2 Beer Guys Blog

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Saturday, January 12, 2008

A little piece of Magic Hat history

Here is an interesting story about Magic Hat expanding into the Organic Beer market.


And for His Next Trick.... Organic Beer

Meet Alan Newman. You may know him from his firm, Seventh Generation, which grew into a powerhouse of environmentally friendly cleaning products that are now sold nationally in thousands of stores.

Or from his first small business, which rode a wave of consumer interest in mail-order services and blossomed into Gardener's Supply Co., the nation's largest mail-order gardening company, based in Burlington, Vt.

A die-hard Vermonter, Newman has started a handful of firms that have, for the most part, been staggeringly successful.

His latest endeavor is recognizable among fans of craft beer: Magic Hat Brewery.

Newman founded it in 1993 by reconnecting with Bob Johnson, a former Seventh Generation employee and a home brewer. Johnson left the firm in 2003 when he felt it was getting too big for him because he enjoyed the "doing" side of business rather than the managing side of things. That's a trait that Newman understands well.

Newman, 60, is a self-described "classic entrepreneur" who said he can make a company successful "when you want to get [your firm] to about 50 people or $7 million to $8 million in sales."

Newman said Magic Hat "was about right there" when he ran into Martin Kelly, now the firm's CEO.

With Kelly's help, Magic Hat now has 125 employees and bumps up its workforce numbers seasonally. The company has grown by 30 percent for the past three years.

Together, they are now focusing on, Orlio Organic Beer, a subsidiary of Magic Hat Brewery that was started in the spring of last year.

Kelly, who Newman refers to as "the suit" in the operation, spent about 13 years in the soft drink business working for places like The Coca-Cola Co. and five years in the beer industry at Miller Brewing Co.

Newman is more of a yellow glasses, jeans and no shoes type (although he begrudgingly wears sandals sometimes, breaking out the socks in the winter). His public relations firm refers to him as the "King Midas of Hippie Businessmen."

Newman said Magic Hat is about to double the size of its brewery, which he credits to his culture of entrepreneurial energy and Kelly's "ability to stay focused."

The two, who banter off of each other's quips and end up laughing heartily throughout parts of the interview, said they had a "shared vision of a five-year plan." If they invited the "Car Talk" guys over for a drink, no one would get a word in edgewise and they'd all laugh themselves silly.

Although they've only worked together since 2004, they are not unlike a long-time married couple finishing each other's sentences. "What's interesting about us is our way of expecting and appreciating each other's skills," they both agreed, overlapping each other's words to form a sentence. The duo met when they were on the board of directors of a small brewers association.

"The two of us sitting next to each other... [looked] like unlikely partners, but we often agreed on a business plan," said Newman.

Magic Hat had looked into starting an organic beer "early on," in 1998 and 1999, but "we couldn't get out of our own way," said Newman. "We had serious financial issues but we didn't know what we were doing and while we thought organic was intriguing - we thought if we can't do it well, let's not do it."

Now, Newman says, largely thanks to Kelly, "we've gotten better management controls and the ability to pick a project."

"We often talk here about the fact that in the first three years of Magic Hat's existence, it was a small scrappy band of true believers," said Newman. "It never dawned on us that we would have explosive growth. We assumed it would be a slow growth for a couple of years... but the reason we can do [Orlio] is because Magic Hat is profitable."

Newman, whose success with his previous firms has shown an innate quality for zeroing in on "the next big thing," expects big things from Orlio. Organic beer sales are tied with organic coffee as the fastest-growing beverage in 2005 with sales increasing 40 percent, according to the Organic Trade Association.

Orlio has three dedicated employees, but can tap into the resources of the much larger Magic Hat. It is not yet profitable, but Magic Hat is well in the black.

The two firms also share a brewery, although the process for making organic beer must follow a more stringent set of state guidelines. There are two primary factors in creating an organic beer versus a traditional one - buying organic grains and the handling process during manufacturing.

"We had to go through testing procedures and evaluators had to look [at the brewery] and the cleansing procedures," said Kelly. The beer is certified organic from Vermont Organic Farmers and the U.S. Department of Agriculture.

With organic, the ingredients are more expensive and the procedures are more restrictive. Additionally, Newman notes, organic grains cost more per pound than regular and they yield less of the sugar water needed to make beer.

"It costs more to make and in an ideal world, we'd price it higher," said Kelly.

The company says the biggest buyers of organic beers are young professionals or newly married couples. "It's a lot of people who are thinking of having kids or have kids and all of a sudden they think about what they're eating more seriously," said Newman.

He is stumped for a bit when asked what kind of advice he might have for aspiring or newly minted entrepreneurs and asks genuinely: "Why would someone care about what I think?"

But after chewing it over, he said: "Do things that make your heart sing. At the end of the day if you're not doing what you're doing, life sucks. You've got to get up every day and get excited about what you do."

Now, he's on a roll: "Today, I'll actually get paid. I like creation. I like beer. I like the community of customers. That's what drove me through the hard years."

"We're just building the business, one customer, one market, one case of beer at a time."

Cheers to that.

By Sharon McLoone
Link to Article.


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