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Small Business
Getting started: Brewing
August 27, 2001: 1:34 p.m. ET

A good recipe, a lot of money and a little luck can create a loyal clientele
By Hope Hamashige
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NEW YORK (CNNfn) - It usually starts, as it did with Bert Grant, with a fine recipe for a delicious home brewed ale or lager or stout. As the story goes, Grant had a home brewing operation, a four barrel brew kettle, set up at his home in Yakima, Wash.

Friends and neighbors often stopped in to beg a pint from Grant, who obliged, but he decided the demand was a sign there might be a business in his beer. And about 20 years ago, in 1982, he got a license and started selling hand-tapped ales in the lobby of his tiny home brewery.

According to his admirers at the Boulder, Colo.-based Institute for Brewing Studies, the Scottish-born Grant developed a reputation in the Pacific Northwest for brewing beers heartily flavored with locally grown hops. He also was known as a colorful host who occasionally showed up at the pub in a kilt and clan pin and more than occasionally danced on the bar.

By 1995 Grant was being courted by buyers, and he sold that year to Stimson Lane Ltd., which makes such wines as Chateau Ste. Michelle and Columbia Crest, for an undisclosed sum. Stimson Lane is owned by UST Inc. (UST: Research, Estimates).

Grant's was the first post-prohibition era brewpub in the United States. It certainly was not the last, however. As more Americans have taken to the richer tastes of hand-crafted beers, the number of brewpubs has grown to just about 1,456, according to the Institute for Brewing Studies. Grant passed away July 31, 2001.

But as the number of breweries and brewpubs has grown, so too has the competition. These days, said the Institute's Paul Gatza, the competition is getting a lot tougher.

"Very flavorful beer was new and different," Gatza said. "Now, a brewery on its own is not enough. The ones that succeed usually do so because they have a great restaurant along with a great brewery."

Recipe is just the beginning

Having a great recipe is essential to getting started in the microbrewery or brewpub business, as is a permit from the U.S. Treasury Dept.'s Bureau of Alcohol, Tobacco and Firearms as well as a license from the state. But that only gets you so far. These days the hardest part about starting this kind of small business is raising the money to do so.

Opening a nice brewpub will cost upward of $1 million. If you also plan to bottle and distribute the concoctions somewhere other than your own microbrewery, it can cost many millions more.

John Hickenlooper, who owns Wynkoop Brewing Co. in Denver, said he
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spent $420,000 opening his brewpub in downtown Denver in 1986. At the time, downtown Denver was far from a hotspot his was the first restaurant to open in the area in five years. The city was so excited that then-Mayor Federico Pena attended the ribbon cutting.

Hickenlooper got the idea of opening a brewpub after visiting one in Berkeley, Calif. It was a Wednesday night, he recalled, and there was a line out the door. Hickenlooper, who had lost his job in the oil industry, teamed up with Russ Shearer, a prize-winning home brewer who lived in Denver, and pitched him on the idea of selling his unique concoctions at a brewpub in downtown Denver.

The two hit up everyone they knew, including Hickenlooper's Little League baseball coach, for money to invest. Most people, including Hickenlooper's mother, thought the idea was ridiculous.

"My own mother kept asking me, 'Why would anyone want to go to a brewery?'" he said.

The brewpub teetered on the brink of folding for the first three or four years. Eventually, the serious beer lovers found their way to Wynkoop to taste the freshest brews in Denver. After seven years in business, several near bankruptcies and many anxiety attacks, Hickenlooper said he had paid back his investors and was taking in $6.5 million a year in sales.

More than just great beer

As difficult as it is to make it in the business, the failure rate for brewpubs and microbreweries, Gatza said, is lower than for traditional restaurants. A survey conducted by the Institute revealed that one in every 3.5 brewpubs goes out of business, and one in every 3.0 microbreweries is likely to fail. Many brewpubs turn a profit in a year, he said.

These microbrewers have changed the way Americans think of beer, and are the main reason drinkers in the United States now can order thirst-quenchers like wheat beer and raspberry ale. Their good taste and distinctive recipes won't always keep them alive, said Gatza.

"They have to be persistent and have to pay attention to all the details," he said.

As with many small businesses, however, running a brewpub takes a lot more than just knowing how to make a great product. It also means learning the basics of running a business writing business plans, keeping books and hiring good help.

"You also need to be one part chef, gracious host, diplomat and labor relations officer," he said. "It also helps to be in the right place at the right time. We were, and with that we almost went out of business two or three times. A big part of it comes down to luck."

Hickenlooper said he benefited from a very low rent at the time he opened because downtown Denver was considered a bit of an undesirable neighborhood at the time.

Luck was on his side again in 1995 when Coors Field, the stadium for the Colorado Rockies, opened up a few blocks away. The baseball fans boosted revenue at Wynkoop by 50 percent during the Rockies' first season. And, Hickenlooper said, they still are having double-digit growth, much of which he attributes to baseball fans.

"I've always said it's better to be lucky than good," he said. graphic

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