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The Business of beer: More than just beer

Brewing success means value-added services and hard work to ride the growing trend

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Two Hershey Chocolate World employees make their first trip to the new home of Tröegs Brewing Co. in Derry Township, Dauphin County. The general store and tasting room are open to the public, and the brewery is slated to be completed in early 2012. Photo/Amy Spangler
Two Hershey Chocolate World employees make their first trip to the new home of Tröegs Brewing Co. in Derry Township, Dauphin County. The general store and tasting room are open to the public, and the brewery is slated to be completed in early 2012. Photo/Amy Spangler

Two notable features are front and center at the new 96,000-square-foot Tröegs Brewing Co. facility in Derry Township.

One is a 70-foot tasting room table inspired by the great beer halls of Germany.

The other is a glassed-in walkway around which the brewery operations are wrapped, allowing visitors to view the brew tanks and bottling lines within a few steps of each other.

Founders John and Chris Trogner compare it with brewing in a fishbowl. There is closeness to the beer-making process and the ability for visitors to share the experience with others like themselves — most likely over a brew of Tröegs' making.

Pioneering midstate craft beer business make more available for their customers to experience than just liquid in a glass as keys to business success.

"It's a very tough business to just go at it as a brewer," said Artie Tafoya, director of operations for Harrisburg-based Appalachian Brewing Co., which opened around same time as Tröegs 14 years ago.

Input costs to brew are high and the competition in general distribution channels includes multinational corporations with very deep pockets, he said.

Many breweries such as Appalachian are more diversified than the Tröegs' model. They are restaurants with a great built-in identity, as well as beer makers.

However the brewers choose to differentiate themselves, tactics seems to be working out both here in the midstate and across the country.

Nationally, nearly 10 million barrels of craft beer were produced in the United States in 2010, an increase of 11 percent by volume and 12 percent in dollar figures compared with 2009, according to the Colorado-based Brewers Association, a nonprofit trade association.

At the same time, total U.S. beer sales were down about 1 percent, falling to nearly 204 million barrels in 2010 compared with nearly 206 million barrels in 2009, the association said.

A lot of what drives the demand for craft beers is similar to what pushes the markets for specialty coffee, tea and bread, said Paul Gatza, director of the Brewers Association.

Years ago, bread was limited mostly to white, with a few wheat and rye loaves on store shelves. Now, with more products
coming to the market, consumers have responded to learning what is possible by seeking for even more varieties, he said.

"I think beer is a natural progression of that," Gatza said.

Craft brews also are more lucrative per unit sold, representing about
4.9 percent of beer sold as measured by volume but are 7.6 percent of retail sales in dollar figures, according to the association.

That might not seem to be the meal ticket to success in this economy, but the craft beer business is viewed by many as an affordable luxury, Gatza said.

People aren't going drop $100 or more on a dinner or exponentially more on a pricey new car, but an extra dollar or so for a more flavorful beer is something they can embrace, he said.

From there, it's up to individual businesses to figure out how they can best take advantage of the market.

Today there are nearly 100 operations with active malt beverage manufacturing licenses in the state vying for a piece of the growing action, according to the Pennsylvania Liquor Control Board.

Of those, about 20 are in a five-county region in the midstate, with eight listed as receiving their current licenses to manufacture this year, according to statistics from the Liquor Control Board's database.

Part of the reason the movement did not occur at some other point in time is because government had to get out of the way. Another is that quality has had to build up over time and sustainable business models had to develop.

Since Prohibition ended and brewing became legal again in 1933, getting a craft beer business started from the ground up was severely constrained because of a federal ban on home brewing, Gatza said.

The hobby is an important training ground for those interested in getting into the business, but the law didn't come off the books until 1978, he said.

States then had to follow suit in relaxing restrictions to allow their own brewery movements to begin, he said.

One of the most important rule changes in Pennsylvania didn't occur until the mid-1990s. Only after passage of the state's Act 49 of 1996 could a microbrewery own a manufacturing license and a retail sales license needed to open a restaurant selling alcohol of other kinds on premises.

All but one of the five-county manufacturers in the board's database received its approval to manufacture malt beverages since late 1996, around the time the rule changed.

Appalachian Brewing Co. was among the first in the midstate to pioneer the modern brewery/restaurant model when it opened in 1997. It now has four locations in Central Pennsylvania and the Philadelphia area.

In addition to being a product the business sells, beer draws in customers who are looking for something different and is a source of pride and identity for the company and its staff, Tafoya said.

Then, once people come into a brewpub interested in a new beer, they purchase more than just Appalachian's brews. Also, the business can sell a lot of its own beer at retail sales prices as opposed to wholesale, Tafoya said.

Tafoya said he sort of fell into the brewpub industry more than
20 years ago in Colorado. He worked in restaurants for years and one day he smelled something unusual coming from a neighbor's property.

The neighbor got him into home brewing, and the natural progression was to open a brewpub, he said.

"I was pretty much on the cusp of (the movement)," Tafoya said.

By the mid-1990s, the Colorado beer scene had taken off, and two potential brewery entrepreneurs from the Harrisburg area — Shawn Gallagher and Jack Sproch — contacted him to serve as a consultant on a project that turned into Appalachian.

The building at 50 N. Cameron St. in Harrisburg had the potential to be a "gem in the rough" in an area of the city that needed economic development, he said. The business has since added three locations: in Adams, Cumberland and Montgomery counties.

There weren't a lot of breweries around in the region in the late 1990s, Tafoya said, and he felt he could apply what he learned in the West to grow the model here.

First, the owners lobbied to have the state law changed to say a manufacturer of malt beverages could also own a restaurant or similar license for the same site, Tafoya said.

Then, one of the initial hurdles was to educate customers on what flavorful beer was and teach an appreciation for its varieties, he said.

Asked whether upstarts opening today would impinge on his own business, Tafoya said the competition is a good thing.

Having only a few consolidated competitors in the market is not in the industry's best interest when serving customers who are not exclusive to one brand and are looking to try new things, he said.

"That's how we ended up with just light beer," Tafoya said.

Established brewers also have a bit of a mandate to help out competitors because a bad craft beer experience at one business could turn off a person to the next microbrewery they see down the road, he said.

"Like no other industry I've been involved with or know of, the craft brewers work together," Tafoya said.

At least one other business had pioneered the business model in the midstate before Appalachian by working around the rules.

In the 1980s, Ed and Carol Stoudt operated their Beer Garden in Lancaster County and wanted a beer true to what they had tasted in Europe, said Eddie Stoudt, their son and vice president of Stoudt Brewing Co.

The beer imported from Europe was never as fresh as what they remembered drinking there, he said.

"They were strong proponents of beer being close to its source. It doesn't travel well," Stoudt said.

They got around the law by having Carol Stoudt own the brewery that opened in 1987 and Ed Stoudt own the restaurant, putting them several years ahead of the brewpub concept, Stoudt said. In the beginning, the plan was to brew for the family business and a few local taverns, he said.

Two factors fueled growth. One is that the microbrewery community is a close-knit group, especially 20 years ago. Word spread and demand cropped up from New York, Philadelphia and beyond, Stoudt said.

It also is difficult to sustain an entire microbrewery on just a few sources of sales revenue, so the business began selling beer by the keg and large bottles, and contracted out 12-ounce bottle packaging to Wilkes-Barre-based The Lion Brewery Inc.

Until that aspect of the business ramped up, it would not have been cost effective to make the investment — which it eventually did, Stoudt said.

Today, the brewery business could stand on its own. But it's hard to say whether it would have taken off without everything else attached to the business, Stoudt said.

The other offerings include the antiques market, restaurant, special events hosting such as at the Beer Garden, and the Wonderful Good Market serving artisan cheeses and breads. The diversity draws in people with different tastes who are then exposed to the other Stoudt offerings.

"It makes us a destination," Stoudt said.

Competition also is a good thing from Stoudt's point of view.

It and another longtime Lancaster County staple, Mount Joy-based Bube's Brewery, bookend a county that has accumulated an additional nine licensed malt beverage manufacturers, according to Liquor Control Board statistics.

But the more people out there who drink other microbrews mean less satisfaction with light beer — and that's a good thing for Stoudt, he said.

"It's a good sign. Obviously, there is demand for more beer as the pie starts growing," Stoudt said.

Not everyone has taken the same diversified path to success.

Tröegs' model is that it has grown from what it called the microbrewery category of up to 15,000 barrels of beer per year to the regional craft brewery class with more production, Chris Trogner said.

To keep up with demand for its products, Tröegs has been in the midst of relocating from its longtime home base on Paxton Street in Harrisburg to the new, larger facility in Derry Township.

But they weren't always as successful.

In announcing that its Paxton Street tasting room would close its doors for good in October as part of the relocation, the brothers remembered it fondly as a place they spent many Saturday afternoons hoping someone would come in the door.

It took time and passion for good beer to get going, but slowly the 1,500 barrels they produced in the first year turned into about 30,000 barrels in more recent times. They have capacity to grow into 60,000 barrels of production at the new brewery.

To come this far, trends in customers seeking quality over quantity and simple pleasures have helped push the business upward, Chris Trogner said.

The local food craze also has helped, said John Trogner, noting that the brewery is hoping to make a brew incorporating apple juice from a local orchard. People want to be close to what they are consuming and know where it comes from, he said.

That concept is being incorporated as those "fishbowl" elements as Tröegs gets to start with a blank slate inside a warehouse in the Hershey area.

And it's not just for locals; the business sees the midstate's proximity to major metro centers in the Northeast as great for making it a destination for beer-minded visitors, the brothers said.

"Just from a logistical standpoint, it's a great hub," Chris Trogner said.

Breweries sprouting in the midstate

There are 21 business locations with active licenses to manufacture malt beverages in Cumberland, Dauphin, Lancaster and York counties, according to the Pennsylvania Liquor Control Board.

Lancaster County has more than half of the total number with 11, according to the PLCB's statistics as of Oct. 17. Lebanon County has none.

Eight of them, or more than one out of three, were issued their current licenses to operate this year.

Note: Trade names were omitted if not listed or filled in as a duplication of the business name. License issuance dates listed in the current owner and original owner slots in the board's database were combined for each entry if they were listed as the same date.

CUMBERLAND COUNTY

Appalachian Brewing Co. of Camp Hill Inc. & Beale Enterprises Inc.

Trade name: Appalachian Brewing Co.

Address: 3721 Market St.

Municipality: Hampden Township

License issued: Not listed

Carlisle Pubs Inc.

Trade name: Market Cross Brewery

Address: 113 N. Hanover St.

Municipality: Carlisle

License issued: Not listed

Valley Road Enterprises Inc.

Address: 4520 Valley Road, Unit C

Municipality: Hampden Township

License issued: June 14, 2011

DAUPHIN COUNTY

Appalachian Brewing Co. Inc.

Address: 50 N. Cameron St.

Municipality: Harrisburg

License issued: Nov. 12, 1996

Millbock Brewing Co.

Address: 705 Blue Bell Ave.

Municipality: Lower Paxton Township

License issued: Aug. 2, 2011

Tröegs Brewing Co.*

Address: 800 Paxton St.

Municipality: Harrisburg

License issued (current owner): June 25, 1997

License issued (original owner): Not listed

Tröegs Brewing Co.

Address: 200 E. Hersheypark Drive

Municipality: Derry Township

License issued: May 3, 2011

* Troegs Brewing Co. is moving from its Harrisburg location to its new one in Derry Township.

LANCASTER COUNTY

Bube's Restaurants Inc.

Trade name: Bube's Brewery

Address: 102 N. Market St.

Municipality: Mount Joy

License issued: July 22, 1999

C&D Brewing Pennsylvania Holdings LLC

Trade name: Iron Hill Brewery & Restaurant

Address: 781 Harrisburg Pike

Municipality: Lancaster

License issued: Not listed

JoBoy's Brew Pub Inc.

Address: 31 S. Main St.

Municipality: Manheim

License issued (current owner): April 13, 2010

License issued (original owner): Not listed

Lancaster Brewing Co.

Address: 302-304 N. Plum St.

Municipality: Lancaster

License issued: July 16, 2002

Mazza Vineyards Inc.

Trade name: The Swashbuckler Brewing Co. Ltd.

Address: 2775 Lebanon Road

Municipality: Rapho Township

License issued (current owner): Aug. 28, 2009

License issued (original owner): March 28, 2000

Mazza Vineyards Inc.

Trade name: Rumspringa Brewing Co.

Address: 3174 Old Philadelphia Pike

Municipality: Leacock Township

License issued: July 1, 2011

Saint Boniface Craft Brewing Co.

Address: 100 N. State St. Suite 401

Municipality: Ephrata

License issued (current owner): Not listed

License issued (original owner): Jan. 19, 2011

Spring House Brewing Co.

Address: 2519 Main St.

Municipality: Conestoga Township

License issued: Feb. 22, 2007

Stoudt Brewing Co.

Address: Route 272

Municipality: Adamstown

License issued: May 20, 1987

The Taproom Springhouse Brewing Co.

Address: 25 W. King St. Suite F

Municipality: Lancaster

License issued: Feb. 1, 2011

Union Barrel Works Inc.

Trade name: Union Barrel Works

Address: 6 N. Reamstown Road

Municipality: East Cocalico Township

License issued: July 24, 2002

LEBANON COUNTY

None listed

YORK COUNTY

Liquid Hero Brewery LLC

Address: 50 E. North St.

Municipality: York

License issued: June 9, 2011

Mudhook Brewing Co. LLC

Address: 34 N. Cherry Lane

Municipality: York

License issued: Not listed

South County Brewing Co. LLC

Address: 104 Mill St.

Municipality: Fawn Grove

License issued: May 3, 2011

Source: Pennsylvania Liquor Control Board

Brent Burkey

Brent Burkey

Brent Burkey covers York County, agribusiness, energy and environment, and workforce issues. Have a tip or question for him? Email him at brentb@cpbj.com. Follow him on Twitter, @brentburkey.

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