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Tapping into Opportunity

Photo: Emily Kate Roemer

Tapping into Opportunity

Matt Nuernberger

As part of his marketing strategy, Matt Nuernberger built a tasting room next to his distillery so visitors could take tours and try his liquors.
Photos: Tom Kates

Drink
Still

Learn about tasting gins from Matt Nuernberger, MBA’10, cofounder of GrandTen Distilling.

Babson alumni aim to win over lovers of conventional beer and liquor with their finely crafted spirits.

By Donna Coco

A slightly pungent aroma hangs in the air at the GrandTen Distilling tasting room in South Boston. Maybe it’s the line of alcohol-soaked chilies draining on the floor of the adjacent distillery, which you can see through glass panes in the white brick wall. Matt Nuernberger, MBA’10, cofounder of GrandTen, pays to compost his leftover ingredients, used to flavor the liquors he brews, so he drains all the liquid first to reduce costs. The floor drains work perfectly for this task.

Chipotle peppers add a hint of spice to GrandTen’s signature smoked vodka, Fire Puncher. Nuernberger shipped his last bottle that morning, so he had to put on a new batch. Nuernberger and his cousin, Spencer McMinn, do everything in this operation. They come up with recipes for the six-plus liquors they produce, and they distill the concoctions, bottle and label, sell and distribute, promote and market, and give tours and tastings—not to mention handle all the licensing and finances and other business operations.

Such is the life of many a craft distiller and brewer. Their small size—and, as the founders would say, the care they put into their products—put them in the craft category. One could view it as a David-versus-Goliath-type matchup. Industry pundits estimate that more than 2,000 craft breweries and about 300 distilleries have opened shop in the United States, but craft beer captured less than 6 percent of sales by volume in 2011, and a figure for the percent of sales by craft distillers doesn’t seem to exist (Nuernberger estimates it’s less than 1 percent). Ask Nuernberger or other Babson alumni making a go of it in this business, though, and they see those figures as untapped prospects. “That’s the opportunity, right?” says Nuernberger.

A Nascent Industry

Nuernberger came to Babson’s full-time MBA program wanting to start a business, but not knowing what it might be. He still wasn’t sure at the end of his first year, when he was supposed to line up an internship but couldn’t find one that he felt was a good fit. So he spent the summer researching industries and thinking about what he actually wanted to do. At the time, craft distilling was starting to take off. Being a fan of sipping liquors—gins, rums, whiskeys—and wanting a hands-on business, craft distilling intrigued him.

“There’s definitely a mystique to it. Just look at that still. What is that thing?” he says, pointing at the oddly beautiful copper machine, with all its levers, dials, and tubes. “Distilling has this old, old history behind it. It’s romantic. And anything is possible.”

By “anything is possible,” he means liquor combinations. Grains offer one avenue to creating a spirit, but GrandTen also experiments with molasses and sugars and honeys—any starch that is fermentable, says Nuernberger. “We’re not even getting into the core flavorings. We can do liqueurs. We can do brandies. We can do fruit-based liquors. For our gin, we went through 50 recipes before we got that. It’s so wide open out there,” he says.

For each liquor, GrandTen designs a different label, which is part of Nuernberger’s branding strategy. “I think the people who are looking to buy a gin aren’t the same people, or in the same state of mind, as those looking for vodka,” he says. “How the label looks is extremely important. As we sit on the liquor shelf, every bottle is our billboard.”

Crafting a Brand

The two Babson grads behind Itsko Imports and Pumpkin Face rums, Enrique Bordas and Mark Itskovitz, both MBA’09, took a different approach to the market. Itsko Imports in Beverly Hills, California, actually started as an importer. Bordas lives in the Dominican Republic where he works for his family’s company, Isidro Bordas, producer and distributor of alcoholic beverages, and the plan was to bring its products to the U.S. As time went by, though, and they learned more about the industry, Bordas and Itskovitz realized they had to make a bigger move. “We weren’t getting the results we wanted,” says Bordas. “We had to figure out—what does the market want?”

They decided to develop their own brand of rum. With little funds for marketing and promotion, the two focused on producing something distinct. Bordas had a 23-year-old rum that his family had set aside when the rum market crashed in the Dominican Republic. “I told Mark that I have a rum reserve that’s one of the rarest and most prestigious rums there is,” says Bordas.

One rum wouldn’t be enough, though. To fashion a billboard effect in the liquor aisle and catch consumers’ attention, companies need to offer several products, says Itskovitz. So he and Bordas began working with craft distillers in the Dominican Republic to create a white rum and a reserve, which is a blend of several aged rums, as well.

For branding, Itskovitz came up with the idea of tying the rums to Halloween. “I had always gone trick or treating with my cousins, and every time we went up to the doors, I saw the adults were drinking,” he says. “One of the biggest drinking months is October because of Halloween.”

They teamed up with branding specialists Flowdesign to create the signature Pumpkin Face bottle, which is shaped like a jack-o’-lantern, and then sent an email with a picture of the bottle to distributors. “Fifteen states took Pumpkin Face immediately without an ounce of marketing,” says Itskovitz. “It was fun packaging for Halloween. No one has ever done that before.”

Beyond the clever branding, the quality of their products has won them loyal customers, says Bordas. “Some people have asked, ‘Why does this rum need a cool bottle to sell?’ The short answer is, without the packaging, we wouldn’t have been able to get so many people to buy into it.”

With strong initial sales, Bordas and Itskovitz are working on extending the Pumpkin Face line, adding a spiced rum and a rum liqueur this year.

Running the business has been “an emotional roller coaster,” says Itskovitz, who until recently described himself as “living off fumes.” One day he was so nervous the company would not survive that he applied for a job as a pool boy at a hotel. “They said, ‘What are you doing? You’re way overqualified for this job.’ But I just wanted to be making some money,” he says.

Business is good now, so Itskovitz and Bordas can relax—a little. Going up against the big liquor companies is no easy task. Not only do the conglomerates have more funds for marketing and promotion, but they also receive tax breaks that Itsko Imports does not, notes Itskovitz. “I can say it’s not fair,” he says, “or I can figure out a way around it. The way around it is to create a rum that’s so high quality and of such great taste that people will choose it.”

Having offered his liquors on the market for only a little more than a year, Nuernberger has a way to go in building his brand. He doesn’t consider the eight or so other craft distilleries in New England his competitors but instead mentions larger labels, such as Bacardi, Tanqueray, and Bombay. Like many in the craft industry, Nuernberger hopes to build on the reputation of his liquors, their quality, and the work that goes into achieving their distinct flavors. “You come in here to our tasting room, and the liquor was packaged and went out the door this morning, and it’s in its raw form right behind you now. I think that’s what we have going for us,” he says. “That’s what we’re selling here. I think that’s why it’s an intriguing story.”

Think Big, and Small

At Idle Hands Craft Ales in Everett, Mass., Chris Tkach, MBA’06, also looks beyond the offerings of fellow craft brewers when sizing up his competition. “We see the bigger picture,” he says. “Craft is only 5 or 6 percent of the beer market, so that’s still 94 percent of people who buy from Anheuser-Busch or the other conglomerates.” Besides, he considers most of the other craft brewers his friends. “When you go to festivals, it’s like a get-together of all your buddies.”

Like many craft beer brewers, Tkach began experimenting with home brewing in college. Sixteen years would pass before he decided to make a go of it as a brewer. Tkach had wanted to start his own business, and then conversations with his wife about their future prompted him to think about his passion for beer. “I was always talking about beer and had won some home brew competitions,” he says. “So I started to make the connection.”

He began researching different options for opening a brewery and came up with some self-described absurd plans, such as a destination bed and breakfast with brewery and tasting room. Idea after idea seemed out of reach. Then one day in the winter of 2010, he and his wife randomly decided to stop at the Maine Beer Co. on their way home from a ski vacation. Coowner Dave Kleban happened to be there. “He talked to us about the business and things like how long it took to turn a profit. He was open about not paying themselves and how long they would have to do that,” says Tkach. “I started thinking that I didn’t have to create something ridiculously complicated. We could do what is called nano brewing.”

As the name suggests, nano brewing is making beer in very small batches. No standard industry definition exists, says Tkach. Some define nano as producing less than five barrels (one barrel is 31 gallons) a batch, and others say no more than 100 barrels a year. Whatever the number, Tkach felt he could manage this capacity without taking loans or equity investments, which was important to him. He incorporated in the spring of 2010, leased space, bought equipment, and applied for his licenses. A little more than a year later, he was ready to brew.

Tkach calls Idle Hands a Belgian-inspired brewery. He chose to brew this type of beer because when he applied for his license, no other Boston-area brewers were producing Belgians. Positioning, as with any business, is key. “I’ve always loved Belgian-style beers, but that’s not really the reason we chose to brew them—although it helped,” he says. “It was a niche we were trying to fill.”

Tkach describes his first offering, Pandora, as a gateway beer. “It’s not a daily beer for people who drink Budweiser. It’s for craft beer fans. But it has a foot in two worlds, the Belgian and American markets. Pandora marries American flavors, like hoppiness, with our house yeast, a Belgian yeast, which adds another layer of complexity,” he says.

Other breweries have since dabbled with Belgian-style beers, but business is good at Idle Hands. Tkach has three beers in restaurants, bars, and on store shelves year round, and he produces draft-only releases as well. He encourages people to come to the brewery for a tour and to sample his beers. He’s also expanding and by summer expects to be producing seven times the amount of beer that he currently brews, which will take him out of the nano category. As a nano brewer, he has been able to meet costs, but, as he says, “there’s not a lot left over.” He’s hoping the expansion will change that. “I’m tired of paying myself nothing,” he says.

A Common Bond

Alex Rabe, Alex Zielke, and Ian Chester

Alex Rabe (above image, left), Alex Zielke (middle), and Ian Chester hang out at the Watch City Brewing Co., where they brew their beers. Zielke does all the brewing, from grinding ingredients to monitoring the beers as they ferment.
Photos: Tom Kates

Pour
Alex Zielke, Alex Rabe, and Ian Chester

If all goes as planned, Portico Brewing Co., which serves the Boston-area market, will soon be producing more beer as well. Ian Chester, Alex Rabe, and Alex Zielke, all MBA’12, launched Portico two days before graduating from Babson. “Brilliant,” says Chester and then laughs. “That was a rough couple of weeks. Finals and trying to get this thing off the ground. We had 300 people to our launch party.”

Chester handles sales, Rabe does marketing and promotion, and Zielke, a home brewer since college, is the brewer at Portico. All three came to Babson in part because of its focus on entrepreneurship. Zielke, who had spent six months at brew school in Germany earning his brewmaster certification, knew he wanted to start a beer-related business, although he wasn’t sure what it would be. He met Rabe at Babson and began teaching him about home brewing. Chester joined in soon after. By the end of their first year, the three of them decided to start a brewery.

The ensuing summer, they brewed as much beer as possible and sampled it around to find out what people liked. Their flagship beer, Fuzzy Logic, which is Zielke’s take on a Kolsch (a specialty beer brewed in Cologne, Germany), came out of that summer. So did their winter beer, Sett Seven, a Scottish ale, as well as their business plan and name.

Naming and branding go hand in hand, notes Rabe, who has worked with architects and came up with the idea for Portico. A portico is an entryway, and the three want their beers to be accessible to people. “We want to be a gateway to craft beer for people who drink Budweiser or wine, but also create complex flavors that craft drinkers will enjoy,” says Rabe. The name Portico also influenced the design of their labels—simple, clean, black-and-white—and tap handles, which will be shaped like little buildings.

To get their beer to market as soon as possible, the three decided to contract brew. They made a deal with local brewpub Watch City Brewing Co. in Waltham, Mass., to use its equipment during downtimes. Many craft brewers begin this way. By contracting they lose some control, but they don’t have to come up with the large sums needed to build a brewery. The arrangement has been working for the Portico guys, who are now looking to expand by adding another contractor. They also recently purchased a commercial bottle filler that should put Fuzzy Logic on store shelves by summer. Currently, Portico is available on draft, which limits their distribution to bars and restaurants.

Having been in business for a little less than a year, Chester, Rabe, and Zielke admit it has been a tough start. Money is tight; both Chester and Rabe hold other jobs, and Zielke is scraping by. But every milestone they hit—expanding capacity, purchasing new equipment, increasing distribution—spurs them forward. “It’s awesome seeing a product that you helped make out there and being consumed by people you don’t even know,” says Chester. “When it’s one of those weeks where I feel like I don’t have any money and I’m miserable, but then I see someone drinking our beer in a restaurant, it’s pretty cool. It’s gratifying.”

“Entrepreneurs are stupid. We’re crazy idiots,” says Rabe. “We do this because we believe, somehow, that it’s going to work. And I do think this is really going to work.”

From the Heart

Scott Vallely ’79, MBA’80, knows about the ups and downs of entrepreneurship, having started five companies. The father of six grown-up children decided to give entrepreneurship another go in 2011 when he founded Charter Oak Brewing Co. Honing his skills and knowledge as a home brewer for more than 30 years, he now sells his beers in more than 400 stores and restaurants throughout Connecticut.

Like the Portico crew, Vallely is a contract brewer, although he also is building a brewery in southern Connecticut. “On the federal and state levels, there are lots of delays and issues you have to deal with when building a brewery. Not being a patient person, I wanted to act,” he says.

A friend already owned a brewery with extra capacity, so Vallely asked about using the equipment. “I mentioned to him that if I bring my own barley, hops, yeast, bottles, caps, everything—if I do all that and pay you for the power and water—can I brew on your equipment? And he said, of course. The timing was just right for both of us,” says Vallely. “It allows me to build my brand and get into the marketplace.”

Brewing at this facility helped Vallely in other ways. As a one-man show, he can’t always be around to monitor his beers, so he pays a brewery employee to lend a hand. Vallely is on the road a lot. He works seven days a week, getting up at 5:30 a.m. and often not arriving home until 10 p.m. or later. Believing there’s an emotional attachment to craft beers, he wants his face in front of people as much as possible and does taste tests three days a week on average. “Part of branding is the individual and the story behind the liquid,” he says. “When people see the owner who is the brewer, it sticks with them.”

Vallely plans to offer four core beers developed from his favorite recipes. He introduced his first beer, 1687 Brown Ale, last summer. People thought he was crazy introducing a dark beer in the hot summer months, when most craft brewers offer pale ales and other lighter styles. But Vallely figured there would be less competition, and he also believed that some people like the less hoppy brown ales, regardless of the season. “What if you’re in the comfort of air conditioning or on a cool summer night?” he says. “My ale is a little different. It’s more refreshing than most brown ales. It also pairs well with anything off the grill.”

When Rob Sama, MBA’06, attended college at the University of Chicago, he drank a popular, locally brewed Pilsener called Baderbrau. Then the brewery went under due to mismanagement. “It was a really big deal in Chicago,” says Sama. “It would be like if Sam Adams collapsed unexpectedly and all these fans were out there wondering what they would do.”

Years later, Sama was reminiscing with a college buddy about the brew. Out of curiosity, he looked up baderbrau.com, found the name was available, and decided to buy it. At the time, he had no intention of doing anything with the URL other than perhaps creating a fan page. Then he read an article in a magazine that prompted him to look into whether the trademark for Baderbrau might be available. Coincidentally, it had lapsed just a few weeks earlier. So he registered it.

Now what? thought Sama. Wondering about the company, he researched Baderbrau and found the name of the original brewer, Douglas Babcook. More digging turned up an email that Sama thought might be Babcook’s. He sent a message, asking if Babcook was indeed the brewer from Baderbrau. “He replied with one word,” says Sama. “Yes.” The two began conversing via email, and Babcook gave Sama the recipe for the coveted Pilsener.

With ideas of bringing Baderbrau back to life now simmering, Sama contacted an old friend, Joe Berwanger, MBA’06, to help with consulting. Even though both had gone to Babson, they actually knew each other beforehand, having worked at the same company for a while. Together, they conducted several online surveys to see what Chicagoans thought of Baderbrau. “I wanted to make sure I wasn’t screwing this up and that my memory of everyone loving it was real, not just in my head,” says Sama. “Turns out there are about a half-million beer drinkers who remember it fondly.”

Berwanger came on as a partner, and they incorporated Baderbrau Brewing Co. soon after. To get to market as quickly as possible, Sama found a contract brewer, which he says was no easy feat. “It’s not like they have a waiting list and whoever is next will get a slot in their schedule. It’s whoever is calling and pestering them. It’s such a boom time in the craft world,” he says, “but we managed to find someone who would take us on.”

They didn’t get near the capacity they wanted, says Sama, but even with a limited launch they captured a lot of attention. “People’s eyes were bugging out of their head,” he says. “We sold out in a week.”

Since then Sama has renegotiated with a larger contract brewer (again, calling, pestering, and some good luck landed him the deal). He also is planning to build a brewery on Chicago's South Side, although negotiations are still in the early stages.

Even though Baderbrau was mostly known for its Pilsener, the brewery eventually will offer two more flagship beers as well as seasonals. “Our plan is not just to be historical,” says Sama, who nonetheless appreciates the Baderbrau legacy. “This beer is a Chicago classic. It’s been fun reconnecting with old fans. The heartfelt thank yous for not letting it die. Some guys have shown me their old stock certificates and other beer paraphernalia. One guy showed me a photo from when he heard the company was going under. He ran out, got a six-pack, and kept it on a shelf for 15 years.”

Reviving a Chicago Classic

Baderbrau

Photo:
Emily Kate Roemer

His strategy worked. He sold 3,000 cases in six months. Next Vallely introduced a pale ale called Royal Charter Pale Ale, and he says both brews continue to sell phenomenally. This spring, he brought his third beer to market, an India pale ale called Wadsworth IPA. To complete his four core beers, he’ll introduce an extra special bitter, and then he’ll focus on releasing seasonals so that at any one time he’ll have five beers on the market. Vallely’s brewery won’t be online for about two years. In the meantime he’ll continue to expand his reach, adding at least two more states to his distribution by year’s end.

Despite the hard work and long hours, Vallely loves his job. “It’s a wonderful community, both the people I sell to and my competitors,” he says.

Lessons Learned

Compared to other alumni in the craft industries, Craig Theisen, MBA’10, co-owner of Peak Organic Brewing Co., is an old-timer. Peak Organic in Portland, Maine, incorporated in 2006. Theisen and Jon Cadoux, founder and co-owner, are childhood friends and used to home brew in college. Cadoux continued developing recipes and one day approached Theisen about joining him to build Peak Organic.

Now with more than six years of experience behind him, Theisen has learned a lesson or two about marketing and branding, such as the importance of labels. The “Peak” in the company’s name came from the idea of associating the beers with peak experiences in people’s lives. Originally, the partners encouraged people to go to their website and upload pictures of significant moments, from which they chose to create labels. “Our first pale ale was a surfer from York, Maine,” he says. “And our first nut brown had a picture of a dog on a mountain peak. Every three months we’d change the labels on our beers.”

But the idea fell flat on two counts. One, switching the labels all the time was expensive. Two, customers became confused. “People would be saying, ‘I like the beer with the dog on the label,’ but when we changed, they didn’t know the beer anymore. People associated it with the picture,” says Theisen. The company has since rebranded itself, redesigning a consistent look for its logo and labels.

Organic plays a role in Peak Organic’s branding as well, although Theisen says the choice to use mainly organic ingredients stems more from Cadoux’s believing they produce crisper, cleaner tasting beers. In fact, in the early years, the word organic worked against them, because customers thought Peak Organic used different ingredients from other brewers. “People thought it would taste bad,” he says. “We use all the same ingredients. There are just no chemicals or pesticides used to grow them. The key was to get the beer into people’s hands to try so they could see the high quality. We did tastings all day, every day.”

Now, however, Theisen describes being organic as “icing on the cake.” The brewery, which offers six core beers, four seasonals, and six limited releases, sources many of its ingredients from small, family farms in New England, and restaurants like the farm-to-table story that Peak Organic can tell. Draft beer makes up a large percentage of Peak’s business, but it also is distributed in supermarkets and liquor stores along most of the East Coast and in California.

Managing all of these relationships is challenging. “How do you get in to all these major accounts? Being a small craft brewer, it’s difficult to compete with the big guys,” he says. “I was in North Carolina recently meeting with the buyer from Hannaford, and he told me he has 178 new items to consider. But the coolers aren’t getting any bigger. So how do you get in?”

Keep knocking on as many doors as possible—every day, says Theisen. Hit the streets and get in front of the people who make the decisions. Build relationships. “We still do a lot of tastings,” he says. “Our brand awareness is up from nothing. Our first four years, no one knew who we were. Now people say, ‘Oh yeah, I love this beer.’”

Even though brand awareness is up, Theisen has no plans to rest. Like Vallely at Charter Oak, he describes his job as seven days a week, 15 hours a day. “It’s fantastic to see the growth and rewarding to see your beer out there,” says Theisen. “Every day is an adventure—that’s the fun. But every day a new brewery is opening up, so you never know who your competition might be. Plus a big company like Miller could decide it wants to do an organic brew. You never know what’s going to happen.”

 

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