A look at the world of brewing in an alternating proprietorship
by Jake Lewis
One of Minnesota’s newest breweries has entered the market in a fashion that is rarely used in the industry. It’s this out-of-the-box thinking that may provide more start-up breweries with a greater opportunity to mash in quicker. Badger Hill entered the craft beer industry using an alternating proprietorship with Lucid Brewing, enabling both companies to grow in ways that were previously unthinkable.
Badger Hill was in the process of doing the same old thing as every other start-up brewery – finding and fitting a facility as a brewery. Fortunately, Broc Krekelberg was introduced to Eric Biermann, owner of Lucid Brewing, in February of 2011. The two clicked instantly. The next month on Saint Patrick’s Day, Biermann and John Messier, the owners of Lucid, met with the owners of Badger Hill, Broc Krekelberg, his wife Britt, and his brother Brent over pints at Barley John’s. They agreed to work together as start-up breweries. Shortly thereafter, Biermann introduced the idea of an alternating proprietorship, which Broc (and seemingly many other breweries) had not previously known about. The idea became a reality as the parties realized that a partnership of that kind made perfect sense for both breweries.
An alternating proprietorship is an agreement between two breweries in which both companies share a facility while remaining separate companies. This form of partnership among upstart breweries is a rarity, but considering the benefits it’s a wonder there aren’t more.
The requirements for such an arrangement are really quite simple. Basically each company must keep its own records and finances, but can share a facility. Each company’s materials are kept separate also, such as malt, hops, and kegs (Badger Hill’s kegs are a different color than Lucid’s), and it only requires a relatively simple procedure. “We have our grain labeled, we have our hops labeled, and then in the cooler we have our own section… and the TTB (Alcohol and Tobacco Tax and Trade Bureau) wants to see that separation. Everything has to be completely different.” Broc goes on to say, “then on the sales and marketing side, there are reasons beyond just who we partner with distribution, but the fact that we are doing two different distribution channels. What we’re trying to do is be as conscious [about separation] as possible for when the TTB audits us.”
The alt-prop has provided a lot more flexibility and adaptability in Badger Hill’s business plan. When they rolled out their first kegs to bars and restaurants at the end of June, they were able to do so without having to invest in their own independent brewery. They were able do 22 test batches of their MSB (Minnesota Special Bitter) on the very system that they would be producing on, without being forced to sell unready beer to just make ends meet. Without having to worry about infrastructure, they’re able to focus on the core area of beer styles (they’ll have four by the end of this year alone), and distribution strategies while coordinating on brew days.
Obviously, it takes some coordination for two breweries to brew in the same space, but they have a system worked out. The two crews are in the building all the time and often have quick conversations about what’s happening, but they do sit down regularly to work out a more definite schedule. Badger Hill gives Lucid at least two weeks notice of their schedule, allowing Lucid time to plan accordingly.
Sharing a production facility means that investing in equipment benefits both breweries. Only a few weeks into the release of Badger Hill’s first beer, they were planning on acquiring a new hot liquor tank that is double the current tank’s capacity, four 60-barrel fermenters, and two 60-barrel bright tanks, on top of the bottling line that just arrived at the end of July. By sharing the equipment, they are able to put their capital into focusing on the quality of their brew and other areas of the business, without going into exorbitant amounts of debt.
Having an extra brewer to talk through things for a brewery’s first couple of years doesn’t hurt either. Biermann helps with most of the brews still, at least while Badger Hill finds a brewmaster and Broc continues to hone his skills. The collaborative effort behind both parties is helping to facilitate a focus on quality control, which is crucial to the success of both companies.
Eventually Badger Hill will outgrow their space with Lucid in Minnetonka, but that is already planned out. The two breweries have agreed only to leave when the time is right and neither will leave the other in a lurch. Meaning that when it’s right for Badger Hill to move out, they won’t just pack up and leave, but rather give Lucid the time necessary to backfill the space that Badger Hill has been using and give the option for Lucid (or any other incoming aspiring brewer) to purchase equipment owned by Badger Hill at its fair market value. Since equipment is purchased by only one of the companies, this removes any confusion as to who owns which piece of equipment when the time comes to part ways. Badger Hill will build out their new facility during that time, and will coordinate with Lucid when the time comes for the switch to be made.
When the Krekelbergs do move their brewery to another site, they will be looking to continue to work as an alternating proprietorship with another newcomer to the Minnesota beer scene. “We would be disappointed if we didn’t have the opportunity to help someone out like Lucid did for us,” says Broc. “That’s part of our philosophy… If anything happens to us, like we’re successful, it’s because of our partnership with Lucid, and we’ll preach that ‘til we’re blue in the face.”
Broc says that creating an alternating proprietorship with another brewery is not always the best option for everyone, especially if you’re interested in a tap room or brewing sours, but “I don’t see why it’s not an option that everyone should look at because it allows both partners a more robust financial position… and that’s so key to starting out.”
It also takes a trusting mentality to be able to work on the level necessary for a positive outcome. Having the same philosophy doesn’t hurt either. “What’s really important to them and us and the reason we fit so well, is that we have the stakeholder mentality,” Broc says about the subject. “I don’t care if it’s a buyer or another brewer, it’s just treat everybody great.”
Badger Hill has been given an excellent opportunity to grow with their partners at Lucid through this alternating proprietorship, and they are without a doubt grateful. The Minnesota craft beer scene should take a closer look at this unusual method of collaboration. After all, as the market grows, everyone grows together.
Photos by Brittany Krekelberg