3 Md. craft brewers to merge Niche brands believe banding together helps ensure survival


December 17, 1997|By Sean Somerville | Sean Somerville,SUN STAFF

Three microbreweries with little in common but the state of Maryland said yesterday that they were casting their lots together to better their prospects for survival in an increasingly difficult industry.

Frederick Brewing Co. of Frederick announced its plans to buy Cambridge-based Wild Goose Brewery Inc. and Baltimore-based Brimstone Brewing Co. late Monday. The three companies joined to explain the deal yesterday.

Frederick Brewing will pay about $3 million for Wild Goose, an amount that will include retirement of Wild Goose debt and the issuance of Frederick Brewing Co. stock. The Frederick-based brewer will pay 80,000 shares -- equivalent to $142,000 -- for Brimstone.

Kevin Brannon, chairman and chief executive officer of Frederick Brewing, said the acquisitions will increase use of the company's brewery from about 50 percent to about 62 percent. The deal, which will create the mid-Atlantic's largest craft brewery, is pivotal as many "craft beer" brewers that started as home-grown businesses fight for survival.

"The industry is maturing," Brannon said. "And those of us in it have to do the same. ... We have to act like real businesses now."

Frederick Brewing, which reported an operating loss of $1.2 million in its most recent quarter, is brewing beer at an annual rate of about 35,000 to 40,000 barrels a year -- not nearly enough to cover the cost of running a new plant that can produce 80,000 barrels. A barrel is 31 gallons.

The deal calls for Wild Goose to close its brewery in Cambridge and move production of its roughly 15,500 barrels a year to Frederick. Some of the 22 Wild Goose workers will interview for about eight to 10 jobs that Frederick will add to manage Wild Goose.

Brimstone Brewery, which operates out of the old National Brewing Co. building in Canton with three workers, will move production of its 1,500 barrels a year to Frederick.

Brimstone President Marc Tewey and Wild Goose President Jim Lutz will join Frederick Brewing, running their former businesses as subsidiaries.

The merger will put under the same roof niche brands sold by the three brewers, including Wild Goose's India Pale Ale, Frederick's Blue Ridge and Brimstone's Honey Red Ale.

Lutz said he looks forward to brewing his beer in Frederick's new plant. "We've been kind of using pots and pans, a lot like a large home-brewery," he said.

Tewey, who started Brimstone while he was at Loyola College and is now in his late 20s, said the deal allows him to move up a notch in the microbrew world. "Our version of quality control has been to open it up and taste it," he said.

He said he loves working in the old National Brewing building. "But you have to look at a business as a business," he said.

That's the realization that many microbreweries are facing. The Institute for Brewing Studies in Boulder, Colo., projects sales volume growth of less than 10 percent for U.S. craft beers this year -- down from the 26 percent growth in 1996.

"Experimentation by beer-loving consumers has gotten to the point where the beer aficionado has decided what they really like and may not be willing to try every label that comes out," said Tony Forder, editor and co-publisher of Ale Street News, an industry paper based in Maywood, N.J. In addition to facing a crowded field, craft brewers are fighting aggressive marketing by larger brewers such as Anheuser Busch, which recently bought a 25 percent stake in microbrewer Red Hook. "It used to be just a couple of years ago that all a brewer had to do was make enough beer," Forder said.

The problem is simple, said Hugh Sisson of Baltimore-based Clipper City Brewing Co. "In 1996, the number of brands doubled," he said. "There are too many players. The category is very viable. But economies of scale and operating efficiencies are becoming more and more critical to survival."

Brannon said yesterday's acquisition will ultimately boost usage at Frederick's brewery by 25,000 barrels and lower the company's fixed costs by as much as half from its current $70 a barrel.

Forder said the deal appears to make sense. "Frederick has the capacity they have to use, and Wild Goose can use the help as far as sales and distribution," he said.

Frederick Brewing will produce and market the Wild Goose and Brimstone brands separately.

Frederick Brewing, which rolled out its first kegs and bottles in 1993 and issued stock two years ago, said the company might make other acquisitions, possibly outside of Maryland.

"With this alliance, we've been able to keep it in the family, so to speak," Brannon said.

Pub Date: 12/17/97

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