6/7/2018
We often say the best part about the middle market is the food and drink. Hear from a middle market craft brewer who is rapidly scaling operations and distribution in the United States and what lessons other middle market companies can learn to set them apart in their own industries.
[MUSIC PLAYING]
Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid-sized companies, and help you take advantage of new opportunities.
OK. Welcome to The Market That Moves America podcast. I'm Doug Ferrin managing director of the National Center for the Middle Market . And we are thrilled to be on location at BrewDog Columbus, Ohio. Joining me today is Tanisha Robinson, CEO of BrewDog USA. Welcome.
Thanks. Glad to be here.
So why don't we just start by-- if you could, just give us a quick history about BrewDog. Tell us about.
Sure. So BrewDog was founded in 2007 by two dudes and a dog in a garage in the Northeast of Scotland. And James and Martin were just super passionate about craft beer at a time when craft beer wasn't really a thing in Europe at all. So the craft beer wave had really started to move in the US at that point. But it wasn't happening there. So they were making these beers in that market at the time were super weird and really flavorful, and people didn't like them. But they ended up winning a competition for Tesco, which is a large grocery chain in the UK. And that was the big instigator for launching the business at a pretty big scale.
OK. Very interesting. Tell us a little about your background. I know it's unique, and how you got into this.
Yeah. So for about the past decade or so I've been hustling in the streets as a tech entrepreneur. So I've built some companies, sold some companies, burned a few to the ground as it happens when you're hustling in the streets. And currently have two companies that are still running that I don't have to run anymore. But one of the things I learned in doing all of those was that I love the fray of taking something from zero and pushing really hard on growth. And turning it into a real business.
And so I've been given the opportunity to do that here at BrewDog. So in spite of our pretty significant and epic infrastructure here, we are actually very much an early stage startup. So it's very familiar territory for me.
What were some other things that you took from those previous businesses? You mentioned the excitement, I guess, and probably the chaos, right?
Yes. Absolutely.
Of stage growth. But are there any things that you look back on and think maybe, wow, I definitely took away learnings that I can apply and do things better or differently?
Yeah, totally. So in the business I started, I used my own money. So that taught me to be super scrappy and lean and creative on how to build a business on very limited resources. And it takes a lot of resilience and grit and determination, because even if you've got a great company, if you've got a great brand and great product, it's still really, really hard to be successful. So I think for me it was just really an end, and that I am addicted to the idea of moving the needle sometimes every day. And that it's possible to drive a company so that it looks really, really different, hopefully, in positive ways every quarter.
All right. OK. Shifting gears a little bit. What do you think are some of the factors that have led to this explosion in craft beer in the US? You told us a little bit about what happened in Scotland with BrewDog. But particularly in the US, what do you think are the driving forces behind this revolution?
Yeah. I think that for a long, long time, domestic big beer was the only option. And it's really bland, and it's not particularly interesting. There's no innovation really in that space. And so that was sort of the beginning of this craft beer movement, where the beer can be so many things. And that there's a lot of options and a lot of depth to what's out there. So I would say that that's why so obviously it took off. But nowadays, there are over 6,000 breweries in the United States. And I think part of that is because a couple of guys in a garage that are home brewing can then get a slightly bigger kit. And make enough to have on taps at some of their local favorite bars.
And so the vast majority of those breweries are really, really, really small. And then there's these regional and larger players. But there's a lot of tiny little breweries that are focused on creating cool beers for their neighborhood. And that's really exciting. So there's not significant barriers to entry for people to do that.
Right. Well, following up on that point, though, because there's so much competition and low barriers to entry, do you ever see this market becoming saturated, so to speak, in terms of just so many options out there?
I think we're pretty far away from that, because craft beer is still only 20% of market share in the beer market. And then obviously in the larger beverage market that's a significantly smaller number. So I do think there's a lot of people yet that have not met craft beer or never been exposed to craft beers or a range of craft beers where they can find something that they like.
Even though you mentioned that you're in a startup phase-- really when you think about all your competitors, you're getting into now mid-size in terms of craft beers. Why do you think that's a good place to be? You've got enough infrastructure now. You're scaling. You're growing. What do you see as the strengths of being in that position?
Yeah. So we are certainly late to the craft beer party here in the US, while we are the market leader in Europe in craft beer. So that's definitely one interesting point. So I think for us, like I said, there's still a lot of opportunity to bring craft beer to audiences that craft beer hasn't necessarily connected with. Whether that's in a lot of urban and rural neighborhoods. They have yet to encounter craft beer. So I think there's still a vast opportunity for an ambitious regional or a national brewery to sling a lot of beer to people that haven't tried it yet.
OK. And what led to Columbus, Ohio as being selected as the site for this first entry video ad.
Yeah. So one of our founders was here in the US looking at sites. And he landed, tweeted, hey, Columbus, where should I go get a beer? And before he had his bag, he had over 500 responses. And just decided, OK, this is where we're going to build our brewery. I don't know how we're going to pay for it. I don't know what the plan is. But Columbus, Ohio is where we're going to do this.
So Ohio State and beer and there's, yeah, a lot of different patterns.
It's a great great bear market.
That's great. As we walked in today, we had a chance to see some of the, I guess, other experiences that you offer here-- the restaurant and the dog park. How much of a factor do you think that whole experience plays not just for your company, but for other companies as well?
Yeah. I think-- I would say that the vast majority of craft brewers now are opening tap rooms on their own. That's great for margins. It's great to manage quality and control the end to end customer experience with the brand. But I also think it's part of our business model to build brewpubs so that we can, one, be in communities and have that-- and offer a great customer experience. But two, we're a living wage employer. We offer great benefits. So even our bar staff gets four weeks of paid vacation, health insurance, 401(k). So anyone that's full time in our business. So the other part of our model is that we feel like by building brewpubs in communities we can have a positive impact because of how we treat our people. And that we build great places to gather.
So I think that's our approach to expanding our business. But I think for a lot of people it's extremely practical that if you make beer and sell it yourself you're protecting your margins. And you can control for quality and have really small batch cool stuff. So I think that it's just a great way to do it.
Right. So if I'm a mid-sized company, I don't have a product like beer where I could build this around. What are some ideas or suggestions you might give to other companies to do that?
I think in any company to just be totally fixated on the customer experience, whatever that is, is super, super important. I think a lot of times companies take their eye off the customer, which is what should be the center of the-- center of the universe in terms of driving product development, driving customer experiences, and driving strategy for the business. It should start with your customers and your people.
Culture also plays a really big role. From what I've read very unique things happening within your company. Equity for Punks, [INAUDIBLE] craft beer. Where does that originate from? Is it from the founders? And how does that kind of permeate? And why is it so important to your success?
Yeah, so with Equity for Punks, that Equity for Punks was launched for the first time several years ago in the UK. And to scale-- to build a brewery and start a brewery is capital intensive. But to scale a brewery that's more than doubling year over year is extremely capital intensive. And so before the days of Kickstarter and Indiegogo, BrewDog revolutionized equity crowdfunding. And so to date we now have over 80,000 investors. We've raised over $70 million. And the thing that's really exciting about that is that we have a community of 80,000 people who are super excited and paying attention to what our business is doing. And they're super supportive of our growth. So we have over 8,000 investors in the US. And we're looking at launching another round of Equity for Punk's 2.0 in the coming months.
So that's definitely one component, because the minimum share price is $50. But people get really exciting perks. They get to be part of this community. We have our annual General Mayhem, which is our annual shareholder meeting, which is a beer and music festival. And people get to be part of something awesome as well as being an owner in our brewery in our bars.
Right, right. That's really cool. What are some areas that you're looking to grow the business? Are you looking at more restaurants, pubs, maybe partnerships with other craft brewers? What are some things you're looking at?
Yeah. All of the above. So we definitely love doing collaboration brews with other craft breweries. We're definitely eyeing adding more brewpubs restaurants to the region. And we think there's a lot of great opportunities and great communities where we can do that. We think making really exciting beers ourselves is always a great piece of that. And like I mentioned, growing our community of Equity Punks So yeah. I I think for us, there's just infinite opportunities to do really, really cool things.
And then we are opening our DogHouse Hotel. And sour beer facility in August this year-- which actually we're opening it right around the same time as our annual General Mayhem. And this hotel was the first of its kind. It's a 32 room boutique hotel inside of a brewery, which is really, really exciting. The rooms are fantastic. We've got fridges just outside the shower, so you can grab a cold beer and have a cold beer in your hot shower. And we're really trying to dive into these super immersive experiences for people that are fans and passionate about craft beer.
How about an IPO? Do you ever see that, down the road?
Yeah. I think that that's probably on our path. One thing that I can definitively say is we will never, never, ever sell out to big beer. So certainly as we continue to push on scale where we've announced a brewery in Brisbane, Australia. We're doing a joint venture in Korea. And we're continuing to focus on global expansion, because we do believe that we have an opportunity to be the largest international craft brewer for sure. And we're already there in Europe. So I think there's infinite opportunities. Like I said, that's pretty capital intensive. And an IPO would allow-- support our philosophy of being owned by our fans and our customers and our team. And continue to allow us to grow.
So it sounds like there's a lot of momentum, a lot of positive things happening. But no business is without its challenges. So what are some of the things that you face here in terms of challenges for the business and then you, yourself, as the leader of the organization?
Yeah. there's a few. So as I mentioned, we are pretty late to the party in terms of the craft beer game in the US. So really trying to tell our story and have an impact in a market that is really full of already really awesome beer. It certainly will be a perpetual challenge for us. But we're doing we're doing pretty well, because we're making great beer. And that helps on that front.
Another big one in any business, especially that's high growth, is just getting the right butts in the right seats and finding people that can deal with the pace of what we are attempting. To give you context, at the end of 2017 we had about 100 people in the business. We were distributing only in Ohio, and we had our tap room open. So as of now, we have two additional brewpubs open in Columbus. And we are at about 160 or so people. We're also distributing in eight states and adding another one or two in the next month or so.
So we have a very, very aggressive pace in this business, which isn't for everyone. And then I think from-- one of my biggest challenges we've always got a lot going on.
Right.
And so just trying to wrangle the business and make sure that we've got the right foundation, the ops and processes in place to make sure that we can scale and keep the wheels on.
So it's interesting. Our center is about ready to release some research on high growth companies and what are the pathways to that type of growth. And it sounds like you're doing several of things in there. You're innovating. You're investing in the business. What kind of advice might you give to similar sized companies out there who are maybe struggling with that chaos? And maybe it's more about not getting too far ahead of yourself and maybe outpacing or being too aggressive with your growth plans. But there may be companies out there struggling with this question. What advice would you give as to how to go about it?
I don't know-- I think that if you've got the right people and you're really focused on the right people, and you're obsessed with your numbers, so really keeping a tight, tight eye on Ebitda cash flow because that can derail the business more than anything where you'd lack process. Because in my view we can iterate and go and push.
And then if things don't quite work, it's not necessarily that hard to make adjustments later. I think a lot of times people have a lot of ideas for growth strategy. And they-- but really it's about testing ideas and seeing what happens. And then iterating from there. So might be that's it's just better to put stuff out there and kill things quickly. And if they have an opportunity to drive the business forward, then push really really, really hard.
But I think a lot of times businesses stagnate in speculation and have meetings and discussions and planning and planning. And they plan things to death. And it's too late sometimes to seize those opportunities.
Excellent. Well that is, I think, all we have for today. I want to thank you for spending some time with us. Been really interesting conversation. I'd love to learn about the business and about craft beer in general. So I invite anybody who would be interested in subscribing to our podcast, you can find us on iTunes, Stitcher and places where all good podcasts are found. You can also find us on our website at www.middlemarketcenter.org. And we thank Tanisha and all of you for joining us today. Thanks a lot.
Cheers.
[MUSIC PLAYING]