In Lean Times, a Stout Dream

Anne Ryan for The Wall Street JournalChicago’s Metropolitan Brewing, founded by Tracy and Doug Hurst, began selling its lagers this winter.

Written by David Kesmodel for The WSJ

The economic crisis has stifled entrepreneurial activity in many industries. But it’s done little to dent the ambitions of those who dream of brewing their own beer and offering it to the world.

Surprisingly large numbers of entrepreneurs — some let go from corporate jobs in recent years — have been starting microbreweries or brewpubs. Schools that teach brewing are being showered with applications from people interested in getting into the business. At the same time, enthusiasm for interesting new beers remains strong; BeerAdvocate.com, a Web site for beer enthusiasts, says its traffic has reached one million unique visitors a month, and is rising as much as 12% each month.

Last year, even as a recession gripped the country, 114 microbreweries and brewpubs — restaurants that make their own beer — opened in the U.S., according to the Brewers Association, a Boulder, Colo., trade group. That marked the highest number since 1999. Openings are expected to decline this year, but start-up activity remains robust, says Paul Gatza, director of the Brewers Association. The group estimates 200 microbreweries and brewpubs already are on the drawing board for the next few years.

For some of the new entrepreneurs, the desire to make beer predated the recession. “I got into it because my wife said I could, and it just seemed it would be a heck of a lot of fun,” says Steve Klotz, a 46-year-old former Dow Chemical Co. engineer who took a voluntary buyout in 2006 and plans this summer to open a microbrewery in Midland, Mich.

Beer entrepreneurs have also been emboldened by a long list of recent success stories in the small-batch, or “craft,” beer arena, as well as statistics showing that Americans are consuming craft beer in increasing numbers. “It’s the consumer that’s creating the demand,” Mr. Gatza says.

Beer has long proved more resilient in recessions than other industries. Total U.S. beer sales increased last year — though just under 0.5% by volume, estimates industry newsletter Beer Marketer’s Insights. Sales of craft beer, the industry’s fastest-growing segment, rose 6% by volume, and dollar sales jumped 10.5% to $6.3 billion, according to the Brewers Association.

Beer is taking market share away from distilled spirits, and craft beer in particular is looking like an affordable luxury. “I’m finding that people who are used to drinking $15 martinis think a $5 pint of decent craft beer is pretty reasonable,” says Tracy Hurst, who with her husband Doug founded the Chicago microbrewery Metropolitan Brewing LLC.

Craft brewers produce beer in tiny quantities, and they’re known for an ever-increasing array of exotic ingredients, such as chocolate, coffee or berries. Craft brewing, led by companies such as California’s Sierra Nevada Brewing Co. and Oregon’s Deschutes Brewery Inc., accounts for only 4% of total industry volume, but the beers provide distributors and retailers with high profit margins. At least part of the growing consumer demand stems from drinkers willing to pay a few dollars extra for beer that’s often made close to home.

Starting a microbrewery or brewpub is by no means without risk. It costs roughly $450,000 to $800,000 to start a small brewery, say entrepreneurs, and finding distributors willing to take on unproven brands can be onerous. Brewpubs can cost a few million dollars, depending on their size.

Last year, 42 brewpubs closed in the U.S., the most since 2005, the Brewers Association reports. But only nine microbreweries shuttered, the lowest figure since 1995. Today, with the nation’s restaurant sector mired in a steep decline, “it’s very difficult” to launch a successful brewpub, says Darren Tristano, executive vice president of food-consulting firm Technomic Inc.

Even in good times, many brewing start-ups encounter difficulty raising money for the property, brewing equipment and other assets needed to start their business. And some are finding the challenge greater now as banks tighten lending terms.

Mr. Klotz, the former Dow Chemical engineer, sought private investors for his microbrewery, Artful Dodger Brewing Co., after banks expressed reluctance to provide loans. Bankers cited Michigan’s deteriorating economy and some recent local restaurant failures, he says.

Mr. Klotz, who began home-brewing a few years ago, says he is “certainly” worried about the economy. In January, Michigan’s unemployment rate climbed to 11.6%, the highest in the U.S. But he is hopeful that the microbrewery, which will offer food and beer on tap, will attract customers with fresh, high-quality beer and a smoke-free atmosphere. To draw community support, he plans to invite local artists to name the brewery’s beers. “To be successful, I think you need to push and do some creative things,” he says.

Joey Redner, 36, recently started Cigar City Brewing, a microbrewery in Tampa, Fla., but only after receiving financial support from his father, a longtime local businessman. The younger Mr. Redner says he has spent $585,000 to start the brewery, which is creating such beers as Jai Alai India Pale Ale and Marshal Zhukov’s Imperial Stout. Most of the money came from bank loans for which his father put up business property as collateral. “He has stood back and sort of let us run and fall down as we may,” Mr. Redner says of his father, Joe Redner.

Mr. Redner says he was able to quickly sign up with two local distributors in part because he is known for writing a beer column in the St. Petersburg Times and has worked in the industry.

To minimize his costs, Mr. Redner is initially relying on dozens of volunteers to help move beer, wash kegs and haul boxes. Free beer is the tangible reward. “It’s the only industry I know where you can pretty much count on voluntary labor,” Mr. Redner says.

In Chicago, Mr. and Mrs. Hurst are also relying on volunteers for Metropolitan Brewing, which began selling its German-style lagers to a few dozen bars and retailers this winter. The couple raised about $600,000, including money from private investors and a small-business loan.

“This is a lot of work,” Ms. Hurst, 36, said on a recent afternoon while standing next to a row of stainless-steel fermentation tanks, each named for a secondary character on the original “Star Trek” television series. “It’s 12-, 13-hour days.”

Ms. Hurst previously ran a portrait studio. Her husband, 40, who wears a bushy goatee, earned a brewing diploma at the Siebel Institute of Technology & World Brewing Academy several years ago and left a career running audiovisual systems for corporate events. Now, the couple helps teach a class on starting a brewery at the school, which is based in Chicago and Munich.

The Siebel Institute, the University of California, Davis, and other providers of brewing training in the U.S. say they’re seeing increasing numbers of applications from students who want to run a microbrewery or brewpub.

Adam Karaway, 31, who was laid off in late 2007 from his job selling corrugated steel to construction firms, is working as a bartender in Kenosha, Wis., and trying to scrape together enough money to enroll next year in the 27-week craft-brewing apprenticeship program offered by the American Brewers Guild in Salisbury, Vt. He recently took an organic chemistry class at a local college to qualify for the program. “I got to a point in my life where I kind of realized I should be going for something I am passionate about,” says Mr. Karaway.