Milwaukee Brewing Co.’s rapid expansion, bad timing lead to sale
Increased competition, COVID among reasons
When Milwaukee Brewing Co. founder Jim McCabe opened the Milwaukee Ale House in 1997, it exuberantly went against the grain in a city dominated by a love for lagers.
Ten years later, MKE Brewing moved to a newer, larger space on South 2nd Street, while the Ale House remained open.
At the new location, the company generated a lively atmosphere that included boisterous brewery tours that gained a reputation as among the best in the city.
MKE Brewing Co. continued to ride this momentum into the 2010s as ales took off in popularity and the company's brews like Louie's Demise, MKE IPA and Outboard gained traction.
MKE Brewing Co. seemed on the precipice of more success in 2019 when it moved, again, into a newer and larger 43,000-square-foot facility desirably located North 9th Street, on the campus of the former Pabst Brewery. The Factory office complex also includes the Venue 42 event space and the Bottle House 42 restaurant.
But just three years later, the brewery's fortunes changed and the company has put itself up for sale. The reasons behind the unexpected move can be boiled down to unmet expectations, increased competition, bad luck and, of course, COVID-19.
The rapid expansion of MKE Brewing led to some some leadership and product changes and challenges.
McCabe served as the company's chief executive officer from its inception. Shortly after the company's move to its current brewery, it was announced that Dave Hock was named the new CEO.
Before the switch, McCabe explained that he had never run a company the size of MKE Brewing Co. before. He would later move into a marketing and production role with the company he started.
With more than 30 years of experience in the brewing industry, Hock said he would approach the job with brand expansion front of mind.
“My first goal is to be the No. 1 selling craft beer in Milwaukee,” Hock said at the time.
This emphasis on increased production was a reason behind the move to the larger facility where Hock said he wanted to more than quadruple production from around 35,000 to 200,000 barrels a year.
To do this the company needed to raise around $2 million, on top of the $12 million it had already put into the facility. Additionally, MKE Brewing was leasing the property from SSL Milwaukee LLC at an annual rate of between $500,000 and $640,000 for 10 years.
Some believe the efforts to increase production led to unexpected consequences. Kurt Mayes, former head brewer at MKE Brewing Co., said the brewery suffered from a lack of innovation, and fell behind its competition.
“Once we got to the expansion and had to bring in investors I think that’s where they started worrying more about making just money instead of focusing on the beer,” Mayes said.
More competition
This came as more small breweries opened in the area.
In the decade between 2009 and 2019, the Milwaukee area saw 32 new small breweries and taprooms open. That underscored Milwaukee’s love for ales.
While boosting distribution was one way to combat competition, Mayes said added expenses from canning the beer also limited creation of new products.
“We were getting all of our cans printed and you have to get a minimal amount and that was, you know, a good amount of cans and it was just a big investment,” Mayes said. “There is no way to do a smaller quantity of a new beer without changing the way they purchased cans.”
Hock agreed that the company was having issues with cans saying that “like many other companies we were having supply chain issues that affected production.”
This lack of new beer also coincided with the growing popularity of hard seltzers and pre-made cocktails. Hock said the decision to start brewing those products was spurred by the high consumer demand.
An abundance of bad luck
Bad luck also factored in the decision to sell MKE Brewing Co.
Construction of the new brewery required unexpected building modifications to handle the equipment, leading to delays and expense.
The foundation of the new facility was not suitable for the equipment that was needed to set up the new brewery, Hock said. This caused the company to have to re-lay a foundation in the facility in what proved to be a very expensive process.
The time -consuming process disrupted production which cost the company even more money, Hock said.
And then COVID struck. One year after the new facility opened, in 2020 it was shutdown due to the pandemic.
“We had a tough couple of years with COVID there’s no doubt, with the shutdown on restaurants in Milwaukee, all three of our revenue streams got hit pretty hard,” Hock said.
And shortly after the businesses reopened and sales picked up, the company learned that the rent at their flagship Milwaukee Ale House would jump sharply after the end of the current lease.
Those combined factors within the last three years led to the decision by owners and shareholders to put the company up for sale in March.
“I think part of it is we also have some shareholders that are getting a little older in age and they’re also looking to change up their investment mix,” Hock said.
Hock admitted that the financial burden the new facility put on the company contributed to the difficult decision.
“I would say that the high operating costs, the high overhead cost ... was challenging to overcome during COVID,” he said. “So that definitely it did contribute to some of the decisions that would have to be made.”
What a sale could look like
Hock said that interest from potential buyers is strong, although it is not clear how a sale will play out.
Options include selling the company in parts with the Ale House, equipment and the rights to the company’s beers would each be sold separately. That could result in the brewers’ brands disappearing.
Hock thinks the most likely scenario would be a sale of the brand as a whole while still maintaining operations within the facility.
“This place is a huge brewery, right? So there’s a very good chance that the beer will continue to be made here — Milwaukee brewing will continue to meet here,” he said.
“It will just be that this facility will be owned by another operator, our team is going to probably still stay on here and in brewing for the next people.”