Iowa breweries choose varying paths for success

State is supporting a multitude of micro and nano craft breweries

Start a business, make money and grow. That's at the heart of many companies' strategy for success.

But in the booming craft brewery industry, where hastily expanding to gobble up a growing market share might appear to be the best strategy for a local brewmeister seeking to rake in profits, many Iowa brewery owners are taking a different, slower path to success.

Where Iowa Stands

Craft breweries have been taking a bite — albeit a small one — out of the international beer makers’ stranglehold on the beer market.

According to the national Brewers Association, craft beer sales by volume in 2012 made up 6.5 percent of national beer sales. And while this is a small percentage, the craft industry grew 15 percent by volume in 2012, which is up from 13 percent in 2011.

In Iowa, according to Bart Watson, a staff economist for the association, growth is occurring, but the craft brewery landscape remains small and diverse.

“Some of it depends on state population, Iowa is a state with 3 million people, so it might be harder for them to support a big regional brewery,” he said, noting that Iowa’s craft breweries' combined total volume of beer produced in 2012 ranked 40th of 50 states.

But he added that the total number of craft breweries in the state per capita was significantly higher, at 14th in the nation.

Meaning that while Iowa currently lacks a large, regional craft brewery that can churn out a high volume of beer, the state is supporting a multitude of micro and nano craft breweries.

And one co-owner of a nano-brewery — Justin Merritt of Mason City Brewing in Mason City — said the geography of Iowa might be a reason for the state supporting a large number of small breweries.

“Iowa has agriculture-centered communities,” Merritt said. “You have small communities of people spread out very far apart from others, so it naturally lends itself to the environment where you have breweries popping up in local communities, and those local communities supporting that brewery.”

Start small, stay small

In the beer industry, a batch of beer is measured in barrels. One barrel equates to 31 gallons. So, a relatively modest microbrewery 10-barrel system can pump out around 300 gallons of brew per batch.

But not all systems even reach that size. In fact, some breweries in Iowa run systems as small as one barrel.

“The reason that we wanted to put a cap on it is so that it stays special,” said Alex Carlton, president of the two-man operation Chefs in Black Brewery, operating out of Macedonia.

Carlton, whose system grew out of his passion for home brewing beer, was a do-it-yourself venture. He estimated the cost to construct his setup was around $30,000.

The low initial cost — partnered with his relatively expensive, scarce, boutique-style brews — allows him to remain small yet viable.

“I think there is something to giving people a reason other than just good beer to pay 10 dollars for a bottle, and I think scarcity is one of those things,” he said, noting that he has a self-imposed cap of producing 200 barrels of beer per year.

While Carlton’s brews are relatively sparse on store shelves, Mason City Brewing drums up interest with a different form of scarcity — hours of operation.

The one-barrel brewery’s tap house, which opened its doors this February, is in operation only 12 hours a week. And while this is in part due to not having enough brewing capacity to keep the taps flowing seven days a week, Merritt said the limited hours of operation keeps interest from the public high.

And while Merritt said he would consider opening for more hours if their production could keep up with demand, he said they have been cash flow positive these first few months, and would be concerned about losing the close customer interaction if they expanded to distribute their brews across the state.

That loss of control is something John Murry, an associate professor of marketing at the University of Iowa, said is something any growing business, especially those in the food industry, needs to grapple with.

“You are changing the identity of your brand because you do not have complete control over the consumption experience, and the brand becomes subject to other forces,” he said. “The treatment it gets from retailer or bartenders or restaurant owners, and in those instances, you are subject to what is going to happen to the market.

"But if you want to grow, that is what you want to do.”

Start small, grow big

The jump from a half-barrel to 10-barrel system is large. But a half-barrel to 30?

Growing a production line 60 times in size in four years is what Toppling Goliath Brewing in Decorah is attempting to accomplish while becoming the state's first true regional craft beer.

“For about a year, we made a half-barrel at a time and became very popular,” said Clark Lewey, Toppling Goliath co-owner. “Fifteen gallons at a time does not go very far. Our fans would come in and drink us out literally in one night.”

They invested in a 10-barrel system that currently pumps out brews to bars in Wisconsin as well as Iowa. However, supply has not met demand, and Lewey said he saw the need to invest roughly $1 million in equipment costs for a completely new 30-barrel system, which stands partially completed.

“I look at it this way, the first used tanks I have were built in 1990, and they are performing just like brand new and look like brand new,” Lewey said. “So in order for us to make this happen we just have to make sure three or four years from now, our beer is consistent, stays consistent, and we get the payback on our investment.”

Lewey said at the current 10-barrel system — which allows the brewery to distribute kegs to bars and restaurants, and offer bottled products in grocery stores, when supply is available — it has yet to become profitable.

But Lewey does not own the only horse in the race. Jacob Simmons, co-founder of Backpocket Brewing in Coralville, is hopeful his beers soon will be available across the Midwest.

“You can either build big and have that room to grow, but then you have the risk of burying yourself in debt. Or you build too small and are up against the wall in six months, and have to redo what you just built,” Simmons said.

“For us we had a unique situation. We built big, so that we wouldn’t be limited by growth constraints, and we offset the risk of that by contract brewing out to another brewery that needed higher capacity, Schlafly Beer in St Louis.”

Simmons hopes that one day the full capacity of Backpocket can be used for his own beer.“We wanted to be something people can look to and say, that is an Iowa beer and I can get it in Chicago, Minnesota and St. Louis, and that is what I would like to be,” Simmons said. "But I would like to keep the core of it in Iowa.”

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