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11.2004

Massachusetts Beverage Business

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Article By: Andy Crouch

QUESTIONING
MARK STUTRUD



To hear Mark Stutrud tell it, the Summit Brewing Company is just a little Minnesota brewery carrying on the great brewing history of the city of Saint Paul. He notes that the brewery sells almost 9O percent of its beer in its home state, with consumers in the Twin Cities enjoying 83 percent of the brewery's total production. Summit produces smooth, flavorful lagers in traditional styles alongside a few hoppy India pale ales. There's only one catch with this vision of Summit as small, folksy local brewer: Summit sells a considerable 6O,OOO barrels of beer a year.

Summit Brewing is a noteworthy model for the upstart American regional brewery. With a solid lineup of ales and lagers, the company emphasizes the treble virtues of consistency, quality and local focus. While it occasionally releases a new product, Summit is not a brewery defined by flashy innovation. In this respect, the brewery reflects its local Minnesota roots in terms of demeanor and taste. Stop by the brewery and you will not find any tongue-blistering barleywines, imperial milds or double gooseberry-infused marzens. For innovation and experimentation, Summit's brewers satisfy themselves with making cleaner, more consistent beers.

While many smaller breweries seek growth through pricey expansion to faraway markets, Summit simply hammers its local market. Summit IPA is regularly found on tap at restaurants and pubs throughout the Twin Cities and in every package store. The company also limits its focus to those areas closest to the brewery. Summit distributes to nine states, with significant ties to the Chicago and Wisconsin markets.

Closing in on its twentieth year in business, Summit's employees still participate in blind tasting panels every morning to ensure consistency between batches. The brewery also employs a full-time quality control staff which cultivates and manages its ale and yeast strains.

I recently traveled to Summit Brewing Company to meet with president and founder, Mark Stutrud. After an extensive tour of the facility, we sat down and discussed why the brewery's local focus, its dedication to lager brewing, and why the big brewers secretly love craft brewers.



ANDY CROUCH Summit has quietly grown to be a strong regional player and one of the largest breweries in the country. How did it all begin?

MARK STUTRUD The brewery was basically just a fantasy I had back in the early eighties. I was previously a clinical social worker so I switched to a totally different career. I found myself working in a large metropolitan hospital where I was in classic middle management with a lot of responsibility but no authority. So that was tearing up my spirit. So my options were going back to graduate or medical school. But I had this fantasy of starting a small brewery primarily because I had been reading about some of these brave souls who started small breweries in the late seventies early eighties. I started meeting people in the industry going back to 1983. In the beginning of 1984, I started working full-time on getting the company running . . . I actually incorporated the company in 1984 and we sold our first keg of beer in 1986.



AC How did you decide to get into brewing?

MS I was a casual home-brewer. To be honest, I was much more of a beer drinker than a home-brewer. Commercial brewing and home-brewing are very different things. I've had some very good home brewers on the staff here. For one guy, commercial brewing drove him crazy because he wasn't able to be innovative. In commercial brewing, the innovation is maintaining consistency from brew to brew, from day to day, from season to season, and year to year. So the flavor profile is pretty sacred when it comes to the focus of our work. There are some people who say, "Well, where's the creativity in that?" It takes a hell of a lot of creativity to do that time and time again. For some people, even though you may be a very successful home-brewer, whether or not it translates into a commercial experience is a different thing sometimes.



AC The brewery has grown at double-digit rates for the last few years. How have you managed it?

MS I think it's important to take a look at the statistics. In the early nineties through the mid-nineties, all of the statistics that reflected growth in the craft brew segment really reflected new openings of breweries. So it wasn't really true growth so to speak. I think a part of the leveling off that has occurred since the late nineties is really connected to the fact that some people decided this wasn't their type of business. I think the biggest reality for us is that we've been building this business for eighteen years. We were one of the first microbreweries, and I really try to avoid using that term. We've always been a brewery and that's how we want to be seen - particularly in this area where we have such a strong tradition of brewing over a couple of centuries. So we've been actively building this business, selling beer on a daily basis, for eighteen years. So if people think, "Gosh, all of a sudden they've just really blossomed," and they just see our tap handles all over the Twin Cities, it sure as hell hasn't happened over night.



AC How important is the local market for Summit?

MS We've had a very intense, local focus. We've had this bottom line philosophy that if we can't make a go of it at home, we might as well figure out what else we should do for a living. So we definitely work very hard to make sure that our core business is right here where we live. There are some people who think we're too big now. I find that a little humorous. Nothing could be further from the truth. We have 1.3 percent market share in the state of Minnesota. Whoever is making that statement, I don't know what point of reference they're using but I guess they are not including Coors, Miller and Budweiser in that calculation.



AC Do you consider Summit to be a craft brewer?

MS Just to confuse people, every once in a while we'll use our own classification, which is a tiny regional. (Laughs) Our sales are regionally based and we're quite small. We'll do about 6O,OOO barrels of beer this year. My only problem with the classification is that it has been bastardized so much by larger brewers that it has lost its meaning and the consumers are confused.



AC What is Summit's approach to growth in the future? Is it to maintain the local focus?

MS Yes. We only have 1.3 percent market share in the State of Minnesota. It reflects how really, truly tough this industry can be. It also reflects the consolidation of the larger breweries and the wholesale tier as well, which sometimes is a big concern. It also brings to light the huge sense of responsibility we have to carry on the great tradition of brewing that we have in this area. So I don't see ourselves as having saturated the market yet. We've only been involved in commercial radio advertising for a little over two years. Before that, it was centrally based on word-of-mouth and point-of-sales materials. This new facility wouldn't be here without our own sales staff.

There are still a number of people in the suburbs who have yet to discover us. They may have heard of us. They may also have heard that the beers are too hoppy or too this or too that. So they maybe drank other products that are more mainstream. Or maybe their experience six years ago was too shocking so they haven't tried it again yet. We'll be patient. So there's quite a bit of growth we can experience here at home. Then if we are responsible and active in terms of our marketing with our wholesalers in outstate Minnesota, we'll gain growth and establish territory with those added territories.



AC How important is the advertising going to be for you?

MS It's a new area for people who choose to do it and have the cash available. The tough thing in this industry is the capital intensiveness of it. Even when you start putting together a facility, new or retrofitted, you can spend millions of dollars on equipment, instruments and control systems. Certainly, as you get larger, and going back to the sacredness of the flavor profile and consistency, having control of the process continues to be paramount. You end up having only so much cash and it ends up being gobbled up by expansion or improvements in the facility. We've been planning very diligently so that we do allocate a certain amount of our resources to active marketing. Truly, it wasn't until a few years ago that we had enough money where we could establish a budget to begin with.



AC Summit recently embarked on a worldwide promotion where it takes its beers to pubs in different countries and records the reactions of local pub goers. The company now uses the interviews in radio spots in the Twin Cities. Tell me about the 'Good Will Beer Tour'.

MS It's a crazy idea, but it's a good one. One thing I like about it is that it is real. We're not trying to create some kind of ambience or environment in the studio and bring in a bunch of actors and have people pretend they are drinking or talking about different issues. So the first thing about this ad campaign is that it is very real. We sit down with people in pubs in four different countries (England, Germany, Norway, and Ireland). This whole notion started with the fact that we have a brewery where the vast majority of the beer is sold within 5O miles. And we have no intention of doing any exporting. So over a few beers with our ad agency, we thought it would be a kick if we could just sit down and share some of our beers with somebody from a different country and see how they react to it. We feel good about the beer we produce. We have a lot of pride and work hard every day at what we do. And we all love beer. So at first, there is this issue of sharing. And it's the issue of meeting people and extending the community of brewers, and also of sharing the notion of craft beers with other countries. As you can imagine, if you go into other countries and talk about US brewers, they think about Budweiser and Miller. So we wanted to punch that up a bit and share and have some fun. That is the top veneer.

The second veneer is we are positioning ourselves against the imported brands because in a number of ways that is our biggest competition. The next tier down is that we want to take care of this myth that somehow imported beer is better than domestic beer. So those are the three layers of that ad campaign. Now, after two years, I think it is starting to sink in. I think it is adding to our level of growth. People do respond to radio advertising in the beer business. But we also wanted to do something that was unique and different from typical radio advertising that either talks about the female anatomy or hormones or what have you. It's a bit old (laughs).



AC The last few years, many brewers have come out with a host of new beers. Summit is now embarking on a limited release project. Can you tell me about that?

MS We've really had our hands full with the four year 'round beers and the four seasonal products that we have established before we moved to this facility. Now that we do have the new facility, we're not just totally production oriented. It hasn't been until this last year that we got to a point where we can get into something different. We like to identify styles. For example, a stout is a style that our customers primarily demanded. It wasn't really something from within this time where we said, "Alright, what kind of beer would we like to make ourselves." That's kind of how we selected different styles over the years. This time, we had a number of people asking when we were going to do a stout. When we got to the point of actually doing it, we wanted to do something that was pretty distinctive and would differentiate ourselves from the others. So we chose an oatmeal stout. We're going to offer it, on an annual basis &endash; a limited offering, draft only for three to four months. For this one, we will probably only do three brews of the stout. We do respond, within our capabilities, to the demands of the consumers.



AC How did Summit decide to get into producing lager beers, as many smaller breweries will not touch lagers?

MS You have to look at each individual brewery and look at how the place is engineered. Capacity certainly is a concern. You have to have the capacity to do lagers well. It may also be a geographic area that dictates that. Sometimes it's just a matter of simple preference from the principals or the production staff. We always had the intentions of doing lager beers. Our maibock was our third seasonal. The maibock was our first lager beer. We probably would have gotten into lager brewing earlier on if we had the capacity. We were still at the old facility where we definitely had issues. The maximum we could ever put out of that place was 34,OOO barrels. So it's always been in the back of our minds. It raised hell with scheduling sometimes, and with our yeast. We're one of those very breweries that get into more than a couple of yeast strains. And the fact that we are using five strains can be the wacky part. If you really don't have the ability to keep those strains separate then it can be a big issue.



AC What do you see for the future of the craft brew industry

MS Well, I think there is a certain amount of redefinition in the industry. Some people have said that the craft brewing segment, now that it has been around for twenty years, is getting a little long in the tooth. I disagree with that assessment entirely. The beer business by nature is highly conservative. Things are not reinvented at a very fast pace when it comes to brewing. After all, we're talking about producing some very traditional and distinctive styles of beer that is not necessarily economically feasible or profitable for the larger brewers.

I think we need to differentiate ourselves from the bigger breweries again in terms of how we produce beer, the raw materials and there is a lot of strength just in that foundation. Being long in the tooth is kind of funny, because twenty years is not a long period of time in the brewing industry. I think there are some marvelous examples of breweries that have grown at double-digit rates, such as Ken Grossman at Sierra Nevada. Those folks have done a hell of a job. I really think it goes back to each individual brewer and regional brewers. It appears they want to be national brands at some point in time. And that's fine and their business focus. But I tend to continue to envision this notion that when you get so many hundreds of miles away from the brewery, that's when the availability of a particular brand really drops.

It's really the beauty of traveling. Not to pick on Jim Koch, but you can find Samuel Adams anywhere, including the airport. So what is special about that? It doesn't become pretty special because it is universal in its availability. That's their business plan and that's fine. We have a regional focus. People say, 'Well Mark, why aren't your beers as hoppy as those on the West Coast?' Well, we're not on the West Coast. We're part of the grain belt area. Our flavor profiles reflect more of the soul of malt than the spice of hops.



AC What about growth for the craft beer industry?

MS I'm certain the segment is here to stay. How quickly it grows is not only dependent upon the solid efforts of all of these small breweries collectively, but also on whether the wholesale tier pays attention to these breweries. The fact of the matter is, with the limited number of wholesalers in existence today, and the incredible amount of coercion may be strong, but it is certainly pressure from the larger breweries on wholesalers. It is this whole challenging situation. You really need to continue to work hard day after day after day. That's what it takes. It's not like some kind of cute marketing campaign that all of a sudden opens up the skies and you grow.

The big breweries are such beneficiaries of the craft brewing movement, and they know it. They don't really talk about it. They do it in different ways, such as taking an idea like freshness and take ownership of it and act like they brought that whole notion to the consumer when really it was the craft brewers. So I think we need to take some of the ownership back from the big boys and keep them honest. Not necessarily being critical of what they do and how they produce their beer, but maybe some of their tactics and techniques. Anheuser-Busch and national brewers need the craft brewers because we bring excitement to the industry and will continue to do that. We're in a position where the bigger brewers say, "Hey, it's really good you are around and we love you." But at the same time they have their arm around you, they're giving you the squeeze that 'we don't want you to get too big.' The reality is that it is incredibly important for this industry to have strong, independent brewers that are here to do something different that the big brewers can't.

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