Ken Grossman | How Sierra Nevada Brewing Company Pioneered Craft Beer

Explore how Ken Grossman, founder of Sierra Nevada Brewing Co., revolutionized the craft beer industry through innovation and passion for quality brewing.

1. Ken Grossman began experimenting with brewing at a young age, influenced by a neighbor's homemade brewing setup.
2. Grossman faced significant challenges in starting Sierra Nevada, including financial difficulties and the technical challenges of crafting high-quality beer on a limited budget.
3. Sierra Nevada was a pioneer in using high-quality, unique ingredients like the Cascade hop, which set it apart from mass-produced beers.
4. The craft beer movement paralleled a broader interest in artisanal and locally produced foods and beverages, contributing to its growth and acceptance.
5. Despite the highly competitive beer market, Sierra Nevada remains committed to innovation and quality, exploring new beverage categories while continuing to focus on its core offerings of craft beers.

1: Early Influences

Ken Grossman discusses his early interest in mechanics and science, which later directed him towards brewing as a craft. Ken Grossman: "I started welding as an early teenager...I was fascinated with the alchemy of brewing at a pretty young age."

2: Founding Sierra Nevada

Grossman details the founding of Sierra Nevada, emphasizing the challenges of starting a brewery with no existing small-scale equipment manufacturers in the U.S. Ken Grossman: "I saw what [Jack McAuliffe] had done and realized that his business plan at a barrel and a half wasn't going to work."

3: The Craft Beer Movement

Exploration of the rise of the craft beer industry and how Sierra Nevada contributed to and was shaped by this movement. Ken Grossman: "We were one of those six [breweries that opened between 1977 and 1982]."

4: Challenges and Growth

Discussion on the operational and financial hurdles faced while expanding Sierra Nevada, highlighting Grossman’s resilience and innovative thinking. Ken Grossman: "We just toughed it out and started to make some beer."

5: Future Directions

Grossman shares his vision for the future of Sierra Nevada and the craft beer industry, touching on new product lines and market strategies. Ken Grossman: "We introduced a brand called Hazy Little Thing...it appeals to a different drinker segment."

1. Embrace Challenges: Use challenges as opportunities to innovate and strengthen your business model.
2. Focus on Quality: Consistently deliver high-quality products to differentiate from competitors.
3. Understand Your Market: Stay informed about industry trends and consumer preferences to adapt your offerings.
4. Invest in Community: Build a local presence and engage with your community to foster brand loyalty.
5. Prioritize Sustainability: Consider environmental impacts in your business practices to appeal to eco-conscious consumers.

Inspired by frequent trips to the Sierra Nevada Mountain range, Ken Grossman founded Sierra Nevada Brewing Co. in 1980 and today it remains family-owned and operated. What started as a homebrewing hobby eventually grew into a well-honed craft, and later, one of the largest independent breweries in the U.S.

Ken built the first brewhouse by hand in Chico, California after scouring salvage yards and defunct dairies to find the tanks, pipes, and valves he needed. The original brewhouse, which still exists today, first brewed a stout but was quickly followed by the Pale Ale that would change the course of American craft brewing and inspire countless brewers to explore the curiosities of hop-forward beers.

Today, Sierra Nevada is highly regarded for using only the finest quality ingredients and has set the standard for craft brewers worldwide with innovations in the brewhouse and in its sustainability efforts. The pioneering spirit that launched Sierra Nevada now spans both coasts with breweries in Chico, California and Mills River, North Carolina. Sierra Nevada is famous for its extensive line of beers including Pale Ale, Hazy Little Thing®, Torpedo® and a host of seasonal, specialty and limited release beers.



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People

Ken Grossman

Companies

Sierra Nevada Brewing Co.

Books

"A Treatise of Lager Brewing" by Fred Eckhart, "The Big Book of Brewing" by Dave Lyon

Guest Name(s):

Ken Grossman

Content Warnings:

None

Speaker A
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Speaker B
Welcome to the founder Hour podcast. We're here with Ken Grossman. He's the founder of Sierra Nevada Brewing, which, as I understand, is the 7th largest brewery in the United States and the third largest craft brewery. Is that right? Yeah, it depends on how you judge craft brewery or not.

Ken Grossman
But yeah, we're up there around number seven, I think, currently. Yeah, well, we'll talk about it. But Ken, welcome. Thanks for coming by. Thank you.

Speaker B
I was going to ask if you wanted a beer, but I think it's a little too early. It's 09:30 a.m. i don't know how early is too early for beer? Is there such thing? Actually, we do tastings typically every Thursday at nine in the morning.

In the morning? Okay. The only time I've had beer that early is when I'm golfing. So I feel like it's part of the culture now. Yeah, but yeah, thanks for coming.

You know, I know you grew up not too far from here in the San Fernando Valley woodland Hills area. So tell me a little bit about like, what young ken was like. What was he into? He was into mischief, as my mom would say. I was into taking everything apart.

Ken Grossman
So I had a lot of interest in how things worked from a pretty young age. I started welding as an early teenager. I had a couple of neighbors, one with a pretty complete shop. So I would spend a lot of time working on go karts and mini bikes and rebuilding motors and those kinds of things as a teenager, or even rebuilt some car transmissions back before I could drive. My brother had an Austin Healy.

I took it apart and got it back together mostly the first time, second time around. It did work nice. What did your parents do? What did you grow up around? My parents were divorced at a pretty young age.

My dad was an attorney down here in southern California, and my mom ended up going back to school and getting her masters and was a social worker for most of the time I was growing up. Yeah. Did you have any thoughts or plans to ever follow in either of those directions? No, I was interested in science and mechanics and actually got a job in junior high school assembling bicycles. And then later in high school, I got a job in the valley at a bike shop, and so became a bike mechanic.

And then when I moved to Chico in 1972, after I graduated from high school, I found a job at a bike shop. So I was able to support myself when I moved away, and then eventually attended the junior college, Butte College, and then later Chico State, studying chemistry. But I was really a hobbyist brewer from a pretty early age. I started brewing well before I was legally able to drink. Yep.

Speaker B
I think I saw, like, originally you. Well, you bought the home brewing kid in high school, but it kind of dates even before that. Like in second grade when your neighbor's dad started making beer in his, in his home. So you kind of were exposed to that pretty early on. Yeah, I had a neighbor down the street, and his son and I were best buddies, and the father was a metallurgist, rocket scientist, actually worked for Rocketdyne, but he was a very passionate home winemaker and home brewer.

Ken Grossman
And so I was around things fermenting from a very early age. He had jugs of wine and beer and sake. He made all sorts of stuff bubbling away in the hallway, and I was pretty intrigued by both the whole process. On the weekends, he'd be boiling word up to make beer, and then during the week, things would be bubbling away and fermenting. So I was fascinated with the alchemy of brewing at a pretty young age.

Speaker B
Would your neighbor's dad have been considered, like, a mega hobbyist at the time? Was it something that other people did? Not very many. I mean, people who were home brewing back in that era. So I think he started when he was in college.

Ken Grossman
It was really prohibition style brewing. So it was to make high alcohol, fairly inexpensive beer at home. There wasn't a lot of literature and science available for the hobbyist brewer to really perfect their craft. And so he was one of the more advanced brewers and actually was part of the founding of the first homebrew club in America called the Maltose Falcons, which is down here in southern California. And they're celebrating their 50th anniversary this year.

So he was part of that early trend of sort of the science of brewing, rather than just making inexpensive, high alcohol beer. What was the state of the sort of beer industry at the time? And why do you think it was something that he. Because obviously we'll talk about how big of an industry it is now, but at the time, it's so interesting to me how it's like this guy in a garage. It's like Steve Jobs starting apple in a garage.

Speaker B
It's his whole garage story. And I'm just curious why you think there was even this desire to want to brew at home. I think in his case, and probably most of those early pioneers of learning how to make good beer, it was more of artistic expression. They were into cooking, and he was a foodie, and so he was into special cheeses and unique breads and all those kinds of things that we sort of take for granted today. But back then, he was a bit of a progressive food person for the time.

Yeah. So you're in like second grade, and you see him doing this. What is, what is your thought? You're just like, this looks so cool. Yeah.

Ken Grossman
I don't know if I have memories back in second grade, but as I did grow up and we started sneaking a little bit of his beer, and he said, why don't you go make your own? And that sort of was the input I needed to go out and buy some malt extract back in that era. So that was 1960, 919 70. You could buy a crock and a bunch of bottle caps and a can of blue ribbon malt extract at a hardware store or the grocery stores, for that matter. So the ingredients were sort of available to brew beer.

They weren't the best ingredients. Getting good yeast, getting good hops. Those were things you'd have to go to a home brew supply store. And there were actually quite a few homebrew supply stores in Southern California back in the late sixties, early seventies. Like the whole store was for home brewing beer.

Well, the whole store was really. Most of them were wine focused. So home wine making had been legalized when prohibition was repealed. And so people were brewing and making wine at home and brewing beer. And there was a movement up in Canada and certainly a bigger movement in the UK to support sort of the home brewing trade in the UK.

It was probably driven by high excise taxes and people wanted to make less expensive beer, and that's where a lot of that literature came from. That was really more focused on how to make acceptable beer at home that was high in alcohol and very inexpensive, so a fair amount of sugar and cheap malt, and not great hops. So there really weren't the tools available to most home brewers in that era to make great beer anyway. But there was also a lack of knowledge on the science of brewing at a hobbyist level. And that came around 1970.

There were a couple of books that were published that were one for the us marketplace by a guy by the name of Fred Eckhart, called a treatise of lager brewing. And he sort of went into the history of loggers, mainly european loggers, but also how to make them at home, and had a fair amount of science for the time available for home brewing. And then there was one in the UK that came out about the same time, the big book of brewing by Dave Lyon. And it was also sort of my bible when it came out. I read it cover to cover, and he was sort of the first one to describe some of the enzyme reactions and what happens in the total brewing process.

I mean, obviously, the technical and master brewers who worked at big breweries had all that information, but as a home brewer, you really didn't have access to much of that. And so those two books really sort of spurred the ability to understand and make better beer at home. And then about that same time, there started being some suppliers who would buy european hops, buy good german hops, and started to source american hops that were being grown up in the Yakima Valley and up in Oregon. And so that started to be available to the home brewers around the early seventies. Yeah, you know, hearing your story, and we'll talk more about it, but just even hearing how you talk about it, I can tell you how have this sincere passion for not just beer, but the process of making beer.

Speaker B
And I know you've done a lot of research over the years and really understood the science behind it, and not just like, let me go online and find a blueprint on how to make beer type of thing. And I'm curious, you mentioned liking or loving the alchemy of it, and just kind of putting together things and making something out of virtually nothing, like different kind of ingredients. But why did you choose beer? Was there another reason for it? Because there's so many other things that I guess you could, you know, concoct, uh, you know, um, but was it like the social aspect?

Did you see that you know, it brought people together. Like, what? What is it about beer that intrigued you so much? I'd say the, the social aspect was certainly probably a driver, but at the time I was making cheese and we had goats, and so we were sort of living a back to the land lifestyle, my wife and I. And so it sort of fit with that lifestyle of making your own things.

Ken Grossman
You know, we had a garden and would put up food and those kinds of things. So it was just part of sort of who we were at the time. And then I got a bit more serious. In 1976, I opened a homebrew supply store up in Chico. Before that, you could get a few ingredients at the local drugstore, actually sold some home brewing supplies.

But for me to really be able to make good beer with good ingredients, I'd have to drive to the Bay area and go to a couple of the wine and beer supply stores back then, or when I came to visit family down in LA, I'd stock up. And I thought, you know, I'm in a college town. This is a hobby that I think has got some potential. And so I opened a small supply store, very, very small, and sold winemaking supplies as well as home brewing supplies. And in the meantime, you're still brewing at home.

Yeah, I was brewing at home and getting pretty serious about it. And I was studying chemistry and actually use some of my chemistry knowledge to enhanced my brewing knowledge. And then we were quite fortunate with UC Davis being pretty close to Chico. They had a big wine program there. They have a big wine program, and they actually had one of the first american beer programs, at least at a university.

There had been some private schools before that for brewing science, but the availability of the literature at UC Davis was really what brought me sort of to the next level. I was able to go down and read technical brewing journals. They had years and years and years of british and german and other brewing journals. And then they had in their library and available actually to purchase. They had a couple of brewing science books that were intended for industry people.

And so I purchased those and then really got excited about beer and brewing and went and visited Fritz Maytag at the anchor brewery in San Francisco, and then went to see Jack McAuliffe at New Albion, which was really the first upstart american small craft brewery he started in 1977. Were those both also in northern California? Yes, anchor was in San Francisco. And Fritz Maytag, from the washing machine fame, he had bought a failing brewery that had been around for over 100 years. He didn't know how to make beer either.

And so he really started to study brewing and really rebuilt that company and rebuilt the brand. And it was probably the first american progressive brewery to open up since Prohibition. What do you think it was about the region? Like the, just northern California? You were in Chico, he's in San Francisco.

Speaker B
What is it about that area that you think was so, I guess, inviting to, like, craft breweries and things like that? Yeah, I mean, the Bay Area and, you know, the coast typically are sort of where trends are set. But in the Bay Area in particular, you know, there was a whole, you know, wineries were popping up all over. There were artisan cheese makers starting to get into the business. There were small coffee roasters.

Ken Grossman
So there were a lot of those kinds of food focused back to sort of the roots of making bread, making cheese, making wine, making beer. That really had caught on in northern California. And from there, it started to spread. And it wasn't just northern California. So when I opened here in Nevada, we started the business, or formed it in 1978.

And at that point in time between sort of 1977, when new Albion opened in 1982, there were six small breweries that opened up in America. We were one of those six. There was one in Colorado, one in Portland, and a few in northern California. And that was the genesis of sort of the new generation of brewers. Yeah.

Speaker B
So I know, well, you're close to the Sierra Nevada mountains up there, but I know you took frequent trips there. Can you share a little bit about how those experiences maybe, like, shaped the branding, the name, all that stuff? Yeah. So the neighbor of mine who was the avid home brewer, home wine maker, and medler, just, he was also a hiker, backpacker, mountain climber and cyclist. And those were things that I really fell in love with as well.

Ken Grossman
And so he would take us up into the Sierra Nevadas. We'd go backpacking, we'd go climbing. And so when I was starting in junior high, I started to make trips up to the Sierras, mainly on the east side, on the more rugged side of the Sierras. And coming from LA, we wouldn't go as far as, as Yosemite. We would stay sort of in the more central sierras.

But I had a real love of the mountains. And actually, when our first child was born, Sierra, who came before the brewery, my wife and I both had a love of the mountains and a love of the name. And so we named her Sierra. And then later on, when we were trying to come up with a name for the brewery, we thought, well, we love the mountains, and we're sort of that wanted to be that kind of brand that associated with the outdoors. So we named the brewery Sierra Nevada.

Speaker B
Yeah. So I'm just curious, you know, having this, like, passion for beer and studying chemistry. Was. Was that the only option for you? Like, I'm gonna go into the beer industry, or did you have other, you know, career aspirations in mind?

Ken Grossman
I don't know if I had career aspirations, but I did have a way to make money, so I worked my way through college. I worked at a bicycle shop. So I continued on with my, I guess, my skill of being able to repair bikes. And I ran a bike shop for a number of years, and I did have the opportunity to buy the bike shop I had worked at. And it was right about the time I was thinking about opening a brewery, and I made a conscious decision that the bike shop would have been probably the easy way to go.

It was something I knew, something I knew I could make a living in the brewery was really not something I knew would be successful. And so I made a gamble. But it was a conscious decision that the bike shop would probably satisfy me financially, but the brewery would satisfy me intellectually. And the challenge of building a business and making a product like beer commercially was something that I thought I was up for, and I wanted to try to tackle. And I think in discussion with my wife, it was like, if I don't do it, I'll probably always regret it.

And so I decided, let's give it a try, and went all in. Was the concept of entrepreneurship and starting your own business. It's obviously today, it's, like, everywhere, and everyone wants to do that. So romanticized. But at the time, was it something that was in your head, like, oh, I want to venture off on my own and start something?

Speaker B
Or was it more like, well, this is the only way I could sort of pursue my passion of beer without having to go work at some huge brewery? Well, I'd started the homebrew shop, so. And before that, one of the bike shops I ran pretty much solely independent from the owner of it at the time. So I had a little bit of business experience, and then the Homer shop gave me a little bit more. And I'd had a couple of sort of not so great bosses when I was growing up, and that sort of changed my view of going to work for somebody.

Ken Grossman
And I decided I'd much rather work for myself than to have a work environment. Our boss, I really didn't get along with or didn't want to work for. And so I think I was driven as much as it's just sort of my independent meant that I didn't want to be in a normal job and I didn't want to have a boss. Yeah. Other than Fritz Maytag, did you have any other sort of call it mentors or people around you at the time that you lean to, to learn about the industry and the process and sort of what it takes to build your own company brewery?

Yeah, I had pieces of mentors, I guess. So I mentioned when I was growing up, I had these two neighbors. One had a shop and the other one made beer. And so they were, and my dad, my parents made divorce, my dad wasn't around a lot and so they were more of a father figure for me growing up. But then when I got up to Chico and then started to visit UC Davis, there were a couple of grad students who were working on their masters in brewing science and we would go and pick their brains and sort of talk about how we could make beer on a small scale.

And at that point, the US brewing industry was down to just about 40 breweries in the whole country. That was from the largest to the smallest. That was everybody. Why do you think that was? Well, and actually there was an industry analyst at the time who predicted the us brewing industry would be down to one or two brewing companies.

And it was going to be like a commodity product, like because of consolidation. Or because of lack of demand? Because of consolidation. The national brewers, with the advent of transportation, roads, railway and national advertising, breweries like Anheuser Busch and later Miller and Heilman and Stroh, and all these names that are in most cases breweries that aren't around anymore, but they were national brewers and they could leverage the national advertising to get in front of consumers at a much cheaper rate than a local brewer could. And then just the scale of some of those breweries putting out, well, the Anheuser Busch brewery down here in southern California is over 10 million barrels.

Just massive, very efficient operations. So they could make beer cheaper and then they had the resources to invest in more modern equipment, more efficient and higher quality packaging lines. And so that enabled them to ship beer now nationwide or regional wide, very efficiently. And some of the big brewers, like Anheuser Busch, has over ten breweries. And so geographically, they're very efficient to get beer to consumers.

So the competition was just fierce. And many of the smaller family and or regional breweries that had opened up had survived prohibition in some fashion. They were making malt extract or soda or something during prohibition. And then afterwards, a bunch of them tried to open up. They didn't have the wherewithal or the resources to have those modern, efficient packaging lines.

So they really couldn't compete on quality and they couldn't compete on price in many cases. And so the competition was just fierce and was driving many breweries out of business. But it actually opened up an opportunity for a brewer like us to make something unique and distinctive and command a higher price. And that was what was required to survive as a small brewer, is you had to charge more. You couldn't try to compete head to head with one of these big breweries.

That same trend has really happened globally. I mean, even in Germany and Bavaria. When I bought my used brewing equipment in the early eighties, over there, one brewery a week was going out of business in Bavaria alone, and they had over 1000 breweries and they were losing more than 50 a year. So that same consolidation, that just the challenge of being a small player and now a very heavily marketed and competitive landscape is just very, very difficult. Did you have like this idea of how you were going to.

Speaker B
Well, clearly you did, but how you were going to differentiate your product from those guys? Because in such a crowded place, especially if you're charging more, the consumer obviously needs something in return for paying more. Is it the difference in flavor or feel? So I guess what was going to be your approach that you felt like would be a good, formidable competitor to these Anheuser Busch level companies? We looked at it not very scientifically.

Ken Grossman
At the start, we figured we were going to compete with imported beers. And at that point, in the late seventies, early eighties, there were a lot of imports on the shelf, but they didn't have a lot of beer on the shelf. So there'd be single bottles of a lot of breweries out of England and Germany, and there were some Heineken and there were some major european brands. So we actually pegged our pricing at the same price as what an import would sell for, which at the time was about eighty five cents a bottle on the shelf. And we didn't, we couldn't afford six packs, so we were selling individual bottles as well, which hard to sell a lot of beer when you're selling just singles.

But anyway, we started out that way, so we knew we had to charge a price that was high enough that we could make ends meet on the small production scale. And our batch size was ten barrels, which is 310 gallons of beer per batch. And we could brew only twelve of those a month. Wow. So how many bottles does that come out to?

Well, that's about 100 cases, about 2400 bottles, something like that a day. And the $0.85 was the retail price. So we were getting, like, almost half of that in our pockets. But besides the realizing we had to charge our price, we had to make something that was distinctive, that would be unique enough where somebody would consider it a good value or a good experience. And so we chose a style of brewing that was technologically a little easier top fermented beer, rather than lager beer.

And the distinction there has to do with mainly the yeast strain, but also the process. A lager beer is fermented cooler. It's a little more subtle in character. It takes longer to produce a top fermented beer and ale. It ferments a little more rapidly and tends to have more esters and sort of flavors from the yeast and from the process.

And so we chose the top fermenting yeast because we really didn't have the equipment to make great lager beer at the time, but we thought we could cobble together equipment to make good top fermented beers. And that was some of the input we got from the folks at UC Davis, was like, this is probably beyond your abilities to. You don't have the refrigeration and some of the things that are required to make a long aged lager. But we also knew we had to do something very distinctive on the whole flavor profile. And we chose to use a hop called cascade, which, as a homebrewer, I was playing with quite a bit.

And as a home brew shop owner, I would go up to Yakima and buy fresh hops from the hop harvest up in Yakima Valley. And Cascade was really the first american developed aroma hop. And we wanted to make ales, but we didn't want to make english ales. We wanted to make something that was distinctly, you know, an american ale. So we chose that hop just because it's.

It's very different than the aroma profiles that were available from the german hops or the czechoslovakian hops, which were being used by pretty much all the big brewers. So it was a unique aromatic hop that hadn't found favor in the US up until that point, really, because it was so different. It was very floral and pine and citrus kinds of aromas. And if you were a big brewer brewmaster, you wanted to brew something like you're used to from your germanic training. And most of the brewmasters in the US at the time were trained in Germany or sort of trained in german style brewing.

And those beers use very subtle aroma hops. Hollow tower or saws, hops that have some distinction to them, but they're not in your face. And the whole craft movement was sort of focused around more, rather than having the light lager kinds of beers. And most of the beer in America at the time was light lagers. So low in malt profile, low and hot profile, an easy drinking, mild beer.

Speaker B
And is that how beer was made for long period of time until sort of this. It almost seems like it's like this, you know, like subculture that's coming out that's like, kind of going against the grain of like, this is, you know, how we've been making beer for I don't know how long. Hundreds of years, thousands of years. I don't know the history of it. Many thousands of years, thousands of years.

And so, like, up until that point, had there been much innovation, there'd been. A lot of innovation globally. So if you go and travel the beer scene and, you know, I would say every part of the world has a lot of innovation. But you go to Belgium, there's a whole range of beers that are brewed, in some cases, with the local fruits and vegetables and herbs and things that are very distinctive. But you go to Germany and it's pretty much, or had been one style of beer, and it was lager beer, but it was a more substantial lager beer than what we were currently brewing in the US.

Ken Grossman
If you look at sort of historical brewing, most of the beers brewed back in the forties and, you know, without prohibition, but in the early years and after prohibition had more hops and more malt, they were, you know, more full bodied. And, you know, what happened sort of across the whole food scene, I mean, wonder bread and tv dinners and all those kinds of very homogenized and. And low, you know, low, objectionable character. So you wouldn't want a lot of hops. You wouldn't want a lot of malt.

And so the trend had been to lighten beer up, and that had been going on for quite a few years. But if you look at even some of the big brewers recipes, back 30, 40, 50 years ago, they used to use more hops. They used to use more malt. This whole lightning trend has happened, you know, sort of offend no one. And so you, you brew to a low, common denominator.

So you brew a beer that's got not a lot of hops, not a lot of bitterness, not a lot of malt. And, you know, it's getting closer and closer to water. And so that trend had been going on sort of across the whole industry. I mean, they're less expensive beers to brew, and people can drink more of them because they're lower. Less filling, lower in alcohol and maybe lower in hops to a point where, you know, they go down easier.

Speaker B
Yeah. So obviously, huge undertaking, right, to want to start your own brewery. And most people, I'm sure, looking into, like, what it takes, you know, the machinery and the process would maybe be like, you know what, I'm good, I'll just go to something else. But, you know, you had this unique skill set working in the bike shop, bike shop of like, being able to assemble things, which, you know, maybe not a lot of people could say that they had that, like, the combination of, like, the passion for brewing beer and that. And so I guess to get started, what did you have to do?

Did you have to go out and buy equipment? Did you have to raise money? What was the initial process? Well, we had to do all of that, or tried to do all of that anyway. So wrote a business plan.

Ken Grossman
It's in 1978, we incorporated and started to fabricate equipment. So back in that era, there were no small brewhouse manufacturers in the US. Even if we had money to buy new equipment, there was nobody making, you know, there was no market for it. So how did these larger breweries just made their own, or like. Well, the larger industrial grade?

Yeah, the larger equipment. There were vendors, a few in the US, but most of them out of Europe. So Germany was the source for much of the brewing equipment, still some from the UK, and there were some us manufacturers, sort of industrial manufacturers, but we could have never afforded to buy a new brew kettle or something. And after I visited the new Albion brewery, Jack McAuliffe, the founder of that, he had built all his own equipment, and he was brewing one and a half barrels per batch of 45 gallons. So his brewing equipment was really like my homebrew equipment.

I mean, his was nicer, but it was almost on the same scale as I was brewing as a homebrewer. But I saw what he had done and realized that his business plan at a barrel and a half wasn't going to work. And he was struggling to make ends meet, couldn't really hire employees, there was just so little capital coming in. So he was trying to raise money to build a new brewery to increase in size. If you were a banker and you looked at the us brewing industry in 1978 or 1980, you would see that it's been littered with closures.

Breweries were going out left and right, and so it'd be a horrible investment for a bank to look at back in 1980. And that was during the era when interest rates got up to 20% or over 20%. So even if we had been able to borrow money, we probably couldn't have paid it back. So we ended up going to family and friends and I had some savings. I re enrolled back in the junior college, and I took all the technical classes that I thought would help me, besides the fact that a lot of, like the welding and fabrication classes would allow me to weld on my fermenting vessels or my home built cattle, all those things at school.

So I would bring in my equipment and it'd be a project that I would be working on in the class. I took every one of the ag mechanics and welding classes that were available. I took refrigeration repair. We had a trade school up there, so it took a couple years of that. I took some electrical classes, I took some business classes, and sort of just honed my skills for what would be required to sort of build the brewery again.

We couldn't afford to buy the brewery, or couldn't really even afford to hire contractors. So we did, other than the concrete work, I did all the plumbing, I did all the electrical, I did all the refrigeration, we did all the sheet rocking, framing, painting, you name it. I even welded the fermenters together all myself and ground and polished the interiors of them. And so it was really a long, difficult process. I bought a defunct soft drink bottling line out of Mount Vernon, Washington and brought it down.

And it was a very, very primitive filling line, capable of about 60 bottles a minute. And it was circa 19, late 1940s equipment, and not really very good to fill beer on. So we pretty quickly upgraded to a cast off filler that Anchorstein brewery had gotten rid of when they were expanding. So it was really sort of a piecemeal together operation, very, very primitive. But it got us started and then we pretty quickly realized we needed to expand.

After a couple years, we were having trouble keeping up and went over to Germany and bought a defunct brewery. I mentioned they were closing at the rate of one a week. We found 100 barrel brewery over there, so 3000 gallons per batch in the early eighties. And I went over with a buddy of mine from high school, and we worked with some Germans and took it all apart and shipped it back to the states, and then tried to find money again to install the equipment. And still at that point, we'd been in business a few years and we were sort of making ends meet, but we weren't really making much money.

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Speaker B
How much did you, you mentioned going to family and friends. How much did you have to raise at that time initially? So we started out thinking we could get by with $65,000 to open the doors and pretty rapidly blew through that and then went back to family and friends and said, well, we think we can do it for 85, and raised a little more money. And we ran, blew through all that and still didn't get the doors open. And what were they saying to you?

I mean, what were you saying to them? And were they just like, oh, he, he seems like he's just. No, they thought we were crazy. Yeah. Yeah.

Ken Grossman
But, you know, there had been, you know, with, I said with, with anchor was doing okay at that time. They were growing. My peer group, the, the five other small breweries, about half of them had already gone out of business. And so that wasn't so good. Yeah.

Speaker B
So all the data and the odds, everything was just stacked, stacked up against you. But we were selling all the beer we can make and, yeah, that was a tough sell. And, you know, trying to raise money, you know, my, my father, my grandfather, my partner's father, you know, his partner, I mean, there was a whole bunch of people and it wasn't, you know, they were putting in 5000 and $10,000, which, you know, at the time, you know, 40 some years ago, it was still money. It was real money back then, but it wasn't going to break anybody if we went out of business. But there was quite a bit of skepticism.

Ken Grossman
And I remember I was almost at my end one day when the cooler I purchased came out of an old slaughterhouse and it was covered in feathers and blood and I was cleaning it up and trying to reinstall it to put in our beer box. I thought at that point, boy, what did I do? I was sort of at the end of my rope. We had been struggling for over a year to build all the equipment and to get the building ready to go. You know, we were out of.

Completely out of money again, and we couldn't go back to family and friends. We told them, you know, too many times, this would be our last time, and kept going back. So we just toughed it out and started to make some beer. And it wasn't smooth sailing from the start. We actually had a lot of consistency issues, and we were strong willed enough to know that we better put out a great beer.

The first beer better be great, and the second beer better be great. So we actually dumped the first ten batches over a period of a couple of months. And when you say we, are you referring to you and Paul, your co founder at the time? And then eventually, I know you ended up buying him out, but how did you and Paul meet initially? And what were, why did you decide, like, to go into business together and what were you doing and what was he doing?

He was actually a cycling buddy of my brothers who lived here in southern California, and they were. And the wheelmen together. And I had the homebrew shop going, and he was. He'd gotten into homebrewing. So Paul started to visit me up in Chico with my brother, and we started talking about, you know, this new and upcoming potential market with a couple of craft brewers starting to get into the marketplace.

So he was a serious home brewer, and I was a serious home brewer. And, you know, I had some business experience and we collectively said, let's give it a try. It was like a natural, let's just start something together. It wasn't like, I'm going to be doing the building, and then you're going to be doing the brewing. And like, it was just.

No, I mean, we did split up our duties. So I did all the brewing and all the bottling, and Paul did the books and the lab work initially. So we had a separation of chores. But, yeah, I mean, at that point, we were very naive. I mean, we didn't know anything about the brewing industry.

I'd never worked in a brewing in a brewery and never really knew anything about beer distribution. We actually hired another one of our high school buddies who had worked in a liquor store. We figured he knew more about selling beer than either of us because he had worked at a liquor store. And so he became our salesman and was with us. Had you known what, you know, now, would you have started it back then, do you think?

That's a good question?

Yes, I think if having, knowing what I know now, I think I still would have started it. I don't know that I would have. I don't know that I would build a brewery today knowing what I know. Things are way different. The market's really competitive and challenging today, but I think I would have done things differently, probably.

But as it ended up, it worked out okay. But, yeah, there were lots of lessons that I know now that I probably wouldn't repeat some of the same mistakes. Yeah. And I want to kind of talk about those. You mentioned kind of early on dealing with these financial challenges, which a lot of entrepreneurs face.

Speaker B
I mean, today it seems like there's like money floating around for everything. You know, you go to, like, a venture capitalist. I mean, the market kind of affects that a little bit, but it seems like, I mean, if you want to, like, bootstrap a business, especially one that's so capital intensive, like, you know, a brewery, it's inevitable that you're going to have a little bit of financial challenges early on. But you mentioned, or you've talked about how at the time, it was like desperate times for you, like you, it was like, probably one of the lowest points in your life. You had a family to take care of and all that.

Can you share a little bit about your biggest sort of takeaways from that time for if someone's listening that maybe is in a position like that or finds themselves eventually in a position like that? Yeah. Very significant challenges financially and learning how to make beer commercially, learning how to sell beer, learning how to work with distributors, all the things we had to figure out. We made plenty of mistakes and learned from most all of them, I think, and got better. But the times were, you know, it was for me, do or die.

Ken Grossman
I had invested every penny I had and, you know, I wasn't going to fail. And so I think I just was driven at whatever it would take, you know, however many hours, whatever I needed to do to make something, to fix something, to convert something into a new purpose. I mean, we were total scroungers. My hot liquor heater, I got out of a laundromat and it was leaking. Had leaking pipes in a heater in this laundromat.

And I got it for free and was able to take it apart and weld up the cracks, and that was our hot liquor heater. So we were just super resourceful. And I think those early years of not having money did allow us to develop skills that some of our peers who were better capitalized than us, they ended up failing because they couldn't do things like that. They couldn't see a way forward when times got tough or when equipment broke or whatever, where, you know, I think I developed the skillset to sort of soldier on and do more with less. Yeah.

Do whatever it took to get, you know, to achieve our end. How. How big was the vision of what you were building? Like, in terms of how big did you feel like you would make the brewery? Because you mentioned going up against these like, goliaths.

Speaker B
Right. You know, in the, in the industry, did you feel like you would build it up to some point eventually? That, yeah, would like. No, actually, I was very naive as to what it would take to be to survive in this competitive world. So the original business plan was 2500 barrels a year, which is pretty much nothing.

Ken Grossman
We do that a couple times a day now. But in the early times, there wasn't a marketplace for craft beer. There was no sort of craft beer consumer. And you have to go back to that era. There was no Internet, there was no, you know, when I was looking for equipment to build the brewery out of, I was scrounging from all these soft drink companies because I figured an old, small soft drink company might have equipment that was our size versus, you know, a big brewery.

Having cast off equipment was going to be way too big. But I had to go to the phone company and sit down with stacks of yellow pages and go through yellow pages and call up bottling operations in Oregon, Washington, California, and call up old dairy supply companies to try to find old dairy tanks and things to convert into making beer. Today you can buy a whole brewery complete from China today that the same sizes I started out with. And the barriers to entry are really low right now compared to back then where you had to make everything. Yeah.

So my first business plan was 2500 barrels, growing to 3500 barrels. And at that point, I think anchor was probably at 25,000 barrels. And they were really the only sort of true success in sort of a craft world. And again, it was an established company and established brand, but as far as what they were doing, it was very aligned with what we wanted to do when I built my second brewery. So I'd mentioned I went to Germany and bought the brewhouse and couldn't raise money to install it.

So we actually just continued to expand the original premises. We took over some other metal buildings on the little side street. We were on expanded warehousing, added tanks outside so we could make more beer. Started brewing seven days a week, 24 hours a day. And we eventually got that business up to a little over 10,000 barrels out of that original brewhouse that was home built and very crude, but it got us that far.

So I wrote the new business plan and designed a facility to brew 60,000 barrels a year, which that was six times what we were at, roughly. And I thought, geez, if we could ever do that, that would be just amazing. So we built this new facility, and again, we were very low on cash. We bootstrapped it. We did get an SBA loan for our first outside loan that was in 1987, and built that facility on.

We couldn't buy much property, so we had less than two acres, and built the whole facility, put a little restaurant in, which we didn't have at the original brewery. And my goal was to get up to 60,000 barrels in the next ten or 20 years. Our first year, we pretty much doubled. Our second year, we doubled again. Our third year, we doubled again, and then we were at 60,000 barrels.

Wow. So the growth was very, very rapid. That was the early nineties. And the craft industry was just starting to get a lot of publicity, and there were beer festivals, and there was a lot of consumer awareness that was starting to happen around craft beer and about, you know, this. This beer that was different than sort of what people were used to buying and, you know, ipas and.

And porters and stouts and, you know, a whole range of styles that were really non existent in most people's minds. Yep. Because, so, like, the timing was just super significant when, like, at the time when you started, it was like, I mean, you. You were like an early pioneer of it, but you kind of hit that stride of, like, that. That new wave of beer and, like, this kind of new direction was going in and, like, all these people kind of wanting something different.

Yep. Yeah. I mean, again, I. You know, I talked earlier about the food and wine and cheese and coffee. I mean, all those sort of things were starting to really take root across the country.

And so we started distributing just in the Bay area, but we soon went to Denver and up to Portland, and sort of the marketplaces that were progressive like that were very receptive of beer. And so we found niches where we could, without really much pushing, we could sell a fair amount of beer. So that allowed us to expand. And we were not very thoughtful, probably. We were more opportunistic in our distribution choices.

Somebody would call us up and say, we want to sell your beer in Washington, DC. We'd say, great. Was that a liquor store? That was a distributor, somebody who was bringing wine from California to New York. And so we were like, great, we'll sell beer wherever.

And every time we would bump up against the capacity problem, we couldn't make any more beer. We would sort of be maxed out for a few months, and then we'd have all this pent up demand, and then we'd make enough money to buy another tank, and then I'd put another tank in, and then we sort of do that drill again. So we're. We never got too far out over our skis. We were always sort of behind the curve when it came to being sold out and maximizing everyone we could make before we sort of made that next step.

A number of our peers were more ambitious and more aggressive, and they started taking in things like venture money and investors. And in pretty much all cases, all of those breweries have faltered or failed. Red Hook Wedmers, there's dozens of them. That Pete's wicked ale. That sort of had different business models that they were trying to grow very rapidly, and they gave up a lot of equity in order to try to do that.

In many cases, the growth never happened. Investors got impatient. They forced a sale or consolidation. Trey. Yeah.

Speaker B
I know there was a time, speaking of, like, taking outside investment, where I think you and Paul, you wanted to buy out Paul, and you almost decided to do that, but you didn't. I'm sure you're happy about that now, but at the time, I'm assuming it was a hard decision to make. Yeah. After we built the new facility, 1987 88, I started. I continued to work, really a lot of hours, and Paul was starting to take more time off, and I started to become a little frustrated with the business relationship.

Ken Grossman
And so we started talking about me buying him out. And it was a long and painful process that eventually I was successful, but it took quite a while to get there. And he and his family, they wanted to maximize the return on the investment in the brewery. And so we looked at every avenue to. To exit the family, their family.

And so I looked at venture funds, I looked at strategic partners, and I couldn't, at the time, think I could ever have afforded to match some of those other financial sources. But eventually, we sort of had selected a venture proposal, and I became increasingly concerned that it wasn't going to end well for me. And I started to see some of the other breweries that were struggling. And so I eventually was able to put together a financing package with all debt, and match the venture money, which in most cases, the venture money, they were going to put in a little bit, and then they were going to leverage the company heavily. And I didn't like the fact that the companies would be leveraged heavily, and I still would only have 50%, and the chances of failure were pretty high, and if I failed, I'd have nothing, and if I was successful, I'd have 50%.

So I didn't think that was really. Great odds, not to mention the time horizon of a venture firm. Yeah, right. Five to seven years. Totally different.

Yeah. So I was able to put together a conventional financing package, and as I mentioned, we were growing still pretty rapidly. We were at a capacity constraint. We were at about 300,000 barrels, which was, at that point, a pretty significant business, but we didn't have, really the infrastructure to go past that, and the next step was going to be significant investment. I was unwilling to make the significant investment, being a 50% owner and taking all the risk.

After Paul and I put our deal together, then I did go ahead and borrow enough money to start a major expansion, and we pretty much doubled the capacity the next year. Speaking of just co founder Dynamics, there have been so many examples throughout history of just a divergence and interests and direction and all that kind of stuff, but what was it with you and Paul that maybe caused you to just want to go in a different direction? And is it something that could have been avoided early on? Yeah, possibly. You know, I think the size and scale and complexity of the business was becoming daunting, and I think it was making Paul, I think, uncomfortable with sort of the growth we had had, and when's it going to end?

And I think the constant stress, I mean, growing like that is great, but it's super stressful. You're forever needing to, you know, build, and, you know, you get done with one, fixing one area, and then another area is under capacity. And so it was like, just a constant project. You strike me as someone that has a lot of patience, but, like, I was going to ask, like, what got you personally through those tough times? Like, is it just this crazy amount of patience that you have, or.

I don't know. I know patience is the right word, drive. I'm pretty driven. So I. And again, early on, I said, you know, I was all in while I was still all in.

And so I took some pretty significant risks. You know, they were educated risks, but they were, you know, I put it all on the line a few times, you know, owed the bank everything. You know, they had my house and everything else as collateral, so I wasn't going to lose and fail. So I think just, you know, put my head down and just sort of get to the next level. Yeah.

Speaker B
So in terms of expansion, it sounds like it was just, I mean, from the beginning. I know you were selling bottle by bottle initially, but was it just like this race to keep up with demand? Well, it was a race to keep up with demand, but I think the handwriting was on the wall that we needed to get some scale. And it's still true today. We operate in a three tier system pretty much throughout the US, meaning the manufacturer sells to a distributor, distributor sells to a retailer.

Ken Grossman
It's actually four tiers, with the consumer being the fourth. And in order to be relevant with a distributor partner in the market, pick any market, you've got to have some level of scale. They don't want to sell 50 cases, they want to sell 5000 cases or 50,000 cases of production in today, where we've got 9000 or more breweries in America compared to the roughly 40 when I started. Shelf space, distributor focus, all those things are super critical. And the lines of what gets distributed now through a beer distributor, they're selling teas and hard teas and waters and all sorts of things.

So they've got a big portfolio of products. If you're just too small and you're not growing, the distributors really aren't that interested. You got to have scale and you got to have some momentum of growth. Yep. So, Sierra Nevada, it's known for its really high quality ingredients and sort of like all these kind of innovations that you've done along the way.

Speaker B
I'm curious, as you were continuing to build it, were there other breweries that were sort of, sort of starting to notice maybe some, even the bigger guys, and try to like, compete with you head on in terms of, like the, you know, the mix of what you're kind of creating. Yeah. So there's always been that, that competitive, I guess, competition in our space from big brewers. It's been done a variety of ways. So there are, some of the big brewers have tried to emulate craft brands on their own.

Ken Grossman
So they've come up with a, a brand concept, a liquid, and in many cases they don't. It's not obvious that it's a big brewer that's making the product. In other cases, they've bought small players and put them through their manufacturing. So they've taken a small brand and they make it one of their big breweries now so they can cut costs and get some scale, and then they have massive distribution already, so they can take, you know, an acquired craft brand and, you know, in a matter of months, you know, significantly increase its distribution throughout the country. So they've done quite a bit of that.

And everybody, you know, all the big brewers have done it. Anheuser Busch, Miller, Constellation, they've all bought some craft players. None of them have been super successful, though. And in some cases, like constellation buying ballast point, that brand, they paid a billion dollars for the company, and they ended up writing off nearly a billion dollars. Wow.

Yeah. A few years later. Why do you think that is? It never really grew under their leadership. They really thought the craft category was going to continue to show double digit growth.

And right now, beer in general is flat or down a percent or two, and craft beer is flat or down a percent or two right now. So they acquired these companies with the hope that they could just continue to see 50% growth. And it didn't happen. In the case of Dallas Point, they started to lose pretty significant volume almost right off the bat, and they were never able to turn it around and exited the craft beer scene. Anheuser Busch has gotten rid of most of their craft brands, sold them off to a company called Tilray, who's in the cannabis space as well.

So the big brewer's entry that way really hasn't panned out, and it really hasn't worked when they've tried to copy the brands either. I think there's just a threshold of volume that they haven't achieved. So if it's too small, it doesn't work for them very well. What do you think the future of the space looks like in terms of breweries, but also the craft industry, you. Know, the consumer is changing, has changed quite a bit.

I mean, Covid certainly accelerated, I think, some of the, of the choices that people have made in what they drink. More drinking or less drinking well, during. COVID more drinking, more drinking. Now after Covid, people are more rational, and so drinking less, but drinking differently too. So they are drinking seltzers and spritzers and things that are both alcoholic and non alcoholic.

So the craft industry, as we knew it, has had to pivot. So brewers like ourselves are looking at other beverage segments in order to maintain our growth and our volume. Beer will always be here. And craft beer, I think, will always be here.

The days of 2030, 50% growth, are not going to happen again. But what's happening right now is a lot of the regional brands that we're trying to distribute it, in a wide geography, are finding more challenges with getting distribution, with getting shelf placement. As the velocity has slowed down or brands are declining, the distributors aren't so keen to keep them. So some of the big distributors are, are delisting, some of the craft brands are carrying, which ends up being maybe good for us in the long run. We're a solid enough national player.

The small brewers that run a restaurant, run a pub, maybe have very limited distribution. Many of them are doing well. They're local, they're able to find a local niche and a local consumer. And so some of the brands that we're trying to expand geographically are realizing that it's probably not really the right business model in the future. And maybe having a few pubs and just staying local and just sort of living with that level of volume expectation can work and be a good business for them.

Speaker B
What about the future of Sierra Nevada in terms of just the company in and of itself? You mentioned having to sort of keep up with different trends and stuff, but in terms of innovation and just continuing to obviously double down on what works, like the pale ales, and I think it's like half of the revenue of the company. Right. Is like the paleo. What does that look like?

Ken Grossman
Well, we introduced a brand called Hazy little thing a few, eight years ago now, and it's taken off. So it appeals to a different drinker segment. It's a hazy beer. It's hoppy, but not real bitter. And so it's, it's very drinkable.

And, and so it's really been a big shot in the arm for, for our company. You know, that's something that 30 years ago, I was trying to make our beers not hazy, because that was a turn off for a lot of people. Yep. And today, you know, trying to make your beer have nice haze in it is even harder than making it clear. So we've had to learn a lot, but we've fairly recently, in the last few years, doubled down.

We built a new facility adjacent to the berea in Chico. We call it can do, and it has a wide range of beverage capability that we didn't have before. So we're doing non alcoholic beers in that facility. We're doing hop waters, we're doing some energy drinks, and so we're building capabilities to branch outside of just beer. At the same time, we're focused on beer and brewing.

That's really our key business, and we're going to continue to do that. So we're innovating around different beer styles. We're looking at some lager beer launches in the future to try to capture that part of the segment as well. If you could have a beer with anyone in history, who would it be? God, anyone in history.

You know, maybe I wouldn't say pasteur, but as far as sitting down and enjoying a beer with somebody in history, I'd have to think about that. There's lots of people I'd like to have beers with throughout history who's, like. One historical figure that you admire that maybe you feel like would be a good drinking buddy. Well, the person who hanson, who isolated the first brewing yeast strains, he might be fun to sit down. Someone in the beer industry.

Speaker B
Yeah. Interesting. Well, Ken, this has been such a. Pleasure chatting with you and just kind of hearing about your incredible story of just, I mean, like, the timing of when you built this and to see it where it is now in this huge industry is incredible, and I can't wait to see what comes next for you and the company. And this has been a pleasure.

Thanks for coming by. Well, thank you very much. Been a pleasure for me as well.

Ken Grossman
Been a pleasure for me as well.