A Brewing Industry

Craft breweries increase in popularity throughout region

BY KRIS BEVILL

Anew trend has been brewing throughout the northern Plains over the past few years. Craft breweries, roughly defined as independently owned microbreweries that produce beer unique to that establishment, have been opening their doors throughout the region in order to serve growing demand for craft beer and alternative gathering places. North Dakota is now home to five breweries and multiple others have opened throughout South Dakota and the Minnesota lakes area, with more on the way thanks to relaxed restrictions and a public thirsty for choices.

Opening the Legislative Tap

Legislative changes at the state levels have only recently allowed breweries to open tap rooms and sell their products in-house. Other regulatory changes have also now made it possible for craft brewers to independently distribute their products to other businesses without enlisting a wholesale distributor.

Before Minnesota legalized tap rooms in 2011, brewers could only give away samples in a sampling room, which didn’t exactly lend itself to profitability, says Tina Hanke, one of four owners of the Bemidji Brewing Co. in Bemidji, Minn. “Now you’re able to sell full pints, sample trays, in addition to growlers and of course you can still sell wholesale,” she says. “Having that many more products available that you can sell directly to your customer rather than having to distribute all of it is a huge boon, especially for a starting business.”

The state of Minnesota approved tap rooms two years ago, but the legislature left the licensing specifics up to each municipality, so entrepreneurs like the Bemidji Brewing group had to engage city leaders to educate them on tap rooms and the purpose they serve before being granted a license to open. “They pretty much had to create a new license for us because we’re not a bar and we’re not a restaurant,” she says, adding that once the city council learned about the group’s plans they quickly came on board and Bemidji Brewing Co. was able to open its tap room in June.

North Dakota’s legislature just passed a law earlier this year allowing craft breweries to open tap rooms and distribute their product without the use of a distributor so long as the amount of beer sold does not exceed 10,000 barrels per year. The new law has impacted North Dakota’s first wave of breweries to varying degrees. The Fargo Brewing Co., which was established in 2010 and was already using a distributor to sell its product in the area, moved its brewing operations inhouse and opened a tap room in September. The Laughing Sun Brewing Co. in Bismarck, which opened as a brewpub and brewery in late 2012, is now eyeing opportunities for distributing its craft beer to other locations throughout Bismarck-Mandan.

Thirsty for Change

Another factor contributing to the recent ramp-up of craft breweries throughout the region is simple supply and demand. The popularity of craft beer is on the rise throughout the nation — about 7.3 million barrels of beer were sold by craft brewers nationwide during the first half of this year, up from 6.4 million barrels during the first half of 2012, according to the Brewers Association. The Midwest has been slower to embrace the craft brewery trend, as with most national trends, but local demand has also been steadily increasing and breweries were needed in order to serve the market.

The fact that the local market was entirely underserved was a deciding factor in Fargo Brewing Co.’s decision to base its company where it did, Anderson says. When he and his brother, John, initially began planning to open a brewery several years ago, they intended to open a space in the craft beerloving Pacific Northwest, where he was first introduced to the product. But after realizing that the existing strong market for craft brew in that region also meant ample competition for shelf and tap space, the pair decided to focus on Fargo instead. “At the time there was nothing in Fargo or the surrounding area,” he says. Happenstance led the brothers to connect with Jared Hardy and Aaron Hill, who had separately also begun planning a craft brewery, and the four joined forces to make their like-minded plans a reality in the Red River Valley.

The founders of the Laughing Sun Brewing Co. and Bemidji Brewing Co. share similar tales of having a passion for craft brewing and a desire to share that passion with oth- ers in a unique setting. Mike Frohlich and Todd Sattler, co-owners of Laughing Sun Brewing Co., brought their respective backgrounds in brewing and law together to launch their business and become Bismarck’s first brewpub in 2012. Neither Hanke nor any of her fellow Bemidji Brewing Co. owners, Justin “Bud” Kaney, Tom Hill and Megan Betters-Hill, are originally fromBemidji but they chose to open their business there because they saw the need for a unique business and had a passion for craft brewing.

Economic Impacts

Sales have met or exceeded expectations at all breweries since opening and owners expect to continue to grow their in-house sales as well as expand their distribution areas in the near future.

Bemidji Brewing Co., which got its start brewing beer in a community kitchen for one tap account using equipment the founders purchased with $16,000 raised through a Kickstarter project, now has $30,000 invested in its tap room and brews about 20 barrels of beer each month, equal to about 5,000 pints. “It’s quite a bit of beer compared to what we were brewing before but it’s still small on a scale of what breweries can do,” Hanke says. The taproom typically offers four or five types of beer for patrons to choose from and is open Thursdays through Saturdays. Customers so far have been a mix of tourists, locals and college students. Hanke says the founders are currently focused on growing the business large enough to support all four owners in full-time positions and keep up with demand from its growing customer base. “It’s a huge financial commitment to start a brewery, so we’re easing our way into it,” she says. “The demand is there,

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(continued from page 32) it’s just a matter of how can we grow smartly and not take on too much debt.”

At an average age of 28, the owners of Bemidji Brewing Co. represent a much-needed segment in communities throughout the region — young entrepreneurs. The foursome has also embraced downtown Bemidji for its place of business and is happy to play a role in downtown redevelopment efforts. “It’s been a good experience so far and I feel like Bemidji has a lot of good energy,” Hanke says. “It’s been a nice time to start a business in this town.”

Fargo Brewing Co. took the unique route of contracting with an out-of-state brewery to produce its beer when it incorporated in 2010, selling it at local bars and restaurants to generate revenue and gauge the market before moving ahead with its own brewery plan. “Contracting allowed us to prove the business model to ourselves, the bank and the area and move that into building our own production space here in Fargo,” Anderson says. Total project costs for the company’s brewery, including production equipment, the packaging line and other items came to just over $1 million, half of which the company was able to raise through early distribution revenue and private investors. Three of Fargo Brewing Co.’s owners currently work full-time at the brewery, which offers between four and eight styles of beer in the tap room three days a week. The company sells between four and six kegs each week, according to Anderson, and plans to continue distributing to other locations, eventually expanding to serve the entire region. “In the not too distant future we’re looking at expanding into parts of Minnesota, South Dakota and eventually working our way down towards the Twin Cities,” he says.

While Fargo Brewing Co.’s tap room hasn’t been open long enough to gauge its impact on the downtown Fargo area, Anderson steadfastly believes that craft breweries have a unique and positive impact on local economies. “Beer and breweries tend to become social meeting places,” he says. “They exist in an area between a restaurant and a bar and they tend to really foster a sense of community. A brewery can make a huge difference in a town’s overall feel and appeal.”

Laughing Sun Brewing Co.’s Sattler agrees that breweries offer a unique atmosphere and style of business that promotes a sense of community, to the benefit their local economies. “In a place like Bismarck, where it’s just starting to get a lot of different types of businesses downtown, we think we are a part of that,” he says. Kate Herzog, marketing and assistant director for Bismarck’s downtown business association says Laughing Sun fits well with the downtown area’s desire to promote local and unique experiences. “We always look for the thing that contributes to the identity of the community,” she says. “It really did fill a demand that we had heard of. They’re really tied into the local economy of downtown.”

Laughing Sun Brewing Co. is open seven days a week and usually has nine types of beer on tap for its patrons, who can also listen to live music several nights each week and peruse local artists’ collections hanging on the brewpub’s walls. The brewery is located in the historic Laskin Building in downtown Bismarck and was renovated almost entirely by Sattler and Frohlich, with the help of family and friends. That sweat equity saved the pair mightily in start-up costs and they were able to get the business up and running for about $250,000. Sattler and Frohlich have made the brewery their full-time occupations and currently employ a staff of eight. Sattler says the brewery is on pace to exceed its goal of producing 400 barrels of beer by the end of the year and may begin distributing product to bars and restaurants in Bismarck soon. “Right now we’re producing all that we can and we’re serving it all in the pub, so it’s been great,” he says.

As other taprooms and breweries open throughout the area, including in Minot, N.D., Moorhead, Minn., and Brookings, S.D., existing craft brewers say they welcome the friendly competition. Anderson notes that craft brews account for less than 10 percent of all beer sales in the U.S., so while they may compete with each other, there is more camaraderie than competition among craft brewers as they work together to compete with large breweries. “We as craft brewers tend to have a very good working relationship,” he says. “I know that if I had an issue with something, I could call any of the people I know in the industry and they would help me out.”

“That’s one of the things that really appealed to me about the industry and what we do there is a lot of collaboration,” adds Sattler. “That attitude brings people out that might not have done it otherwise. When you know you’ve got other people in the industry supporting you, it’s a great thing.” PB

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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