New Belgium Brewing Company: Brewing With a Conscience doc

New Belgium Brewing Company: Brewing With a Conscience By Christopher Asher, Elina Bidner and Christopher Greene January 2003 The Wirth Chair in Environmental and Community De velopment Policy UNIVERSITY OF COLORADO AT DENVER & HEALTH SCIENCES CENTER The Graduate School of Public Affairs The Wirth Chair in Environmental and Community Development Policy The Graduate School of Public Affairs University of Colorado at Denver & Health Sciences Center Campus Box 133 | P.O. Box 173364 Denver, CO 80217 New Belgium Brewing Company: Brewing With A Conscience Christopher Asher Elina Bidner Christopher Greene Faculty Advisor: Thomas J. Dean Leeds School of Business University of Colorado at Boulder 1 Introduction Jeff Lebesch and Kim Jordan founded the New Belgium Brewing Company in 1991 (“NBB”), with a mission “to operate a profitable company which is socially, ethically, and environmentally responsible, and that produces high quality beer true to Belgian styles.” From this initial vision, they developed a set of “core values and beliefs” that guided the company through its early, fast paced growth. Fueled by the success of their flagship beer, Fat Tire, New Belgium Brewing Company’s growth greatly outpaced that of regional competition in a highly competitive industry that exploded on the Colorado scene in the early 1990s. NBB was able to withstand intense pricing pressures and maintain continuous growth, becoming the 6 th largest specialty brewer in the United States by 2002, and winning numerous awards along the way at the industry’s most prestigious events. The company’s focus on energy efficient brewing processes and environmentally friendly technologies and practices were reflected in their mission statement and core values. By holding true to these beliefs, NBB has set new standards for efficient brewing operations, environmental stewardship, and employee happiness for the industry. The 1995 design of a new brewery and operations facility, which became the industry paradigm for energy efficiency, indicated the company’s level of commitment to minimizing environmental impact. In 1999, NBB became the first brewery to purchase 100% of their electricity from wind-generated power. The latest expansion, which was completed in 2002, displayed the intent of NBB to continue growing in a way that is environmentally sustainable and their commitment to maintain the quality of their products as batch sizes increased to help supply a wider range of distribution and greater overall demand. The Brewing Industry The brewing industry in the United States had evolved from an industry dominated by numerous small local breweries (pre-Prohibition), into one dominated by few very large companies that had survived Prohibition. From the 1930s, until the late 1980s, large domestic brewers dominated the market, and beer drinkers did not have many options on the shelf. Then the introduction of Sam Adams, by the Boston Beer Company, in the early 1990s helped spur a microbrew craze that spawned over a thousand breweries in the United States in the next decade. The Boston Beer Company used clever radio advertisements featuring the company’s founder, James Koch, to help educate beer drinkers about the difference between all-malt craft brews and the mass-produced domestic beers made with only about 60% barley malt and 40% rice, or corn (as a cheap substitute). In the following 20 years the craft brew market matured, with many breweries going out of business, and others consolidating operations or merging with other small operations. While the entire beer market did not grow significantly during the 1990s, the market share of craft brewers grew every year between 1980 and 2001 (Beertown.org, 2002) (Exhibit 1 displays the craft brewing industry facts from 2001, as well as industry definitions.) Even though craft brews only accounted for about 3% market share of the national beer market in 2001, large domestic brewers paid close attention to this movement that had carved a $3.35 billion dollar 2 market out of a pie that wasn’t getting any larger. In 2001 craft brewers received 6.5% of the revenue in a $51 billion market, and only produced 3% of the country’s volume. Since the inception of the craft brew industry, major brewers branched out into several new specialty products, many successful microbreweries expanded to become regional specialty brewers, and the number of other brewpubs and microbreweries around the country continued to grow. These two trends resulted in the U.S. having the largest number of specialty brewers in the world. While California boasted the largest number of breweries (over 100), Colorado produced the largest volume of beer with just over 80 breweries (partly due to the production at Coors and Anheuser-Busch breweries.) Colorado has some of the purest water in the country as a result of being in such close proximity of the continental divide, and is close to many of the top grain producing states; making it an ideal location for brewing operations. Denver, Colorado was also home of the Great American Beer Festival, America’s premier industry showcase; over 1,500 beers from 300 breweries around the country are judged by category and awarded medals. (Beertown.org, 2002) Environmental Issues and Sustainability in the Brewing Industry Some of the major inputs involved in the brewing process are water, electricity, malted barley, natural gas, and packaging materials such as glass, cardboard, and plastic. The major outputs are wastewater, spent grains, carbon dioxide, heat, and recyclable packaging materials (see Figure 1 for beer production life-cycle analysis model; see Exhibit 2 for the Asahi Brewery Environmental Output model, which is the result of life-cycle analysis.) Spent grains, mixed with other by-products (yeast slurry and trub), were generally sold to cattle farmers for feed. Wastewater is one of the most significant by-products, with a large amount resulting from cleaning tanks and other equipment. Breweries can use up to 8 gallons of water for every gallon of beer packaged. More and more breweries, both domestically and worldwide, attempted to modify their processes to minimize the environmental impact from their operations. To accomplish this, many breweries attempted to “close the loop” by converting waste into sellable products, or inputs for other production processes. While new technologies made the brewing process more efficient, it remained an energy- and water-intensive process that required continuous improvement. 3 Figure 1 4 New Belgium Brewing Company Everyone loves a good “rags-to-riches” story, and in terms of turning a dream into a business, the New Belgium Brewing Company is a classic. Jeff Lebesch came up with idea of brewing fine Belgian-style ales while mountain biking across Europe in 1986. Jeff, an electrical engineer, had always dreamed of opening a brewery back home in Colorado. As soon as he arrived home, he began developing home-brewed trials of ales inspired by those he had experienced in Belgium. Not long after these trials began, the taste tests of these pilot brews began to earn enthusiastic approvals from all of Jeff’s friends. Jeff knew, however, that there was more to a successful commercial brewery than good beer. Kim Jordan, his wife, had always suspected that Jeff saw more than just a wife in her; she speculated he also saw his brewery’s marketing arm. In 1991, Jeff and Kim brewed their first commercial batch of New Belgium beer in the kitchen and basement of their home. The brewing operation had a capacity of 8½ barrels per week, and Jeff and Kim did all of the work, with some help on bottling days from their son Zack. A neighbor created the watercolors that were used as artwork for beer labels. Kim, who was also in charge of calling on the accounts and delivering the beer, would often pull up between two 16-bay Budweiser trucks in her Toyota station wagon to make the delivery. Kim commented on the early days, “The contrast was amusing, to say the least.” (Wann, 2001) The Fat Tire Amber Ale (named after Jeff’s memorable bike ride) and the other New Belgium beers quickly developed a small but steadily expanding following first in Fort Collins and then in the rest of Colorado. Soon, Jeff and Kim had to hire a small crew, including the first employee-owner, to help with the brewing operations. The brewery quickly outgrew its basement operation and then overflowed a second location at a former railroad depot. Finally, in 1995, NBB moved into a new brewing facility, which quickly became a nationally recognized paradigm for energy efficiency. In 1998, the entire NBB staff agreed to the financial commitment to make their facility the first wind powered brewery in America. (Source: NewBelgium.com). New Belgium’s Growth Fueled by the success of their flagship beer, Fat Tire (which accounted for about 75% of production), New Belgium Brewing Company’s growth had been exceptional in an industry that exploded on the U.S. scene in the early 1990s. By 1996 there were over a hundred breweries in Colorado, and competition was getting fierce. While many breweries in Colorado slashed prices in an attempt to increase sales volumes, NBB maintained their high price-points on all of their products. Slashing prices in the beer industry can easily turn into a vicious downward spiral. Once a brewery starts selling kegs at $50, their perceived quality is lowered and no one will be willing to pay higher prices in the future. Not only did NBB maintain their high price point, but achieved growth rates that have made them the largest specialty brewer in Colorado and the entire Mountain West Region (New Brewer, Aug. 2002). Table 1 displays their production volumes for 1992-2001: 5 Table 1 (Source: The New Brewer) In 1998, as demand for Fat Tire increased, and the brewery’s capacity became strained, NBB began construction of a "tank farm" that would house eight new 600-barrel fermentation tanks and allow plenty of room to add more tanks in the future. This addition to the Fort Collins plant almost doubled New Belgium's capacity from 75,000 barrels to 140,000 at a cost of about $3.5 million. (BCBR, 1997) In 2001, the New Belgium Brewing Company was ranked the #6 regional specialty brewer in the United States, based on volume produced. (Jones, 2002) NBB’s Belgian-style ales have won numerous awards at such well-known events as the Great American Beer Festival and the World Beer Cup. New Belgium’s Commitment to Sustainability After a year of working at NBB employees were rewarded with a new cruiser bicycle. This bike symbolized much more than just the company’s flagship beer, Fat Tire, but also the founder’s commitment to running a sustainable business. On a nice day, typically a third of NBB’s employees could be seen riding their cruisers to work, usually including one of the founders, Jeff or Kim. The company’s focus on energy efficient brewing processes and environmentally friendly technologies and practices were reflected in the company’s mission statement: “to operate a profitable company which is socially, ethically, and environmentally responsible, that produces high quality beer true to Belgian styles.” (Farrell) By holding true to their mission statement, NBB had been setting new standards for brewing operations, environmental stewardship, and employee happiness. Their commitment to sustainability and environmental stewardship had been recognized with several environmental awards and certifications (listed in Exhibit 3). Visitors to the New Belgium Brewery quickly realized that there was something very different going on. Besides the enormous fermentation vessels, shiny copper kettle and maze of stainless steel piping, there was an obvious vibe about the place that was unique to the 150 employees who worked there every day. As you walked up to the beautiful facility, you would notice the several dozen bicycles occupying the well-used employee bicycle racks outside the front door. Once inside the brewery, after speaking with employees, it would be easily apparent that they enjoyed their work and took great pride in their beers. Describing the mindset during the early years, Jeff said, “There were never aspirations to shoot for the big bucks; it really was beer passion at the top of the list and still is.” Kim added, New Belgium Brewing Co. Yearly Production (in 31gal bbls.) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Barrels 993 5,837 18,951 31,770 55,000 80,028 104,835 147,950 165,000 230,000 % Growth 488% 225% 68% 73% 46% 31% 41% 12% 39% 6 “We talked about being environmental stewards before we ever made beer.” From this humble idea, NBB developed a list of ten “core values and beliefs” that became the threshold for all company decisions. The employees of NBB have helped maintain the culture originally envisioned by the founders, and many of the original employees are now employee-owners that continue to place importance on environmental stewardship. NBB’s core values and beliefs are as follows: “At New Belgium Brewing Company, We Believe In: - Producing world-class beers. - Promoting beer culture and the responsible enjoyment of beer. - Continuous, innovative quality and efficiency improvements. - Transcending our customers' expectations. - Environmental stewardship: minimizing resource consumption, maximizing energy efficiency and recycling. - Kindling social, environmental and cultural change as a business role model. - Cultivating potential: through learning, participative management and the pursuit of opportunities. - Balancing the myriad needs of the company, staff, and their families. - Committing ourselves to authentic relationships, communications, and promises. - Having fun! “ (Source: NewBelgium.com) Choosing Sustainability Over Profit: Wind Power In 1998, NBB conducted an in-house environmental audit of their brewery to determine what their largest source of CO 2 emissions was. Most in the company had previously thought that their largest source of emissions would come from the CO 2 that is emitted as a by-product of fermentation. However, it was discovered that the electricity NBB consumed during the brewing process had the largest adverse impact on the environment. (Figure 2 displays the result of the environmental audit. The focus of the electricity analysis was the CO 2 emissions from the coal- burning generating plants of the local utility company.) Figure 2 Total: 22.5 kg/hl electric 34% purchased 15% fermentation 23% natural gas combustion 28% 7 When the audit team presented these facts at a subsequent staff meeting of owners and employee-owners, where 72 employee owners were present, Lebesch proposed the idea of meeting the facility’s entire electrical needs with wind power. He explained that the company would have to pay a premium for the power, and that the expenses would come out of the company’s profits, possibly affecting employee-owner wages and bonuses. (The switch to wind power would increase their power costs by roughly $.025 per kWh.) “There was stone silence in the group as they thought about it,” described Lebesch. “But the silence didn’t last long. Within a minute or so we had decided to become the world’s largest single user of wind power.” (Wann, 2001) In 1999, NBB became the first brewery to power all the electrical needs of their business with electricity generated from wind power. (Figure 3 shows the results of the same environmental audit, with wind power replacing conventional power generation methods.) Figure 3 The ten-year contract to buy wind power at a premium price from the City of Fort Collins allowed the Platte River Power Authority wind site near Medicine Bow, Wyoming to build a new 660 kW wind turbine to support NBB’s power needs. Since becoming 100% wind powered in 1999 through August of 2001, NBB has saved 8,277,998 pounds of coal from burning and reduced CO 2 emissions by 15,231,515 pounds. (NBB) The unanimous employee-owner decision to use 100% wind power was important to the company for many reasons. It was a defining moment for the culture of the company, and solidified NBB’s stance as an environmental steward by staying true to their Core Values and Beliefs. The company has not only served as a role model for the sustainable industrial practices, but also for employees, of which 15% subscribed to wind power at home. (NBB) Total: 14.9 kg/hl electric 0% natural gas combustion 42% fermentation 36% purchased 22% 8 Employee Ownership an “Open Book Management Philosophy” Since early in the history of the company, NBB desired to create a living, learning community amongst the staff. Essential to this principle, the company provided an “Employee- Owner Plan” which allowed the employees actual ownership in the company. In addition, the company practiced a unique and innovative combination of an “open book management philosophy,” and a “consensus model” for decision-making. “Open book management philosophy” includes employees in the financial planning of the company, and the “consensus model” is used to aid decision-making and conflict resolution; thus providing the information and voice to complement an employee’s financial interest. Heavy investments were also made in employee education as evidenced by the advanced taste training in the “sensory laboratory.” Each employee underwent tasting sessions in order to determine those with “advanced palate capabilities” who could be used for quality control. Employees with 5 years of experience were also sent to Europe to visit breweries and gain a better understanding of the German and Belgian approach to brewing beer. These philosophies have allowed many of the original employees to move up in the company and earn better salaries, buy a piece of the company, and learn new roles in the company. Examples of people moving up in the company by learning new roles included the CFO who started on the NBB packaging line, and one of the first bartenders ever to serve a Fat Tire draft has moved up to regional director of Beer Rangers (distribution managers). (NewBelgium.com) Quality Beer = Employee Pride When asked to describe how they felt about NBB and the beer they produced, employees often used the word “pride.” Environmental responsibility was important to the employees, and they were proud of being both a community and an industry leader in actually putting into action what everyone else was merely talking about. Even with all the interest generated by the environmentally friendly practices, innovative brewing methods, the state of the art facility, and the creative management, NBB maintained that these were never necessary as a selling point because the beers had won plenty of gold medals and loyal customers on the basis of taste alone. NBB’s commitment to producing the best beer could be seen not only in the company’s rigid enforcement of daily test panels in three separate labs on site, but also in the extraordinary decision to produce a collection of proprietary yeast strains in order to make sure that the quality of such an important variable in the brewing of their beer was preserved. In fact, in 2001, the Brewery was voted the “best mid-sized brewery in the U.S.” at the industry’s largest gathering, the Great American Beer Festival – a huge honor among those in the industry, and a source of great pride for those at NBB. [...]... the company built a new facility in 1995, NBB’s design team insisted on a higher level of innovation than is typical for a brewing facility “Design by default was not what we wanted”, said Lebesch “If ideas such as natural day lighting with ‘light-pipes’ are included in the design phase, they are much less expensive than if they are later added on, and they can begin to save money right away.” (Wann,... Advisory Board Climate Wise Certificate of Participation, awarded in 2000 by Climate Wise Thank You for Supporting Public Lands, awarded in 2000 by the U.S Forest Service, Headwaters Trails Alliance, Park Service and Bureau of Land Management Green Power Partnership “Founding Partner” Award, given in 2001 by the Environmental Protection Agency and the Department of Energy Waste Saver Award, given in... by-products Spent grain, trub (protein and hops left in kettle), and yeast slurry were combined and sold as cattle feed Spent DE (diatomaceous earth) was sent to local organic farmers for use as a soil amendment • Brewery-wide waste Recycling of materials included: cardboard, aluminum, glass, plastic, Styrofoam, chipboard, wood, wire, paper, and many others • Cleaning products Many citrus-based cleaners were... company’s core market Many companies have decided the risk of this backlash far outweighs any potential gain from making the claim in the first place NBB would have to consider carefully every claim they made, how they made it, and what benefits and risks are involved with each of those claims 16 EXHIBIT 1 Annual Craft Brewing Growth Statistics, 2001 Craft Brewing Industry Definitions Microbrewery: A. .. processes and the environmental practices used at NBB The purpose of these presentations was always to encourage audiences to take personal environmental steps in their own lives The New Belgium Guest Relations Team also traveled to various conferences and corporate meetings to make similar presentations in order to demonstrate how the company was bringing its corporate values to a reality The primary message... this in any marketing material targeted to the general public NBB also need to consider whether environmental claims would result in more scrutiny of their practices, and create the potential for a backlash of negative publicity Consumers do not look favorably upon companies that misrepresent, or even exaggerate, their environmental practices This breach of trust can easily alienate a substantial portion... grain, it is possible to extract that protein The earthworms eat it, converting vegetable protein into animal protein, and the worms can be used (or sold) as high-quality chicken feed Marketable algae can be produced in the alkaline wastewater Wastewater from the plant could return beer production after treatment and other waste could be processed in an anaerobic bio-digester, which generates methane... eliminate CO2 emissions during fermentation, but the CO2 is also reused for purging tanks and carbonating beer later in the process The Alaskan Brewing Co had been spending about $100,000 a year for CO2 purchasing, storage, and distribution (Alaskan Brewing press release, May 4, 1998) In the event of an implementation of the Kyoto Protocol or other carbon trading markets, these could be easily measurable... used in the packaging area Spent chemicals went through a neutralization process that broke them down into salt and water 11 Recycled, reused, and friendly: • Office furniture Office furniture was made from compressed newspaper and woodchips, recycled tires and cardboard Carpets were provided by Interface and were “cradle to cradle.” Wall hangings were made from recycled and recyclable fibers and cellulose... efforts to reduce water consumption, the fact was, a brewery of their size created a considerable amount of water waste At the 2001 production rate of 230,000 bbl/yr, they produced approximately 24 millions gallons of wastewater from brewing operations at the NBB facility Obviously concerned with having to treat an increasingly large amount of wastewater, the City of Fort Collins approached NBB to resolve . process are water, electricity, malted barley, natural gas, and packaging materials such as glass, cardboard, and plastic. The major outputs are wastewater,. materials. Bottles, mother cartons, chipboard dividers and 6 pack carriers all contained recycled materials and were recyclable. • Organic Patagonia