is fairly low. It’s such an easy pitch to breweries because they’re not using tank space anyway, so they might as well get paid for it. That said, I wouldn’t recommend that anybody do it. Sales have gotten too competitive and it really helps to have a local, solid foothold. Getting that question over and over about where the brewery was became way more than I thought. On top of that, you’d be absolutely crazy to set up a model where it’s distribution-only. The margins over the long term will destroy you.
If I was doing it again, I’d 100% only sell retail out of a brewery, which is what most brewers are doing now. If you can have beer that is good enough, and a place that is kind of fun and cool enough, and if you market efficiently to get people to come rather than going through a grocery store, you can win. If you can do that, you can win.
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