Monday, October 26, 2009

Beat to the Brewpub Bill

After a year and ten months of working full-time to open a brewpub, I'm a little jealous that the owners of Vintage were able to snap their fingers and start renovating the old J.T. Whitney's building. It's not a vindictive jealousy, though - I wish them the best and plan on checking the place out once it opens. I'll also say "you're welcome" for turning down a venture capitalist who wanted to do the same thing back in April (I'm friends with the Whitney's folks and didn't want to prevent them from renegotiating their lease).

What's interesting to me is finding out how Wisconsin's ill-conceived brewpub law will apply to them. From what I can gather, a brewpub owner can't own - directly or indirectly - any non-brewpub establishments with Class B liquor licenses. I don't think a restaurant actually has to brew beer to be a brewpub, though, so the Vintage owners could probably just apply for a second brewpub permit to cover their downtown location. If a brewing operation does need to exist, a "brewpub group" probably only needs to brew at one location (see this Department of Revenue form). I'm sort of glad that RePublic won't be setting the precedent on how the law is enforced.

Tuesday, October 20, 2009


Despite having never worked in a commercial kitchen, I'm now a state-certified food manager. I love bureaucracy. My certification expires in September of 2014, so I have plenty of time to reinvent myself as the guy who fires you for doing lines on the prep table.

Monday, October 19, 2009

Lager House

I don't brew many lagers. It's a matter of logistics, not preference: I use the same fridge for lagering and serving, and beer doesn't have much flavor at the near-freezing temperatures necessary for lager maturation. I have the lager bug right now, though, so I'm going to go without for a while and brew a Munich Dunkel. Here's the plan:

-Make a huge yeast starter. I'm talking two steps with a cumulative volume of 1.6 gallons for a 5-gallon batch of beer. Since I don't want to dump that much oxidized starter beer into my delicate lager, I needed to adjust my recipe calculations to decant most of it before pitching (I typically pitch everything because having a lot of healthy yeast usually trumps the drawbacks). You can download the updated recipe spreadsheets at the File Cabinet.
-Mash at 145 degf to create a lot of fermentable sugars, then pull a decoction to raise the temp to 158 degf. My procedure will be similar to the Hochkurz process described near the bottom of Brukaiser's decoction mashing website. I'm leaving out the protein rest and mashout, though, because modern malts eliminate the need for a protein rest and my homebrew system works fine without mashouts (as did every commercial brewhouse I've worked on). I'm not convinced that decoction mashing is necessary either, but it'll introduce less oxygen than performing a step mash on my stove and pouring the contents into my lautering vessel.
-Ferment as close to 48 degf as possible. I'll do so by pitching my yeast at 46 degf (I hope it's cold outside) and setting the fridge to 44 degf. If the beer gets hotter than 48 degf but stays below 52, it's no big deal.

That's my story and I'm sticking to it.

Tuesday, October 13, 2009

Assembly Hearing = Meh

Today's hearing on AB287 pretty much went like this:

-Proponents: alcohol abuse, drunk driving and underage drinking cause a lot of problems in Wisconsin.  We support a beer tax increase so law enforcement and treatment projects can be better-funded.
-Opponents: raising the beer tax will result in job losses, and potential business closures, in the brewing and related retail industries which are vital to Wisconsin's economic health.

I was disappointed that the debate centered around preventing alcohol abuse vs. saving jobs, as though the two are mutually exclusive, instead of focusing on who should pay for the high costs of alcohol abuse.  I was at the hearing for over four hours, but my name hadn't been called by the time I needed to leave.  The point I was planning to make was "my opposition to this tax doesn't mean that I'm against reducing drunk driving or alcohol abuse, or that I'm against using taxpayer money to do so.  The issue for me is where the money comes from.  If issuing fines to problem drinkers only pays for a fraction of the costs they create, you need somebody else to foot the rest of the bill.  AB287 places that burden on responsible drinkers, even though they contribute no more to the problem - nor benefit any more from the solution - than non-drinkers.  If a tax increase is absolutely necessary, then raise the general sales tax (by 0.05%) or income tax (all brackets by 0.03%) so the tax hike doesn't reflect a moral judgment against responsible drinkers."

Thursday, October 8, 2009

Refuting Beer Taxes

The rationale behind Terese Berceau's proposed beer tax increase is outlined on the following website:

How ridiculously low is the Wisconsin beer tax

Below are my responses to some of her claims.

Berceau: the Wisconsin beer tax was created in 1933 (at $1 a barrel).
RePublic: in 1933, Wisconsin implemented a regressive tax that increased at each stage of the state-mandated three-tier supply chain. The tax itself was subject to sales tax.

Berceau: it has only been raised once ― to $2.00 a barrel in 1969 (36 years later).
RePublic: Wisconsin has a pretty good track record of supporting an industry that creates a lot of jobs.

Berceau: if increased to inflation from 1933, it would be $16.12 a barrel.
RePublic: if you believe this number, a six-pack of Spotted Cow would cost you $8.44 per 6-pack before sales tax. Here's the math: $7.99 (current price) + [$16.12 per barrel - $1.33 per barrel (the current average beer tax that New Glarus probably pays)] * 1.3 (distributor markup) * 1.3 (retail markup) / 31 gallons per barrel / 128 oz per gallon * 12 oz per bottle * 6 bottles per 6-pack = $8.44.

Berceau: if increased by inflation from 1969, it would be $10.85 a barrel.
RePublic: Inflation is already included in the cost of beer via ingredient expenses, labor expenses, utility expenses, occupancy expenses, marketing expenses and many other expenses. If we use inflation to justify raising the beer tax this year, will we keep doing it in subsequent years?

Berceau: the Berceau proposal is $10 a barrel.
RePublic: will you continue to support New Glarus when Spotted Cow costs $8.29 per 6-pack or will you downgrade to something cheaper and much less Wisconsin?

Berceau: it has been 38 years since the last increase!
RePublic: would you elect a president who campaigns to raise taxes because it hasn't been done a long time?

Berceau: Wisconsin’s beer tax has lost 83% of its value due to inflation since 1969.
RePublic: this is a good thing. Beer tax = a large number of responsible drinkers pay to reduce problems caused by a small number of irresponsible drinkers, which helps the general public. No beer tax = the general public pays to help the general public. If raising taxes during a recession is really the best way to combat drunk driving, raise a tax that affects the entire population fairly.

Berceau: Wisconsin has the third lowest beer tax in the nation (6.5¢ per gallon)(3.6¢ a six-pack) (0.6¢ a 12-ounce bottle).
-Second lowest: Missouri (6¢ per gallon) (headquarters of Anheuser-Busch)
-Lowest: Wyoming (1.9¢ per gallon).
Our neighboring states charge two to three times more.
- Illinois: 19¢ per gallon
-Minnesota: 15¢
-Indiana: 12¢
-Michigan: 20¢
RePublic: my mom used to ask me "if everyone else jumped off a bridge, would you do the same?"

Berceau: the great majority of Wisconsin beer producers pay very little in state beer tax.
RePublic: that's sort of true because the beer tax is really paid by consumers. Brewers, distributors and retailers can deflect tax increases by raising their prices. If they didn't, they'd go out of business. Unfortunately, most consumers can't just raise their incomes.

Berceau: 79% of all beer producers in Wisconsin pay between $0 and $5,000 annually in state beer tax.
RePublic: 79% of all beer producers in Wisconsin are very small companies.

Berceau: 64% of Wisconsin beer producers pay less than $1,000 annually in state beer tax.
RePublic: 64% of Wisconsin beer producers are extremely small companies.

Berceau: only 4 out of 66 beer producers in Wisconsin pay more than $100,000 in annual state beer taxes. (Miller alone pays over a $1 million).
RePublic: as a startup brewery, RePublic be lucky to sell $400,000 of beer. The business shouldn't be paying anywhere near $100,000 in taxes.

Berceau: over 92% of all beer producers in Wisconsin pay only half ($1.00 a barrel) of the Wisconsin beer tax (because they produce less than 50,000 barrels a year). Only Miller is taxed entirely at the full $2.00 a barrel tax. Leinenkugel, Pabst, New Glarus and Mike’s Lemonade are taxes at a combination of the 50% and 100% rate.
RePublic: wow, reducing taxes to small businesses encourages... small business! Small breweries tend to produce flavorful beer, which discourages binge drinking. When was the last time you saw somebody pound a case of Lake Louie Porter or stagger down the street with a bottle of Sprecher Barleywine in a paper bag?

Berceau: only 31% of all beer produced in Wisconsin is taxed at all! 69% is exported Wisconsin tax free (5.9 million barrels exported of 8.5 million barrels produced).
RePublic: not true! All breweries pay taxes to the states they export beer to. If you start charging taxes for beer that isn't sold in the state, the double taxation will render Wisconsin's breweries unable to compete in out-of-state markets.

Berceau: Miller, alone, generated 77% of all of our beer tax revenue from in-state producers. The top four, Leinenkugel, Miller, Pabst and Mike’s Lemonade account for 95% of all of our revenue from in-state producers.
RePublic: a single Miller brewery - they have several - brews more beer in one day than J.T. Whitney's brewed in its entire fifteen-year existence. This is like saying "a person who makes $200K/yr pays a lot more income tax than somebody who makes $50Kyr."

Berceau: the Berceau proposal is to raise the state beer tax from $2.00 a barrel to $10 a barrel. Or, from the current 0.6¢ a 12-ounce bottle, to 3¢ a bottle. It would raise the state tax from the current, 3.6¢ a six-pack to 18¢ a six pack.
RePublic: these numbers are what the brewers will pay, not what the consumers will pay. To figure out the consumer cost increase, multiply all of these numbers by 1.3 twice.

Berceau: the Berceau proposal would raise our revenue to approximately $50 million.
RePublic: if you assume that every brewery except Miller currently pays $1/barrel in beer tax and that the consumption of Wisconsin-made beer won't change after the new tax, then the increase in revenue will be about $50 million. Those are a couple of huge ifs, though.

Berceau: the average drinker will not even feel the effect of an increase.
RePublic: as long as they're earning the same job compensation as a congresswoman.

Berceau: beer producers are not concerned about the “average” drinker. They know that most of their revenue comes from price-insensitive heavy drinkers.
RePublic: state representatives are not concerned about the "average" constituent. They know that most of their votes come from campaign spending, which is funded by special-interest groups. Seriously, though, who wants their brewpub to be known as the place where drunk patrons get into fights? Who wants their brewery's name associated with fatal car crashes? Who wants to contribute to the alcoholism that tears up families? Not only is promoting heavy drinking an abhorrent character accusation, but it's simply bad business.

Berceau: 10% of all drinkers consumer 43% of all beer. 20% of all drinker consumer 85% of all beer.
RePublic: what constitutes a drinker?  Somebody who's admitted to having a drink in their lifetime?

Berceau: even for a heavy drinker who consumes a six pack a day, the Berceau increase would only cost you an additional $1 a week.
RePublic: Nope, it would cost an additional $1.72 per week ($89.30 per year) after distributor and retailer markups of 30% each. That's a lot, considering we're talking about a tax on a product instead of the product itself.

Berceau: heavy and addicted drinkers who account for most of the beer consumption in the U.S. rightly pay the most in beer taxes, since their drinking imposes the greatest cost on society.
RePublic: again, how is the claim (heavy drinkers account for most of the beer consumption in the U.S.) substantiated? Is it because people who drink two beers a day are considered a heavy and/or addicted drinkers? If this is really about sticking heavy drinkers with the bill, they should literally bill heavy drinkers when they cause problems and leave the rest of us alone.

Berceau: if a 3¢ per bottle tax causes you a financial burden, you have greater problems to worry about than the beer tax.
RePublic: yes, poor people, the discussion regarding this 5¢ per bottle tax increase is above you. You can add it to your list of problems, but you have no business worrying about it.

Berceau: the moderate-drinking majority of drinkers consume relatively little alcohol and pay a negligible amount of alcohol taxes.
RePublic: moderate drinkers would still be taxed more than non-drinkers to fix a problem that neither of them cause, which isn't right. Even if the proposed tax increase was $0.0000001 per barrel, the principle of it would still be wrong (and a waste of the government's time).

Berceau: alcoholic beverages are cheaper (25% less after adjusting for inflation) today than they were in the 1960s and 1970s. (Institute of Medicine, National Research Council)
RePublic: Finally, a source! Too bad the statistic is meaningless in terms of justifying a tax hike, unless increasing the cost of living is a good thing.

Berceau: the alcohol industry is financially dependent upon underage and pathological drinking.
RePublic: in my year and a half at J.T. Whitney's, I saw exactly one instance of knowingly serving an underage patron - an 18-year old who was with his parents. However, I'll admit that an underage drinking problem exists. It doesn't have much to do with the price of beer, though, and I'd wager that the majority of underage drinkers - like I did when I was underage - consume the cheapest alcohol they can get their hands on. With bottom-shelf vodka already being cheaper than beer on a per-volume of ethanol basis, this tax isn't going to do much to prevent underage drinking.

Berceau: nationwide, 37.6% of alcohol (by cost) was misused or illegally consumed ($48.3 billion). Another study put it as high as 48.8%.
RePublic: these are difficult statistics to track. Can we see who conducted the studies, please?

Berceau: Wisconsin ranks 4th highest per capita for alcohol consumption from beer (Nevada, New Hampshire and Montana rank higher).
RePublic: let's stick to beer here. According to a 2007 article in TIME Magazine, Wisconsinites drank an average of 28 gallons per year. That's 0.8 12-oz bottles per day, folks. Per-capita alcohol consumption isn't the problem.

Berceau: Wisconsin is listed among the “Fatal Fifteen” states for the highest underage drinking deaths by the National Safety Board. Over 60,000 Wisconsin residents receive publicly funded alcohol treatment. Over 44,000 OWIs and PACs (prohibited alcohol content) violations in Wisconsin in 2006. 6,000 alcohol-related driving injuries in Wisconsin in 2005. 369 alcohol-related driving fatalities in Wisconsin in 2005. Alcohol is related to the crimes of about half of Wisconsin’s 22,000 prisoners. 70% of our 22,000 prisoners require alcohol or substance abuse treatment.
RePublic: now we're getting to the real problem - our drunk driving laws are a joke. Apparently we're giving plenty of citations, but they're not helping much. It sounds like an increased beer tax would just fund more of the same (if we assume that our legislators are remotely capable of following through on a proposed earmark).

Berceau: the $9.7 million raised by the state beer tax last year covered only a fraction of treatment costs. That doesn’t even include the $825 million in annual alcohol-related heath care costs that get passed along to Wisconsin taxpayers. It doesn’t count the estimated $2.7 billion in state:
-Policing and court costs
-Incarceration costs
-Traffic crash costs
- Lost productivity costs
-Academic failure costs
-Premature death costs
RePublic: beer tax shouldn't cover the whole treatment cost because every person benefits from it regardless of the amount of alcohol they consume.

Berceau: each Wisconsin resident pays only $1.82 a year in beer taxes.
RePublic: each Wisconsin resident should pay $0.00 a year in beer taxes.

Berceau: but also $18.64 in alcohol treatment costs …and $154 in alcohol-related healthcare costs $500 in alcohol-related criminal justice and societal costs. Alcohol abuse and addiction cost the nation an estimated $220 billion in 2005. …more than cancer ($196 billion) …and more than obesity ($133 billion). …and
RePublic: regardless of the integrity of these statistics, it's common sense that a small number of problem drinkers can add up to big money. Why are we trying to match the costs with unfair taxes instead of doing things that could reduce them?

If you'd like to weigh in on the official debate, go to the State Capitol, Room 417 North (GAR), on 10/13 at 10am.

Monday, October 5, 2009

Big Bad Summary

It's been a couple of weeks since I've written anything here.  What can I say?  Raising money is boring.  In an effort to balance the homebrewing content, here's a timeline of our startup process:

-Summer 2006: loved my job at J.T. Whitney's, but the pay was lousy. Reasoned that if I wanted to earn a decent living, be in charge of a brewing operation and stay in Madison, I'd need to open my own business. Decided it would be a distributing brewery so I wouldn't have to mess around with food service.
-Late 2006 or early 2007: asked Jane to be my business partner. I'd brew the beer while she marketed and sold it.
-February 2007: Moved to Vermont for a 10-month job at Otter Creek Brewing so I could familiarize myself with bottling.
-Sometime in 2007: Vermont was beautiful, my co-workers were great and the pay was good, but the nature of brewpub work was a lot more fun. Jane and I decided the business would be a pub.
-December 2008: contract at Otter Creek ended. Moved back to WI and stupidly decided not to get a job so I could open the business faster.
-January 2008: began researching information and writing a business plan.
-February 2008: decided to call the business RePublic Brewpub.
-May 2008: met with a lawyer about business structure and hired him to write an operating agreement (the LLC equivalent of corporate by-laws).
-July 2008: began looking for locations in Madison. Reviewed projections with an accountant. Started writing a Private Placement Memorandum (PPM), aka a formal investment offering. Registered the business as an LLC.
-August 2008: received our initial operating agreement. Obtained an Employer ID number from the IRS.
-October 2008: Finished the initial business plan. Began meeting with securities lawyers to discuss investor solicitation strategies and ensure that our PPM complied with securities laws.
-November 2008: Started working with a commercial realtor.
-December 2008: retained a securities lawyer to review our PPM. Started working with an architect.
-January 2009: hired a graphic artist and a web designer. Opened a money market account to deposit investor checks. Finished the initial PPM and started looking for investors.
-April 2009: began talking with bankers about loans.
-May 2009: began looking for locations in Sun Prairie.
-June 2009: chose a location and began negotiating our occupancy.
-July 2009: began working with a construction manager and received our initial construction estimate.
-August 2009: secured the location. Registered as a future payer of Wisconsin business taxes. Received our initial floor plan.
-September 2009: registered our investment offering with the Securities and Exchange Commission as exempt under Regulation A, Rule 504.  Wisconsin's "25 or fewer non-accredited investors" exemption didn't require registration. Took a food safety course to comply with state regulations (the business needs a certified food manager. It'll eventually be Jane, but she won't be able to take the course for a while and we didn't want that to slow us down).

Throughout this process, Jane and I gathered knowledge to refine our business plan. Understanding what we're trying to do has definitely been the most time-consuming aspect of this project, and it's become obvious to us how the owners of brewpub chains are able to open their subsequent locations much quicker than their initial locations.