1/17/04: Mark Ruedrich:
Wow. Mark Ruedrich. I have to be honest. I've talked to a lot of brewers in this line of work, guys (and gals) whose beers were phenomenal. But outside of Fritz Maytag, the one interview that had me really awed and excited was this one. I've been drinking North Coast beers for years, since not long after they opened, thanks to Uncle Sam's Vacation Program, which landed me at Ft. Ord in the late 1980s. Red Seal and Old No. 38 have always been two of my favorite beers, and when they reappeared in the PA market this past summer, I was all over them...and man, they sure held up well over the years. So when I got this assignment to interview Mark for New Brewer, I was pretty jazzed about it. Here's the whole interview, start to finish. I had to edit it to get it down to New Brewer's length.
North Coast has made it past 15 years, which makes you one of a pretty select bunch. Why do you think North Coast survived, when so many breweries failed?
We started as a brewpub. We conceived of the idea of having a brewery after reading an article about the opening of Roaring Rock in Berkeley, which of course became Triple Rock. It was 1986 when we started working on our business plan. From then until now, a lot has changed in the idea of what we would do. We had originally intended to have a nice little brewpub. My partners, Tom Allen and Joe Rosenthal, who founded the business with me back in 1988, had the restaurant bug and this seemed like a good way to exercise that.
Exorcise with an "o"?
That’s the way it works, isn’t it? You open a restaurant and you wonder what the hell you were thinking about.
As with most small, mom and pop businesses, the business plan evolved as we came face to face with the realities of doing business in a small town, doing business with distributors, doing business in California. It only took us about 6 months to realize we weren’t going to survive in a town of 5,000 souls with the business plan we had put together. We had a very limited menu, and realized pretty quickly that even in big towns, the restaurants that survive are the ones that can deliver to as broad a spectrum of the population as possible. We saw we had to not only offer burgers, and fish and chips, and ribs, but we also had to have some higher end menu items. The restaurant became a bigger part of the plan. We found that if we were going to survive, we should probably look into distribution. And we had some inquiries from pretty early on, from distributors who wanted to take on our products. That presented a whole different set of problems. The business plan changed again when we built the brewery we’re in now, with its much larger capacity.
I’d say the decisions we made along the way are the reason that we’re still here. One of the most important things we learned within the first year was that you can’t afford, in some instances, to give a plan time to work! You’ll go broke.
We had decided we were going to be open 7 days a week for 2 meals. At the end of six months we realized that we probably shouldn’t be open that much, and we couldn’t afford it, but we were going to try it anyway. At the end of the year we realized what a mistake that was, and that on two or three days a week we would have been better off giving everyone who came to the door a $5 bill. We changed, obviously, pared down the schedule at the pub to five days a week, one meal a day, and saw a lot of benefits from that, lower costs.
It was increasingly clear that building the brands and distributing the beer more widely was ultimately how we were going to succeed. We built the bigger brewery. I think we made a good decision when we did it.
This was at the same time when other breweries – for instance, Mendocino Brewing, right over the hill there – were contemplating very grand expansions. We were all looking over at what Sierra Nevada was doing and thinking, Wow! This thing could really be big. In 1988, if I’m not mistaken, Sierra Nevada was in the 12-13,000 bbl. range. In 5 or 6 years they were over 100,000 bbls.
Mendocino thought – and quite rightly, they had a great brand – why couldn’t this happen to them? We, at least, were smart enough to realize that we were in a different situation. We chose to build a brewery that would break even at a relatively low capacity, but which we could expand. We figured we could break even at 7,000 bbls. in our new plant, and that we could expand up to 50,000 bbls. in this plant pretty easily if things went well.
Of course, the break-even point ended up being higher than that, but at least we didn’t start out with the idea that we should be able to do 40,000 bbls. at the low end and 200,000 bbls. at the outside. This sort of conservative approach was really correct for us, and set the stage for the kind of slow, steady growth we’ve had over the years, 15% or so a year. We’ve managed to survive, and other guys who chose a different path didn’t.
There’s wreckage all over the place, isn’t there?
Particularly right after that. We built this plant in the end of 1994, and within two or three years, things really started to look bad.
That was right about when a number of people started trying to come East, looking for new markets.
That’s exactly right.
At the time, we were in the planning stages and putting money together for this brewery, and we looked to see how much money we could put together. And afterwards thought, wow, weren’t we lucky we couldn’t put together more! Because if we had, we would have built a bigger brewery, and we would have been in the same situation everyone else was. Sometimes these things work out.
Do you think your location had anything to do with your success, a more isolated area without some of the competition pressures of breweries in larger cities?
Tom Allen is our marketing director, and had spent many years in the NY ad business. I respect his opinion about these issues. When we started up, we all lived here, and didn’t want to leave. We wanted to have a good life, doing something that we really loved to do, in this place, which is a beautiful part of the world.
It wasn’t in the cards to move and to do this in Sacramento, Santa Rosa, or anywhere that had a larger population. Tom has always held that if we had, it would have been very different, and it would have been easier to gain a foothold in a market like San Francisco or Sacramento. It would have been much easier to succeed.
Sometimes I can see his point. But mostly I think isn’t it great, in terms of the restaurant business that we’ve always done a great job with our restaurant, and there certainly isn’t the competition here that there is in a large city. When there are people around here, in summer, in tourist season, that’s worked to our advantage. But particularly in the early days, when summer went from Memorial Day to Labor Day and maybe one good ‘shoulder month’ on either end, that makes for six slow months, and cash flow can really hurt. It’s a little bit better now, but it’s still dead around here in winter. It hurts being this far away. Mendocino County has a population of about 100,000 in the whole county. There are 5,000 people here in town, and on the whole coast, separated from the rest of the county by the coast range, there are only about 20,000. I think we do a great job with wholesale distribution here in this area. But if we’d been in Santa Rosa, or San Francisco, we’d have gotten bigger numbers, faster...but we wouldn’t be here. For the people who know where we are and know the area, the association can’t hurt our brands.
You’ve made it past 15 years and your beer is critically acclaimed; why are you still under 30,000 bbls.? Is that an issue, a problem?
In what respect?
In terms of seeing Sierra Nevada and New Belgium doing huge numbers. Are you where you want to be?
Our business plan calls for us to grow in the next 5 years to between 25-30,000 bbls. We could probably do 40,000 in our present plant pretty comfortably. To get bigger than that we’d have to make a decision about what to do, where to build a new brewery. It’s not a problem I want to deal with right now.
We’re getting to the point where when December and January roll around it’s not white knuckle time any more. I can remember talking to Phil Rogers about that when he was at the Calistoga Inn with his little brewery, just how difficult it was in the winter. If there’s a good snow season in the Sierras, that’s where everyone went from the Bay Area. They weren’t coming up to the vacation areas north of the Bay. In December and January you just weren’t sleeping, wondering how the hell you’re going to pay the bills. It’s not so bad anymore. Wholesale part of our business is probably 2/3 of the business now.
So I guess the simple answer to your question is that we’re not satisfied, but over the next five years, we expect to grow to a size that’s comfortable for the near-term.
North Coast was not available in the east for most of the late 1990s. Last year it showed up in volume, with beautiful variety cases. What happened?
Our first out-of-California distributor was in NC. It’s not as odd as it sounds! I went to college at NC State, and moved to California immediately after graduation in early 1974, but my brother still lives there. Then, I believe coincidentally, in 1989, a NC dist contacted me. He’d been in California and tasted our beer, and he was starting to carry some craft beers, and he wanted to carry our beer. He didn’t know I was an NC State alum. But I had been thinking that it would be great for my brother to be able to drink my beer. So we said sure, that’s a good enough reason, we’ll be happy to sell you the beer. In fact, NC became a very strong state for us. We were probably the first craft brewery to distribute in that state. Weeping Radish had already been founded, but Sierra wasn’t there, Mendocino wasn’t there, Sam Adams may have come in a few years later, so we had a leg up on everybody. NC is still maybe our 3rd strongest market in the country.
We had tried for some time to work out something to get into NY without much success. We talked to the guys at the [Craft Brewers] Guild, but the timing always seemed to be wrong. We had a little distribution in Boston over the years, a short relationship in CT, and another in RI. These were all kind of ‘plus’ business for us, we had no illusions about being able to make any serious inroads in those markets. We didn’t have the resources to put people on the street, to advertise.
These guys were interested, and willing to work with us. We sent a couple pallets a month to those markets, and for various reasons, one by one they fell by the wayside. But after you’ve been in the business for 15 years, your reputation does get around.
Probably a year and a half ago, we made a connection with Oak Beverage, in New York, and the time seemed to be right: people knew who North Coast was.
I know when I saw it in my local store north of Philadelphia, I bought it right away. I wanted Old No. 38, I wanted Red Seal.
There you go. That kind of thing makes a huge difference. Word finally was out at the consumer level. Anyone in the industry will say, particularly in the early years and still, as time goes on, the people we had to convince and educate about our beers were the distributors first and the retailers second, because the consumers -- enough of them, anyway -- caught on really early. But we had to convince the wholesalers that there would be enough retailers interested in taking a chance and filling up shelf space with our products, and convince retailers that there would be consumers to actually buy the stuff, to get the ball rolling. Once you get a reputation, and the retailers are asking the distributors for it because the consumers are asking them for it, then the wholesalers are a little more inclined to take a shot. In this case, Oak knew our stuff, and they were really excited to have a relationship with us. It’s been working great. Something similar happened in Boston with Atlantic Distributing, and those relationships have led to relationships with sub-distributors in upstate NY and out on Long Island, we’re about to go into RI and CT. In New Jersey we’re with Allied now. They’re interested in making money, and when the word’s good in the marketplace, when retailers have enough pressure from consumers, distributors will look at you and say hey, this will work.
I see from your website that you’re in 30 states. This kind of goes counter to the current conventional wisdom that you should go deep in your local market and not throw your beer out into far-off markets. Why did you choose to spread so widely, and how’s it working for you?
I’d turn that around and say why is that the model? A sound business plan would call for a balanced portfolio of distributors. We sell more beer in Mendocino County than in San Francisco, or in any other place we have distribution. We sell a shitload of beer locally, per capita. We did 26,000 case equivalents in a county with under 100,000 people. We think we could do better here, and we’re working on that. But based in an area as thinly populated as our is, we had to explore the idea of distributing further afield some time ago.
You didn’t really have the luxury of staying in your backyard.
If we had been in San Francisco or Portland or Seattle, our business plan would have been different. San Francisco and the East Bay has 30 times the people we have here in Mendocino. If we sold at the same rate we did here, we wouldn’t have ever had to sell beer anywhere else. And to some extent, once you get the beer on the truck, there’s no reason not to send the beer to LA, or to TX – we sell a lot of beer in TX – why not? In the early days, people were concerned about product quality. Other breweries were worried about their product suffering as it went further away from the brewery. That was based on not a lot of experience, in most cases. People didn’t really know what would happen to their beer. From the very beginning, we’ve had a very strong QA/QC program. We have always had the utmost confidence in the stability of the packaged beer. We weren’t worried about what would happen to a bottle of beer in four, five, six months as long as it was kept under reasonable conditions. We weren’t worried about having a lot of spoiled beer out on the market. The conventional wisdom evolved around concerns such as these. Once you get past that, hey, why not sell beer in NY?
You’re not experimenting with "extreme beers," but you’re not pushing hard on a single flagship quaffable ale, either. You have a real line of beers, running from mild to quite huge. Some would call that a lack of focus. How do you see it?
Once again, you go back to being a small guy in a small market. An extra brand means plus business, and if you can manage it in your production, why not? We’ve been tempted to dump our slower sellers, but if you’re selling 1200 cases a month of a brand, it’s hard to say to people, "we’re not going to have this any more, I don’t want your money."
Where’s the advantage to dumping the brand? Is the advantage that you’ll be able to focus a little more on another brand? Then you have to ask yourself, what does that really mean? If you don’t have any real resources to invest in promoting one brand anyway, what’s the difference? Red Seal is 40% of our production, that qualifies as a flagship. We push that. When we work with new distributors, there are two or three brands we tell them to focus on. Red Seal is at the top of the list. Old Rasputin, just because it creates attention for itself, there are a lot of people who love Old Rasputin and it gets press without us having to push it much. It comes down to being economical. Why have we survived? We made choices which have maximized what we had, in terms of our resources to make the beer and to market the beer.
Look back. Given that everything is important, if you had had $5 million more in capital in 1988, where would you have spent it?
Thank God we didn’t have it. If we’d had $5 million more, we might be out of business right now. I’m not sure where to have put it. If we’d had it and not known what we know now...I don’t know. It would have created a lot of problems.
Knowing what you know now, where would you have put it?
In the stock market! We’d all be sitting on a beach somewhere. The story of our brewery...we had a small group of guys. Tom had been running a B&B and wasn’t really fully involved until 1994, when he sold the B&B and came in full-time. Joe is a local contractor and has done our building projects, but he’s not been active. The three head brewers we have here: our production manager, Fred Hahn, has been with us since 1989, Chuck Martens has been with us since 1992, and Pat Broderick, our head brewer in charge of quality control, has also been on since 1992. The administrative group’s been together for a long time. It’s been a family affair to some extent, everyone doing what it takes to make it work, working a lot of long hours, like a lot of small breweries. Nobody here had any illusions about getting rich. We wanted a nice livelihood in a place we loved. And not a small matter is to brew great beers. From the very beginning we had an idea that we could do something special. That’s very important to everyone here.
The idea of getting to 100,000 bbls. is just not us. When you look at what Dan Carey has done at New Glarus, that, sort of model. They sell all their beer in WI. That idea is more like our business plan, and they’re even more a family. Our focus, rather than building a single brand, it’s been on brewing great beers and staying alive.
I can remember somebody saying, back when Boulder Brewing had been in business seven years, that they’d never turned a profit. And I thought, holy shit. I had no idea, at that time. People in general didn’t think that was going to be the rule in our business, they thought, this is a good thing, these businesses are going to make money. A lot of the people who came in and didn’t make it were motivated to come in, make a lot of money, and have fun. You can’t have everything.
Overall, do you get better returns these days on money spent on equipment and procedures, people, or advertising and marketing?
We are at the stage now where we spend some money on equipment. But from the time we built this brewery in 1994, we did focus pretty tightly. It’s a new building, it’s...I guess spartan would not be an inappropriate description. Although, we went with all Mueller tanks, Mueller built our brewhouse, it was the first mash tun I think that they ever made.
We put our money where we knew it was going to really be important, not a lot of flash. It’s a nice building on the outside, it’s pretty industrial on the inside, like a lot of places are. We don’t have a beautiful Bavarian brewhouse, I don’t think we ever will. Unless somebody wins the lottery.
It serves us very well. We buy things that are going to help us become more efficient, or help us to get an even tighter measure of control on what we do. We have an in-house lab, we’ve always propagated our own yeast, and done a lot of our own analytical work. That’s always been important to us, and we do spend some money on that.
We’ve had the same core group of people for over 10 years. We wonder, when do we have to bring the next really skilled brewer on. Who’s it going to be? But to do another 10,000 bbls., do we really need him? I don’t know. Labor’s tough.
Marketing and advertising? We don’t do a lot. We are establishing some broker relationships in our far-flung markets, brewery reps, in NY and NC. We believe that at a certain level of volume it makes sense for us to have a person, but nothing like when New Belgium rolls into town. I can remember when Pyramid first came to California, and our distributors told us, "Well, you know, Pyramid’s here now, and they’ve got 40 guys on the street. Feet on the street!" We were told by them and by others in the business that if we expected to make any impact we had to do that. So like the neophytes we were, we hired one or two people. We’ve had representation in the Bay Area, we had a rep in southern CA. It has never worked out for us, never, never, never. When you consider that in order to pay for these guys, even if you pro-rate their cost at $2 a case, which I think is a high number, you would still need to do a level of volume none of them have ever been able to produce. It’s difficult
We have Jason in NY, we’ve got a guy in NC, and another group we’re working with up in the northwest. And that seems to make sense for us. Jason’s new, we just started with him, but the guys in the northwest, they’re really making a difference. They get out in on-premise, make some chain calls, work with the distributors, and that’s bang for our buck. We’ve taken a very conservative approach on it.
Tom Allen is just getting ready to move to Austin, TX, and he’ll continue to be our marketing director from there. His presence there, right near our 4th biggest distributor, and he’s close to Chicago, Atlanta, NC, Denver, he’ll be able to work with the Midwest and Southeast to continue to boost sales in those markets.
Tell me about your other brand, the Acme brand.
There’s been a lot of interest in retro beers. In 1996 we registered the Acme brand.
The Acme brand has been around since 1861. National Brewing in San Francisco brewed in the 1800s; just before Prohibition, an association of breweries made it, and after Repeal they got together and formed Acme Brewing. Soon after they opened the LA brewery in 1935, Acme was making a million barrels a year after World War II, and was the largest brand in the western U.S. Huge company. By 1958 they were out of business, because of, well, everything that was going on in the beer business at the time. The brand kicked around for a while, was brewed at Weinhard’s in Portland for a while. The owners of the brand were the distributors in San Francisco. They licensed the brand to Excelsior in Santa Rosa. But they forgot to renew in 1996, and we got them.
Tom had always loved the graphics, the branding. We loved being able to resurrect part of CA history. We’re getting ready to introduce some new packaging. These particular brands were, for a while, our price brand. We’re moving away from that strategy. The retailers were taking advantage of the price differential and selling Acme for the same price as North Coast brands. It doesn’t make a hell of a lot of sense for us to sacrifice profitability.
We’re introducing some new packaging based on some old graphics we have. The profiles of the three Acme brands, the pale ale, the brown ale, and the IPA, are much more accessible than some of our other beers. We think that there’s an opportunity to do a lot more volume, particularly in California, if we can somehow get the chance to tell the Acme story. A lot of people, even in California, don’t know about Acme, and it was a big piece of California history.
We recently read that there’s a group that’s going to recreate the voyage that John Steinbeck and his buddy Ed Ricketts took when they wrote The Log From The Sea of Cortez in 1940. Cannery Row was written about Doc Ricketts, he was a real guy and Steinbeck’s good buddy. I contacted the lead scientist from Stanford who’s going to be doing this thing, and I told him how as a biologist it had always been my dream to come to California and live the sort of life that Ricketts had led, this amazingly romantic story, and I’d always loved that book. As it turns out, there’s a lot of beer drinking in the story, and I said, if you want this thing to be historically accurate, let us supply you with Acme beer for the trip. He thought that was a great idea. Being able to tie back into such an evocative time in California life will really help us to get the Acme message out there.
One more question: why "Red Seal" ale?
That was Tom’s idea, the double entendre. The maritime motif here on the coast, and the ‘red seal’ of high quality, a seal of approval. We invariably get one or two biologists who write us and tell us, ‘you realize of course, that it’s a sea lion on your label, not a seal.’ We acknowledge that, but Red Sea Lion Ale doesn’t have the appeal.
Understood! Thanks, Mark, I appreciate the time.
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