Chain Brewpubs Shine on the American Craft Beer Landscape

March 1, 2012 By Rick Lyke

The craft beer movement has always been one part quality, one part creativity and one part rebellion against corporate business practices that place an emphasis on efficiency, operating systems and conformity. In the early days of craft beer this, David vs. Goliath philosophy came to life most vibrantly in the form of brewpubs.

Places such as McNeil’s Brewery in Brattleboro, VT, and the Lucky Labrador in Portland, OR, dialed up the counter-culture feel as they built reputations for mastering the brewing arts. Brewpubs wore “different” as a badge of honor. Even with the quirkiness, there was a sameness about the brewpub experience for much of the 1980s and early 1990s. The beer was great, the décor pretty much all the same and the food and service were usually a hit-or-miss proposition. Certainly there were a few exceptions to this rule of thumb, but any objective observer at the time would tell you that the emphasis was solidly on the brew in brewpub.

Most beer fans were willing to forgive the shortcomings of brewpub kitchens. After all, these were the early days of  the birth of American craft beer revolution and most people were focused on discovering new brewers and beer flavors. Brewpubs offered fresh craft beer, serving up styles that the average restaurant bar manager at the time did not even know existed. You learned to eat defensively. Burgers and chicken wings were usually a safe bet unless you were in a place such as Empire Brewing in Syracuse, NY, or Wynkoop Brewing in Denver that cultivated well-earned reputations for food.

Beer and Food

The beer business is a dog-eat-dog environment. Getting started, with equipment expenses, government regulations, recipe development and staff training is a complicated dance. Bottling lines are massive investments and obtaining shelf space at retail stores is extremely difficult. Going toe-to-toe against large breweries with national advertising budgets to slug it out for tap handles at bars and restaurants is equally challenging.

The genesis of the brewpub as a cornerstone of the craft beer movement is directly linked to these beer industry facts of life. Competition and costs dictated that many startup brewers needed to create their own retail distribution. As laws changed allowing brewpubs, some states required that food also be sold. That created a potential revenue stream for the brewery, but brought with it another set of headaches. The restaurant business is not for the faint of heart.

How tough is the restaurant business? According to research by Dr. H.G. Parsa in 2007 while at Ohio State University’s Hospitality Management program, very tough. Looking at 2,500 restaurants in Columbus, OH, Parsa found that one in four closed or were sold in the first year. After three years, the total closed or sold was 60 percent. And most of these businesses didn’t have the added complexity of a commercial brewery on premise. With these kinds of odds, Las Vegas starts to sound like a better place to invest money.

Even with these daunting odds, brewpubs became the backbone of the craft beer movement. According to the Brewers Association, 59 percent of the 1,759 breweries in operation in 2010 in the U.S. were brewpubs. While they may not match industry giants on quantity, the existence of these breweries enables the Brewers Association to point out that the majority of Americans now live within 10 miles of an active brewery.

Consistency and Scalability

Brewpub chain would appear to be an oxymoron. Operating a successful multi-unit food service business is all about systems, procedures and manuals. Not exactly the sort of behavior of most early craft brewers. Interestingly, many of the habits that result in great beer–including consistency and quality control–are vitally important to a successful chain restaurant.

According to data from the Brewers Association, more than 60 brewpubs in the U.S. have more than one location. The scalability of a brewpub concept depends on a great many things, including strong management, the talent of the brewing team and the ability to attract and retain talented kitchen and wait staff. It is a simple fact of life for anyone wanting to open a brewpub that poor management, subpar beer, bad food or lousy service can quickly sink the business. You have to do them all well to have a ssuccessful brewpub chain.

The Brewers Association considers a company to be a brewpub if at least 25 percent of beer sales are done on-premise. In 2010, 55 new brewpubs opened and 33 closed.

Mike and Brian McMenamin trace their roots in the restaurant business back to 1974, but it was not until they opened the Hillsdale Brewery & Public House in 1985 that they started brewing. Now they have 60 locations, including brewpubs, pubs, hotels and movies theaters. Brewing actually takes place in 24 locations in Oregon and Washington. Besides brewing beer, McMenamins also runs two distilleries, a winery and a coffee roaster.

Conformity and Creativity

“Each of our breweries is responsible for keeping the company standards—Hammerhead, Terminator, Ruby and the current seasonal offering-on tap at their locations at all times,” said John Richen of McMenamins. “They are also expected to fill tap handles with one Pacific Northwest style IPA, one porter and one wheat beer, all with recipes of their own design. That leaves them three or four extra taps to experiment with other styles.”

For McMenamins, having so many locations gives them a wider exposure for the brand. “We have a community identity across multiple and often vastly different demographics,” Richen said. “And we have the financial leverage from stronger performing locations to help slower locations get their legs under them initially.”

When it comes to overall beer sales, BJ’s Restaurant & Brewery moves the most beer as a brewpub chain. The more than 53,000 barrels sold at BJ’s locations includes beer brewed in its brewpubs and beer made for the company under contract. BJ’s operates 109 casual dining restaurants in 13 states from California to Ohio.

In terms of market presence, brewpubs operated by CraftWorks Restaurants & Breweries, with dual headquarters in Louisville, KY, and Chattanooga, TN,  have the largest footprint. How is the footprint measured: sales, volumn, reach?In 2010, Centerbridge Capital Partners formed CraftWorks by acquiring the Rock Bottom Restaurants and Gordon Biersch Brewery Restaurant Group. This brought together nearly 200 company- and franchise-owned brewpubs with brands including Rock Bottom, Gordon Biersch, ChopHouse and Big River. The Old Chicago chain is also in the mix which sprawl out over our country.

Both BJ’s  and Craftworks did not respond to requests to be interviewed for this article.

Growing Into Brewing

The Ram operates 17 on-site breweries at two chains, the Ram Restaurant and Brewery and CB & Potts restaurants. The  Big Horn Brewery is an off-site operation. Founded in 1971where? I couldn’t find it on the website, it was not until 1995 that Ram started brewing. The company also operates Sonrisa Modern Mex, CI Shenanigans, The Stonehouse and Murphy’s Steak and Seafood.

“Our beers appeal to the uber beer geek and the casual consumer because of the quality and care that goes into brewing beers of all styles,” said Dave Iverson, a partner in The Ram. “Not a lot of companies with multiple locations are continuing to do what we do. More and more of them are contracting out their beer or bringing it in across state lines.”

Because the company started out with a non-brewpub model, they have continued to serve other domestic and import brands because, Iverson said, “We have always recognized the fact not every one of our guests wants a micro beer.”

Fermenting Change

Granite City Food & Brewery operates 26 restaurants in 11 midwestern states from Toledo, OH, to Wichita, KS. The company opened its first location in St. Cloud, MN, in 1999. According to Granite City’s President and Founder Steven Wagenheim, their concept is serving “made from scratch food and made from scratch beer.” He said a centralized brewing operation in Iowa and a double-patented brewing process has made it possible for Granite City to grow.

“We have a centralized brewing plant in Iowa and finish all of our beers on-site,” Wagenheim said. “We call the process fermentas interruptus. The expensive part is making the wort and we do that under one roof with one brewing team. We add the yeast at our restaurants and in 19 to 35 days you have beer.”

Wagenheim said Granity City beers are consistent because the same water source is used for brewing. The company started by focusing on house beers and once that was perfected added seasonals and specialty products. “We’ve taken the complexity out of the equation,” Wagenheim said.

Granite City averages 4,500 Mug Club members at each of its restaurants. These regulars get invited to tapping parties for seasonal beer launches, enabling the company to stay connected with its best customers.

Wagenheim expects Granite City to add locations in the next two years. He said the company’s success is tied to the food side of the operation, while avoiding the trap of being “way too focused on beer,” a problem that he said has caused other brewpub chains to fail.

“Our menu pricing is focused on a mid-American, mid-income range of customers,” Wagenheim said. “We recognized from the start that beer is important to our concept, but for longevity we had to be focused on the food we serve.”

Crafting a Chain

Mark Edelson, a homebrewer and one of the founders of Iron Hill Brewery & Restaurant, said the idea of building a chain was discussed by his partners before the first location opened. “We recognized it would be difficult for the three of us to make a living off of a single location,” Edelson said. “Our plan was to open a second place within two years of the first.”

When the first Iron Hill location in Newark, DE, opened in November 1996, it was a hit almost from the start and the partners began plans to open the second location.

“The second one is the hardest. It is really the only time in the life of the business when you will increase everything in the company by 100 percent. It can be very stressful,” Edelson said. The company has brewpubs in Pennsylvania, New Jersey and Delaware.

The success of Iron Hill is rooted in great beer–the company has won more than 30 medals at the Great American Beer Festival–but with a ninth location about to open and a 10th in the negotiation stage, beer is just one part of the equation.

“A lot of people got in the brewpub business focusing on beer first and food was an afterthought,” Edelson said. “We took beer very seriously. We took the food very seriously. And we take the service very seriously.”

Friendly Competition

Brewers at some brewpub chains keep things fresh by competing internally with new quality beers. Edelson said a 15-year streak of GABF medals and internal programs help stoke the competition among the brewing team.

At McMenamins, brewers at different locations face off against each other for bragging rights several times a year. One contest determines which McMenamins beer is served at the Oregon Brewers Festival. Another internal competition selects the company’s Holiday Ale Festival brew for the Thompson Barley Cup.

With the continued growth of brewpub chains, you might be tempted to think of them as “McBreweries,” but the truth is that most of these companies have carved out well-earned reputations for brewing great beer. And anyone who travels on a regular basis will tell you that spotting a trusted name for good beer and cuisine is a welcome sight.