Beer Drinkers Wanted More. The Brewer Had No Room to Expand.

How could it keep the taps flowing?

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It was the beer scare of April 2004-when Boulevard Brewing came close to running out of brew-that got the fast-growing company contemplating its future.

Boulevard, a regional brewer that bills itself as the second-largest beer company in Missouri (that's a little joke, since the biggest is Anheuser-Busch), had increased its sales by at least 17 percent a year for nearly a decade up until 2004. Revenue was $11.8 million in 2003. The Kansas City company had built a following among college-town beerhounds in 10 states. But demand was on the verge of outstripping the capacity of Boulevard's creaky 70-year-old brewhouse, which company founder John McDonald had imported from Bavaria and dropped into a turn-of-the-century brick building on K.C.'s Southwest Boulevard. The facility had been souped up to produce nearly 17 times its intended capacity of 6,000 barrels per year, but the tight urban footprint prevented more expansion.

Unable to stockpile enough beer during the slow winter months to meet rising spring demand, the company began asking some distributors to wait two or three weeks for orders. "The biggest fear was, what if something broke down that couldn't be fixed for a month? We'd be out of beer. There was no contingency plan," says Bob Sullivan, vice president of sales and marketing. He had nightmares of walking into bars and seeing plastic cups over Boulevard taphandles, the kegs gone dry. Boulevard survived that spring, but the close call hammered home a reality: High growth in a shoebox production facility wasn't sustainable. Should the company pull back? Expand? Move?

While growing up in rural Kansas, John McDonald drank a lot of beer. At the University of Kansas in the late 1970s, he studied fine arts. Back then, a handful of green-bottled import beers were the only alternative to the big national brands. On trips to Europe, McDonald discovered a diverse beer culture. Every town had its own brew, and he strove to sample most of them. He became an avid homebrewer and decided to start his own brewery. McDonald wanted his to be a truly regional brewery, with no aspirations for national distribution. His timing was auspicious. In the 1980s, quality craft brews like Anchor Steam, Sierra Nevada, and Samuel Adams were catching fire.

He had taken a course in brewing biology at one of the top brewing schools in the U.S. But McDonald's lack of experience in commercial brewing made fundraising difficult. He priced company shares at $15,000 apiece and figured he needed $750,000 to launch. But throughout 1987 and 1988, McDonald managed to sell only a half-share, to his girlfriend. Finally, a family friend decided to purchase seven shares, and others followed. He got his father to spot him a six-figure sum. McDonald hired an expert commercial brewmaster, Charles McElvey, who helped locate some 1930s-era Bavarian brewing equipment capable of producing 3,500 barrels a year and put it in a 15,000-square-foot leased building. McDonald named the company after its location on Southwest Boulevard.

In the fall of 1989, Boulevard produced its first batch of Boulevard Pale Ale. McDonald delivered the first keg in the back of his pickup truck to Ponak's Mexican Kitchen two blocks away. By 1992, Boulevard was producing multiple types of beer totaling 7,000 barrels per year. McDonald more than doubled that output over the next two years to 15,000 barrels, and sales rose to $3 million. At that point the founder brought in CFO Jeff Krum and Sullivan. Krum had a background in finance and real estate development. Sullivan represented the fourth generation of his family to work in the beer business and he had strong distribution experience with large companies as well as an innate understanding of the Midwest suds market. For a decade the trio expanded Boulevard's sales by greater than 15 percent per year. Revenue rose to $14.2 million in 2004. By 2005, the year after the first spring crunch, Boulevard was anticipating revenue of nearly $17 million. But with production of roughly 90,000 barrels in 2004, the facility already was running batches of eight types of beers around the clock, seven days per week. "Our brewhouse was out of capacity. There weren't any small steps we could take to keep growing that would make sense," says McDonald.

What big step made sense? McDonald knew the easiest option would be just to cap production, and perhaps raise prices. Boulevard had healthy operating margins in the low 50 percent range. It was profitable and large enough to provide a rich return to shareholders and top executives.

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