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The Altruistic Contract Brewer

From Brewbound

By Max Rothman

Fresh out of college, towing Charlie Papazian’s “The Complete Joy of Home Brewing,” also known as “the home brewer’s bible,” Sten Sellier bought his first brew kit. For 10 years, he inched toward his dream.

“Like most home brewers,” Sellier said, “there’s always that little voice in the back of your head that’s saying, ‘hey man, you could go pro with this.’”

During the week, he worked in industrial engineering, selling and designing material handlers, conveyors and automated systems for distributors and manufacturers. On the weekends, he brewed his own beer with malt and eventually with grain, experimented with flavor, made mistakes and occasionally struck gold; the trials of a rookie.

Sellier’s plan was to one day quit his job, start brewing full-time and sell his own brand of beer. Like many startups, however, he didn’t have the funds to build a full-scale brewery. Instead, he figured that the smartest way to get going was by contracting his recipe with another brewery that had extra capacity. This would be a cheaper option and a nice bridge to perhaps someday building his own operation. But no one could help him. The breweries Sellier contacted said that they either weren’t interested or that he needed to brew more barrels. Sellier soon found that he wasn’t alone in his search.

“There’s so many people, especially right now, looking for a way to break into the market without taking on all that risk,” he said.

Exit one dream, enter another: rather than chase gold by starting his own beer brand, Sellier’s selling shovels at the gold rush. He’s opening up a brewery, just as he always planned, but one that will be used only by other brewers, a place where they can ferment their own dreams.

Sellier signed a lease for his all-contract facility, Beltway Brewing, in Loudoun County, VA, on Dec. 17. He’s attracted just over $1 million in investment, and he says he’s received 27 letters of intent from prospective clients.

There are no guarantees, and he recognizes that. Balancing the needs of several different specialty brewers will be complicated.

“It’s going to be difficult, but we know that going in,” Sellier said. “The brewery, the layout, the equipment, the software, everything we’re doing, is going to be built to accommodate that. So we plan to be better at handling that than any other brewery in the country.”

And there’s a market for craft brewing facilities. According to the Brewers Association, there were 105 U.S. craft brewers operating as contract breweries and 38 more using the contract model along with their own facilities in 2011.

While contract brewing can help startups avoid many foundation-breaking costs, it also provides capacity, a factor of increasing importance. With 376 craft breweries launching in the past year and a total of approximately 2,263 craft breweries in the U.S., competition for tank space is rising, especially among those without their own brewery.

“I think we’re already seeing that capacity is drying up pretty quickly,” said Helder Pimentel, co-founder of Backlash Beer Company, which started seven years ago in the kitchen of a small apartment in Allston, MA, and contracts its beer with Paper City Brewery in Holyoke, MA. “It seems like there are more and more brands kind of throwing their hat into the ring and utilizing the contract model to get their beers to market.”

Nico Freccia, co-founder of nationally-distributed contract operation 21st Amendment, believes that with its strategy of bridging startups and large-scale breweries, Beltway could have a potentially large clientele.

“I personally think that’s a great model,” Freccia said of Beltway. “There are a lot of fast growing small and mid-size breweries out there that will be looking for capacity.”

21st Amendment’s own experience indicates that a brand can be built through contract brewing alone. The company, which is contracted with Cold Spring Brewing Company of Cold Spring, MN, produced 12,400 barrels in 2010, 24,100 barrels in 2011 and 42,000 barrels in 2012; its growth rate emulates several other breweries that have already walked this path.

However not all business models align with contract breweries. Chris Tkach, founder and head brewer of Idle Hands Craft Ales in Everett, MA, said that the margins associated with contract brewing can’t be profitable at the much smaller nanobrewer level. Idle Hands, which Tkach said plans on staying local, produces 1.5 barrels per batch and would expand only to 10 to 15 barrels at most — he doesn’t want to saturate the Boston market.

“I want to know every one of my customers,” he said. “To me, a local beer is a fresher beer and a better beer. I don’t see the benefit of me trucking my beer all around the country when I certainly have a market here for it.”

Beltway, which some have called a craft beer incubator, will instead focus on startups that have plans for national distribution. It will be where a startup brewery can help its brand grow — expand production and build a fan base — at a cheaper cost without surrendering quality.

“There’s still a gap that needs to be bridged,” Sellier said.

With a four vessel system, Beltway will service breweries looking to produce around 30 to 90 barrels per batch; a batch size that some believe could garner serious interest.

Beltway’s space will contain 8,000 square feet, but Sellier said that by the time the DME equipment arrives, he expects that number to grow to 10,000 and in a few years, 15,000.

“It’s absolutely perfect for any brewery really, but especially for our operation,” he said. “We expect to see steady growth and continue adding tanks over time as we can accommodate the demand that’s out there.”

Sellier also said that he’s planning on adding a new tank every quarter beginning in the brewery’s second year of operation. In the first year, he expects to have enough capacity to brew 6,000 barrels and sell 4,400. In the second, 10,500 barrels produced and 8,400 sold. 15,500 and 12,700 in the third. The size of the tanks will depend on demand, because every brewery will have its own batch in mind. If necessary, he plans on having the option to introduce 180-barrel tanks.

“We want to make sure that we’re hitting our goals of quality and consistency and growing slowly and carefully,” Sellier said. “Once we’ve done our first few batches and everything is coming out as expected, and we’ve got extremely satisfied clients, then we’ll start adding more to the mix.”

Beltway’s devotion of its capacity exclusively for client projects is what differentiates it from other contract brewers such as The Lion Brewery, Inc., or Olde Saratoga Brewing Company, which make their own brands like Lionshead, a standard American lager, and Saratoga Lager, while also renting out space and tank time to contract brewers. Many contract breweries sprout from extra capacity, a need for profit and a little initiative. Beltway, on the other hand, is being built for the customers.

“The original idea,” he said, “came out of the simple fact that I was looking for this service and I couldn’t find it.”

Sellier plans on starting Beltway by contracting with approximately five different beer brands. He said that double imperial stouts and six-to-eight week lagering, for example, may be too expensive to service from the start (tank space is everyone’s prized jewel), but he won’t rule out any client in the long run.

“Our first clients, I know we need some people that can be flexible as we get to know our system,” he said.

By choosing to brew only contracted clients, opposed to his own beer, Sellier hopes to deliver the message that the client comes first. It may sound trite, but it’s a message that continues to draw clients and, as he’s recently discovered, investors.

Some Beltway investors were already fans of craft beer. Others were individuals who have experience with entrepreneurs and simply appreciate a good business model. Once potential investors understood the potential of the craft beer industry, Sellier said, it became an easy sell.

“It’s taken time and of course it’s been a challenge, but from what I’ve found, wealthy people are looking to find something different than the stock market,” he said. “They’re looking to invest in small business and startups and someone with a passion and a dream.”

View the original article from Brewbound here.

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