Brewpub Success Secrets Revealed!
(Or: You Don’t Need Aliens or Elvis to Sell Suds.)

The craft-brewing industry may be flat as a coaster, but the brewpubs that have driven the American beer revolution are still bubbling. Even though two brewpubs closed for every three that opened last year, as growth patterns have slowed somewhat, the niche market still expanded 3% last year.

What’s more, of all the beer that flowed from brewpubs last year, fully 20% (141,821 barrels) gushed from the top 10 brewpub groups (see sidebar).

How have these 10 giants siphoned off a sultan’s share of the brewing bounty? To find out, Cheers sought out the secret keys to success from the leading brewpub group owners and analysts.

Secret One Great Gross Margins

Expensive brewery equipment can take up a full third of a restaurant’s footprint, occupying prime front-of-the house space. By necessity, gross margins on beer for successful brewpubs must soar as high as 85% to turn volume into profit.

Dan Gordon, co-owner and director of brewery operations for the Gordon Biersch Brewery Restaurant chain, shares how he produces profit with his volume. “I analyze every element involved in producing beer: rent, equipment, labor, federal and state taxes and cost of raw material. That’s how you determine whether it’s worth having a brewery restaurant on your site or not. High-volume, well-operated brewery restaurants are going to have 15% cost of sales, with raw materials being the smallest cost at about 4% to 4.5%.”

“There aren’t many industries with that sort of a margin,” says Jim E. Lueders, Montana-based consultant to the brewing industry. But any margin is meaningless if zero customers belly up to the bar. The second secret of big brewpub success is really no secret at all: location and connections.

Secret Two Location and Connections

Brew Brothers brewpub wins the jackpot for best location: high on a sky bridge that connects three 24-hour casino-hotels in Reno. Though an individual unit–not one of the brewpub groups–Brew Brothers broke the record for most beer sold at a single brewpub, with 6,108 barrels tapped in 1998. Foot traffic is important, says Bill Sandefur, restaurant supervisor of almost two years, but so are a daily happy hour ($1.50 a pint), nightly live entertainment, 19 TV screens, video poker machines at the bar and draft sales at the 24-hour restaurants and casinos throughout the Eldorado and Silver Legacy hotels. “We’re also open seven days a week and don’t have any laws that regulate when we close,” says Sandefur.

Michigan’s Big Buck Brewery and Steakhouse guaranteed prime locations when they hooked up with the largest retailer of hunting and fishing equipment in the world. “We had thought we’d build [more brewpubs] close to Michigan to keep the management lines in tighter control,” says Big Buck CEO and President, Bill Rolinski, a plan he quickly altered when Bass Pro Shops approached Rolinski to build in Florida and Texas, in conjunction with Embassy Suites.

“Bass Pro’s business plan is that Embassy Suites will sleep people, we’ll feed them and they’ll sell them retail goods. Their units average between 4.5 million and 7 million visitors per unit per year. If we can do anywhere near that, we’ll do very well,” concludes Rolinski, adding that Big Buck’s lodge and steakhouse theme fits perfectly with Bass Pro’s outdoor image.

Big River Grille, based in Chattanooga, TN, teamed up with a big image maker: Disney World. “We are the only brewery restaurant to have a location there,” says founding partner and vice president for operations Rob Gentry

“It was our third restaurant and really put the growth of our company at a rapid pace. Once you establish yourself in the industry as being able to do business with Disney, it vaults your status.”

Obviously, location, connections and beer are important. But what really drives today’s successful brewpub is the food.

Secret Three
It’s Not Just The Beer Anymore

Greg Schroeder, industry analyst for New York’s Josephphal and Company, says of today’s brewpub industry, “In order to generate sustainable business with positive same-store sales growth, you need to be a restaurant operator.”

Top Ten Brewpub Groups, 1998

 These ten brewpub groups poured 20% of all beer sold at the 920 U.S. brewpubs in 1998. (Data from the Institute for Brewing Studies, 888-822-6273; www.beertown.org):

 NOTE: A BARREL IS 248 16-OUNCE PINTS

Does this mean the brewery theme is just a marketing gimmick, a fad that will fade to food only? Industry experts say not on your pint glass: there is an enviable synergy among brewpubs, the microbeer industry and food.

The Hops Restaurant, Bar and Brewery chain, part of Avado Brands since 1997, realizes only 16% of its sales from the bar, a strikingly low percentage compared with the typical brewpub food-to-alcohol ratio of 65/35. Says Craig Bystrynski, editorial director of BrewPub magazine, which hosts the industry’s annual conference, “Hops is definitely the far extreme. What they are trying to do is different from what [other brewpub chains] are attempting. Their goal is to eventually grow to 500 units, which would put them in the same range as TGI Fridays or Chili’s, and it’s the restaurant side that will allow them to do that.”

In fact, Tom Schelldorf, Hops’ President, CEO and COO, has said that Hops is not a brewpub, but a casual dining business. Dan Gordon still considers his Gordon Biersch chain a brewery restaurant, and says, “You have to have a diverse, well-executed menu. We’re not just competing with other brewery restaurants. We’re competing with every dining experience out there.” Gordon Biersch’s food-to-alcohol ratio is about 70:30. Big Buck’s is currently 75:25, with a possible shift to 60:40 when locations open in heat-saturated Dallas and Ft. Lauderdale. Big River Grille’s edges closer to 65:35, and founding partner Gentry says, “We emphasize food more than beer. Food is what helps establish yourself in the industry and gives you longevity.”

Grenville Byford, CEO for John Harvard’s Brew House chain, also credits high-quality food for much of their success, along with atmosphere, customer service and award-winning beer. “The quality of our menu is a good, healthy cut above the casual dining quality for our price range in our trade area. Our competition is the restaurants within the trade area in which we operate.”

Secret Four Concept Synergy

The brewpub and craft beer industries have drawn on each other since the beginning of the microbrew boom. Drinkers who enjoy a fine, bottled microbrew will seek out a similar experience in their local brewpub, and vice versa. “Brewpubs have found that synergy to be very powerful,” says Bystrynski

Andrew Barish, industry analyst from BancBoston Roberston Stephens, says, “It’s not a gimmick. Brewpubs promote the whole idea of a concept that’s based on freshly prepared food and beer. You have hand-crafted beer to go along with freshly prepared food.”

“The brewery is an important part of the whole experience. It’s not just a theme. It’s more integral to the whole experience than that,” says John Harvard’s Byford. “It’s a marketing draw,” seconds brewpub consultant Lueders.

Gordon summarizes brewpub success with this bonus tip: “If you know what you’re doing, invest heavily to make beautiful facilities, train the staff correctly and execute every element, you’re going to win.”