Beer Run

Expansion, growth on tap for many local breweries

When Julien Lux opened New Glory Craft Brewery just over a year ago, he had a tiny brewing system, a plan for making great beer and the optimism that enough people would buy it so his fledgling company would someday grow and prosper.

But someday arrived much faster than he imagined. Mere months into his humble venture, Lux already had a sense he needed to spend more money and get bigger.

“We were under pressure to keep up with what we were doing,” Lux said. “We were spending way too much time brewing small amounts of beer. We had to brew four times a day, and that took 16 hours a day.”

At that time, he was using what’s called a 21/2-barrel brew house, which refers to how much beer can be brewed at one time. One barrel equals 31 gallons.

After several months of long hours and constant brewing, Lux purchased a 15-barrel system from a brewery in Bakersfield for $100,000 and put it in storage. Now, he’s poised to put that equipment to use when he expands his brewery square footage at the current site in an industrial park off Power Inn Road. He’s also ready to take the next step of bottling and canning his beer, which will allow him to expand his sales beyond the popular taproom and local restaurant and bar accounts.

Lux is not alone. With craft beer taking off in the Sacramento region, New Glory is one of a half-dozen breweries that, in recent months, have installed or will be purchasing, new equipment, and are hiring more employees and looking to acquire more real estate. An informal tally puts that collective investment north of $2 million.

For the increasingly savvy beer consumer, that’s translating into more and better beer, exciting new styles like sours and barrel-aged offerings, more taprooms, more money churning through the local economy, and more than anything, an emerging reputation for beer that’s spreading beyond the city limits.

“This city is on the cusp of a new and exciting era,” said Tom McCormick, executive director of the California Craft Brewers Association.

The numbers look promising. Craft beer accounts for about 9 percent of the beer market nationally and about 18 percent statewide. McCormick says there’s still room for more new breweries, with California craft beer retail sales up about 18 percent from last year. But he cautions that moving up to the regional level is becoming increasingly competitive, and that “the window on that opportunity is beginning to close.”

“Perhaps the single biggest challenge for our industry statewide and perhaps nationally is meeting demand and staying ahead of the growth curve, which is a great thing,” McCormick added. “We are seeing that with the entire spectrum of craft breweries, from Sierra Nevada (which brews about 1 million barrels annually) all the way down to nano-breweries. They are buying lots of stainless steel, hiring people and growing a lot.”

It wasn’t long ago that scores of beer aficionados were bemoaning that Sacramento was seriously behind craft beer hot spots like San Diego and Portland. However, now there are many signs that the area is in the midst of a rapid and prosperous Renaissance.

Knee Deep Brewing in Auburn, which already went through a relocation and expansion last year, is adding $500,000 worth of new brewing equipment. Rubicon, part of the old guard of local craft brewers, opened a new brewing facility last year in West Sacramento. Track 7, once a small but bustling fledgling neighborhood brewery and taproom, recently plunked down about $500,000 on a new brewing system it will install in its new 36,000-square-foot facility in Natomas, which is slated to open in the coming weeks. The brewery has 17 employees and expects to have 35 to 40 by end of year.

New Helvetia, the popular brewery on Broadway, purchased a much larger brewing system in April and is in the process of installing it. The equipment will allow New Helvetia to increase brewing capacity fourfold as it launches its second wave of bottling. Device, the small but highly regarded brewery situated near New Glory, doubled its square footage two months ago, bought new brewing equipment and expects to start bottling in the next three to four months.

Rocklin-based Out of Bounds Brewing, which was producing 60 barrels a month when it opened last year, is now up to 300 barrels a month, and it is bottling and canning several well-received beers. It’s looking to add four new distributors as it expands its sales into the Bay Area and beyond. Hoppy Brewing’s owner, Troy Paski, says he’s checking out up to five sites a month as he looks to move into a second, significantly larger location in order to increase production.

On and on it goes. While some skeptics saw the flurry of local brewery openings in the past three years and wondered when the bubble would burst, few were asking a more optimistic question: When will these new places invest more, hire more and get bigger?

In fact, many of the these new spots are hitting production and sales targets ahead of what they hoped for when they drew up their business plans and penciled in projections.

“This is driven 100 percent by the consumer learning that the market is more than Budweiser and Coors Light,” said J-E Paino, owner of Ruhstaller, which opened a downtown tasting room earlier this year. Next year, the company plans to spend about $2 million building a brewery near Dixon. Ruhstaller began by tapping into Sacramento’s rich pre-Prohibition brewing legacy, when it was a major beer producer and its farmers produced vast acres of hops.

“When we started our brewery (in 2011), we were No. 8,” Paino said. “Now there are close to 40 breweries locally. We have to live up to our fullest potential. We don’t need to compare ourselves to Portland or San Diego or the Bay Area. If we do it right, it’s going to be like no other town when it comes to beer.”

While there’s plenty of excitement about Sacramento beer, there are bound to be growing pains for breweries seeking to reach that next level. Moving from a taproom-based business model, in which beer is brewed and served on-site, to a distribution model, in which the product is bottled or canned and sold to retailers, means competing for limited shelf space at grocery stores and beverage retailers.

“It certainly does introduce a new level of competition,” said Ken Anthony, owner and brewmaster at Device. “We have had a lot of interest from retailers, from the small store on the corner to BevMo. We’re not going to go into larger stores initially because their purchase orders are pretty big, and there wouldn’t be anything left for anyone else.”

Anthony knows what it’s like to be under the stresses of supply and demand. Because he didn’t take on any outside investors, he started with a relatively minuscule one-barrel brewing system when he opened last year. Problem was, his beers were winning raves and word spread. His ordeal illustrates the less-than-glamorous side of getting into the craft beer business.

“It was miserable. It took about 18 hours to do a day’s worth of brewing,” Anthony said, noting that production has nearly doubled, and he was able to pay cash for pricy new equipment.

The long hours and respect for the craft are paying dividends. Todd Fancher, the beer buyer for Corti Brothers, says he is thrilled with the quality of Anthony’s beer and is eager to stock it.

“I can’t wait for Ken to bottle. He is my favorite local brewer and his beer is phenomenal,” Fancher said. “He really nails the West Coast style of beer. It’s very hop-forward. The citrus, tropical fruit and pine that you get on his IPAs is just amazing.”

In order to keep up with demand, Device may move to a larger facility in the next two or three years.

As for the life of a brewing-scene star, Anthony and his wife, Melissa, haven’t had a vacation in some time and double-digit-hour days have become commonplace. Anthony left a job as an engineer designing bridges for a Sacramento company. “I honestly don’t take any time off,” he said. “We work every day, but that’s OK. We enjoy what we’re doing.”

One of the most significant local expansions has been Knee Deep’s. Once a 900-square-foot operation in Lincoln, Knee Deep and brewmaster/founder Jeremy Warren began winning major awards for their India pale ales and a reputation for daring and exciting flavor profiles. Now produced in an 18,000-square-foot facility in Auburn, Knee Deep’s beers have seen wide distribution throughout California and have moved into North Carolina, Michigan and New York. Production is up from 2,000 barrels last year to an expected 6,500 barrels in 2014.

Because hops and malt are in such high demand, purchase orders for these key ingredients often have to be made three years out, and breweries must calculate output well beyond what they are doing now. Knee Deep expects to double its brewing in 2015 and double again the following year, according to Jerry Moore, the chief executive officer.

Knee Deep has 22 employees and expects to hire more soon. In addition to the $500,000 in new equipment currently being installed, it plans to upgrade to a larger bottling machine next year. The cost: $500,000 to $700,000.

New Glory, which has distinguished itself by brewing beers beyond the popular IPA style, such as the American Country Farmhouse Ale, recently bought a 20-year-old bottling machine for $100,000 that fills 150 22-ounce bottles a minute. Lux is installing the equipment, which requires about 1,000 square feet of space, and expects it to be operational in about two months. Then he plans to buy a canning line for another $100,000.

Grocers like Corti Brothers are eager to taste the newest beers and willing to stock as many as possible, but there is only so much shelf space available. Which breweries will rise to prominence comes down to quality, consistency and consumer interest.

“Some will stand the test of time and some will fall by the wayside and disappear,” Fancher said.

Ryan Graham, one of the partners at Track 7, said the growth locally has been driven by an ever-more-sophisticated consumer. In tasting rooms, customers are asking about hop varieties, IBUs (the measurement of bitterness in beer) and lesser-known styles such as sour beers. When Track 7 relocates to Natomas, it will use its current facility on the edge of Curtis Park to produce sours.

But with its eye-catching bottles and cans finding their way onto more retail shelves, including in the Bay Area, Graham knows the years ahead are going to offer new challenges and competition.

“In Sacramento, the people have been extremely generous to us and have been embracing our beer,” he said. “Outside of Sacramento, we’re not the hometown team and you have to compete. It’s going to be a battle over the regional hearts and minds, but I think Sacramento’s beer easily rivals the beer in other regions.”

Graham added, “Over the past six months, the most interest for us has been from the Bay Area, which is really surprising. People are taking note that Sacramento’s beers are really phenomenal.”