Table of Contents
- I. A Golden Age and Amber Color
- II. From Grapes to Grain
- III. The Start of Pete's Brewing
- IV. The Growth of a Legend
- V. Hurdles and Strategic Partnerships
- VI. The Future of Pete and Pete's Brewing
I. A Golden Age and Amber Color
Today’s state of emerging business has been described as "The Golden Age of Small Business." Small businesses are becoming increasingly competitive against their larger counterparts. The global economy has seen the emergence of new industries that have captured the attention of consumers all over the world, and has allowed resourceful entrepreneurs to capitalize on these markets.
Technology, such as the Internet, personal computers and cellular telephony, have brought a wave of products and services to the consumer. Companies have revitalized markets with their clever product positioning and marketing. Microbrewing ,or specialty brewing, has recently experienced rapid growth in the United States. People have been "home-brewing" beer in their basements and garages for years using simple cooking appliances and ingredients. Certain companies in the U.S. have been specialty brewing for years, but only regionally distributing their beer. Now these darker, more flavorful beers are available to more consumers. The question is: Why haven’t these tantalizing libations been available sooner?
Across America, brew pubs have become a favorite destination of beer drinkers young and old. Some local brew pubs have expanded into regional, and even national restaurant chains. More importantly, some of these specialty brewers have grown into significant players in the U.S. and worldwide beer industry.
Pete's Brewing Company, makers of Pete's Wicked Ale specialty beers, is such a player. From one man’s part-time hobby, the company has grown in just about ten years to a publicly-held company. Pete's Brewing Company had $19MM in sales with 116,400 barrels of beer sold in their 3rd quarter ending September 30, 1996. From their recent annual report, "Pete's Wicked Ale is a national specialty beer brand that can be found on store shelves in 47 states and in the United Kingdom." With numerous awards from brewing festivals in Europe and America, Pete's has become the second largest specialty brewing company in the U.S.
Pete Slosberg and Mark Bronder are the co-founders of Pete's Brewing Company. Their foresight along with Pete's knowledge and love of brewing quality beer, combined to create this successful venture. The EM caught up to Pete at his Palo Alto headquarters, in between his hectic travel schedule of lecturing on beer, judging at brewing contests, and writing articles about the brewing industry. We learned about: how Pete first became interested in beer, the founding of Pete's Brewing company, and the strategies and plans that launched the first commercial operations of Pete's Wicked Ale.
II. From Grapes to Grain
"I never drank alcohol growing up. I starting drinking wine when I met my wife." Pete jokingly refers to this as his early experiences with alcohol, and that it was his wife that drove him to drink. In the 1970s, Pete was working for Xerox in Rochester, New York, one of several corporate financial planning and marketing positions he held during his professional career. He describes one night when a friend invited him to dinner, and served ,according to Pete, an excellent wine. "I asked him who made it, and he said he did. My friend showed me his equipment in the basement and I was amazed a person could make good wine in such a place." This dinner lead to Pete's interest in home-made wine. While living on the east coast of the U.S., Pete’s wine making was limited by the lack of space at his home. When he moved to California, he bought a house with a little cellar , and he finally had enough room to make wine.
"What led me from wine to beer was that it was fun to buy the grapes and squeeze them and ferment them, but the Cabernet I started with required you to wait 5 to 10 years for the wine to mature." He wanted quicker results. He went back to the store that sold him his wine making equipment and ingredients, and they told him he could try a white wine that would be ready in a year or two. They also suggested that if he wanted to try make his own beer that it could be ready in one month. "I liked the idea of beer in a month but I didn't like beer so I wasn't looking to do it." The store owner then said something that really peaked his interest, "Did you ever have a home brew? No I never had. If you haven't had a home brew you haven't had a beer." The store owner told Pete that the equipment he was using for wine making could also be used for making beer, and that it would only require $20 of supplies. "What did I have to lose but 20 bucks?"
His first home brewing attempt was a success, and Pete fell in love with the taste of it. This happened in 1979, which coincidentally was the same year that the Carter Administration legalized home brewing. "People at the time were home brewing whether it was legal or not.". According to Pete, he did not begin brewing with any intention of starting a business. It was just a hobby. His zest for home brewing persuaded a dozen co-workers at his employer Rolm to try it. They formed their own home brew club. "Every other month we had a social and would go out for the weekend to barbecue ribs and drink home brew." Pete's commitment, depending on the brew, amounted to about once a month or once every two months.
III. The Start of Pete's Brewing
For about seven years Pete worked at Rolm, and pursued his beer brewing hobby at home. "I never thought or had the intention for this to be a commercial venture up to this point in time." Rolm’s vacation policy allowed Pete to seriously consider, and ultimately, to start Pete's Brewing. According to Pete, one of the benefits at Rolm is a 12 week paid sabbatical that every 7 year employee receives in addition to their vacation. His 7th year began in 1985, and he decided to take his sabbatical and vacation (4 months in total) starting in October. His wife was also working, but she could only take eight weeks off. The couple used this time to take two one month-long trips to Europe and South America.
In between his traveling, his friend and former co-worker at Rolm, Mark Bronder, came over, and talked about the many business plans he receives every day at his venture capital job. During this conversation, Mark told Pete that they should be able to dream up a company. They agreed it would be a great idea. "We had to decide what that new company would be. We did not have making beer as the original concept from the very beginning. We had the concept of making a company only."
They asked themselves :What do we want to do?
As the discussion proceeded, they touched on micro brewing. Interestingly enough Mark did not drink; but he was aware of Anchor Brewing and Sierra Nevada which were brew pubs in their area. Pete certainly knew them, and he knew that people would bring back these great beers to their homes and to parties. "It was the start of the analog of wines 15 years earlier when people would have wine parties and bring various wines and get together to talk about them. The set of people that I was involved with were beer geeks. I would travel around with beer and when people were exposed to these beers that had what I called color, taste and aroma they get turned on to it."
- We want to make a world class product whatever it was.
- We want to have fun doing it.
- We want to get involved in a business area or business segment that was at its ground floor and in its infancy.
"At that time there were probably two dozen brew pubs and micro breweries around the country, and we saw the potential for big, big growth." After further planning, the duo decided that they would use this opportunity to brew a really good beer. Mark developed the next piece of their strategy, "He said let's come up with a great beer, a great name, and an interesting label. Have the name and the label to get people to try it for the first time, and a great beer so they keep coming back."
When Pete reflected upon his career at Rolm, he truly liked his job and wasn't looking to leave and start his own company. "When you are on a sabbatical you start to wonder while you are relaxing do you want to bust your buns 80 hours a week for a big company or do something else?" According to Pete, at least half of the people at Rolm who went sabbatical never returned. A good percentage started their own companies.
Mark created the business plan, and while researching their industry, they learned about "excess capacity." "Breweries weren't operating at capacity." When the time came to raise money, they had the option of raising millions of dollars to build their own brewery, or to lease out space at other existing breweries. Pete telephoned Palo Alto Brewing, five miles from his home, and asked if they could lease the facility when it wasn’t in use. "The owner said absolutely and this immediately minimized our initial capital needs." Their initial seed money came mostly from Pete and Mark, with the remainder from a couple of friends.
Pete chose to brew an English Brown Ale because at the time it was his favorite type of beer that he was brewing at home. This would help to prove how micro brews would be a tasteful alternative to the lighter colored and watery tasting beers from this large brewers - Bud, Miller, and Coors. "I didn't know what beer to come up with first. So I decided that just in case we don't make it, I want to brew a beer so I could take it home and drink it!" Also, English Brown Ale was his favorite beer at the time. He tried to copy the ale four times at Palo Alto Brewing . When people tested the beer, only 50% of them liked it, every time. "It was that way for each of the four tries so at that time I realized I would not be able to satisfy everybody. That's okay. That's why Budweiser is out there." On the fourth try, he realized he had something even better than the original recipe he was trying to copy. He said, "Forget the experimentation, this is the best thing I have ever tasted. Let's go for it."
The other key element to their strategy was, "We believed we needed to have customers get behind the company." They saw how people endorsed Ben & Jerry's Ice Cream and Mrs. Field's cookies. "We wanted to put our names on it not because of ego but because consumer's like getting behind real people." Mark said to Pete that since he doesn't drink and that Pete's the brewer, could they just put Pete's name on it? "Twist my arm. We wanted to have fun with it and we wanted to have fun with an attitude. Wicked Ale is a dark beer, a brown ale. We looked for an adjective to describe the beer. One day Mark heard a comedian on a radio station that used ‘wicked’ in his act and we talked about it afterwards and fell in love with it."
IV. The Growth of a Legend
From the start of Pete’s sabbatical to the first sale of Pete's Wicked Ale, it was a little over one year. The first Pete's was shipped in December, 1986. According to Pete, as soon as they got their first product out they received great consumer feedback about their product and name. The original label was purple with a picture of Pete's white dog named Millie. It that stood out on the shelf. Word of mouth spread very quickly about the beer. At the time, Pete's was only legally sold in the San Francisco Bay area. Any sales or transportation of the beer outside this area was illegal. But consumer demand for the beer expanded beyond Palo Alto. Pete remembers one particular story attesting to the beer’s growing popularity. "When traveling for Rolm to Washington, DC once, I went to a popular micro brewery and met the owner to introduce myself and to give a him a six-pack of the beer and a t-shirt. The owner took me over to the cooler to show me that he already was serving Pete's even though it was only legally being sold in the Bay Area."
They entered Pete's Wicked Ale in the Great American Beer festival in 1987, and earned a silver medal. Not only was this event a professional success, but it also indicated the strong customer loyalty the company had. "We did not have enough money for both of us to go so only I went. We didn't have any give-a-ways or promotional freebies so we used our Millie bottle caps. When I uncapped a bottle I would give away the bottle cap. I was there by myself and when they opened the doors the first 20 people on line came running over to my booth. That pretty much blew my mind away."
Pete and Mark were both working on the venture part time, but they knew the segment would eventually prosper. They agreed that their goal would be to get into the top three as quickly as possible. Ordering materials, shipping and collecting receivables were all being done after hours. They decided to hire a full time person with sales and distribution experience to run the various facets of the business.
Pete was working full-time for Rolm and part-time for Pete's. He was doing all the beer festivals and talking about beers. "I had great jobs and had a lot of traveling with my jobs at Rolm. My management was real cool because there was no issue as to whether or not I was spending enough time at Rolm." He was spending at least 60 hours a week there. "They were cool because I could pretty much pick my travel schedule and it was okay for me to be in a city the same time as a beer festival so I could attend it." Sometimes his boss would come with him on business trips just to attend the beer festivals.
V. Hurdles and Strategic Partnerships
Pete admits that he and Mark didn't know what they were doing all the time and that they made mistakes. The venture almost came to an untimely end. On a Wednesday night while Pete was brewing his second batch of beer, he received a call from the owner of Palo Alto Brewing. "The owner told me that he was going Chapter 7 on the upcoming Monday. He suggested to me that I get as many friends as possible into the brewery to get my beer out of there before they lock the door on Monday." Pete gathered about 15 friends to work for 2.5 days, 24 hours a day to get the beer out. Pete was able to immediately sell that beer, and then worked to secure a new brewing facility. When contacting brewers on the West coast, they received responses that ranged from "we're at capacity" to "we don't want to because we view you as a competitor". They looked outside of the area, and traveled to the Twin Cities in Minnesota. They stayed with Mark's mother, and rented a car to search Wisconsin and Minnesota . They found a great brewery that fulfilled their brewing needs - August Schell Brewing.
Pete's Brewing has maintained strategic these alliances with other brewing companies to create their product, without the responsibility of owning and maintaining the capital equipment. Pete's uses the equipment of the Stroh Brewing Company. Pete’s has its own two brewmasters, and several operations people living at the brewery in St. Paul, Minnesota "When it's our turn to brew, we're in charge."
Pete also discussed the challenges he faced selecting a person for the full time role of President of the company. "It wasn't easy. The first guy we hired didn't work out. Number two was found with a headhunter . This guy from Coors arrived and left as quickly as he got there." The headhunter then went out and found Mark Bossini who came in as President and CEO who brought extensive experience with his career at the Seagram Beverage Company and has only recently retired from Pete's Brewing.
VI. The Future of Pete and Pete's Brewing
The success and growth of Pete's Brewing continues to this day. Thousands of bottles, cases, and barrels have been sold in restaurants, on airplanes, and other retail outlets. A successful initial public offering of Pete's Brewing in November, 1995 raised $42MM. For three consecutive years, Pete's Brewing was named to Inc. magazine’s "Top 500 Fastest Growing Companies in the United States."
The Pete's product line has grown to eight everyday brews, including the Wicked Maple Porter, the Wicked Strawberry Blonde, and the Wicked Honey Wheat. Pete's also produces four seasonal beers such as the Wicked Mardi Gras and the Wicked Winter Brew.
What does Pete attribute the success of his organization to? "Beer is very much a sensory experience. It is a combination of color, taste and aroma." Pete explains that other beers try to emphasize only one of these characteristics, while Pete's tries to capture all of them from the malt/grain, and hops. As for the success of the organization, "We've had great people busting their buns. Also, back to the strategy that we've maintained since 1985, if you have a great beer, great label and great name, and focus on distribution support for your wholesalers and retailers, and have fun doing it, there is no limit." - ###
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