Tapping into the craft brew business
Dan Slate says his business partner, Jack Hendon, knew he had a passion for the craft beer industry.
“He said something like, ‘You really ought to make money off your hobby, other than just taking the bottles and cans back’” for the refund, jokes Slate.
But that got the two thinking about the money in the burgeoning craft brewing industry. Slate and Hendon are CPAs, and the accounting industry is all about the money — helping businesses make it and hang on to it.
Hendon and Slate are apparently good at it, since the business they founded in Fremont in 1983 — H&S Companies — has acquired many other CPA firms and now has eight offices throughout the West Michigan region. The firm also expanded into IT consulting and added a wealth management division, since so many of their clients need that help, as well.
In July, H&S announced its new division, Brewers Professional Alliance, in partnership with Parmenter O’Toole law firm in Muskegon and White Insurance Agency in Fremont.
Perhaps this week, according to Slate, the Brewers Professional Alliance will announce the names of two more partners: an engineering firm and a construction firm. The BPA has already partnered with two major business software companies that serve the craft brewing industry.
The alliance, according to its website, has positioned itself as “the ultimate resource for those in the craft brew industry.”
Slate said the firms that are members of the BPA “are all equal partners in the business.” BPA’s target market is craft breweries and brew pubs. The pubs are generally small businesses, licensed to make their own brew for sale on premises. Craft breweries also generally are considered small businesses — but they don’t necessarily stay that way.
Larry Bell started Bell’s Brewery in Kalamazoo in 1985 using a 15-gallon soup kettle. A year later the brewery had an annual capacity of 135 barrels (a barrel is 31 gallons). Today, Bell’s has an annual capacity of more than 500,000 barrels, is distributed in 18 states and, in 2010, was among the top eight largest U.S. craft breweries.
One of the latest to open in the Grand Rapids region is Perrin Brewing in Comstock Park, which is a microbrewery and a restaurant. It reportedly has an annual capacity of up to 15,000 barrels.
Many others are brew pubs, which generally produce much less beer and are licensed only for selling it directly to the public on premises, such as The Mitten on Leonard Street NW in Grand Rapids.
Slate said he understands there are 60 new microbreweries or brew pubs that expect to open in Michigan this year and next. “Michigan is the fifth largest state in the country for breweries and brew pubs,” he said.
The beauty of the craft beer market is its growth potential. Slate estimates that 90 percent of all the beer consumed in the U.S. is not craft beer but familiar brands like Budweiser, produced in huge volume by Anheuser-Busch. Craft beer is more akin to European brews and more expensive than Bud or Miller, but it is growing in popularity along with the increasing ranks of American beer aficionados.
“If you have a town of 4,000 population, it can probably support a brew pub. So that’s an awful lot of them,” said Slate.
Even microbreweries have a lot of room to grow because “a new craft brewer isn’t taking business away from other crafters. You just carve more out of the big boys,” such as Anheuser-Busch, he explained.
Microbreweries and brew pubs are typically the result of some individual’s desire to make good beer, not a fortune.
“A lot of them are passionate about what they do, and that is what’s so fun about this industry,” said Slate.
However, the brewers don’t necessarily have the whole array of services available to them for making their passion a successful business, he said.
BPA is all about marketing. It has a website and distributes a printed newsletter each quarter — Hops & Suds — containing news and information of interest to craft brewers and brew pub managers. In the fall issue, the articles are about proposed changes to Michigan’s licensing laws that could help brewers, a way to lower insurance costs, use of enterprise resource planning software to streamline beer production, and the latest winners in the U.S. Beer Tasting Championship (Saugatuck Brewing Co. took “best imperial IPA/Red Ale and Bitter/ESB” in the Midwest category).
When asked what the biggest business challenge is facing craft brewers and brew pubs, Slate said it is capital.
“The biggest challenge for the (craft) brewery industry is really financing,” he said. A brew pub, for example, is really just a restaurant that makes its own beer. “I’m on a bank board. Do we finance many restaurants? No,” he said.
As for the microbreweries, if they are successful, they will grow, and that means additional investment in equipment.
“Most of these are not financed by banks,” or at least not starting out, he said, “and not entirely, anyway. These people are out there with their friends and neighbors and relatives, trying to get investors.”
When it comes to finding financing, said Slate, “we can help. We can’t always solve that problem, but we do our best.”
There does not appear to be any widespread cutthroat competition among craft brewers, as in other industries. He said he has heard that The Boston Beer Co., a craft brewer that makes the Samuel Adams brands, has set up some kind of capital fund for start-up microbreweries.
But, at the end of the day, craft brewers/brew pub owners want to be in business the following day, so there are things they need help with. Those include accounting, payroll, tax services, food and beverage expertise, IT, insurance/risk management, manufacturing efficiencies, legal, HR, and so on.
With those professionals marketed together under the banner of Brewers Professional Alliance, Slate hopes to make the craft brewers’ business endeavors more sustainable.
“We work together as a team to provide an array of services,” he said.