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BY CHRIS MCMAHON
Medill News Service | Friday, September 10, 2004 | (No comments posted.)
While Anheuser-Busch Inc. and SABMiller PLC, the self-proclaimed "king" and "president" of beers, fight for sovereignty over the shrinking U.S. beer market, tiny Three Floyds Brewing LLC in Munster is focused on local, sustainable, high-margin growth.
"We are a niche market beer with four employees," John Mish, vice president of operations, said. So the issue for the company is, "how do we spread it around?"
The answer, or at least part of it, is direct-to-the-consumer in a new brewpub. A barrel of beer costs the company between $20 to $50 to make and sells for up to $150, but the same barrel can fetch up to $700 when sold by the pint glass.
By New Year's Day, Three Floyds is scheduled to open a brewpub next to the brewery at 9750 Indiana Parkway. To capitalize the new venture, the company cleverly sold 1,000 shares in the pub at $500 apiece. A purchase of two shares entitles the owner to a "non-cumulative" pint of beer a day.
Bert Passalacqua, of Highland, bought two shares in the brewpub, one for himself and one for his wife.
"We're partners now. It's put me in the club," Passalacqua said. "Three Floyds is one of the best in quality and uniqueness."
The free pint is a "kind of a dividend," Mish said, adding that shareholders also will receive a return on profits. Three Floyds sold all of the brewpub shares over the company's Web site.
In addition to funding the growth, selling the shares has engaged fans in the success of the company. Three Floyds does not advertise, so word of mouth and buzz on the Internet are primary marketing vehicles.
While the brewpub will allow the company more control over the distribution of its products and a higher margin on sales, the move is not without its risks. While craft brewers have increased output 3.4 percent in the last year, according to a report by the Association of Brewers, total output for brewpubs declined in the last two years. It fell in 2003 to 614,872 barrels from 654,132 in 2002, a drop of 6 percent.
Because the brewing business is so capital intensive, Three Floyds has had to re-evaluate how the company goes to market.
"If we had it to do over again, ideally we would have been a brewpub only," Mish declared. "The overhead kills you."
Three Floyds has been brewing beer for eight years and produces more than 3,000 barrels per year. Its revenue will exceed $600,000 in 2004, and new fermentation tanks plus the brewpub will enable the company to produce 5,000 barrels in 2005.
"My focus is to put that beer in a pint where you can get $3.50 or $3.75," Mish said.
Three Floyds dry hops its beer, resulting in a distinctive citrus, piney and pungent flavor. At $8 for a 22-ounce bottle, "it's getting more and more like wine," Mish said. "It costs a lot to do what we do, and the more special we make it and the less volumes of it you have, the more premium the price has to be."
"People don't freak out about a $10 or $20 bottle of wine," Mish said.
If you go
What: Three Floyds Brewing
Where: 9750 Indiana Parkway, Munster
Phone: (219) 922 3565
Web site: www.threefloyds.com
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