Steve Wagner is Stone Brewing Co.’s president & co-founder, as well as its original brewmaster. He developed the award-winning recipes for some of Stone’s most beloved beers, including Stone IPA, Stone Pale Ale, Stone Smoked Porter, Stone Imperial Russian Stout, Stone Old Guardian Barley Wine and the heralded, nay, exalted Arrogant Bastard Ale. After discovering his interest and knack for homebrewing, Wagner pursued brewing professionally before finally committing many long days and beer-drinking nights to starting Stone Brewing. Wagner is the co-author of The Craft of Stone Brewing Co.: Liquid Lore, Epic Recipes, and Unabashed Arrogance, which shares the trials, tribulations and successes of the company.
Note to readers: Each of these monthly interviews will feature a craft beverage maker who has achieved success on a large scale and is willing to share the hard-won knowledge and real-world experience he or she has garnered along the way. Any growing brewery, cidery, distillery, or winery owner or producer will benefit from insight and advice from industry pros.
This installment features Steve Wagner. The following interview has been edited for length; a more complete transcript is available as a free download and a full recorded version is available via free podcast.
Tell me what this journey has been like for you?
Steve Wagner: It’s been way more than anything I ever expected. I never really dreamt that we would enjoy as much successes as we’ve had. I think also it’s been a lot of a slower, harder, journey than maybe is apparent to people outside the company. We are not one of those overnight success types of companies and we’ve been working hard at it for a really long time. We weren’t an instant hit with everybody, we were kind of an acquired taste and it took a lot of persistence and a lot of sticking to our guns to get us to a place where we’re successful.
In the early days, what were you primarily responsible for and what was Greg Koch CEO and Co-Founder responsible for?
SW: Our initial division of labors was, I was the brewer. Before we even started the company, I was in charge with putting together our brewing equipment and setting up the brewery. Greg was more focused on the marketing and building our brand. Then once we had some beer brewed, Greg had to sell it.
Then, by default gravitated to the financial side of the business because it was something I could do while Greg was out selling beer. I enjoyed being in touch with the numbers and how we were doing. I continue to be pretty heavily involved in that to this day.
What was it from a financial standpoint that you paid the closest attention to?
SW: In the early days it was the basics. Our cost of goods sold, expenses, overhead, and just being very careful with every penny we spent in the early days because it was all going out at that point. We were starting to build some revenue, but we were not profitable for quite awhile. It was just trying to get by with spending as little money as possible until we could build up our sales and our revenues.
I read an article that mentioned Stone was losing about $30,000 a month. To get the business back on track you went back to the money source. What changed after that capital came in that took Stone to profitability?
SW: Although we couldn’t really see it clearly, all the work that we were doing was laying the foundation to hit that point where it would turn for us and kind of snowball. We learned that from hiring some of our first salespeople. It’s hard to tell how good of a job they’re doing unless the sales start coming in. They were out there building the relationships and creating the business to come. We were in one of those tough times where we were losing money. We borrowed some more money, we couldn’t see it but the sunshine was right around the corner. These people had been out there building relationships, winning the trust of customers and then all of a sudden, it started paying off. The sales increased and from that point on, we reached profitability and haven’t gone back since.
How do we structure compensation for sales people but still make it profitable for the brand?
SW: If you’re a startup, it’s going to take people a long time or a decent amount of time to build up sales. I think you really have to look at hiring salespeople as investment and what I learned is to be patient and give people time to develop those relationships, build that trust and then the sales will come. In the early days, we would provide a base salary or a guarantee type of thing so they would be assured of making at least an amount of money that they can live on. Then there would be bonuses or commissions based on selling over that amount.
What percent should labor be in your profit per case?
SW: We have a such a range of different packages and things. It can vary highly between draft beer and packaged beer. It can vary highly between different packages. We target a gross margin overall of labor, raw materials and utilities and things like that of about 50%. I think in this craft space, if you shoot for a gross margin of about 50% then you should be on the right track.
What was the single most impactful piece of equipment for you over the years?
SW: When we started out, we were a draft only brewery. I think one of the most important things was our keg cleaner and making sure we had kegs that were cleaned and sanitized properly because it was important that there were no spoilers or anything like that that would ruin the quality of the beer while it’s out in the marketplace.
I think a lab becomes really important to make sure you’re tracking the quality of every beer and recognizing any problems before they get too far down the road.
We use a whirlpool in our brewhouses. Now, it’s a key piece of equipment for us because we could do very large hop editions in that, late in the process. That became a signature for some of our beers.
The filter is important too for self stability and consistency.
Now, what have you learned over the years about equipment that might be helpful for the audience to keep in mind as they grow?
SW: There is not necessarily a right and only one right way to do things. I think it is important to follow your own instincts as far as if you’re happy with the way the beer is turning out even if you’re doing something that you haven’t seen other people do. If you can produce the quality and the consistency that you want then stick to your guns and do it that way. You don’t have to do what everybody else does.
Did you make any mistakes related to equipment or operations along the way?
SW: One of the major ones is when I was putting together the brewery initially. We got pretty far down the road before I realized I bought a boiler, but I’d never budgeted for steam piping. It’s like, oh yeah, you need to pipe the boiler into all those vessels. I forgot this $5,000 item, something which at that time was huge.
Then, our first bottling line was an old Simcoe that we bought from Nova Scotia. We spent so much time refurbishing that and keeping it running that we probably would have been a lot better off finding something newer and more reliable. You think you’re getting such a bargain on used equipment, but if you add up the true cost of what it took to get that thing up and running and keep it running, it probably far exceeded what we could have done with something newer.
One thing I never really considered when I got started was shipping costs and how big it plays into purchase decisions too.
SW: That reminds me of another mistake I made. For us there was no central resource of all the regulatory things that apply to you and what do you need to do, what permits, licenses, etc. We were kind of blind trying to figure that stuff out. We bought a bunch of our initial equipment from out of state. They shipped the stuff in. I got the invoices and paid the invoices. It never occurred to me that we were obligated to pay state sales tax on those items coming in. Well, a couple of years in, I got the audit from the Board of Equalization, the State Tax Authority in California. I got a little bit of a tax bill and a penalty and interest.
About 10 years after you launched, you relocated to a custom designed facility in Escondido. How much new equipment did you invest in for the new facility?
SW: We invested in a brand new brewhouse. We went from a 30-barrel brewhouse to 120-barrel brewhouse. Part of the sizing was what sort of volume we thought we could eventually turn out. Part of the sizing was thinking about our existing fermenters, that we had some 120-barrel fermenters in San Marcos that we were brewing 4 batches in to fill them up.
We wanted to have some single batch fermenters as well in Escondido. We brought a lot of those 120-barrel fermenters over that would be filled by one brew out of the new system, but it allowed us a lot of flexibility to do some relatively smaller single batch stuff. We brought over a lot of tanks, a filter, a bottling line. We did get a new kegging line in Escondido as well.
How did you evaluate the equipment manufacturers you decided to buy from?
SW: For the brewhouse, we got proposals from a lot of the bigger and smaller companies. We actually went to the Brau in Nuremberg in Germany. At that time, it was tougher because German companies didn’t know as much about what American craft brewers are doing now. We ended up picking the partner, ROLEC, that was actually the best at working with us and trying to understand the ridiculous amounts of hops that we put into our beer. It was the smaller, more nimble company that was willing to work with us and understand our needs and adapt their designs to that, but ended up getting our business in that case.
What is it happens in the business that makes you say, all right, it’s time for the next project? What’s going on when you say, okay, let’s do this again?
SW: Basically, we’re just fortunate that our beer continues to sell and there continues to be interest in it and there’s people in the world that wish they could get it. We also like to do new things all the time. It’s just part of the fun of being in a growing company. This is just our time in craft beer right now too.
What advice would you give to a brand that’s considering making the move from bottles to cans?
SW: Just really understand the scope of what you’re taking on to make sure you don’t overextend yourself and find almost near completion but running out of capital or human capital to push that thing home to a finish line. I mean that’s a real danger for small companies. You can take on all the steps to get a new canning line and then really struggle with getting it up and running to the point it can threaten the financial viability of your company.
Your brand is in 41 states. How did Stone approach what states they decided to move into and when?
SW: Our original business plan was that we wanted to be a local San Diego brewery and then grow to a regional brewery in Southern California. We figured that there would be lots of growth over time and we thought we were being pretty ambitious with that. There were no early thoughts of shipping our beer to other states.
That slowly changed when we came out with a beer called Arrogant Bastard Ale. It really developed a lot of buzz from beer enthusiasts, then retailers and distributors as well. That caused us to change up our business plan a little bit and contemplate starting to ship some beer to distributors out of state to help our company grow a little faster.
Is there such a thing as too many SKUs for a young brand?
SW: That is an evolving question. When we started Stone, we felt comfortable having Stone Pale Ale as our flagship. Really, our only full time beer for the first year and just we were able to focus on that. At that time, it was difficult to get one craft tap in any given establishment. Versus now where you could think about selling in multiple handles.
I think you want to find that balance between operationally not being so complex that you’re always running out of beer but also releasing enough new things that you keep the excitement going about your brewery.
What would you say a brewery should focus on in year 1 and then as they progress into the 2nd and 3rd year of their businesses?
SW: Let’s see. I think these days especially so many craft breweries in the US, you really have to be focusing on quality from day 1. You can’t put beers out there that are not up the snuff on quality because it takes so much time to rebuild a reputation. Word gets around really fast these days. At Stone, it wasn’t all up to social media and the internet. Now, it’s like you could kill your brewery before it even gets started. You really have to make sure everything you put out in that first year is high quality. I think you have to be able to differentiate. You have to have some unique story to tell. It can’t just be the, it’s homebrewed. My friends said I made really good beers so I’m starting my own brewery. There’s got to be something more unique.
Are there any rabbit holes that you think younger breweries should avoid as they’re scaling their businesses?
SW: Be careful about shipping beer far and wide across the world too soon. I travel around the world and I see a lot of old dusty beer bottles from breweries in the US sitting on shelves. In some ways, the trends are going more towards local and if you’re having trouble building your brand and your brewery in your local market then I think you’ve got some pretty big problems that shipping beer all over the US or around the world aren’t going to solve.
Given the fact that the name of our publication is The Equipped Brewer, what would you say being equipped means to you?
SW: You need to be well equipped in all aspects of the business. Brewers need to be representatives of the brand. They need to be able to go out and speak to the public about their beer and their brewery. They need to have a handle on business, on the costs and the margins of the profitability for the different beers they make. I feel at least for a startup brewery, you need to be that generalist and wear all those hats and do all those different things. I think that’s the minimum to being equipped in this day and age.
Any last words for our readers?
SW: Craft brewing, it’s still an unbelievable community of great independent minds and characters. The people are some of the best in the world and are very supportive of others getting in to this business. I would say to those of you starting up or who are in the early part of your journey, don’t neglect that resource. There’s a lot of people who will help you if you reach out to them and just ask. I’m one of those people too so make use of those resources.
That’s exactly what we’re here to do is connect our audience to people like yourself and help everyone be more successful. I appreciate the time and hopefully, we’ll be chatting with you again in the future.
