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Home My WebLink About5.a. Brewery Update EXECUTIVE SUMMARY Port Authority Meeting Date: September 17th, 2019 AGENDA ITEM: Brewery Update AGENDA SECTION: New Business PREPARED BY: Eric Van Oss, Economic Development Coordinator AGENDA NO. 5.a. ATTACHMENTS: Brewery Brochure, Tariff Article, Brewery Contact List APPROVED BY: LJM RECOMMENDED ACTION: Information Item ISSUE In August and September, staff contacted 33 breweries within Dakota, Scott, Ramsey, Washington, and Southern Hennepin counties. Initial calls were followed by emails with brewery marketing materials highlighting benefits of locating in Rosemount. Staff also worked with the Minnesota Brewers Guild to advertise Rosemount to potential brewers looking to relocate or expand. Of the breweries contacted, the following three expressed interest and staff will be meeting with then in the near future. The three breweries are: 1) Black Stack Brewing (St. Paul) – In person meeting 9/13/19 2) Venn Brewing (Minneapolis) – In person meeting 9/18/19 3) Bald Man Brewing (Eagan) – The owner expressed interest in a Rosemount location; however, he felt none of the currently available commercial space was suitable for a new location. He asked to be made aware of any new commercial sites if/as they are developed. After speaking with many of the local breweries and the MN Brewers Guild, staff found additional information which helps to understand the locating decision making and expansion considerations of breweries. Below are four main points culled from conversations. 1) Space and Demographic Metrics: Most breweries would prefer 3000-5000 sq. feet on a retail endcap development. The majority of breweries highly prefer 500-1000 sq. feet of patio space. Demographics that work best for this business model is around business parks with hotels, shopping centers, and large subdivisions. Currently only the MGM space fits the size requirement, but it does not accommodate outdoor seating. 2) Legal distinction between Breweries and Brewpubs: Under current Minnesota law, breweries (making beer for distribution) can only have a single taproom. An expansion for a brewery taproom would entail either moving the existing taproom or starting an entirely new company. A Minnesota brewpub, on the other hand, is a restaurant-plus-brewery that can pour its own beer as 2 well as operate a full bar, including non-house beers, wine, and hard liquor. Brewpubs are prohibited from distributing beer outside their owned facility, but they can operate multiple locations and serve their beer at each of them. Since they are more reliant on food sales, the brewpubs are more sensitive to space and location metrics and look for site attributes consistent with typical restaurant uses. Additionally, most brewpubs look for a significant nearby office/white collar population. 3) Tariffs: The current tariff situation is creating a barrier to entering the brewery market. Both the brewing equipment (imported from China) and aluminum (cans) are subject to 15% (projected to increase) tariffs, which add significantly to the startup costs for a production facility. In the short term there seems to be a lull in activity as potential brewers are in a holding pattern waiting for a resolution (article attached). 4) Local Market Conditions: Many smaller brewers expressed to staff that the Minneapolis/St. Paul urban core is oversaturated with taprooms and breweries. Two breweries recently relocated to suburban locations due to the competition in Minneapolis. Second and third ring suburbs present an attractive opportunity for less established breweries as long as the demographic metrics and space requirements can be met. This reality serves as confirmation that this pursuing these types of users should continue to be a goal of the City. RECOMMENDATION Staff will provide a verbal update regarding the in-person meetings held with brewery owners. Staff is also discussing future rental opportunities for a brewery in spaces yet to be constructed, including the new Biscayne Business Park area. Brewery Name Location Intesterst in Expanding (Y/N) 56 Brewing Minneapolis N/A left a message and follow up email Angry Inch Brewing Lakeville N/A left a message and follow up email Badger Hill Brewery Shakopee Only allowed a taproom Bald Man Brewing Eagan Not actively looking but Dan has been in conversation with some building owners in town. He will update me if anything comes of it. Barrel Theory Beer Company Saint Paul Line is not monitored and is for general info - sent follow up email Bauhaus Brew Labs Minneapolis Only allowed a taproom Black Stack Brewing Saint Paul Interested - in person meeting 9/13 Boom Island Brewing Company Minneapolis Cannot take on any more projects at this time. Recently relocated to from Minneapolis to Minnetonka - Minneapolis market is oversatruated. Clutch Brewing Company Saint Paul Only allowed a taproom Dangerous Man Brewing Company Minneapolis N/A called and sent email Fair State Brewing Cooperative Minneapolis Only allowed a taproom Eastlake Craft Brewery Minneapolis Only allowed a taproom Flat Earth Brewing Company Saint Paul emailed from internal website The Freehouse North Loop, Minneapolis No plans at this stage for any restaurants in the southern suburbs Fulton Beer Minneapolis Can only have one location Inbound BrewCo North Loop, Minneapolis Only allowed a taproom Indeed Brewing Company Minneapolis They are not looking to expand at this time. Lakeville Brewing Company Lakeville N/A left message and follow up email Lift Bridge Brewing Company Stillwater N/A left message and follow up email Mr. Brews Taphouse Wisconin Based Franchise Interested in moving into the Twin Cities market. Preferably 2000-3000 sq feet on an end cap with a patio for a Mr Brews Location. Demographics that work best for their concept is around business parks with hotels, shopping centers, and large subdivisions. Modist Brewing Co.Minneapolis Minnesota law only allows brewery/taprooms a single retail location. If John hears of anyone looking to open a brewery he'll point them in our direction OMNI Brewing Company Maple Grove Line is not monitored and is for general info - sent follow up email Pig's Eye Brewing Company Saint Paul Permanently Closed Pryes Brewing Company Minneapolis Line is not monitored and is for general info - sent follow up email Rock Bottom Restaurant & Brewery Colorado Based Franchise No, not currently franchising outside of the MPLS location Sisyphus Brewing Company Minneapolis Line is not monitored and is for general info - sent follow up email Spiral Brewery Hastings Line is not monitored and is for general info - sent follow up email Summit Brewing Company Saint Paul Doubled their real estate footprint and production capacity recently. If he learns of any brewer looking for a new location, he will certainly refer them to us Surly Brewing Company Minneapolis Not expanding/focused on their single location Utepils Brewing Minneapolis Only allowed a taproom Venn Brewing Company Minneapolis Interested - in person meeting 9/18 Wabasha Brewing Company Saint Paul N/A left message and follow up email Wicked Wort Brewing Company Robbinsdale email Minnesota Brewer's Guild Many brewers begin as craft brewers, and most are looking to open up a brewery in their home communities. While maybe one brewery a year looks to expand into a new production facility etc, it's really about getting someone interested in starting a new company. Additionally, the current tariff situation is a barrier to entering the market. 9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 1/15 Time to rethink ever ything BXT WATCH NOW K E Y POI N T S Sp encer Kimb all @ S P E N C E K I M B A L L T R A D E ‘It’s an unjustified tax’: Craft beer brewers face rising prices as Trumpescalates China trade war P U B L I S H E D S A T, A U G 3 1 2 0 1 9 • 9 :3 3 A M E D T U P D AT E D S AT, A U G 3 1 2 0 1 9 • 3 :3 3 P M E D T S H A R E  Nationwide, the craft beer industry has exploded from about 1,500 breweries in 2000 to 7,450 in 2018. M A R K E T S  WAT C H L I S T C N B C T V  M E N U This was the worst week for mortgage rates in 3 years ‘The most important chart in the world’ offers a warning sign for... 10-year yield surges the most in a week since 2016 as recession... TOP STORIES  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 2/15 Independent craft brewers are increasingly concerned about headwinds as President Donald Trump’s tariffs increase prices on everything from aluminum cans to brewing equipment. Beer being poured at Night Shift Brewing. Source: Night Shift Brewing  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 3/15 ‘We can’t just keep eating it’ Collin Castore star ted selling beer out of coolers in parking lots at Grateful Dead concerts. It was the mid-1990s and craft beer was a small niche market. While most people were drinking big labels like Budweiser and Miller, Grateful Dead fans had a taste for independent labels like Sierra Nevada and Samuel Adams. “Deadheads were always ahead of the curve in terms of quality,” Castore said. Castore developed a love for beer at those concerts. Over the next decade, he turned that passion from a parking lot hustle into one of the first craft beer bars in Columbus, Ohio. Castore eventually sold his bar to focus on brewing and co-founded Seventh Son Brewing Co. in 2013. There were about seven breweries in the Columbus area when S eventh Son opened, Castore said. Today, there are 55 in central Ohio. Nationwide, the industry has exploded from about 1,500 craft breweries in 2000 to 7,450 in 2018. “We got a hockey-stick growth to brewing industry right now,” said Bill Nootenboom, president of Stout Tanks and Kettles in Portland, Oregon. “The way people are consuming beer is changing — they ’re doing it in neighborhood taverns.” But independent craft brewers are increasingly concerned about headwinds as President Donald Trump’s tariffs increase prices on everything from aluminum cans to brewing equipment. “There’s really likelihood that fewer brewers can open,” said John Watt, founder of Stout Tanks and Kettles. “These are start-ups that a lot of the time are borrowing money from an uncle or parents. Darn near everything they need to buy is going to be impacted.”  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 4/15 The problems started for craft brewers more than a year ago, when Trump imposed a 25% tariff on steel and a 10% tariff on aluminum in March 2018. Castore says the price he pays for an aluminum can has increased from about 15 to 18 cents to about 19 to 24 — depending on how the can is treated. Between Seventh Son and his other brewery, Antiques on High, Castore’s business produces about 7,000 barrels and sells 800,000 cans of beer a year throughout Ohio. He estimates increased can prices are costing him about $16,000 a year. For now, Castore hasn’t passed that on to consumers, but that will change if aluminum can prices continue to increase. “If it goes up another 20% we’ll have to figure something out — we can’t just keep eating it,” he said.  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 5/15  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 6/15 Castore isn’t alone. Rob Burns, co -founder and president of Night Shift Brewing in Everett, Massachusetts, says aluminum can prices have increased 16% since 2016 or about 2 cents. Founded in 2012 by Burns and two buddies with about $125,000 borrowed from family and friends, Night Shift expects to brew 40,000 barrels this year or about 13.2 million cans of beer. Overall, Burns says his costs will go up by about $264,000 this year due to the increase in aluminum can prices alone. “We’re a small independently owned family business so every penny matters,” Burns said. “Not having a quarter of a million dollars is pretty significant. That’s an oppor tunity to create two or three jobs; that’s an opportunity to buy equipment and grow and generate revenue.”  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 7/15 Night Shift Brewing co-founders Mike O’Mara, Rob Burns and Michael Oxton Source: Night Shift Brewing ‘It’s an unjustified tax’ The business environment for craft brewers, par ticularly those just starting out, is about to get more challenging. The Trump administration is imposing 15% tariffs on $112 billion of goods imported from China star ting Sept. 1, including brewery equipment. Last year, the U.S. imported $35 million of brewery equipment from China. Watt has helped more than 1,000 smaller-sized breweries get up and running across the U.S. since he founded Stout Tanks and Kettles a decade ago. Watt has hands-on experience on the supply and brewing sides of the industry. Before Stout, he founded Sonoran Brewing Co. in Phoenix, which he operated for about a decade before selling it and moving back to Oregon, his home state. Stout Tanks and Kettles works with start-up breweries to design equipment to their custom specifications. Stout sources its tanks from two factories on China’s east coast close to the ports. The smaller tanks that microbreweries use are labor intensive to fabricate, Watt said, and manufacturing the same equipment in the U.S. would be cost prohibitive for start- up businesses that are often family owned.  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 8/15 “You could never afford to open a business if you had to pay double for same equipment,” he said.  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 9/15 With the 15% tariffs looming, Watt said he will have to increase prices and that means it is going to be more expensive for his customers to get into the brewing business. “We don’t have really big margins so the bottom line is we have to raise our prices,” Watt said. Adrian Sawczuk is already running into this problem. He and his wife Dara have had plans to open a brewery in Myrtle Beach, S outh Carolina, for about two years now. Tidal Creek Brewhouse is slated as a 10-barrel operation that will make craft beverages in house. They ’ve leased property and are going through the permitting and contracting process, but the tariffs have forced them to alter some of their plans.  M A R K E T S  WAT C H L I S T C N B C T V  M E N U  9/13/2019 'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs https://www.cnbc.com/2019/08/31/its-an-unjustified-tax-craft-beer-brewers-caught-in-the-middle-of-trump-trade-war.html 10/15 Collin Castore, co-founder Seventh Son Brewing Co. Source: Seventh Son Brewing Co. Sawczuk planned to order $300,000 of brewery equipment from China. Now, he is scaling back his plans by reducing the number of fermentation tanks. He says this will reduce production from 3,000 barrels to 1,000 barrels of beer, or 66%. The brewery’s opening has also been delayed until the first quarter of 2020 and Sawczuk says he’ll likely hire fewer people. “That money in my mind is just an unjustified tax,” Sawczuk said of the tariffs. Castore and Burns, for their part, don’t expect to take a hit right away because they operate established breweries that already made major capital investments. But Seventh Son and Night Shift do have plans to buy more equipment to keep up with demand as they continue to grow. Night Shift, for example, has big plans to open a new facility in Philadelphia in 2020 that will have a 30,000 barrel capacity from day one and can scale up to 200,000 barrels. “It definitely factors into purchasing decisions,” Burns said of the tariffs. “We bought Chinese equipment in the past because it’s good quality and usually the fastest available equipment and often at the lowest price.” Castore said Seventh S on is already putting off some purchases, such as higher-end lab equipment, as the company tightens its belt in response to the tariffs. “As we grow it will definitely affect us,” he said. For Sawczuk, the abrupt increases in the tariff rates have created uncertainty that makes planning difficult.  M A R K E T S  WAT C H L I S T C N B C T V  M E N U 