USA, MI: Rockford Brewing Company at a crossroads regarding expansion

Three years after launching Rockford Brewing Company Inc., entrepreneurs Seth Rivard and Jeff Sheehan find their craft brewery at a crossroads, MiBiz reported on November 29.

With production maxed out at around 800 barrels, Rockford Brewing needs to find an off-site facility to expand its brewing capacity to keep up with demand in the taproom and from the recent expansion into statewide distribution of its beers.

But that brewery expansion will need to wait as the partners finish up the long-planned addition of a farm-to-table kitchen and a small distillery operation at its taproom located along the Fred Meijer White Pine Trail in downtown Rockford. The kitchen project, which is set to go out for construction bids within the next couple of weeks, will likely double the company’s revenues and should only exacerbate the capacity constraints for Rockford Brewing’s beers, Rivard said.

“It’s going to make the demand for beer go higher,” he said of offering food at the taproom.

Within two years, the company hopes to have an off-site location secured so it can brew and package more of its popular ales, such as the Rogue River Brown, which scored a bronze medal in its style category at this year’s Great American Beer Festival in Denver, Colo.

“We might look for investors,” Rivard said of how the brewery could finance its next phase of expansion. “The biggest piece that holds it up is the financial background. We have a great relationship with a bank we’ve used from the start, but there’s only so much they’ll lend you. You need investors.”

Rockford Brewing’s growth trajectory from startup to statewide distribution and continued expansion in many ways mirrors the surging economic impact for the state’s craft brewing industry over that same timeframe.

In 2014, craft brewing in Michigan contributed $1.85 billion in economic impact, up 84 percent from about $1.0 billion two years earlier, according to data released last week by the Denver-based Brewers Association, an industry trade group. The industry’s economic impact in the state ranks ninth nationally by total dollar value behind California, Pennsylvania, Texas, New York, Colorado, Illinois, Ohio and Florida.

The study considered the value of beer as it moves through the three-tier distribution system and non-beer products (i.e., food and merchandise) sold by brewery taprooms.

In Michigan, the sector was responsible for 14,773 full-time jobs and paid out $571.6 million in wages.

As a result of that growing economic impact, Rivard at Rockford Brewing said he’s observed a change in public attitudes about the industry since the brewery opened its doors three years ago.

“The consensus, even with the general public who doesn’t even drink — they recognize how strong of an industry it’s become,” he said. “They see craft breweries opening like crazy and most of them are sticking around.”

Scott Newman-Bale, a partner at Bellaire-based Short’s Brewing Co., echoed Rivard’s sentiments, noting that even politicians have begun to pay close attention to the industry.

“It used to be people saw it as a niche cool (industry),” Newman-Bale said. “Now, they’re realizing that we have connections with a lot of people, with the consumer.”

The growth of craft brewing in Michigan has also spilled over into ancillary industries, including the supply chain for ingredients such as hops and malted barley, brewing equipment manufacturers and packaging suppliers — not to mention service providers such as lawyers, accountants and insurance agents, Newman-Bale said.

“(The craft beer industry) is not just fun, interesting and sexy any more — there’s a lot of business around it,” said Scott Graham, executive director of the Michigan Brewers Guild.

Moreover, because the relatively young industry is still in a growth mode, the companies pour their profits back into their operations, according to Newman-Bale.

“The thing about brewing is that everything we get goes back into (wages for) labor or equipment,” he said. “It’s not like we get a lot of money and store it, so our multiplier is probably a lot higher (than other industries).”

The state’s brewery count is now “north of 200,” said Newman-Bale, referring to data he tracks as treasurer of the Michigan Brewers Guild. Across the broader West Michigan region, 12 craft breweries have opened this year, and another 16 are in the planning stages, according to an analysis by MiBiz.

Total beer production in Michigan also rose 88 percent from 2012, according to Brewers Association data.

“The impact is pretty amazing,” he said. “And Michigan is a long way behind on economic impact (in the supply chain). We’ve got a lot farther to come.”

Nationwide, craft breweries contributed $55.7 billion to the U.S. economy last year and resulted in more than 424,000 jobs, including 115,000 positions at breweries and their taprooms, according to Bart Watson, the chief economist at the Brewers Association.

In Michigan, consumers also tend to have among the highest affinity for in-state craft beer when compared to their peers nationally, Watson said.

“People want to (support local breweries) and that shows with the quality and the variety on offer,” he said. “Some states also don’t have as many options as Michigan does.”

When asked if the rapidly expanding industry can continue on its heady growth trajectory, Watson said new entrants still have an opportunity to differentiate themselves and serve a niche, particularly as most of the 1,800 craft breweries in planning are designed to be small businesses that serve just their immediate areas.

“A lot of these are small pub type businesses that just want to sell their beer across their bar,” Graham said. For small operators that are more comparable to restaurants that happen to brew beer, there’s more room for growth statewide and nationally versus large-scale packaging and distributing breweries, he said. “If you consider them restaurant breweries, there can be a lot more of them.”

Beyond that growth, there’s always room for international expansion, he said, noting that Michigan breweries in particular are well positioned to export their beers to the Canadian market.

U.S. craft beer exports reached approximately $99.7 million in 2014, or the equivalent of about 383,000 barrels, up nearly 36 percent from the previous year, according to Brewers Association data. Canada was one of the strongest growth markets with exports to the country up more than 32 percent for the year.

“Exports are still a pretty small percentage of production, but it’s growing very fast,” Watson said. “Once they satiate the demand at home, the brand of American beer has never been stronger (abroad).”

02 December, 2015