How Heavy Seas made big business out of Maryland’s craft beer industry

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By Linda Strowbridge

Photography by Rachel Smith

His corporate world may be awash with exotic brews, pirate culture and beer aficionados who seek out specialty pints like they were sunken treasures. But in a no-frills office in the heart of blue-collar Baltimore, Clipper City Brewing Co., LP – Brewers of Heavy Seas Beer founder and managing partner Hugh Sisson breaks down the hard, exhilarating and occasionally unnerving numbers of the craft beer industry.

Craft brewers — a market subset virtually unknown to American beer drinkers 20 years ago — have grown from 2.6 percent of the total American beer market in 1998 to 8 percent today. Craft beers, along with imports, cut major producers’ market share from 89 percent to 78 percent in the same period.

Heavy Seas seized a portion of that market growth, posting 35 percent sales growth in 2010, 54 percent in 2011 and 12 percent in each of the last two years. Major investments in a brewery expansion and new sales and marketing efforts should enable the company to boost annual growth to 15 percent this year.

But Sisson cautions that succeeding in the craft beer sector is not as easy as catching a market wave.

Enthusiasm for craft beer is filling the sector with new players. According to the U.S. Census Bureau, an average of 1.2 craft breweries opened each day over the past two years. And the expansion is far from over. About 3,400 American breweries currently operate in the craft beer space and another 1,200 are in development.

That leaves brewers like Heavy Seas facing massive competition for a small slice of American beer sales.

So how can you succeed in the frenetic craft beer industry? At Heavy Seas, Sisson has built a successful growth strategy based on sophisticated beers, constant product development, strong branding, personalized service for distributors, moderate growth goals and a willingness to radically alter plans when the winds don’t blow your way.

Staring down the plank

Hugh Sisson admits that he learned the craft beer business the hard way. While he was a graduate student studying acting and directing, and preparing for a career in New York theater, Sisson’s life took a “fortuitous detour.” In 1979, his father opened a tavern called Sisson’s in Federal Hill, and asked him to help out for a few months. Hugh Sisson quickly realized that the tavern would need to distinguish itself from the competition, and decided to start offering a rich variety of beers.

“There really was no American beer movement at that stage, so we focused on imports. We had 120-130 different imported beers by 1982 and I think we were the first draft Guinness account in Maryland,” he says.

To promote the bar’s concept and give customers reasons to try unfamiliar brews, Sisson embraced wine-tasting techniques and began hosting beer tastings.

“Then, to develop the faintest clue in the world on what I was talking about at the beer tastings, I started doing home brewing,” he says. “I did it badly. The problem with home brewing is you are working with stuff that was never designed to make beer, so you spend tons of your energy trying to figure out how to re-engineer the stockpot.”

The home brews may have been disappointing, but the education was invaluable. And it gave Sisson a new business idea: Sisson’s Tavern could capture even more market share if it started brewing its own specialty beers on site. They would, of course, have to make such an endeavor legal. Working with Sen. George Della, the Sissons got enabling legislation passed in the Maryland legislature in 1987, and transformed Sisson’s into Maryland’s very first brewpub.

The concept was a commercial success and the process of crafting beer (on properly designed equipment) ignited Hugh Sisson’s creative side. Within a few years, he was yearning to expand the operation into more brews and bigger batches.

“But there was no way I could make what I wanted to at the Sisson’s facility,” he says. “I was in three little townhouses landlocked in the middle of Cross Street, which is a terrible place to ask tractor trailers to pull in and drop off raw materials or pick up finished product.”

So on New Year’s Day 1995, Sisson left the family tavern, “stepped off the plank” and plunged alone into America’s burgeoning craft beer business. Armed only with a buyout for his stake in the tavern and a business plan for Clipper City Brewing, Sisson dug into the task of raising $1 million in start-up capital, mostly in $50,000 increments from people he didn’t know.

“I think any entrepreneur will tell you that the process of getting started is overwhelming, fraught with errors and incredibly humbling. It takes you through enormous peaks and valleys and depression, and there are moments of complete terror,” he says. “But I was lucky and I chose to read a great portent into the fact that I got my final financing commitment on St. Patrick’s Day, March 17, 1995. I felt it was a good sign of potential success of a brewery. I refer to it as opening day for the beer business.”

Playing not to lose

A portent, as it turned out, proved to be a fickle business forecasting tool.

Getting a manufacturing operation built and running proved more challenging than Sisson had expected, as construction costs and timelines nearly doubled.

Then Sisson and Clipper City staff had to master the process of brewing much larger batches than the tavern had ever produced with recipes they had never attempted, on brewing, bottling and packaging equipment they had never used.

“That was all a recipe for disaster. It was certainly trial by fire and we definitely made a great deal of errors along the way,” he says.

To further complicate matters, Sisson had to contend with a major market shift.

“Craft beer had been hot. Craft beer had been growing at a 50 to 70 percent annualized rate year over year for about 10 years, so my world view was there was an enormous amount of enthusiasm for this product,” Sisson says. “After all those years of massive growth in the craft beer category, our category decided to go flat just as we opened the doors, and it stayed that way for about seven years.”

The problem, he says, was that the rapidly growing sector started attracting too many investors and producing too many bad beers.

“Whenever you have an industry that seems to be growing at this ridiculous pace, then everybody and his brother jumps into the industry,” he says. “Lots of doctors and lawyers and people who really shouldn’t have been in the beer business invested a lot of money in a lot of newbies who didn’t know what they were doing. So there was a lot of bad beer being made.” That discouraged consumers from buying any craft beer.

Realizing that the new Clipper City beers could not achieve anticipated sales volumes or the brewery’s plan for an eight-state market penetration, Sisson made a sharp change in the company’s strategic plan. To generate vital cash flow, Clipper City began marketing itself as a contract brewer in 1997. Now adept at running its production line and producing quality beer, the company landed contracts to produce products for Oxford, DuClaw, Mobjack Bay, Weeping Radish, Blue Point and other craft brewers.

“At one point in our history, 75 percent of the beer we put out the door was under other people’s labels,” Sisson says. “If I hadn’t done that, we would have turned the lights off.”

Around 2002, the sector began to recover and Clipper City products began selling better. A year later, the company created Heavy Seas — a line of “bigger beers” with bolder flavors, higher alcohol content and a rogue, pirate-based brand that quickly developed a consumer following. The company also took over Oxford Brewing Company.

Gradually, Clipper City discontinued contract brewing, focused exclusively on building its three brands of beer, and expanded its market reach to more than 20 states. However, Sisson and Clipper City executives knew they would need to build a stronger market presence if they were going to thrive long term in the resurging and increasingly crowded craft beer sector. So in 2010, the company made the bold move of discontinuing the Clipper City and Oxford brands and reinventing itself as Heavy Seas Brewery.

“2010 was the height of the recession and we were making a serious shift in overall branding strategies,” Sisson says. “I had run the numbers and if we got 10 percent growth, we would be okay having made that decision. We grew 35 percent that year.”

Growth spurt, growing pains

Joe Gold, Heavy Seas’ sales manager, joined the company shortly after the rebranding.

“I saw a brewery that had finally grown up,” Gold says. “Hugh Sisson, to his credit, is one of the best survivors I have seen in this business. The biggest challenge this brewery had faced was finding its identity. When the Heavy Seas brand got legs, the brewery got identity.”

That success, Gold says, generated a new challenge. Market demand for Heavy Seas beers began to outstrip the brewery’s production capacity.

For nearly three years, “I was the allocation manager,” Gold says. “Every ounce that we made was already sold and somebody had to make the decision where it went.”

Supply constraints cost the company in several ways. Annual sales growth slowed to 12 percent, some customers stopped carrying Heavy Seas products, the company halted efforts to expand into new markets and significantly reduced sales efforts in seven of the 18 states it serves.

To correct the problem, Heavy Seas embarked on a sweeping, multi-year, multimillion-dollar plan to expand its brewery. It installed 11 new fermentation vessels, expanding its capacity by 160 percent and gained the ability to brew more than 100,000 gallons of beer every two weeks. It installed a 96,000-cubic-foot refrigerator; renovated its warehouse to make room for a new $2.7-million, state-of-the-art bottling line; and demolished its tasting room to create a new brewhouse.

All that disruption created further challenges to maintaining production levels and also constrained Heavy Seas’ ability to follow through on one hard-won and highly valuable lesson, namely: One key to succeeding in the craft beer market is to steadily present consumers with new products.

However, by the time the four-year expansion project wraps up this year, Heavy Seas will have tripled its production capacity and will be ready to embark on a new growth plan.

Casks, cans and restaurants

“Now it’s time for the sales team to get to work,” Gold says. “Allocation is not what they hired any of us to do. They hired us to sell.”

Heavy Seas is beefing up its sales team, adding representatives in Georgia and Ohio. Sales staff will be striving to increase sales in existing markets, revive sales and boost supplies to the seven states it throttled back on during its production constraints, branch into South Carolina and Florida, and focus on securing highly sought-after contracts for shelf space in grocery store chains throughout most of its marketing region.

“We have made investments on the make-it side. Now we have to make investments on the make-it-go-away side,” Sisson says. With the number of American craft brewers about to top 4,000, “clearly there is going to be some churn. That is one of the reasons you have to have feet-on-the-street infrastructure. If you don’t have that marketing presence in this business and this business climate, you are going to get left behind.”

Heavy Seas brew master Chris Leonard says the company is also preparing an expanded and exciting portfolio of beers for 2015. The brewery already produces 20 products, including standards — such as Loose Cannon IPA, Powder Monkey Pale Ale and Small Craft Warning Pilsner — and its six seasonal beers. The new lineup of products will overhaul 50 percent of its existing portfolio.

“We are going to have more session beers, more specialty beers and smaller batches of beer to keep things interesting,” Leonard says.

Heavy Seas, he added, has become a national leader in cask-conditioned ales — specialty brews that finish fermenting in wooden casks and are sold to select retailers.

“Cask beers are a very low-volume portion of the business, but they have such an interesting cache. It’s an event when somebody taps into our cask,” Leonard says. “We are even allowing our retailers to customize their own casks. For example, they get to choose the hop variety depending on whether they want hops that are piney or fruity or herbaceous, and get a beer that is unique to their establishment.”

Heavy Seas is also pursuing two other endeavors to boost its market share, says general manager Patrick Helsel. Sisson’s creation of the Heavy Seas Alehouse model — a pirate-themed restaurant that pairs quality meals with Heavy Seas beers — has had “a phenomenal impact” on market development. The alehouse has no direct affiliation with Clipper City, but is part of a trademark licensing deal. In both current locations (Baltimore City and Arlington, VA), Heavy Seas Alehouses have introduced the brand to a whole new wave of consumers and triggered dramatic increases in beer sales through area distributors, he says.

Staff at the brewery are also investigating options to begin producing Heavy Seas beers in cans — a move that would make the products more attractive to boaters, golfers and participants in other outdoor activities where glass bottles are inconvenient, Helsel says.

Helsel estimates that Heavy Seas can increase sales 20 percent to 30 percent by fully satisfying existing distributors’ needs with its increased production. New products, new markets and new marketing efforts could drive that growth even higher.

Sisson, however, says the company is striving for healthy but moderate and lasting growth.

“I don’t ever want to grow 54 percent again in one year,” he says. “That’s when the wheels can fall off the cart. I would much rather be the tortoise than the hare. I would much rather stay in the game for the next 10, 15, 20 years than do a dot-bomb.” CEO

Linda Strowbridge is a freelance writer based in Owings Mills, MD. Contact us at editorial@smartceo.com.

How to command a pirate ship

Thriving in a market jammed with thousands of competitors and consumers eager to find the next new thing takes a special kind of business leader.

How does Hugh Sisson steer Heavy Seas staff toward success?

Analyze and collaborate: “To Hugh’s credit, we don’t do anything from the hip,” says general manager Patrick Helsel. “We always talk it through. We might take longer than other companies, but Hugh wants to make sure that whenever we institute a new project, it is agreed upon and improved upon by all the senior managers.”

Dream big, push hard:“Hugh is always looking at what’s next for Heavy Seas and he always has the steps planned out in his head,” Helsel says.

Sisson also compels brewery staff to surpass their own expectations for innovation and quality.

“Hugh nudges me just enough to always bring us up to another level,” says brewmaster Chris Leonard. “He knows instinctively how far I can push a new product without going over the top. His experience lets you know that you are not driving blind in the night.”

Not your Dad’s Budweiser

The craft beer movement is a beer drinker’s paradise, for those who fancy a brew that deviates from the American norm. Increased beer drinking means the demographic of customers is growing, but it comes with an uphill challenge: changing the behaviors of those individuals who default to the beer establishment.

It’s the Catch 22 of craft beer marketing.

Craft beer drinkers predominantly fall into the 21- to 30-year-old demographic, which consumes about 60 gallons of beer per capita per year, and tends to be devoted to finding brews that are authentic, artisanal and sophisticated.

“They are not interested in their father’s Oldsmobile, and for them Anheuser-Busch and MillerCoors are dad’s Oldsmobile,” says Hugh Sisson, founder and managing partner of Clipper City Brewing Co., LP – Brewers of Heavy Seas Beer.

The catch is those devoted consumers are always seeking out the next, new brew, so they may have little loyalty to any one brewery.

“Some craft beer guys become like gem hunters,” says Heavy Seas sales manager Joe Gold. “They have their ‘on-tap’ app on their phone and their Beer Advocate subscription, and these guys hunt down every beer they have ever heard of.”

Heavy Seas executives learned years ago that they could attract those consumers by releasing new seasonal beers every other month, amending their beer portfolio every year, and offering cask-conditioned beers, customized beers and limited-run specialty beers.

Focusing on diehard craft beer drinkers, however, means playing to gain a better standing among the 3,000-plus craft breweries that make up 8 percent of the beer market. Gold believes Heavy Seas can go beyond that.

“Out of 100 beers sold in America, eight or nine of them are craft beer, so my target is the 90 percent of people who don’t drink craft beer,” he says. “I need to change those people’s flavor profiles.”

Personalized services to distributors — such as beer tasting events and training sessions for bar and restaurant workers — can help convert those “Big Beer” drinkers, he says.

“We talk about beer profiles and style categories, how they compare to other beers and what items on the menu they would pair best with,” Gold says. “We give them enough information so when they are at a table, they can quickly make a good impression and look educated enough that the consumer says, ‘Okay, I’ll try that.’”

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