Saturday, November 29, 2008

Short Week

I hope all y'all had a great Thanksgiving! It was a short week for me, both because of the holiday and because I'm running low on things to do. A lot of the near-term tasks are out of my hands: our lawyer is making a few changes to our operating agreement, Jane is updating her bio for the business plan and our real estate agent is searching for buildings. Once the operating agreement is ready, another attorney will review our investment offering for compliance with securities and tax laws. In the meantime, I scheduled meetings with an accountant and an architect - as well as a couple of property showings - for next week.

Jane and I know what architects do in the general sense, but we're pretty clueless about the specifics. We know that Madison won't give us a building permit without facility drawings that are signed by a registered architect or engineer, so we'll probably need to work with one at some point. Some of the things we don't know are when we should start talking with architects, whether or not they can help us evaluate sites, and how we can approach them without sounding like idiots. This website was a huge help:

American Institute of Architects: How Design Works

In other news, my wife is pregnant! Her due date is early June. I could write pages about how excited I am, but that's not why you're here. As far as it relates to the business, it basically means that I'll have to be making money by July. Daycare alone will cost more than my wife's salary will be able to cover. The brewery won't need to be open by July, which isn't remotely possible anyway, but I'll either need to have raised enough money by then to start paying myself or I'll need to get a part-time job. The responsible future parent in me is screaming "get a job now!" while a more optimistic part of my psyche is saying "you're too far along - you'll have to quit any job you take in two months." If I knew what I know now, I'd have looked for a job as soon as I got back from Vermont. I'd be much farther away from opening the pub, but I'd be in better financial shape and I wouldn't feel nearly as weighed down by urgency. How naive was I to think that I'd be renovating a facility several months ago? Am I still being naive in hoping that I can raise $600K and find a location before next summer? Jane could have spent the last year working abroad instead of lingering at a job that she hates. I could have gotten another year of commercial brewing under my belt, or I could have learned to bartend, cook or wait tables. I hope I won't be saying the same things at this time next year.

Saturday, November 15, 2008

Unofficial Accountability Update

Last week was a pretty busy one at RePublic HQ. I met with a couple of commercial Realtors to get the location search rolling, which I believe will be important to our success because bars and restaurants are usually sold without being advertised. Since a restaurant for sale would probably lose huge amounts of business after appearing in a classified ad, it makes sense for its owner to try and conduct the sale by networking through a real estate agent. Whether Jane and I buy an existing business or take over the lease of an already-vacated facility, I think the cost of startup will necessitate that we move into a location with tavern infrastructure in place.

Between meeting with realtors, I met up with a commercial kitchen designer to make sure we're looking for locations in the right size range. The designer I met with was surprised that I contacted him directly because he's usually recruited by architects. His typical role - and I'm simplifying here - is to determine which kitchen equipment will be required to execute a particular foodservice concept, work with a design team (typically coordinated by the project architect) to determine the kitchen layout, and inspect the equipment deliveries to ensure that the terms of purchase were satisfied. The meeting was very helpful, but the location we choose will play a large part in determining whether or not we hire a designer. If we're able to inherit a fully-equipped pub, we probably won't need one. If our eventual location requires an overhaul, hiring a designer would probably be money well-spent. The good news for now is that my sizing estimates were solid.

The hop search took a turn toward urgency as I continued to talk with HopUnion. The dealer told me that most of the varieties I'm looking for are 80% contracted for next year, meaning that 80% of the expected 2009 crop has already been purchased. I plan on committing to a contract next week, after doing a bit of last-minute scrambling to see what else is out there. These will probably be my options:

1. Talk with another US hop dealer to see which organic varieties they expect to have available for contracting. I received a return call from a sales rep last week, but he wasn't around when I called back. If the dealer has what I'm looking for, I'll sign a contract with them.
2. Sign a one-year contract with HopUnion for non-organic hops. The grower I'm buying my 2009 Cascades from expects to plant more varieties next summer. It usually takes a minimum of two years for newly-planted hops to produce worthwhile yields, which means I could be buying all Wisconsin hops by the fall of 2010.
3. Sign a three-year contract with New Zealand Hops for organic varieties that will impart a harsh bitterness to my beer.

I'm optimistically hoping that option #1 bears fruit, but my fallback plan is option #2. Buying organically is one of my long-term goals, but I can't justify the combination of shipping from New Zealand (i.e. trading one environmental benefit for another), committing to buying non-local hops for three years and compromising on my desired specifications. Option #3 was a lot more attractive five months ago when it was my only option.

Jane and I also received some excellent business plan advice from an experienced investor. His general advice was to elaborate more on ourselves (we should be trying to convince people to believe in us as much as our idea), remove tavern management specifics (e.g. menu items and employee policies) so we'll have the flexibility to adapt the business to its customers, and include more local market data (which is admittedly difficult to find). The meeting actually made me excited to revise the business plan, which I plan to do in conjunction with finalizing a hop supply next week. In the back of my mind, I'll be getting ready to ask some architects how they're typically involved in evaluating potential tavern locations.

Friday, November 14, 2008

How Stupid Is It?

Complaining about the Brewpub Bill is the closest I'll likely get to writing a regular feature on this weblog. Thanks to the bill's existence, RePublic will be required by law to sell other breweries' beer. If Dotty's was suddenly forced to sell another restaurant's burgers, you might ask "how did that other restaurant get so much political influence, and how could our legislators cater to it so shamelessly?"

Since the law doesn't quantify an amount to sell, I assume that I'd need to have an alternative beer available at all times. After exhaustive research and number crunching, I'm projecting that RePublic will sell one six-pack of it per year (rounded up to the nearest six-pack). Yes, that will allow me to have a bottle on-hand for anyone who wants to order one. If I can't find a distributor who's willing to drive to my pub every four years to sell me a case of beer, will the courts force me to stock excess inventory and/or spend money to advertise a beer that I didn't brew?

Changing gears, sort of, an ideal situation would be to have a brewery in the same building as the pub. However, in these tough economic times, it would be far less capital-intensive (i.e. easier to raise the required money) to open a pub in an existing tavern and build an off-site brewery in some inexpensive warehouse space. Until October of last year, we would have had that option. Boo to the Brewpub Bill.

Saturday, November 8, 2008

The Hop Report

In the northern hemisphere, hops are typically harvested in September. Earlier in the year, I tried to contract some hops for this year's harvest (i.e. buy them in advance so that my supply would be guaranteed). I was unsuccessful, which ended up being a good thing for two reasons:

1. Opening the pub is going slower than I expected, so I probably won't need hops until after the 2009 harvest.
2. The 2008 crop was better than it was projected to be, so availability is up and prices are down. If I had signed a contract, I would have paid higher prices than the current market value.

I recently talked with Hopunion - the major hop supplier of the craft brewing industry - about contracting some hops for the 2009 harvest. It's looking like I won't have any problems. I could sign a contract right now, but I'm going to hold off for a few months. Doing so will give me a better idea of when I'll need hops, will allow the hop prices stabilize some more, and will give me time to look for organic hops (which Hopunion sells very little of).

Organic hops are tricky. First off, they're difficult to grow. Hops are prone to a variety pests and diseases that thrive in the US and Europe. As such, most of the world's organic hops are grown in New Zealand. Secondly, the number of existing varieties are extremely limited. I've been experimenting with a bittering hop from New Zealand called Pacific Gem, but I haven't been very happy with the results. It lends a harsh bitterness to beer (due to high co-humulone levels, if you must know), which wouldn't be an issue if I used a variety such as Nugget, Magnum, Simcoe or Horizon - none of which are available organically. Traditional styles of beer that depend on specific hop characteristics simply can't be brewed with organic hops because, again, the varieties don't exist. Thirdly, organic hops are expensive. Growing hops without pesticides results in low yields, government certifications cost money, and shipping across the ocean is not cheap.

As a result, most certified organic beers probably don't have a lot of organic hops in them. To receive the standard organic certification from the USDA, 95% of the total ingredients (by weight) need to be certified organic. A typical 7-barrel beer recipe looks something like this:

Malted barley - 500 lbs
Hops - 5 lbs

In the above recipe, hops are less than 1% of the total weight. Even a hoppy pale ale, using the same amount of grain, would probably only have about 10-15 lbs of hops in it. Because hops are such a small amount of the total ingredient weight, certified organic beer can be produced with no organic hops whatsoever. A USDA rule change has been proposed that would require each type of ingredient to be 95% organic by weight, but I don't believe it's been implemented yet.

I do have a source for one organically-grown hop variety - Cascades from Gorst Valley Hops in Mazomanie - but the hops won't be certified. Due to the expense and hassle of certification, a lot of farmers simply don't want to deal with it. James, the Gorst Valley farmer, takes it a step further and claims that an organic certification doesn't ensure that something is organic. He told me an interesting story about visiting a certified organic farm that sprayed chemical pesticides on their crops. They were able to get away with it because the pesticides were in containers that previously held substances that were approved for organic production, and the inspectors didn't look any farther than the labels on the containers. James looks at not certifying his hops as an opportunity to educate people on what sustainable farming is really about.

Still, it seems like a formal certification does a lot for consumer confidence. What do you think? Would you rather buy beer made with non-certified organic hops grown down the road, or would you rather buy beer made with certified organic hops shipped from New Zealand?

Sunday, November 2, 2008

Fun With Labels

For the Locksley after-party, attached to each bottle with a rubber band:

For my brother's wedding weekend, printed on sticker paper: