The old adages about the business world, “It’s a dog eat dog world” or “It’s not personal its business” is transforming into “Let’s help each other be successful”. Successful businesses are coming together to work toward a common goal and helping each other. An example of this is H.G. Fenton Company, a real estate development and property management company in San Diego. Starting a new microbrewery is costly and involves many levels of risk. The barriers to entry can be substantial.
Some call it an igniter and some call it an incubator. Webster’s Dictionary defines an incubator as “an organization or place that aids the development of new business ventures especially by providing low-cost commercial space, management assistance, or shared services”. While the Brewery Igniter model doesn’t include all of the features of an incubator, its focus on cutting down start-up time and costs makes it an ideal business environment for small scale brewers who don’t have a lot of kindling on-hand.
According to their website, “H.G. Fenton saw the intense financial pressure that small and new brewers were facing and developed Brewery Igniter® as the solution. A series of turnkey brewing facilities, each Brewery Igniter space features state of the art, fully functional brewing systems and tasting rooms that entrepreneur brewers can use to reduce their upfront capital investment and get their beers on the market and into glasses sooner. Through Brewery Igniter’s lower risk model, passionate brewers are better positioned to follow their dream and contribute to the vibrant craft beer community in San Diego. Brewery Igniter® has been proven to be successful for new breweries to launch or established craft beer brands to expand capacity or try new concepts.”
Bill Hooper, Commercial Portfolio Manager for H.G. Fenton said, “In the course of running our commercial portfolio we get tenants who want to open a brewery and build out their own space. In 2013, a brewery tenant rented an industrial suite from us, never built out the brewery, and defaulted on the lease. While discussing the circumstances and challenges that led to the failure, delays in construction and licensing delayed the business opening longer than the investors were comfortable with. To apply for an ABC license, you must first have a lease. In this case, the tenant was paying rent while the construction and permitting were delayed, all the while generating no revenue”
Hooper continued, “Recognizing the risks of designing, permitting, and constructing the brewery, we realized we can take these risks off the table. Brewery Igniter units deliver turnkey brewery space with a tasting room, small office, restroom, and brewing equipment. We charge a premium on rent, but the tenant’s initial capital investment is reduced. We partner with our tenants to provide flexible lease terms that accommodate the licensing process.” They understand how that process works. If you don’t make beer, you don’t make money and therefore don’t pay the lease. They partner with their tenants supplying them with terms that accommodate this situation.
One tenant, Pure Project Brewery, was one of the recipients of this new business paradigm. Jesse Pine, Managing Partner said, “Providing lower start-up costs and time savings made a lot of sense for us. Depending on what amount capital money you have access to, essentially, they’re saving us time and money. We signed our lease in August and were up and running in January.”
“I’ve been told that it takes almost a million bucks to finance a brewery startup when you consider the capital investment and working capital” Hooper said. “We believe the model saves our tenants time and money.”
Pure Project originally started their business in Costa Rica, but after a year of constant struggles and problems getting up and running they were about to throw in the towel, call it quits, and move on. Brewing beer in Costa Rica, a country more known for its beautiful scenery that industrial development, turned out to entail serious upfront investments and could potentially cause environmental damage. After several years of work and not closer to getting their brewery started in the land of Pura Vida, they received a call from a friend who told them about this space opening up at a Brewery Igniter® in San Diego. So they got on a plane and went to San Diego to have a look at this new option. They became the first Brewery Igniter tenants when they signed their lease in August and were up and running by January.
Another tenant in the Igniter®, Alex Pierson, co-founder of Amplified Ale Works LLC is a next door neighbor to Pure Project. Pierson said, “With this alternative financing, we can start making beer and to get to the same goal of having a larger brewery faster and with less anguish. Plus, I make beer. I’m not a construction guy, I don’t know code on bathrooms. To have someone take that workload and knowledge of code is a huge benefit. We create our own branding with the skeleton that they have given us.”
The initial theory was that people would move in for a few years to establish their brand, build their brewing facility, create beers and stabilize their businesses. “What we found is the model works for the longer term as well. Most customers have stayed in the Brewery Igniter location as a flagship tasting room and manufacturing facility and built their own ancillary retail tasting rooms to accommodate growth,” Hooper said. The brewing industry is morphing into having one location to brew and a variety of retail locations. Other customers have also built both a brewing facility and different tasting rooms throughout San Diego County. This helps with beer tourism as well as crowd and service management.
Amplified Ale Works has found the space to be a vital part of their growth strategy. “Our original plan was to stay two to three years. But as you get settled in, physically picking up and moving is hard to do. We have a lot of stuff. So we thought, let’s utilize what we have. The price is right and it keeps it pretty appealing to want to stay,” Pierson said.
H.G. Fenton provides the start-up breweries with a 10-barrel brewing system, six 20-barrel fermenting/storage tanks, cold box, and keg washer to launch their microbrewery. “We build out the tasting room with bar and tap system, but we allow each of our customers to do their own branding. They all look different and reflect what they’re trying to say about themselves,” Hooper said.
Pure Project outgrew the initial four fermenters that were provided in about six months. “We didn’t expect that fast of growth,” Pine said. “We’ve quintupled our fermentation capacity and holding as well as warehouse space. We’re currently at 10,000 square feet.”
“Craft brewing in San Diego seems to be friendlier than other industries. They don’t act as competitors, but colleagues. Craft beer consumption seems to be growing at the expense of the larger traditional breweries as statistics show domestic beer consumption to be decreasing while the craft industry is growing,” Hooper said.
“It appears as their customers, often millennials, want the experience of consuming a quality product.” Hooper said.
One of the advantages of sharing a business park with other breweries is that they can share equipment and services. “Being side-by-side has many benefits. We share the cost of the grain bin. We share forklifts and warehouse space. It’s like borrowing a cup of sugar from your neighbor. We don’t see ourselves as competing against each other. There’s a ton of room out there. We’re all out there creating beer with interesting flavor profiles. Fruited beer or a barrel aged beer or something that has intense flavor and that is enjoyable,” Pierson said. As the breweries continue to grow, they are able to lease additional space in the business park. Since they have such great working relationships they at times even share this additional space. As craft beer continues to grow “San Diego has gone from somewhere around 120 breweries to 200. We know with market dynamics that there’s going to be a contraction in terms of number of breweries. We’re trying to not over extend ourselves. H.G. Fenton now has three locations and seven breweries, including a kombucheria fermenting kombucha.
“Our goal for all of our customers is for H.G. Fenton to satisfy the real estate needs so our tenants can focus on their business” Hooper said.
The successes of H.G. Fenton real estate business growing from one location to three locations and supporting seven breweries is proof that businesses can help businesses. The success of seven breweries starting their businesses in this incubator is proof that this business model does work. The joy of watching businesses expand, burst at the seams then expand some more is proof that businesses helping businesses is rewarding. And, of course, the joy of watching people enjoying different beers is foam on the top of a pint.