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05.2006

Massachusetts Beverage Business

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Article By: Andy Crouch

With multiple Great American Beer Festival medals and two Small Brewpub Brewer of the Year awards to his credit, Tomme Arthur's brewing talents are self-evident. A pioneer in the wood and barrel aging movement, Arthur has long worked as the head brewer at the Solana Beach location of the Pizza Port Brewing Company chain in southern California. His much-heralded Cuvee de Tomme, a Belgian-style sour red ale inoculated with the Brettanomyces wild yeast strain, is one of the great small-batch American craft beers. Long a pub brewer, Arthur and his partners recently entered into an agreement to take over a production brewery in San Marcos, California, formerly run by the Stone Brewing Company.

Brewer, rapper and author Sam Calagione is so identified with his Dogfish Head Craft Brewery that he hardly needs any introduction. From 12-gallon batches to explosive, double-digit growth unmatched by almost any other craft brewery, Dogfish Head is briskly climbing up the list of America's largest breweries. Dogfish Head often seems like Calagione's personal playground, promoting quirky beers that few others would attempt, delivering rap albums (the Pain Relievaz), and inventing hoptacular beer delivery devices (dubbed Randall the Enamel Animal). He infuses the craft beer industry with an artful sense of enthusiasm, fun and cool.

In the first of two parts, these two brewers not only discuss the business of beer, including expansions, licensed pubs and new releases, but also playfully take over the interview and ask one another pointed questions.

 

ANDY CROUCH These are exciting times for both of your breweries, with a lot of news and expansion. Tomme, let's start with you first. What's happening with Pizza Port?

TOMME ARTHUR It goes back about eight months now. We've made some changes on the pub side and have some new brewers working at each one of our locations. We've also recently acquired the old Stone Brewing Company facility in San Marcos (California).The Port Brewing in San Marcos is going to be the real expansion project that will allow us to do bottling and kegging. We're also going to have a new brand of beers called 'The Lost Abbey'. These are going to be cork-finished bottles, not unlike a lot of the Belgian styles we've been making.

It'll be in Southern California only to begin with. We won't be shipping six-packs of beer back East. If we're going to come back East, it'll be with large format, bottle-conditioned, higher alcohol beers - something with a little more shelf-life, a little more interest. We don't want to have six-packs of Sharkbite Red sitting on the shelf for $8.99 for a long time. We're not going to drive volume sending beer to Philadelphia, Washington DC and Boston on a six-pack level. (The new brewery) gives us the ability to do about 5OOO to 7OOO barrels per year. However, we are making this Mexican-style lager that takes a month of time in the tank, so it will tie up some capacity.

 

AC What was the idea behind the 'Lost Abbey' series?

TA The idea belongs to Vince (Marsaglia), the owner. When I first started with the company a long time ago, Gina (Marsaglia) and I talked about this idea Vince had for this brewery called 'The Lost Abbey'. The thought was to make Belgian-style beers and use the monastic name like the abbeys and their tradition and to brand in that way. For the last six years, we've been playing around with the name and developing the recipes at Solana Beach. We knew that down the road we'd rebrand and repackage them. It's a nod to the monastic brewers.We're going to have three sets of beers that fall into the abbey brand. One will be a regular set of four beers that will be in 75Os and limited draft all year 'round. Everything else will come out either on a seasonal basis or on an as ready basis. The other set of beers is something we will call 'non-denominational' ales and lagers, beers that are brewed to no particular style.

 

AC So Sam, what's new with Dogfish Head?

SAM CALAGIONE We're in an expansion mode as well. The first phase is done and we're now at a little over 1OO,OOO square feet. We now have a 6O,OOO square foot warehouse space so our forklifts don't have to go by our brewhouse anymore, which wasn't a good idea. In August, we'll have the installation of the 1OO-barrel brewhouse. We're on a fifty barrel system right now and will probably do 42,OOO barrels this year. I know a lot of other breweries can get a lot more out of the fifty barrel system, like Deschutes and Magic Hat. But our challenge is that the average beer leaving our brewery is 9-percent alcohol, and you take a beer like 9O Minute IPA and we're getting maybe 22 barrels to the kettle per batch. Right now we're brewing six days a week, 24 hours a day, and that's all we've got until the new system comes on.The last phase will be in 2OO7 when we'll open the second brewpub in the big brewery.

 

AC Tell me a little about your franchised pubs.

SC It's similar to franchising. It's a licensing agreement and it works very cleanly. Essentially (the licensees) have no ownership of Dogfish Head, they're a bunch of restaurateurs who had the Baja Fresh franchise in the mid-Atlantic. Two of the partners had vacation homes down on the beach where we live, so they watched Dogfish Head grow and visited our pub. Then when they went to DC, they saw our beer gaining a lot of momentum in that market. They saw an opportunity, approached us, and we worked out what seems to be a very well-functioning partnership. They are essentially the managers, we receive a small licensing royalty fee based on monthly revenue, and of course, we get the beer and merchandise sales.

 

AC How many pubs do you plan on licensing?

SC Their goal is six locations by 2OO9, right around DC, and then we'll see if we can franchise that further. So far, so good. Again, our challenge is capacity. They're selling about 16O kegs a month in their pubs, which is great but embarrassing because our own pub has never sold that much. Also, it's screwed up our budgeting for 2OO6 because we didn't expect them to do so much. We're now on a freeze of new tap handles in our markets so that existing accounts don't run out of beer.

 

AC In the last few years, Dogfish Head has built a name for itself by releasing a slew of new products. What's going to be the role of new releases in the next few years?

SC Much to our chief financial officer's chagrin, we're not slowing down on that sort of stuff. We can always use our 5-barrel brewpub for experimental beers. If there is interest there, we extrapolate the recipes up. We're going to keep f-ing around and doing the fun stuff. We just have to recognize that the strong beer we brew is probably six weeks in the tank, which is just killing our capacity because we're on an allocated budget.

 

TA Can I jump in here?

AC Sure.

TA How do you feel about continually having to reinvent yourself? On some level, I feel like when the New Year rolls around, we have to do something new.

SC Because it's expected of you.

TA Yeah. You have all of these ideas and then it's just a matter of playing them out in your head and figuring out which one is the best to come to market with. There's plenty of things that I want to do, but I don't have the technology to do them.

SC For us, it's really subjective how big a factor this has been in our growth. It's really an important thing to me because it allows our sales people, distributors and loyal customers to always have something exciting to talk about. And that is really important when you go in to a retailer and the question is, 'What have you got for me? What's new?' Even if it's not current, it may be coming up and it keeps excitement going around at your company. I think we'll always do it and, like you, I have a bunch of things I want to do in my head and the list is backing up. I don't know if we'll always be able to do it to the extent that we do it now, but I hope so. I plan on growing the company in a way that allows us to do that.

TA Do you ever see a point when you wouldn't be able to keep up with that?

SC The thing that is hard is that these are my babies and at some point you have to get rid of a beer to accommodate a new beer. Not just for capacity but for packaging and peace of mind. That is why I love the 75O-milliliter package because it is not a six-pack and it's just the cost of the labels anytime you want to do something fun. So I think we'll lean towards specialties in big bottles than six-packs.

 

AC Along the lines of what Tomme is talking about, with you as the iconic face of Dogfish perhaps more so than any other craft brewer, how long can you keep it up? How long can you maintain being the out there force promoting the brand?

SC It's what I like in our company. I like the new brands, the marketing, sales, packaging design. I wouldn't be able to do what I'm doing right now if I didn't have amazing brewers and our chief financial officer, who is as responsible for our success as anyone. I have someone in our company who is the king of costs that allows me to be the king of revenue. It took me a while as the president of the company to learn to sit on my hands and bite my tongue when I didn't agree with his decisions on the cost side of our company. What's cool is that you see him making decisions on the purchasing by working with the brewers and saying, 'Ok, that's why that barley costs seven cents more per pound. It's going to help the quality of the beer so go ahead and spend the money.' As long as he is making decisions that are for the best of the beer and not for the best of the bottom line, he understands that in the long-run, that is what makes the bottom line get better and keeps our company strong. So I don't see myself getting sick of what I'm doing for a long time.

 

AC So what about you, your role is changing here?

TA Yeah, it's the first time in nine years that I won't be the head brewer in Solana Beach. I realize that I'm graduating, getting a really cool brewing system, and having a lot more room. You have to remember that we're making two oak barrel batches of something every year and now I'm going to make 2O. That's exciting as hell, but the reality of it is that I don't get to screw around anymore like I used to. And now I have a real job with distributor issues and production times.

SC And a batch of beer is worth tens of thousands of dollars if a beer doesn't go the way you want it to.

TA Yeah, it's a different reality for me. When I started working in the brewery business, I had butterflies going into work every day that I would do something wrong. Then, at some point, you get into a level of comfort and it stops challenging you. A few years ago, on the pub side, things stopped challenging me because there wasn't a lot left to prove. With the bigger brewery, I'll have to learn all the new things. At the same time, I'm very excited about all of the new brand stuff. I'm really enamored with the Abbey series. We're going to use the Port Brewing brand to pay the bills. These will be the three or four beers that will allow us to screw around.

It's a totally different life-feel, but at the same time it's very exciting. We've been out on the road promoting, which is something I look forward to doing. It's a challenge to be away from home, but I'm now an owner in a company and I'm expected on different levels to do different things. I do a lot more speaking than Gina or Vince does because I have more of a presence on a level when we go to those markets that I have to be that guy. I don't have to be you. I'm never going to be you. No one . . .

SC Wants to be me? (Laughs). Not even me sometimes.

TA I think that no one is trying to be you. There are a lot of us who are trying to be a face with the value that comes from that.

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