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Kris Bevill, Forum News Service, Published November 22 2013

Relaxed rules, rising demand drive thirst for craft beer

A new trend has been brewing throughout the Northern Plains over the past few years.

Craft breweries, roughly defined as independently owned microbreweries that produce beer unique to that establishment, have been opening throughout the region to serve growing demand for craft beer and alternative gathering places.

North Dakota is home to five breweries, and many others have opened throughout South Dakota and the Minnesota lakes area, with more on the way thanks to relaxed restrictions and a public thirsty for choices.

Legislative changes at the state levels have only recently allowed breweries to open tap rooms and sell their products in-house. Other regulatory changes have also now made it possible for craft brewers to independently distribute their products to other businesses without enlisting a wholesale distributor.

Before Minnesota legalized tap rooms in 2011, brewers could only give away samples in a sampling room, which didn’t exactly lend itself to profitability, said Tina Hanke, one of four owners of the Bemidji Brewing Co. in Bemidji, Minn.

“Now you’re able to sell full pints, sample trays, in addition to growlers, and of course you can still sell wholesale,” she said. “Having that many more products available that you can sell directly to your customer rather than having to distribute all of it is a huge boon, especially for a starting business.”

Minnesota approved tap rooms two years ago, but the Legislature left the licensing specifics up to each municipality, so entrepreneurs like the Bemidji Brewing group had to engage city leaders to educate them on tap rooms and the purpose they serve before being granted a license to open.

“They pretty much had to create a new license for us because we’re not a bar and we’re not a restaurant,” she said, adding that once the city council learned about the group’s plans, it quickly came on board and Bemidji Brewing Co. was able to open its tap room in June.

North Dakota’s Legislature passed a law this year allowing craft breweries to open tap rooms and distribute their product without the use of a distributor as long as the amount of beer sold does not exceed 10,000 barrels per year.

The new law has affected North Dakota’s first wave of breweries to varying degrees.

Fargo Brewing Co., which was established in 2010 and was already using a distributor to sell its product in the area, moved its brewing operations in-house and opened a tap room in September.

The Laughing Sun Brewing Co. in Bismarck, which opened as a brewpub and brewery in late 2012, is now eyeing opportunities for distributing its beer to other locations throughout Bismarck-Mandan.

Thirsty for change

Another factor contributing to the recent ramp-up of craft breweries is simple supply and demand. About 7.3 million barrels of beer were sold by craft brewers nationwide during the first half of this year, up from 6.4 million barrels during the first half of 2012, according to the Brewers Association.

The Midwest has been slower to embrace the craft brewery trend, but local demand has been steadily increasing.

The fact that the local market was entirely underserved was a deciding factor in Fargo Brewing Co.’s decision to base its company where it did, Chris Anderson said. When he and his brother, John, initially began planning to open a brewery several years ago, they intended to open a space in the craft beer-loving Pacific Northwest, where he was first introduced to the product. But after realizing that the existing strong market for craft brew in that region also meant ample competition for shelf and tap space, the pair decided to focus on Fargo instead.

“At the time there was nothing in Fargo or the surrounding area,” he said.

Happenstance led the brothers to connect with Jared Hardy and Aaron Hill, who had separately also begun planning a craft brewery, and the four joined forces to make their like-minded plans a reality in the Red River Valley.

The founders of the Laughing Sun Brewing Co. and Bemidji Brewing Co. share similar tales of having a passion for craft brewing and a desire to share that passion with others in a unique setting. Mike Frohlich and Todd Sattler, co-owners of Laughing Sun, brought their respective backgrounds in brewing and law together to launch their business and become Bismarck’s first brewpub in 2012.

Neither Hanke nor any of her fellow Bemidji Brewing owners, Justin “Bud” Kaney, Tom Hill and Megan Betters-Hill, are originally from Bemidji, but they chose to open their business there because they saw the need for a unique business and had a passion for craft brewing.

Economic impacts

Sales have met or exceeded expectations at all breweries since opening, and owners expect to continue to grow their in-house sales as well as expand their distribution areas in the near future.

Bemidji Brewing, which got its start in a community kitchen for one tap account using equipment the founders purchased with $16,000 raised through a Kickstarter project, now has $30,000 invested in its tap room and brews about 20 barrels of beer each month, equal to about 5,000 pints.

“It’s quite a bit of beer compared to what we were brewing before, but it’s still small on a scale of what breweries can do,” Hanke said.

The taproom typically offers four or five types of beer and is open Thursday through Saturday. Customers have been a mix of tourists, locals and college students.

Fargo Brewing Co. took the unique route of contracting with an out-of-state brewery to produce its beer when it incorporated in 2010, selling it at local bars and restaurants to generate revenue and gauge the market before moving ahead with its own brewery plan. “Contracting allowed us to prove the business model to ourselves, the bank and the area and move that into building our own production space here in Fargo,” Chris Anderson said.

Total project costs for the company’s brewery, including production equipment, the packaging line and other items came to just over $1 million, half of which the company was able to raise through early distribution revenue and private investors.

Three of Fargo Brewing Co.’s owners work full-time at the brewery, which offers four to eight styles of beer in the tap room three days a week. The company sells four to six kegs each week, according to Anderson, and plans to continue distributing to other locations.

“In the not too distant future we’re looking at expanding into parts of Minnesota, South Dakota and eventually working our way down towards the Twin Cities,” he said.

While Fargo Brewing Co.’s tap room hasn’t been open long enough to gauge its impact on the downtown Fargo area, Chris Anderson steadfastly believes that craft breweries have a positive impact on local economies.

“Beer and breweries tend to become social meeting places,” he said. “They exist in an area between a restaurant and a bar, and they tend to really foster a sense of community. A brewery can make a huge difference in a town’s overall feel and appeal.”

‘Identity of the community’

Laughing Sun Brewing Co.’s Sattler agrees that breweries offer a unique atmosphere and style of business that promotes a sense of community.

“In a place like Bismarck, where it’s just starting to get a lot of different types of businesses downtown, we think we are a part of that,” he said.

Kate Herzog, marketing and assistant director for Bismarck’s downtown business association, said Laughing Sun fits well with the downtown area.

“We always look for the thing that contributes to the identity of the community,” she said. “It really did fill a demand that we had heard of. They’re really tied into the local economy of downtown.”

As other taprooms and breweries open throughout the area, including in Minot, N.D., Moorhead and Brookings, S.D., craft brewers say they welcome the friendly competition.

Chris Anderson notes that craft brews account for less than 10 percent of all beer sales in the U.S., so while they may compete with each other, there is more camaraderie than competition as they work together to compete with large breweries.