Interviews

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9/14/04: Victory Brewing

I got a tour of Victory’s new brewhouse, and a chance to talk to brewer-partners Ron Barchet, Bill Covaleski, and Karl Lechner, the man who helped design and install the Rolec brewhouse. A lot of technological advances, a lot of big iron, a lot of automation. Then we went into the pub and had a lot of beer, and the guys opened up about a lot of things. I had to take out some of the choice bits, because I used them in a New Brewer piece, but once that has been out for 30 days, I’ll stick it all up here. 12/23/04: As of now, the entire interview is up. Thanks for your patience.

Ron: This is the mash tun, and this is the mash kettle. This is for taking the partial mash into [the mash kettle] and boiling it in here, then it gets moved back to the mash tun. We want to do 8 brews a day, so each process –

Ron: Correct. In order to do that, a brew’s got to be done every three hours, which means any one section of the brewhouse can only be used for three hours. So, currently, when we do a decoction, we mash, pump it into the lauter tun, back, pump it over to lauter again – it ties up the lauter tun during the entire time of the mash. This way we’re mashing one batch here, we’re lautering one batch there, we’re brewing another batch, and we’re cooling another batch. There’s four brews going on at one time. That’s why we had to get a mash kettle. If we were doing it with a 100 barrel system, then we could go back and forth, keep tying up the lauter tun.

Ron: Right. But we didn’t want a big one, we wanted to do small batches, and be able to do specialty beers, one offs. It’s hard to sell 200 kegs, it’s a lot harder to sell 100 kegs. This just made more sense for us. We were going to automate in any case, and to do 8 batches a day isn’t any harder than four big batches a day, with the automation.

Ron: We didn’t want a big one, we wanted to do small batches, and be able to do specialty beers, one offs. It’s hard to sell 200 kegs, it’s a lot harder to sell 100 kegs.

Bill:  It is, in relation to some of the other breweries in our size. Stone, for example, was here looking at this equipment, and they’re talking about a 120 barrel batch. Karl, at any point did you try to advise Ron for a larger scale, or were you always accepting the 50 bbls. size?

Karl: I don’t know how it will work out, the smaller size, that was more Wolfgang.

Ron: Wolfgang (Karl’s partner) was with me on this, he agreed with it. They make more money on this, they get more work, and it costs a little more to do it this way than to have everything a hundred barrels. We’ll be doing 8 brews a day with a 50 barrel system instead of 4 brews a day with a 100 barrel system. The other thing to remember, though, when you have a hundred barrel [system], all your motors are bigger, all your steam requirements at any one time are bigger, so you wind up having to buy a bigger boiler, and bring more electric service into it. It’s actually better to spread it out over time. When that 100 barrel kettle kicks on, blowing all that steam out is just… Chilling the wort, same thing, you need a bigger glycol system.

Ron: Very simple. I saw that it had worked for Old Dominion. They had a 25 bbl. system, and it allowed them to grow to a certain point where they could consider buying a new brewhouse. 25 bbls. lets you generate enough profit to go to the next step. If you’re starting at 40, or 50 bbls., and you can make that work, great, but that’s really hard. I saw it work really well at Old Dominion: a 25 bbl. batch was a nice size. It allows you to make enough to get to 20,000 bbls., and if you get to 20,000 bbls., then you’ve got enough profit to make the next step.

Bill: Getting back to the old brewhouse, there were a lot of things I used to lovingly refer to as ‘highly functional bells and whistles.’ The ability to decoction mash, to use whole flower hops; we essentially threw in all the options, because we wanted a brewhouse that wouldn’t limit us on the flavors of the beers or the styles we could do. Then lo and behold, we got sort of famous for doing all these different styles of beer.
That brewhouse begat this one. We almost had a problem in spec-ing this one out because there were so many processes and things that we needed to do, that we couldn’t get away from whole flower hops, we couldn’t get away from decoction mashing. We didn’t have this really narrow product line that would lend itself to a larger brewhouse with less functionality, more directed towards a single beer. So that sort of explains the jump to 50 also.

Ron: No. When we do a new beer, we haven’t had cannibalization. By offering a new brand, we’re giving someone a chance to buy Victory, as opposed to a Stella, or a Rogue, or whatever.

Ron: Right.

Bill: Or, they are; depending on the weather and the time of year.

Ron: Or they’re buying Storm King because they can get a Victory product instead of Rogue Shakespeare Stout, or Brooklyn Black Chocolate Stout. Why lose those sales?

Bill: It’s a pretty slippery slope, it’s almost a collusion attitude: that brewery has that brand, so we’ll only do this brand, and make it nice and easy for everyone. The consumer doesn’t think along those lines, they want to have the latitude to flow in and out of the different breweries. A large product line has actually been beneficial to getting us to this point. It may become problematic down the road, as wholesalers who take us on say, ‘Hey, wait a second, too many SKUs. I don’t want a Moonglow and then a Hop Wallop.’ Oh, what, you want a Storm King in between? ‘No, hold on! Just give me one fall release.’

Ron: And then they’re making their sales with the fall release in their territory, and then they say ‘Oh, this person wants this, and this person wants that! Can you get us that?’ Inevitably, they want it too, when their customer wants one of the varietal pils, or one of the one-off beers we do.

Bill: It’s one of the few aspects of distribution where the consumer does get what they want, because distributors, even though they do want a small product portfolio, hate to say no to sales. So it works that way.

Ron: What do you think this vessel is, Lew?

Big and wide, must be a lauter tun. I see either power lines or hydraulic lines in there on the mash rakes, what’s going on?

Ron: Hydraulic, no, pneumatic lines to raise and lower the plow to push the spent grains out.

Karl: It’s all stainless steel, very easy to clean.

Karl: But we forgot to put the "Rolec" on!

Ron: This is what they call a wort pre-run tank. When the batch is lautering, it goes in here, because you’re boiling in the kettle. See, usually when you’re lautering, you’re pumping to the kettle. That ties up the kettle when it could still be boiling the batch from before. So we’re looking at it in batches: the mash, the lautering, hold it here –

Ron: Oh, yeah! It’s slick. Lautering takes 2 or 3 hours, it’s one of the longest processes. And then here is the kettle.

Ron: We have, in this one, an external boiler. There’s no heating surfaces in there whatsoever. The wort is pumped out the bottom, goes through this shell-and-tube heat exchanger – a calandria, an external calandria – goes back in boiling and hits the china cap and sprays. The idea of the way it’s staggered like that [the china hat is not a smooth disc, but crenellated, kind of like an interrupted screw], is that the wort comes over the high side and leaves a little gap where the volatiles flash off. The design of the china cap for boiling (in the kettle) would be fine if it were solid, but having it like this you leave more air pockets where you can flash off DMS precursors, things like that. The idea here is that this is a German brewhouse. Germans are very concerned about saving energy, but they’re also very concerned about the quality of their beer, and these are lager beers, so DMS is a big issue. You have to have a vigorous boil to flash off the DMS, but you don’t want to use too much of a boil, because that uses energy. All the top German designers have designs like this, designed so you can boil much less than you used to, but get rid of all the DMS, just like you used to. It’s this technology, coming to save all this energy.

Ron: No, the whole wort gets pumped through here, 10 times an hour.

Ron: Right. You control the flow of the wort through there, the flow of the steam, pressure of the steam, it’s all adjustable. We can really heat it up so that when it gets in the kettle it almost depressurizes, so that flashes off even more. You have a lot of extremely flexible design with these external cookers. One of the things that really allowed us to do this is that we still want to do single-runnings beers, like Old Horizontal or V12, where we just use first running, then we’ll make a small beer or a mild afterwards. If you have an internal calandria, they’re designed for a specific volume in here. This system doesn’t care what the volume is. We can boil a half-batch, no problem. With an internal boiler, we’d get just as good a boil, but we’d always have to make 50 bbls. We didn’t want that for these one-off beers.

Now here’s where it gets interesting. It has energy-saving techniques beyond just how it’s boiling. You see the valve here? When we’re boiling, the vapor’s going to go up here to this vapor condenser. We have a tank, the energy storage tank, it’s full of warm water, always the same water, it’s a closed loop. That gets pumped across this heat exchanger in the vapor condenser, which heats that warm water up to 95EC. It’s doing that the whole time this is boiling, it’s heating the whole tank. When we’re done boiling (the wort), it goes into the whirlpool. We pump the lauter wort into the kettle, but when it comes in it’s only about 70EC. It takes about 20 minutes to pump it all in, but it goes through a huge heat exchanger where the hot water from the storage tank takes it from 70E to 90E without any additional heat being put into the system, it’s all recovered from the steam.

If we’re boiling and the energy storage tank is already at 95E, it goes to heat the hot water tank we use for brewing. That’s all automated.

The team from Rolec has been here about 5 weeks installing the brewhouse and the piping. In that time they’ve gone through 60 bottles of argon, the big ones, the purge gas for stainless welding.

Brian Hollinger (brewery operations manager) : They’ve done about a mile of stainless tubing and 5 miles of electrical wiring.

Bill: And probably 4.5 bbls. of Lager. Keeps it all balanced.

Bill: Yeah, we’ll do tours in here. Don’t know exactly when we’ll get them started.

Karl: For weeks we tried really hard to push Ron to stop this, to go to pellets instead.

Ron: Oh, yeah. Look, you have to make this vessel, a hop-back for it. You’ve got to have a freezer instead of a refrigerator, a freezer that’s ten times the size the refrigerator would have to be, because the flowers take up more space. To get rid of the spent hops, with pellets it would just go in the trub, mixes with the spent grain, pumps real easy. But we had to get a special pump, and it’s very hard to clean the hop back. There’s a basket in there, taller and more sophisticated than our current one…

Bill: …and also heavier, so you have to clean it in place.

Karl: We had to completely redesign it.

Ron: The hops will fall into that, it’s a stator pump, progressive cavity style, it works like the intestines. It gets pumped into the spent grain stream.

Karl: The spent grain pump is the same kind, but larger, we want to remove the spent grain in less than ten minutes. For eight brews you have to speed up at every point.

Ron: Everything is controlled by computer from my desk. I can set off alarms, stop the agitator, reverse the rakes. Keep people on their toes that way!

Ron: We have two types of malt in here, Pils and Vienna. We might get a silo of wheat malt in the summer, but generally Pils and Vienna are all we need to make most of the brands. We have specialty malts inside, we’ll show you that when we get back in.

Bill: One of the crazier aspects of this whole installation is that you can see the rail siding that used to deliver flour to this building and the building down below. The plant’s really back to its previous use.

Ron: We use really gentle malt handling. We don’t blow it in. We use bucket conveyors. If we’re going to spend the money for German malt, we’re going to keep it in good shape.

Bill: We play Mozart in there for the malt, it’s very soothing.

Ron: I’ll show you. It’s all automated. When I say I want to brew HopDevil, it opens up this tank for the right number of pounds, and opens up that for the right number of pounds. It falls in here, goes up, and in here. You’re looking into the brewer’s office right beside it there.

Ron: Not really. It’s sized to get a batch of malt over there in two hours.

Ron: This is the screener. Anything larger than a malt kernel gets taken away. The bed’s wood: it’s stronger for the weight, it holds up against the shaking better, and there’s no problem with static buildup. It comes out here, and gets lifted to the mill hopper. We have the same handling path for this hopper for super-sacks of specialty malts, and this one for single bags. It makes us more flexible; if one of the silos goes empty I can get bagged malt and just load it in here. And it’s all automated: I can type in 500 kilos of Vienna, 300 kilos of Pils, 40 kilos of caramel, and then bags we just do one at a time.

Bill: You’d be hard-pressed to find a brewery that can accept malt in three different forms. It’s the ultimate flexibility.

Ron: We were using Durst, now we’re using Weyermann and Durst.

Bill: From the two-row milling, dry milling, we’ve gone to a wet-milling system. Where the malt’s actually hydrated in the mill.

Ron: And mashed in. It gets hydrated here, above the mill, then it gets crushed, and right after it comes out of the rollers it gets mixed with the mash water, hot mash water, and the hot mash goes right in the mash kettle right here. This allows you to mix the malt and the water in a low-air environment, so, again: shelf life. This is key for that, because you’ll have very little air involved.

Ron: I’ll tell you who has these: Sierra Nevada, and New Belgium. Sierra Nevada had a six-roller mill, which is top of the line for dry mill, then they had one of these, they had both. Well, they had a Huppmann version of this, it’s very similar. And when they went to the new plant they got another wet mill. They did that, the same at New Belgium. From what I’ve read, technologically it’s the best. It leaves the husks in better shape, because it’s wet when it’s milled, which gives you quicker lauter times and less tannins…is the hope, and seems to be the case. Not to mention, your mashing begins right here.

Ron: We’re working very hard to make sure that it tastes the same, or better.

Bill: It’s a difficult situation from our perspective, because obviously we want the beer to taste the same, but we also want to take advantage of all the technological positive changes.

Ron: I don’t want it to taste the same: I want it to taste better.

Ron: Of course, when you say "better" and "quality" from a taste perspective, you could construe that to mean, oh, they’re just saying it’s going to be better. But what I expect to happen…a beer like HopDevil, for instance, we’re not changing the hopping much at all, the hop flavor’s going to be the same. A beer like HopDevil is, I think, going to taste exactly the same. I would expect it to taste almost exactly the same.

Karl: During all the commissionings over the years, this was of course the most important question the purchaser had: is the quality the same? You know what we say? It’s not the same, it’s better. It never worked out worse, never. It was always to the better.

Karl: Ja! In the beginning there are concerns, because everyone wants to keep their beer’s quality and flavor.

Bill: You’re picking out all the key changes.

Ron: All making it better.

Ron: Definitely. This will greatly increase shelf life in all our beers. But beers like the Helles and the Pils, I think by having less tannins in those beers, they’re just going to become smoother. That doesn’t mean we’re going to take – what it will mean is that you’ll have that hop flavor, but there might be just a little bit less bite to it. My hope is, and from what I understand is generally the case, that we’ll end up with a smoother, softer beer.

Ron: More and more of the big breweries are using these. They’re very expensive, much more expensive than other kinds.

Bill: Analogous to what Ron said, if you look at it from a broad perspective…every homebrewer probably had their first success with a stout. It’s so robust you could hide all the flaws. What did we get popular for? HopDevil Ale, very flavorful, very powerful, lots of alcohol, lots of hop character to it, travels well because it’s an IPA. But how is it after 8 months in the bottle? We don’t really recommend that you drink it after 8 months. There is another level of quality, so when we’re talking better, better, better, we’re pretty much talking about better in terms of the actual structure and the building of the beer, a better beer. Hopefully that won’t translate too much into a change in the flavor, because these are the flavors that we love. If they do, we anticipate that it’s going to be a better flavor, an enhanced flavor, where the flaws become nonexistent, not just non-apparent, but nonexistent.

Ron: That’s why I think it’s most likely that you’ll notice improvements in the milder beers. Storm King Stout…if you remove 50% of the tannins from that you’re not even going to notice. You’re throwing tannins in there by using black malt! In that kind of beer you won’t see it. The St. Boisterous hellerbock I imagine will be better. Any of the lager beers, and the Dark Lager in particular.

Ron: It’s a motion detector. If you open the cabinet doors on the controls, the lights come on.

Karl: All the motors are equipped with frequency controllers.

Ron: The agitators can run at any speed, in any direction we want.

Karl: In case of any breakdown or problem, we can go directly from our office in Munich directly into the frequency controller for diagnostics.

Bill: And if we don’t pay the bills, they can just shut it down!

Karl: I never told you this, how did you know?

Ron: They can do programming changes, diagnose problems, all through a secure Internet connection from Munich. [He turns and gestures out through a window directly into the brewhouse.] We’ve got a nice view of the room. This is going to be an air conditioner.

Ron: No, of course not, for the equipment.

Bill: Everything we couldn’t do in those places.

Ron: German malt was my main thing. I felt that we could make better beers at Old Dominion with German malt. He never let us do that. It was all American malt.

Ron: Jerry Bailey was all about cost, but even if I could have gotten a great deal…he’s a Roger Briess man. I think in the last year they broke, and now they’re getting Weyermann malt. The whole flower hops, also, neither of us were doing that. At Baltimore, the beers Bill was doing there, everything was good, but they didn’t go that final mile to make it right.

Bill: If you look at the history of Baltimore Brewing Company, when Ron left, there were only…three beers left in the portfolio? Ron actually formulated the first Märzen and left that as his legacy. He did the Märzen, then we did the Weizen, our Doppelbock; so we really expanded the line there, but it was all within a completely Germanic theme.

Ron: And they dumbed down the Märzen. The Märzen was originally a 13.5P beer, a real Märzen. The way it wound up, Theo made you do it down around 12 Plato.

Bill: Meanwhile, I’m brewing all these beers and enjoying them, but then I’m slipping off to Bertha’s and drinking Wild Goose Amber Ale. There was this turmoil; there were other beers out there that I wanted to brew as well. Another thing was not necessarily the frustration of working in those great breweries, but also the "what if" factor. We knew that if we worked together, we shared a lot of common ideas, and it would be fun. I know you don’t start a business because it will be fun, but we just felt that it was the right chemistry to do something. And our balls were a lot bigger than our brains. We didn’t really know all the business aspects of it, but there was no one stopping us, saying, ‘Oh, no, you can’t do this.’

Was there anything you didn’t want to have to do?

Ron: Put a restaurant in.

Ron: No, not really, I loved Old Dominion. I felt sad leaving there. I was real excited to be starting my own place, of course, but it was a great company to work for. Jerry Bailey was a good boss.

Bill: Working night shift you could fill up a barleywine…

Ron: Oh yeah, I’d do that. You get off at 6:00 in the morning, pull a 23 oz. weissbier glass of Millennium, and drive home with that in the car. All the other people are all mad, because they’re going to work, and they’re sitting there in traffic, and I was going, "Hey, pretty good day out here!" By the time I pulled in my driveway I was just hitting the legal limit, it kicked in when I got home, and I’d go right to sleep!

Ron: When we wrote the plan, there were no micros in Philadelphia. By the time we built the brewery, there were three: Yards, Independence, and Red Bell.

Bill: Opening in 1996, that was the thick of it, that was the highpoint of openings.

Bill: Exactly. The other thing that was a huge surprise, without the benefits of Microsoft Project, we thought we had everything lined up. But we learned that we would not actually be able to get the check from our SBA loan until we had our liquor license, and our PLCB liquor license required us to have all our equipment in place. So there was a really nervous period when we took our shareholder money and pretty much just lit a match under it. We had to get to Point B with equipment installed so that we could get that second check and not fall out of orbit. That was a big surprise.

Ron: Another big surprise was that we had imagined a much smaller restaurant operation, maybe not physically, but volume-wise, business-wise. Our original plan had something like 7 people working in the brewpub and maybe $1500 a day. Well, it turned out that we had about 25 employees and on a good weekend night we were turning 5, 6, or 7 grand. The costs were much higher, but so were the revenues on the restaurant. That whole thing turned out to be a lot bigger than we anticipated. We could already sense that as we were doing the project. Bill and I would be working 12 hours and we’d want to go and get a beer or some food, and it was, like, where’s there to go? Meanwhile, contractors are coming in here and saying, ‘Man, this is great, you’re opening a restaurant, there’s nothing like this in Downingtown!’

Bill: ‘We can get pizzas and burgers? That’ll be great!’

Ron: Not just nothing like this, but not a lot of options, period. As we were building out, we got the sense that the restaurant was going to be a bigger item than we’d planned.

Bill: It encouraged us to put a little more emphasis on it. Thank God, because the other big surprise is that our bottling line was six months delayed from its original date. So imagine having this great spreadsheet with all of your revenue streams, and everything’s going on retail in your restaurant, and you’ve got all this wholesale component that’s supposed to kick in, but it doesn’t happen.

Bill: We sold three kegs of St. Victorious Doppelbock to the Drafting Room, our first draft beer sale, and we didn’t hear from them for three months. We sold it in February. The Weintraub brothers are good guys, they said, ‘hey, we heard about your brewery, can we get some of your beer? St. Victorious sounds good, send some of those up.’ And we didn’t hear a thing for three months. I thought, oh, we’re so screwed. The premier draft outlet in Chester County wants nothing to do with us. There was a waiting list of other breweries’ kegs just waiting in line to get tapped.

Ron: I think Wade Keech at Whitetail Brewing had a lot to do with it. He went to school with Howard.

Ron: That HopDevil was the lead. We expected Festbier to be the lead, or the Lager. Easygoing beers, not so hoppy.

Bill: Festbier makes so much sense: amber, lager. That was a hot thing at the time.

Ron: We still do! But we already knew: when we had the first staff training here, of the young women – that was especially surprising – the young women we had for waitresses –

Bill: The people who knew nothing about beer.

Ron: – hot young women, we told them, hey, here’s the beer you’re going to be selling, try this out. I went through them all, and they all said HopDevil, they were all crazy about HopDevil.

Bill: No, that was the other surprise: the ATF wouldn’t permit opium.

Ron: Golden Monkey being our second-biggest beer was a shocker. It’s been second for about two years now. Prima Pils and the Monkey are like this (moves flat hands side-by-side in an up-down fashion), Prima’s more in the summer, but over the whole year Monkey’s on top.

Bill: And Storm King hangs tough in that echelon as well, it’s not far behind. One of the surprises with the actual growth was that it was easy to get initial wholesaler interest, but typically with crappy wholesalers who didn’t know any better. We’ve done pretty well with our relationships. We’ve made some good decisions, we’ve also had the right attitude to stick it out and help people grow to become a better wholesaler for us. But there were some decisions along the way that we just had to rid of. The other surprise is that when you have more beer, and you have more consumer interest, there are still some places where you just can’t go, because there’s no wholesaler that’s either capable or interested.

Ron: We couldn’t get into Maryland for the longest time. Nobody’d take us. Nobody. We were getting really good reviews in the beer press, we were getting really good buzz. It was all positive. But to this day, with Maryland wholesalers, it’s bad. Finally, Old Dominion got so sick of it, they created their own wholesaler, and they took us. That’s who we’re with today.

Bill: Access to market was an unpleasant surprise. We came from the beer geek mentality of, ‘wow, I see all this stuff all over the shelves, it must be easy!’ We didn’t realize that that stuff had been on the shelves for 8 months.

Ron: And because of all that, wholesalers slammed the door on new products, because they already had too many that weren’t doing good.

Bill: We saw what was an anomaly, and based our business plan on that anomaly, and then it dried up.

Bill: Yeah. A lot of people that aren’t here any more.

Bill: Well, you asked a good question before, about the 25 bbl. brewhouse. We put the money into the things that counted the most. We really did put it into the beer-making process; not the marketing, not the fluff, we put it where it counted. We’re looking at a consumer who’s asked to take more money out of their pocket for a product that’s supposed to be better. If they don’t taste "better," they’re not going to stick with it. So I think we’ve created a loyal customer by creating a better-tasting product.

Ron: We spent a lot of money on that original bottling line when people were buying $10,000 lines that, you know, the beer had a shelf-life of three weeks. We went and spent $140,000 on a new bottling line that was as good as we could afford at that time. We didn’t go all the way to Krones – it was SMB Technik.

Bill: When he was getting quotes on bottling lines, I was getting sticker shock. And he said, when you’re getting a Bang and Olufsen stereo system, you don’t go to Radio Shack for your speakers, do you? We really did invest a lot into quality.

Ron: We actually went to the wholesaler and pulled it back, to the extent we could, there was stuff out there that had already been bought by the consumer.

Bill: Some of the things that someone else might second-guess, that’s part of the integrity. And people buy integrity, and will give it a second chance.

Ron: It’s important. If they’d had bad beer and we were obstinate about it, it could have been the end. We recognized that. It came at the exact time when we had to go back to the shareholders because we’d lost over $150,000 in the first year. It was not an easy decision – no, it was easy, because it was the only thing to do, but it was painful. It was a painful decision, because we had to give money back to the wholesalers, buy bad beer. And that’s tough, if you’re losing money already. But…the only thing to do.

Bill: No brewery is completely safe-guarded against bad beer, so you always have to be vigilant about it. But the takeaway lesson is that if you acknowledge internally that you have bad beer, then you better acknowledge it externally as well.

Ron: It’s going to be close to 20,000 bbls. We would have made 20,000 if we had capacity. We’ve been doing this throttle thing, where we don’t want to open new territories, or start any sales programs, because we can barely keep up, but when we have the new equipment online we’re really going to want to fly. So we’ll see where it ends up, probably 19,000 or 18,000, or maybe 20.

Bill: Our distribution is pretty much mandated by the consumer.

Bill: Essentially, yes. We can only listen to so many e-mails and so many calls on the phone until we scratch our heads and say, gee, if we find a wholesaler out there who’s willing and capable, then ‘no’ is a really bad answer! The other thing is, our business plan called for us to have more volume of business locally than we did initially, because of the guys that weren’t on the radar screen when we formulated our business plan.

Ron: And Independence is giving away barrels for free. It’s hard for Victory to get a placement because we weren’t going to do that. We knew that was not the way to go. That shut us out of the market for three years, while Independence was doing big promotions with cheap beer, or free beer: frozen out!

Bill: Meanwhile, the phone’s ringing with people going, ‘People are telling me about your beer, and I’d like to handle it.’ We tried our best to figure out which ones were the posers, and which ones were the real players, and we got our beer to people who wanted it. In hindsight, I think that was really critical for our success, because it created that Internet buzz. People in remote places started talking about it.

Ron: It got us some of our cashflow, too. We had this brewery, and we weren’t selling as much as we wanted to, locally. To make the business happen, the reality is we really had to go outside and sell some beer outside the markets we originally anticipated. But like Bill said, for the most part, it worked out well. There are a couple places, California’s a perfect example; we went with someone we thought was capable, but turned out not to be capable. There were some mistakes made, but we’re correcting that.

Bill: In general? Yeah.

Ron: California not so much.

Ron: The wholesaler wasn’t giving us the attention, and they didn’t really know where to place us. You know you get pull-through in the right place, you don’t get pull-through in the wrong bars, or the wrong shops. They’re a wine outfit.

Bill: They had a thick book, with a lot of wine, and every time they picked up the phone and called us for an order, they told us, ‘When are you going to do something about this pricing?’ Which was not music to our ears.

Bill: We don’t see our beers in the market, we go over to the bar and drink them. We don’t have to pay for ‘em, that’s some other sucker’s problem!

Bill: We started out essentially charging for our beer what we needed to make for it, based on the ingredients involved, the costs involved, and what we needed to survive. We found out along the way that that put HopDevil pretty much in line with Sierra Nevada Pale Ale in most places. That felt comfortable, and we’ve tried to maintain that parity the whole time.

Ron: As far as a price increase now, I’d be lying to you if I said it didn’t get talked about, regularly, because our hops have gone up. Well, last year the hops were the same in price, but they had half the alpha acids, so you had to buy twice as much. Malt went up 25% over the last two years…

Ron: Terrible harvest in Europe.

Karl: It was a very hot summer last year.

Ron: It’s international, it’s a market. If Sleeman in Canada needs malt, and there’s better malt in Germany, they start buying malt in Germany, so the whole market goes up if there’s a bad crop in some places. Apparently last year there was a bad crop in the U.S., Canada, Australia, South America. The only one that had decent malt was Europe, and they, of course, raised the price. That’s how it works! So we’ve seen some huge increases, and these are the kinds of things that never go back down. They might go down a little bit, but they never go back where they were.

Bill: Essentially…yes. But we can only hold off for so long.

Ron: It’s fear of a problem. We go back and forth, but from what we understand, there are a lot of local breweries that are waiting for us to do it, so they can raise their prices.

Ron: Yeah.

Bill: And it’s funny, actually, because we’re waiting for the national breweries to do it.

Ron: We’re waiting for Sierra Nevada to do it!

Bill: I guess that shows our position in the whole scope of things, eh?

Ron: I don’t think it is. I wish I could say I did, but I’ll tell you why I don’t.

Ron: If you look at the breweries that are making the biggest gains right now, they’re breweries that are our size and bigger. We’re investing in all this automation in the brewhouse and in the bottling line. Our per case costs are going down, the cost of goods. Now, our interest payments are way high, because we’re buying all this from debt, mostly, so we’re not in a position to lower our prices. But the Redhooks of the world, who have paid their bills off, the Sierra Nevadas, the Rogues, I wouldn’t be surprised at all if they start, as it gets more competitive, start cutting their prices, and then it could get ugly. That’s the fear. It could get ugly. Because then it gets to the point where companies like us can’t afford to upgrade the quality, shelf life…it’s not healthy for the business to do that, but it’s the nature of companies who get there first, who’ve paid off their brewhouse, that are not making interest payments, to say, ‘Hey, this Victory, they just got this big debt on. Let’s cut our price 50 cents, or a dollar.’ I don’t see that happening, not nationally. Sierra Nevada hasn’t approached that. We’ll probably be okay for the next few years, but in three or four years…

Bill: You do see price increases from the wholesalers that never came from the brewery, too.

Bill: Yes, and we’re smiling as we say it.

Bill: Three big questions. What brought it on was that Steve German, our director of sales, and Ron and I, would maintain a list of wholesalers. We have essentially a grade sheet for wholesalers; the ones who are performing where they need to be, the ones who aren’t performing where they need to be, and the ones we just gotta get rid of. Our Philadelphia wholesaler was actually performing pretty well, but wouldn’t get involved in any programs where we were doing co-op spending, nothing progressive, because he had this huge warehouse of brands that he sold for top dollar. Understandable. We recognized that, especially with this new installation, that we needed to move out from under that cloud, we couldn’t just be part of that portfolio, just another brand. We had to be someone who got more attention from the wholesaler. As we were scratching our heads for two and a half years over this, we thought that the ideal wholesaler was probably Penn Distributing, because they had a really narrow portfolio, a very deep sales force –

Bill: Correct. And that’s why we thought we’d never do business with them because we thought they’d never do business with us. Lo and behold, they started calling us. So there was an 8 month period where we kept saying, no, we’re not ready to go to the dance with you yet. Finally it dawned on us that if this was the best solution, and the solution we do have isn’t built for the long term, and is already trying to sell his business to other wholesalers, where we’re going to get lumped in as "another brand," in a house where we don’t belong, we’ve got to solve this problem, and Penn’s the best solution. So it was time to stop saying ‘no’ and start saying ‘yes.’

When we made a commitment to them, we approached it from a very professional standpoint by first talking to the old wholesaler and trying to get things ironed out, and overall that went pretty well. But everything comes down to the dollars and cents. The old wholesaler accepted a figure, and walked off with that. Then unfortunately, some people in the retail arena cried foul. In hindsight, I think people called foul because they saw their control eroding somewhat. Victory pulled out of the slipstream and now was a force to be reckoned with, we weren’t under the control of the guy who had all the good stuff. So it wasn’t easier for the retailer of all the good stuff to control it. I think we upset the apple cart.

Bill: Yes, because we stepped out of the programmed pattern, we stepped out of the Old Guard. That upset the apple cart, from the wholesale and the retail side. Craft beer was no longer as controllable as it had been. There was an opportunity for a Philadelphia craft brewery to get wider exposure, in places where this retailer didn’t own a place, and that wholesaler didn’t like to go to. We upset the apple cart. It was two guys trying to control Philadelphia, and a bunch of minor players. By moving our alliance to a wholesaler that was more progressive, and covered a wider territory, and did so with longer legs, more aggressively…that struck fear.

We knew we were an asset, but we didn’t want that control. When I sat down with Eddie Friedland, and told him we wanted to say good-bye, he started crying about a $50,000 truck he just bought, to replace the one that died. We’ve got a $4 million brewhouse project, that’s not equal partnership. Those are not two people holding hands, walking into the future to cover each other’s butt. We knew that we had to – for our shareholders, for our business, for our families – we had to make these decisions, and make it happen.

Bill: So far. They have a commitment for success.

Ron: Penn is going to take some time to get to where we wanted it to be, but it’s already fine. The point is, the owner of Penn has been out here four times, we had a staff of 40 or 45 of his people come out, that he paid to come out, to learn about beer from us yesterday, for four hours of education and beer-drinking and a good time, and that, to me, says a lot. For Eddie to cry foul on this, is just…it absolutely is an insult to me because he never even came out here once, after he threatened to not take us if we didn’t say yes.

Bill: It’s all true, that’s how it happened.

Ron: And every time you’d call his office, the people there are so rude. I don’t know if they’re that way to you, or to buyers, but to suppliers, they’d just be absolutely nasty on the phone. And then you call Penn, and you get these really nice people, and they’re friendly, and I think they represent our product better to the mass audience.

Beer bars? Yes, Friedland has a better hold on those than Penn. But, you know, we’re trying to make Philadelphia safe for beer drinking everywhere, not just in beer bars. We’re trying to get people to drink us instead of Yuengling at this point, not trying to fight Sly Fox, or…

Bill: Back to the distribution. Penn Distributing, it turns out, needs Victory, as much as we need them, whereas Friedland did not.

Bill: It is.

Ron: Weeeeeelllll…

Bill: It’s to counteract Yuengling.

Ron: It’s to counteract Yuengling, but it’s also… I had a 15 minute conversation with the owner of Penn yesterday. How’s your business doing, I asked him. ‘Well,’ he said, ‘we kind of had a bad summer, but I think at the end of the year we’ll be even for the year. And that’s pretty good, considering it’s a declining beer market, here in Pennsylvania.’ I said, well, is that including Victory, or not? ‘Yes,’ he said, ‘we’d be down without Victory.’ He’s smart enough to realize that there is a trend away from mass-produced beer – in Pennsylvania, anyway – and there is a growing trend to craft beer, whether it be imported or micro.

But he’s used to moving cases. So, nothing against Weyerbacher, but he doesn’t want to get involved in something as small as that. If he’s going to get into the craft beer business, he’s going to want to go Sierra Nevada, or Samuel Adams. So what they’ve done is Magic Hat, and Victory. And that fits them better, I think. They don’t want an extra 1,000 barrels, they want an extra 5,000 barrels, or 10,000, or eventually 20,000 barrels of craft beer in their portfolio.

Bill: I may be pre-empting another question that you have, but there has been speculation by people – that we’ve done nothing to quell, because it doesn’t affect us – that we’re trying to join the national A-B network, that we’re trying to go national through A-B.

Bill: The fact of the matter is, I don’t know how St. Louis and Anheuser-Busch works. Some of the things they do, I’m in awe of, they do pretty well. Some of the things I’m not too impressed with. But if you look at the A-B wholesalers that we’ve picked up in the past two years, they’re very progressive companies with rich portfolios; not necessarily deep portfolios of products, but rich portfolios. That’s where we belong, we feel. That’s a very comfortable combination for us. Someone who has the capability to get craft beer into more households and more bars.

Honestly, I’m not going to try to paint too altruistic a picture of ourselves, but we stepped out of the slipstream, we took the arrows right in the chest, and we’re going to let craft beer flow into bars where it never flowed before in Philadelphia. We’re going to be the first ones, and we’re going to make more money doing so, but, you know, when that bar in Northeast Philly discovers that Prima Pils can sell, maybe they’re going to take a risk on a Weyerbacher. We’re not trying to be the pioneers and the champions for the industry, but that is how it’s going to pan out.

Ron: For dinner?

Bill: You can do a lot with a fryer, I guess.

Ron: (aside to Karl) O’Flaherty’s is a bar in an area of Philadelphia (Bristol, actually) that’s very blue collar, and it’s not the kind of area where you’d expect to find Victory taps. But this guy has a bar and he put good beers on tap, and he’s doing great.

Bill: Everything gets shorted, but…you met Brian Hollinger today. He was a strategic addition to the brewery. His title is brewery projects manager.

Karl: And he’s doing a really good job.

Bill: I throttle the beer flow.

Ron: Up until now, well, we have had to throttle it back. But he’s going to throttle it up as soon as we have the new brewhouse up. We could be selling more beer if we had it.

Bill: We’ve been in it so long, that it’s not really a bad thing. When I say for so long, first the bottling was the bottleneck, and we hit a blessed period where we really had all the beer we needed. Then a brewer departs, or things like that. That’s another benefit to automation: less dependent on particular people.

Ron: Yesterday we were starting to work on plugging in recipes in the brewhouse. It’s a program, it gets rinsed out this way, and decocted that way, and everything gets done the way I decide to do it. Whereas, I train people, yet I come back three months later and they’re this different and that different. For the last four years I’ve felt like I’m losing control of the brewery, because people don’t do what I tell them to. They have their own creativity they want to throw into it. That’s great: get a brewpub!

Bill: It’s not a stable way for an organization to grow. Then if I turn to him and say, wow, we’ve got this funkiness on thus and such, how did that occur?

Ron: And I have no idea.

Ron: Yes. No doubt. We’d be out of business.

Bill: It did create the bridge that kept us in business at a critical period, and at the same time, it has served as fairly low-class marketing. The thing that keeps us up at night is when we get a disconcerted customer feeding back to us. We scratch our heads and think, okay, this restaurant exists to promote the consumption of Victory beers in any venue. And when someone has a negative experience, that starts pulling in a negative way. It provides us with ample headaches, but it works out as well.

Ron: Yes! Twice a week! You can quote me on that.

Bill: They’re definitely worth it from a personal standpoint.

Ron: We do brew beers for our tastes. We’ve always said that, and you know what? The beer geeks love that. So when everyone starts throwing darts at us for going big, for going to Penn Distributing: have a varietal pils. Have a kölsch. We’re not going big. We’re just trying to sell more beer, we’re not selling out. We love doing those things, and they don’t cost any more.

Bill: You get to taste what a Tettnang-grown Hallertau hop is like.

Bill: Yes, a brewer’s closed track.

Ron: That’s a very good analogy. We first did it with ESB. It didn’t get a lot of notice, but for three years we did ESBs with varietal hops because I didn’t know English hops that well. It was educational for me. We did one with Fuggles, one with Goldings, one with First Gold. We tried yeasts too.

Ron: It usually comes out around March 1.

Bill: I don’t want to go out on a limb and promise, but with this brewhouse we should have the opportunity –

Ron: There’s no reason we can’t –

Bill: Yeah.

Ron: We can do it earlier.

Bill: It could be out earlier, maybe an anniversary beer in February.

Ron: We’ve had smoked malt in it every year except three years ago, we left it out. Do you like it with or without?

Ron: It’s always been the same amount. But smoked malts have different intensities, and we just do what we can.

Bill: Again, we’ve been throttling the beer, and that’s the first thing to go.

Ron: It’s been an issue of production capacity, and it’s one of those that’s going to be cleared up. We’ll have V-12 next week.

Ron: V-10 is dead. We did three V-series beers, the Grand Cru, the V10, and the V-12. We had no luck with the V-10. The V-12, after five months in the bottle, is as good as any Belgian beer I’ve ever had.

Ron: Some people like it young. But I’m not going to lie about this, we need the cash coming out of that, too. And people are going to sit on it anyway, it says to do that all over the label. All the more reason why you can’t let beer with even one cell of bad bacteria in it, because people are into aging.

Bill: Part of the V-series idea was to challenge ourselves, make beers that we were not necessarily totally on top of. That went awry with the V-10, but it’s an interactive process. You open one at three months, ooo, that’s pretty good. Open one at 6 months, hey, that’s better than at three months. Open one at 9 months, and you know what? Six months was better, better drink it all!

Ron: I found that the best thing to do is cellar the V-12 four to six months, try it, if you like it, stick it all in the refrigerator and hold it.

Bill: Yes, stabilization! We can keep up with all the beers.

Ron: Good point. It’s interesting for us to get stable enough to offer more St. Victorious and St. Boisterous.

Bill: I think we’re exiting a period that was bad for the industry with brewers, and not small brewers, but big brewers, brewing malternatives. Because look at how popular cocktails have become again. I sorta smelled it at the get-go, that brewers producing alcohol products that were not beer, was a step in the wrong direction. It was allowing distillers to step on our backs to get a good view of the landscape, and they took good advantage of it.

Ron: I’d still rather people were drinking vodka than malternatives. Let’s not blend, let’s draw a sharp line.

Bill: I’m iffy on it.

Ron: I think mixed drinks are real big right now, but it’s going to pass. Drink bourbon, drink whisky, that’s stuff with flavor in it. Hey, if that goes well enough, we’ll put a distillery in here. Karl’s going to come back and do a still for us!

Ron: I have a pet peeve. It’s very personal, I just don’t like it: oak barrel aged beers. I don’t think it tastes good. But other people like it, it’s personal. The bourbon’s too much. I would love to start doing oak aging, but I’m thinking new oak, charred, but not bourbon-flavored. The last trade show I was at will sell you a big oak vat. I don’t want barrels, that’s crazy. It’s better to go the way Dan Carey at New Glarus is. Do a 50 bbl. oak aging tank and do it that way.

Bill: One other beef to throw in: the rush to do everything bigger and better. I think that does a real disservice to all the great, flavorful low-alcohol beers.

Ron: (holding up a glass of mild) I wish people would get a taste for this stuff.

Ron: I think it is. That’s my take on it. It’s been erased. You watch: we’ll do Hop Wallop in quantity this year, and we’ll do Old Horizontal, and I’ll bet Hop Wallop outsells it. And frankly, I’d rather drink it. Barleywines were always a bit on the extreme side.

Ron: I’m not saying I like it. I like diversity. I still want to have my Old Horizontal.

As you get bigger, things change. You may have to focus more sharply on one particular flagship brand; access to market becomes even more crucial; you have to deal with chain grocery stores. What changes do you want to make, contrasted to changes that are forced on you by getting bigger?

Bill: Hmmm, what is the next step for us. The problem with growing bigger is that, when it was just two guys, and it was all our risk, and only our own mouths to feed, no one else was impacted if it went down. Now there’s a whole lot more people involved that we have to take care of. Supporting what you’ve created becomes a big endeavor in itself. So you have to build stability, you have to not be reckless, and you have to build programs that are going to work for the long haul. Which would naturally lead you towards more of a conservatism, and you would naturally want to go towards less brands, and greater marketing emphasis of your flagship brands.

For you and your wholesalers.

Bill: Exactly, to keep things simple. The logical path that other brewers have taken is a very logical path. I feel that in our situation in Pennsylvania it may be a little bit different. One of the things that encouraged us to do this step, and the previous one in packaging was that every major metropolitan area in the United States has a dominant craft brewery…Philadelphia has a coal-miner’s brewery from Pottsville! That model ain’t working. At some point, there’s a problem with that, that some people are going to wake up and recognize. That gets back to another thing, another reason why we don’t have a dominant craft brewer, is that the distribution system: until we stepped out from under the thumb of Eddie Friedland, there was no one who gave a shit about a local craft brewery, who was willing to promote a local craft brewer. 

We feel our opportunity’s a little different from most other cities across the country because it’s still ours to define, what Philadelphia Metro market is going to be. When I say "ours," I say "ours" collectively: Yards, Flying Fish, we’re all part of that. Right now we’re the front-runner, and we hope, through our distribution changes, to maintain that position and grow that lead.

Ron: I f you look at all the different breweries that have gotten ahead, there’s no one model. We didn’t start this by copying other people, we started this by creating our own model. Everyone has different models, and with the diversity of models that have been successful…I don’t think you can take the approach of Harpoon and apply it to Philadelphia and expect to get to 80,000 bbls.

What I want to do here is cater to the beer geeks, but also to the people who are just learning about beer. There’s no reason to say that Victory can’t be both. We can make the varietal Pils for the geeks, we can make the Lager for the people who are just starting to get a new flavor for beer, and we could do Belgian beers. The beauty of being a small brewery is that you can do all of these things, and there’s no reason why you have to say "I’m only going to market to the beer geeks." Which essentially, if we’d stayed with Friendland, that was our destiny in Philly. I think Philly deserves access to good beer without going in a beer bar. I want Joe Blow to go into his Joe Blow tavern and have a Victory Lager or Kölsch.

Ron: Exactly! And that can happen now.