With 28 years under their belt, the folks at Karl Strauss Brewing Company have done a great deal: opening San Diego proper’s first post-Prohibition Era brewery, building the county’s largest network of brewpubs, contract brewing out-of-state and later bringing fermentation operations back to America’s Finest City, building venues in Orange County and Los Angeles. They could have rested on their laurels or become stagnant at any point, but founders Chris Cramer and Matt Rattner continue to look for ways to innovate and identify new revenue streams. The latest example of that is Karl Strauss’ recent establishment of its own distribution arm.
The company has been laying the framework for a distributorship for several years, but recently launched delivery of beers from its first two distributed brands, new Oceanside-based business Black Plague Brewing Company and Grantville’s four-year-old Benchmark Brewing Company. The latter’s Orange County launch took place last week, though Karl Strauss had been in talks with Benchmark for well over a year.
“We’re expanding on our on-premise, self-distribution network in San Diego and Orange County to now include a select group of local, independent breweries,” says Mark Weslar, Karl Strauss’ vice president of marketing. “Delivering our own beers on-premise has helped us develop an expertise selling to and servicing local bars and restaurants. We look forward to helping some brewery friends build their business.”
The first San Diego County brewery to go from brewing to manufacturing and distributing not only its own beers but those of fellow local brands was Stone Brewing. Founders Greg Koch and Steve Wagner often cite that as a key moment in the company’s history, and a business move that kept Stone from going out of business. After having many doors slammed in their face by distributors unwilling to take a chance on their new, small operation, they decided to do it themselves. In opening Stone Distributing Co. in the late-nineties, they brought aboard brands such as AleSmith Brewing and Coronado Brewing, later adding brands from across the country as well as numerous international brewing companies. Today, that entity is responsible for distribution of 44 brands—that like Karl Strauss’ portfolio are all independent—throughout Southern California.
Karl Strauss has no immediate plans to bring on additional brands, but plans to be selective when they do, focusing on local and independent interests representing a partnership that would make sense for all parties involved. Says Weslar, “It’s an exciting new venture, but it’s also business as usual here at Karl Strauss with all of us maintaining our focus on making, selling and distributing great beer.”
It’s been a work in progress for more than a year, and they already celebrate their future digs care of a Mexican-style brew called Barrio Lager, but now Thorn Street Brewery’s brewing and cellaring equipment has arrived at its satellite facility in Barrio Logan. While the brewhouse is a month or so from being put to use, this is a significant milestone and the current estimate for public-debut of the venue’s tasting room is June.
Located at 1735 National Avenue, the 10,500-square-foot brewery is equipped with a 30-barrel brew system with a mix of 30-, 60- and 120-barrel fermenters. This will significantly increase Thorn Street’s production capacity to the tune of 30,000 barrels annually, allowing the formerly small operation ensconced in the quaint, two-story shell of a former North Park homebrew-supply store to grow beyond its humble, well-received beginnings. Thorn Street has signed on with Stone Brewing’s distribution company. The plan is to focus on San Diego County before considering new territories to go after.
But the brewery is only half the story here. Thorn Street also took over an identical warehouse next-door and has big plans for it that include the potential installation of a distillery, restaurant and retail collective. That’s a lot to fit into 10,500 square feet, but installation of a 6,000-square-foot outdoor patio is planned to help make room for the aforementioned concepts that are brought to fruition.
As for the brewery and its 750-square-foot tasting room, exact plans for opening festivities have yet to be finalized, but Thorn Street hopes to do something that really celebrates the community as well as the people and businesses who call it home. Something taking place in or for Chicano Park is something they would welcome. For now, it’s all about getting through the home-stretch; producing beer, finishing interiors and joining Border X Brewing and Iron Fist Brewing (who operate tasting rooms in the neighborhood) as Barrio Logan’s local-beer representatives by bringing the community its first brewery.
In 2006, when Jim Crute transitioned from a long career as a biochemist to become a brewery owner, the landscape in San Diego County was very different. For one thing, the story of a starry-eyed homebrewing enthusiast turning his back on a lucrative career to follow his fermentation passions was not an old and much-duplicated tale.
There were only around 20 operating brewhouses in San Diego County when Crute opened the doors to Lightning Brewery in the north-inland community of Poway. Most prominent among them were Stone, Karl Strauss, Ballast Point, AleSmith, and the family of Pizza Port businesses that included Port Brewing and The Lost Abbey. That last dual-personality operation also opened in 2006 as a production-brewery venture for Pizza Port. Looking at the much smaller sudscape in the county at the time, it made sense that Pizza Port, a highly successful brewpub chain with three locations would want to start producing and distributing beer in larger quantities, in both kegs and bottles. After all, that’s how the biggest brewing companies in the county were doing it. It was the only way to gain visibility, as tasting rooms were hardly the lucrative revenue-centers they are now. Few were the folks who spent weekends shuttling from one brewery to the next like so many do now.
About the only chance a brewery had of getting their logo and brand-identity to the consumer in a meaningful way and look like a legitimate business versus some fly-by-night, oh-isn’t-that-cute “microbrewery” was to get bottles out to grocery stores. That’s where most people first saw the likes of Stone, Ballast Point, AleSmith and even the young Green Flash, which at that point had just bounced back from a shaky start that nearly saw it close. So Crute opened with the notion that 10-20% of his beer would be sold out of his tasting room—which was then just a small pad in front of the cold-box right on the brewery floor—while the rest would be wholesale. So, he started bottling nearly from the start, and self-distributing before catching on with Stone Distributing several years ago.
By his own admission, his perception, method and timing were off, and, as a result, the business suffered from a financial standpoint. As today’s brewery owners will tell you, brewing companies make the best margins on their beer by selling it in their tasting rooms where they can charge more, avoid the cost of doing business with distributors and take all of the profit for themselves. Fittingly, brewery owners make a point of constructing tasting rooms that will at very least get people in the door and, in the best cases, lure drinkers from appealing bars and restaurants, not to mention their own homes, to drink their beer at the source.
Crute recalls a conversation with Ballast Point’s Jack White around 2009, wherein the founder of the brewery that eventually grew itself into a behemoth that sold for a whopping $1 billion told his Lightning contemporary that, to his amazement, the only thing making BP any money was the tasting room at its Scripps Ranch brewery. White went on to expand that space multiple times until there was nowhere left to expand. He eventually did the same with the company’s original Home Brew Mart location, while simultaneously constructing new facilities in Little Italy and Miramar that both included not tasting rooms, but full-on restaurants with attached bars.
Meanwhile, it wasn’t until 2014 that Crute, who by then was no longer with Stone Distribution, constructed a tasting room and an outdoor beer-garden. But by then, it was too late. Were he opening Lightning today, he says he would adhere to a reversed business plan where he’d look to sell 80% of his beer out of his brewery, and distribute the remainder. But in the real-life present, Crute has made the decision to sell his business. He put up a craigslist ad titled “Turnkey Brewery and Tasting Room for Sale” on December 7, and hopes to be able to hand his decade-old labor of love to someone who is looking to get into the industry, just as he did. Purchasing Lightning would be advantageous in that it is currently in operation and would be ready for someone to take over and get straight to work. The 5,500-square-foot facility has a 30-barrel brewhouse, a combined cellar capacity of 490 barrels (350-barrels’ worth of fermenters with 140-barrels’ of brite tanks), a bottling line capable of filling 12- and 22-ounce glass, and the aforementioned tasting room and beer garden.
Crute says he is also open to existing companies purchasing Lightning for use as a secondary brand, wherein the company name and, possibly its beer-brands would remain active, but under a new owner. But the bottom-line is that he says he has enjoyed pursuing his dream and feels he gave it his all for 10 years. He feels it’s important to be reasonable and turn the page, but in doing so, hopes another entrepreneur can realize their aspirations in the place where he realized a good many of his.
In its short life-span, the only brewmaster Mason Ale Works has ever known has been Mike Rodriguez. A veteran brewer with years of experience at Boulevard Brewing and Port Brewing Company/The Lost Abbey, Rodriguez was a logical choice to get Mason (the in-house brewing arm of the 3LB Restaurant Concepts family of venues that includes both Urge Gastropubs and Brothers Provisions) constructed, operational and churning out beer both for distribution and barrel-aging. Today, 3LB announced that Rodriguez has resigned to pursue a new brewery project in Santa Cruz, California.
In hiring someone to replace Rodriguez, Mason Ale Works’ owners have taken a rather familiar route, hiring another former head brewer from Port/The Lost Abbey, Matt Webster, to be its new director of brewery operations. Webster will head all brewing at 3LB’s upcoming Urge Common House, a 21,000-square-foot venue in San Marcos’ North City development that will include a 15-barrel brewhouse. He will also oversee brewing operations at the original Oceanside brewery within Urge Gastropub and Whiskey Bank. Day-to-day brewing in Oceanside will be the responsibility of Jason De La Torre, who has been promoted from within to the role of head brewer.
Mason Ale Works debuted its beers in late 2015 and has since secured Southern California distribution of its kegged and canned products via Stone Distributing. Much of the decision to expand brewing and cellaring capabilities via the Common House location was to keep up with demand while providing the ability to expand distribution sooner than later.
AS NUMBER OF BREWERIES EXPANDS, DISTRIBUTORS TRY TO MATCH PACE
Prohibitively expensive San Diego real estate has not deterred emerging breweries from opening, and San Diego County is on pace to break the 90-brewery mark by the end of 2013, from just north of 30 breweries five years prior. Even affluent neighborhoods can find great beer within walking distance; from Thorn St. Brewery within reach of Golden Hill, or Culture Brewing Co. in tony Solana Beach. And while breweries quickly fill the surplus of “real property” in San Diego, tap space isn’t keeping up.
“It used to be tap space in search of beer,” said Craig Broderick, proprietor of Brody’s Burgers and Beer in Jamul. “Now, it’s beer in search of tap space.”
Though 18 miles from the heart of downtown, rural Jamul has a neighborhood brewery in Cold Bore Brewing Co., who self-distributes and is a regular feature on Brody’s 23 taps. According to Broderick, Brody’s came online at the right time.
“Had I started my biz earlier, I would have been in dire need of beer,” Broderick remarked in regard to his geographical disadvantage, “but from last year to this year, it’s night and day in terms of beer availability.”
Broderick continued, noting that smaller breweries had issues getting carried by a large distributor, such as Crest Beverage or Budweiser/Anheuser-Busch, but that changed when Stone Brewing opened the distribution side of the company and started carrying smaller-batch breweries who couldn’t meet larger distributors’ quotas.
While providing a much-needed relief valve to the mega-distributor bottleneck, Chad Heath, Southern California sales director for Stone Distributing. still feels pressure to keep up with the onslaught of new local breweries.
“This amazing explosion of selection has challenged distribution a bit in keeping up with the sheer amount of products we are now able to sell,” Heath said. “There will come a point when breweries aren’t able to find distributors to distribute their beer because they are ‘full’. To date we aren’t there yet, but I feel that is inevitable and, for some of the startup brands, it would become more and more difficult to secure distribution deals.”
But that doesn’t mean there isn’t any hope for emerging breweries, Heath continued. “Good beer will win out and there will always be room in a quality distributor’s portfolio for breweries producing exceptional product.”
THE GIVE AND TAKE
In a business that’s all about relationships — as distributors are prohibited from negotiating with vendors based on price — Heath maintains that the biggest challenge in those relationships is providing access to limited-release, rare beers.
“Almost all craft breweries these days are making small batch, exclusive beers,” said Heath. “They put a good demand on the wholesaler to make sure these beers get to the right accounts, on time and with the correct quantity… Stone has refined this process to a ‘T’.”
Frank Green, brand ambassador and sales manager for Port Brewing Co./The Lost Abbey, said that there is great opportunity for breweries who have in-house representatives and also partner with a larger distributor, such as Stone.
“Having (Stone) working in concert with me allows for more visits and touches on my accounts,” Green said.
“All our distributors know that our goals are to have specialty kegs for specialty events, which drive our sales and are a lot of fun to put on,” Tondro noted. “(Distributor) goals are to hit their depletion quotas. As a result, we often have conversations that revolve around ‘I’ll take a Fat Tire now if I can be guaranteed a La Folie later’ topics.
While Tondro uses New Belgium Brewing for an example, he said there are similar pushes being made by self-distributing breweries and their representatives.
“Of course, we wouldn’t take a keg of absolute crap just to secure a specialty keg, but we feel that it is reasonable to help them hit their depletions as long as they help us put on great events,” said Tondro.
One brewery that Tondro mentioned as being notably persistent and a regular feature on Urge’s tap list is Firestone Walker Brewing Co., a sentiment echoed by Broderick at Brody’s.
“Firestone is at a size where, although distributed by Crest Beverage, they’re actively pursuing full-time space,” said Broderick. “And they have reps out in Jamul who are willing to work on those relationships.”
Broderick added that, in addition to self-distributing breweries, the recent arrival of Craft Beer Guild Distributing of California gives even greater access to smaller breweries and their limited releases, which prompts the question: with distribution options increasing, who drives vendor-distributor negotiations?
“Nobody is indispensable,” said Darren Renna, general manager of the Coaster Saloon in Mission Beach. “For example, Ballast Point and Green Flash are distributed by Crest Beverage — by far the biggest player — but if you want first access to Palate Wrecker, Dorado or a new specialty product, then you are better off dealing directly with the brewery than the distributor.”
Green at The Lost Abbey sees growing popularity for distribution reps among smaller breweries, but many times that means that one person is wearing multiple hats.
“A lot of these new breweries are working without a sales rep. I know of one brewery where the brewer is literally doing everything himself,” which includes bartending, brewing, and distribution rep work. So while the distribution representative position has become more popular, sometimes this means one person wearing multiple hats; not necessarily a new hire.
According to Green, relationships work at their optimal level when vendors work with breweries and distributors in tandem. This results in win-win-win for brewery, distributor, and vendor.
“I currently work with six Stone sales reps, along with their sales manager and several others in the sales department,” Green said. “The more beer I sell for them, they benefit and, in turn, sell more beer for me and I benefit.”
As a vendor, Renna added that he gets the benefit of increased responsiveness by working with the breweries and distributors.
“The salesmen do not want to see (flagship beers pulled off tap). Five years ago, such a threat would not have gone very high up the ladder, but today I would have a regional manager calling me within hours.”
A NEW CHALLENGER
Tondro noted that the number of distributors and reps with whom he works has increased by nearly 50 percent within the last year, and much of the increase is due to new breweries that self-distribute.
Green countered that, by working exclusively with a brewery representative — and not partnering with a distribution company — the portfolio of beers available is more limited.
Despite such reservations about working with breweries exclusively, dealing directly with smaller and newer breweries becomes an increasingly viable alternative for vendors. In fact, for at least one local brewery, working directly with the brewery is the only way to get their highly sought-after beer.
“Societe is selling all the beer they can make,” said Broderick, referring to Societe Brewing Co. who, by design, only self-distributes its beer.
“It’s a privilege for me to be able to get it, as opposed to a bigger brewer who is just battling for tap space and only now realizing how valuable it is.”
For Broderick, the privilege is such that he drives to Societe to pick up the kegs himself.
“They said they’d love to sell us beer, but they couldn’t drive out to Jamul to get it to us. I said, ‘No problem, I’ll pick it up,’” and even then, Broderick is only able to pick up what beers Societe has available, but even expending this much time and effort can outweigh the indignity of dealing with hard-driving sales representatives.
“It’s such valuable space and there is so much beer to fill that space, how are you going to put on a mediocre beer by a brewery just for the chance, the lottery, or opportunity to get a select beer later?” Broderick mused.
“It’s an unrealistic goal for me to get (Russian River Brewing’s) Pliny the Elder. It’s been made clear to me by their distributor. But now it’s not an issue because there are more beers that can match Pliny. No disrespect to Pliny; it used to be the lead dog, but the rest of the pack has come up.”