Value Added: Suds And Money
Here's Tom Heath's latest column on Washington's entrepreneurial set:
My wife, Polly, used to work with a guy named Jim Koch. You probably never heard of him, but you may have heard of the beer he invented: Sam Adams, made by another Koch invention called the Boston Beer Company.
Koch, whom I only know from television commercials, has become sort of a cult hero to other beer entrepreneurs. There are more than 1,400 independent regional brewers in the U.S. who either have, or are attempting to, duplicate his success.
One of them is Bethesda-born Matt Fleischer, 32, creator of the Hook & Ladder Brewing Co. of Silver Spring.
This graduate of Bethesda Chevy Chase High School and the University of Maryland Smith School of Business ('05) has turned a school project into a microbrewery that expects to gross between $7 and $8 million this year. He expects to turn a first-time profit of close to $1 million in 2008.
Pardon my skepticism. Look at Anheuser-Busch, the St. Louis-based beer giant with half of the U.S. market. Bud stock for the last few years has been as flat as a four-day-old beer. Belgian-based beverage giant InBev is offering a fat premium to Bud shareholders to buy the company.
The beer market has just not been growing.
Another threat: I am pretty sure wine and spirits have also been nibbling away at beer sales over the past several years.
Not to worry, said Fleischer, whose beer recipes date back to the trial-and-error years in his brother's garage in the Bay Area of California. Matt and Rich would throw parties and try out their beers on the guests, gauging what worked and what didn't.
The company is going after an upper-mid-market brewing niche that is growing at 13 percent a year, he said.
Six packs cost between $ 6.99 to $8.49, and you can find them in Whole Foods but not in Giant.
"We are providing value to our customers through a quality product that also has a mission of giving back to their communities," said Fleischer. His sales pitch is that Hook & Ladder donates a penny a pint or a quarter a case to local firefighting charities or hospital burn units in the communities where the beer is sold. The company has given away about $40,000 out of around $1 million in revenue in it first two years.
Its brands are Hook & Ladder Golden Ale, Hook & Ladder Backdraft Brown and Hook & Ladder Lighter.
The company employs 25 people at its 6,000-square-foot Silver Spring headquarters, where it expects to double its staff to 50 within a year.
A few numbers for scale: Fleischer owns about a third of the company, which has raised $2 million to date from 20 or so investors, none of whom Fleischer would identify. The biggest investors have $250,000 to $400,000 at stake. Where did he find them? "Networking, networking, networking."
The company is growing fast. It sold 500 barrels in 2006, 4,200 last year and this year expects to sell 42,000 barrels through its 80 distributors across 21 states. The beer is brewed in Rochester, N.Y., where Hook & Ladder pays the owners of an old Genesee Beer plant to fill his orders. The product is then shipped to wholesalers.
The hardest part is anticipating product sales. There's not much of a track record to go on, so Fleischer has had difficulty getting a handle on whether next month's demand will be 400 percent or 700 percent. One stumble: 12-packs of Backdraft Brown are in short supply.
"When you have been around many years and are growing at a consistent rate of 10 or 20 percent, you know how much product you need, how much supplies to buy, T-shirts and all other merchandise," he said. "When we have a growth rate that is 600 percent one month, 400 percent the next month...the challenge is to take the data and analyze it and make sense of that in order to anticipate demand."
Fleischer's persistence reminds me of the stories about the founder of Vitaminwater, who once personally delivered his product to New York's Upper East Side grocers out of the trunk of his luxury sedan.
"You gotta want it bad," Fleischer says of his success.
Fleischer's business plan for Hook & Ladder was so convincing that Maryland's business school gave him a scholarship for his second year. Maryland's Dingman School of Entrepreneurship even invested in the company.
Fleischer said he sold his first batch -along with its inimitable "fire axe" tap holder - to The Barking Dog in downtown Bethesda. He bought supplies with his credit card. He would lug eight kegs of draft in the back of his Nissan Pathfinder to the Montgomery County liquor authorities, who would in turn deliver it to the bar. The beer is still sold there, as well as The Four Fields, which is a few doors down from the Uptown Theater in Cleveland Park. The Four Fields, my friends tell me, pours one of the best pints of Guinness in Washington. You can also get Hook & Ladder at the Crystal City Sports Pub in Northern Virginia.
Raw materials and transportation costs are ripping into profits. But futures contracts have helped somewhat. And the economies that come with greater penetration in markets is pushing revenues up much faster than costs.
The company hopes by the end of this year to open a flagship restaurant brewery at a 114-year-old firehouse in Silver Spring.
I told Fleischer about my wife's recollection of Koch and how she regarded the former business consultant as a smart guy. Fleischer didn't skip a beat.
"I like to think I'm a smart guy too," he said.
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