Ken Grossman has survived his share of froth and burst bubbles in the 35-plus years since he co-founded Sierra Nevada Brewing Co. Now 59, he still oversees the nation’s largest private craft brewery, producing nearly 1 million barrels of beer a year and ringing up more than $200 million in sales. Leaning back in his office chair, dressed in a plaid shirt and black zip-up vest and surrounded by empty beer bottles and photos of grandkids, Grossman seems the very image of a self-satisfied patriarch.
He’s not. Back in 1978, when Sierra Nevada was created, there were only 45 independent breweries in America. Today the $100-billion-a-year industry (US sales) is dominated by the likes of Anheuser-Busch InBev and MillerCoors. But there are also 2,700-plus breweries—more than a third popping up in the last five years. Making higher-priced craft beers like hoppy pale ales, dark rich stouts and fringe flavours, these smaller producers are growing by double digits, from nothing to 7 percent of the total US market by volume and 12 percent by dollars spent. But there are only so many taps at the local bar, only so much shelf space in the supermarket aisle.
“It’s a grow or die mentality,” says Grossman in his low, unflappable voice. “If our brand isn’t growing, somebody else’s will. You can have a business model where you put the brakes on and only sell 30 cases of this really exotic, really expensive beer. But we’ve grown way past that.” Now that Sierra Nevada is the seventh-largest brewery in the country, with its signature Pale Ale sold in all 50 states, that’s not an option. Grossman is facing the same challenge that has stymied companies from Microsoft to General Motors: Once you’ve graduated from insurgent to incumbent, how do you keep growing—and keep the fan base happy?
Sierra Nevada’s answer is to stay close to its roots, constantly innovate and co-opt tiny competitors by partnering with them.
Growing up in the San Fernando Valley, Grossman developed the characteristics of a proto-entrepreneur—inventiveness bordering on larceny. He stole the motor of a neighbor’s lawn mower to build a go-kart, used a plastic explosives recipe to blow up every mailbox on the block and dropped homemade stink bombs in junior high. The day before his 12th birthday he was caught shoplifting circuit board clips from the local RadioShack.
Then he started channeling his creative urges toward photography, bike repair and (pre-legal drinking age) distilling.
Grossman met his future wife, Katie, while dabbling at Cal State Chico. He ultimately dropped out to manage a bike store, then opened a homebrewing supply shop. While that went nowhere, Grossman couldn’t shake the dream. “Bike shop I could do, but I’d probably be bored in a few years,” he says. “Brewery seemed a lot more fun.”
Riskier, too. He and partner Paul Camusi, a home-brew customer, sank all their savings (about $15,000) into Sierra Nevada, and turned to family and friends for $85,000 after banks said no. It took more than two years of grinding from start to production. In a prescient move they planned for a 10-barrel brewery, the size of Sierra’s current pilot brewery but many times larger than other home-brew-turned-commercial-startups then.
Grossman had to scrounge for parts, scavenging stainless steel tanks, pumps and piping from closed dairies and salvage yards across the West Coast. The old bottling system he bought proved useless. Katie, at home with their young daughter, questioned the whole venture, as Ken was spending 12-hour days doing the bulk of the welding and fabrication himself, while working a second job to provide a living. Brewing finally got started in November 1980, though the first 10 batches of pale ale were sacrificed producing something fit to drink.
“We were pretty confident we could sell 1,500 barrels a year,” says Grossman, with scant evidence for hope. But from bars in Chico to restaurants in San Francisco and eventually to distributors across the country, word spread about the new brewery’s intense flavours and commitment to quality ingredients—as in their refusal to use anything but whole cone hops. Barely profitable, the company built out production to 12,000 barrels a year by 1988. It also hired a few employees, including Steve Dresler, still head brewer 31 years later. (His description of the early work environment: “A very small group of creative, motivated people—and highly self-medicated. My first day I was putting bottles into boxes when everyone took their midmorning break to get stoned.”)
To handle growth Grossman oversaw the purchase and cross-Atlantic shipping of a 100-barrel copper brewhouse from a failed German company and installed it at a new Chico location in 1988. Four years later Sierra Nevada was pushing the limits of that system, which Grossman eventually built up to 300,000 barrels per year, five times the original intended capacity. Another expansion brought the site up to its current size, and since late 2012 the company’s production has once again been completely constrained, with revenues squeaking up only 2 percent in 2013. Grossman says the current round-the-clock factory pace isn’t sustainable with only one plant: “Historically we took a few weeks of every year to fix and rebuild. Last year we shut down for Christmas and Thanksgiving only.”
While multiple on-the-fly reconstruction jobs took their toll, problems festered. Grossman weathered a grueling five-year ownership battle with the less hands-on Camusi. Finally, in 1998, Grossman assumed undisclosed debt to buy out his 50/50 partner. In the aftermath Sierra Nevada cut back on innovation. By 2007 it had been 13 years since it released a new beer on a national scale and, as a result, lost market share as new microbrewers flooded in.