Tuesday, March 12, 2013

"Beer City" Means Business

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By Doctor

The craft beer industry has been great for the state of Michigan, particularly in West Michigan and Grand Rapids which looks to defend its title “Beer City U.S.A.” this spring. Michigan breweries and beers have become internationally renowned and made parts of Michigan travel destinations for craft beer enthusiasts. The industry has become not only a great sense of pride but it also means big business.

Recently, I got to attend a panel discussion hosted by the Michigan State University Broad College of Business titled “Food and Entertainment Entrepreneurship in West Michigan” that basically focused entirely on craft beer industry, specifically on the economic and business impact.

Of course, this should have been too surprising given the make-up of the panel who each offered unique and valuable insight on the craft beer industry in West Michigan. Our panelists:

Bonnie Knutson – MSU hospitality professor at The School of Hospitality Business
Mark Sellers – Owner of BarFly Ventures including Grand Rapids Brewing Company, Hopcat, and Stella’s
Kara Wood –director of Economic Development for Grand Rapids
Dan Slate – co-founder of the Brewers Professional Alliance
John Zwarensteyn – panel moderator and president and CEO of Gemini Publications which The Grand Rapids Business Journal

It was a fun and informative panel. I learned a few things about the history and impact of the Michigan craft beer industry that are definitely worth sharing.

Why Grand Rapids/Michigan?
  • The Water: Yes, water makes a big difference and Grand Rapids has excellent high quality water for brewing beer without having to overly treat it.
  • Cheap Real Estate: Grand Rapids also had lots of affordable space available downtown. Breweries, particularly fermenting tanks require a lot space, and Grand Rapids happened to have a lot of old space available at reasonable for rates for breweries to locate here. Founder’s Brewing Company started out in the Brass Works Building because “it was the cheapest place in town.”
  • Tax Incentives: Breweries in Grand Rapids have taken advantage of state and local tax incentives and redevelopment program funds. The former Renaissance Zone tax credit program saved Founder’s $20,000 - $25,000 annually in local and state business taxes early in their business. Breweries continue to do so, Founder’s will receive a $2 million grant as part of their recently announced $26 million expansion and Arcadia Brewing Company will receive $1 million in state grants to assist their expansion in Kalamazoo.
  • Passion: Mark Sellars appropriately acknowledged the huge influence of Larry Bell who paved the way through educating and inspiring many of the home turned professional brewers in Michigan.
  • Innovation: There was no better example than the Michigan Winter Beer Festival in February of the incredible innovation currently underway in Michigan beer. All you have to do is try Bell’s Hopslam, Founder’s Kentucky Breakfast Stout, or anything from Short’s Brewing Co. (Carrot Cake beer anyone) to taste the innovation. Of course, that is if you can actually get your hands on some of the best renowned and in-demand beer in the world. It’s a stark contrast to Germany which is famous for their beer (e.g. Oktoberfest) yet strict “Purity Laws” state that only water, barley, hops, and yeast are allowed in beer production. I guess that’d be a no to using smoked Mangalitsa pig heads in the brew (seriously, it smells like bacon).

 The impact:
  • Place Making: Place making is the NOW economic buzzword (think Hansel in Zoolander – we’re so over “cool cities”). Wood used Founder’s as great example – it’s a place people congregate towards, not just for happy hour, but residents, businesses, and transit benefit from its location in downtown Grand Rapids.
  • Employment: Grand Rapids’ newest brewery and BarFly venture, the revived Grand Rapids Brewing Company, has 85 employees. After its recent expansion, Bell’s now employs roughly 250 people. The Founder’s expansion is expected to add another 50 employees. These jobs go beyond bartenders and servers; expanding breweries require engineers, administrators, and other professional employees.
  • Growth: Michigan outpaced the nationally expanding craft beer industry last year as 17 new breweries opened their doors and the state craft beer industry grew 20%.
  • Repatriates: The craft beer industry has helped promote Michigan pride has begun to help retain college graduates and lure people back home (myself included).

What’s next?
  • More Growth: Expect more breweries to emerge as barriers to entry remain low; consumers become more educated and demand increases. The panel suggested that towns with as little as 4,000 people can support a brewpub – hello, Lowell, the Next Place to Be.
  • Support Industries: The state has allocated funds to researching hops growing in Michigan which could be another great cash crop for Michigan farmers and help lower the cost of an essential beer ingredient for Michigan brewers. Also, expect more companies like Beer City Glass to emerge providing products (e.g. pint glasses and growlers) and services for Michigan’s craft beer industry.
  • Distilleries: As the beer industry has followed the wine industry, expect micro-distilled spirits to continue to emerge in Michigan like New Holland Brewing Co. and Michigan owned Blue Nectar Tequila. Just as consumers have become more educated and expect better quality beer and wine, spirits are sure to follow suit.
  • Legal Changes: Many of Michigan’s alcohol beverage control laws (ABC laws) date back to prohibition, and are hindering the growth of the industry. Especially the current distinction of brewpubs and breweries. Brewpubs can have a liquor license and sell other beer and spirits on-site at the brewpub but cannot distribute to other bars or retailers. Breweries can distribute to other bars and retails (through a distributor) but can only serve the beer they make themselves. For example, Mark Sellars cannot sell beer he makes at HopCat down the street at Grand Rapids Brewing Company and vice versa despite the fact he owns both establishments because they are classified at brewpubs. Likewise, Michigan ABC laws prevent any one individual from having ownership in more than three breweries which is an obstacle for Sellars who owns two (HopCat & GRBC), is opening another HopCat in East Lansing, and wants to open another brewery in Lansing but to do so needs the law to be changed. Needless to say, eliminating those legal barriers are important to the growth of the industry.
  • Unique Experiences: While the craft beer market hasn’t become oversaturated, the brewpubs and breweries that continue to succeed and grow will still need to different themselves and offer unique experiences for the consumers. Expect for beer and food pairings, brewery tours, themed brewpubs, and partnerships with other industries that will help them educate new craft beer drinkers and create a special experience for those who are already craft beer enthusiasts.

Wow. That really escalated quickly. I mean that really got out of hand. Brick killed a guy with a trident, and I just wrote over 1100 words on Michigan craft beer. I hope you enjoyed it and learned something.

Please share any additional questions or comments here, on Facebook, or on Twitter @MichiganExpats.