Personal funds invested: About $100,000
Equity held: 37.5% each
Salaries: None for now
Last jobs held: Verzello managed large commercial insurance accounts for a California agency; Goodwin worked as an insurance-company systems analyst.
A HEAD FOR PROFIT
You slide onto a stool at your favorite pub and ask the barkeep for a Black Sheep Light Lager -- or another contract-brewed craft beer. You sip it slowly. The tab, when you get it, is $3.50, and that's before the tip. Where does the money go?
$0.23 to David & Mark Brewing Co.
$0.22 to Contract brewer
$0.06 to Packaging
$0.24 to Distributor
$0.25 to Taxes (federal, state, and local)
$2.50 to The bar
Source: The David & Mark Brewing Co. and the Institute for Brewing Studies.
Company Financials
First Second Third
12 months* 12 months** 12 months**
Revenues $155,6101 $2,724,000 $5,114,0003
Expenses $325,500 $2,471,000 $4,621,000
Pretax profit (loss) ($169,890)1 $253,0002 $493,000
*November 1994-November 1995 **projected
1. The David & Mark Brewing Co. fell far short of meeting its first-year projection of $691,440 in sales with a loss of just $79,000.
2. Profitability in the second year is not an unreasonable expectation. The Institute for Brewing Studies reports that the average U.S. microbrewery start-up achieves profitability after 27.6 months of sales.
3. Third-year sales of $5 million? It's possible. But Tom Potter, CEO of the Brooklyn Brewery, says that would require "a brilliant performance." In 1995, Potter says, "only 5 contract craft brewing companies out of about 100 in operation were that large, and all of them had been in business longer than three years."
WHAT THE EXPERTS SAY
Tom Potter
Competitor
Cofounder and CEO, the Brooklyn Brewery, in Brooklyn, N.Y.
The best light beers are made by the big brewers because they are fundamentally technical, not artistic, achievements. They are consistent, flawless, and mediocre. I'd like David & Mark's chances better if it were selling something unique.
Verzello and Goodwin's home marketing was textbook: imaginative promotions; local publicity; starting with core accounts, and then building from there. The market is very kind to local beers for the moment. The founders' difficulties away from home, unfortunately, are also textbook. As Black Sheep found, a hometown hero is a nobody across the river. Those micros that have succeeded in a broader region have been of excellent quality -- unique interpretations or original inventions. It's hard to do that with a light beer.
Over the past few years we've seen a number of "theme" microbeers. Tun Tavern was supposed to appeal to former Marines, Harley-Davidson to bikers, Pink Triangle to gays. None of them worked inside their interest group, let alone in the mainstream. The themes varied, but the beer didn't; it was always ordinary. Even the hometown story gets tired if it's not in the bottle.
While it's possible that Verzello and Goodwin might reach $5 million in sales in their third year, that would be a brilliant performance. In 1995 there were only 5 contract craft brewing companies (of about 100 in operation) that large, and all of them had been in business longer than three years. Verzello and Goodwin should be prepared to grow more slowly.
Richard Mukamal
Industry expert
Group marketing director, Hiram Walker & Sons Inc., in Southfield, Mich.
You've got to build a brand slowly, especially when you're short on money. Forget the dreams of selling out to a big brewery in three years. First, show you can make money. Verzello and Goodwin should test their assumption that they can bring the brand into the mainstream by doing it in Atlanta first.
Microbrews are mostly unadvertised products, selling on word of mouth. Verzello and Goodwin should seed the market slowly and inexpensively, working the brand bottle by bottle. They should also choose their markets more carefully. I didn't see any rationale for going into Washington, D.C. And New York City is too expensive and very tough. Their next market should be a gay destination place, like the Florida Keys or South Beach. Tourists will go home interested in the product, and when you enter their home market, the demand will be there.
As for taking the beer mainstream, one can simultaneously market to both the gay and the straight communities, as we have with our Tuaca liqueur. You're just targeting one aspect of the straight community, the "crossover," gay-friendly straights, who tend to be young and hip.
Will Rosenfeld
Investment banker
Managing director, Rosenfeld & Co., a private investment-banking firm in Portland, Oreg.
Anyone can get distribution, but whether you can actually get market share is another question. Verzello and Goodwin need to put more dollars into sales and marketing. One brewing company I've worked with spends 22¢ of every sales dollar on marketing, but most microbrewers spend even more. The company needs a national sales manager and people on the ground selling, supplementing the distributors' efforts. And nobody's going to lend money for sales and marketing. It's the ultimate risk capital. The partners will have to sell more equity.
Contract brewing avoids a lot of the bricks-and-mortar costs. But $240,000 in seed capital is nothing, even for a microbrewer. Verzello and Goodwin made some pretty good progress for what they had to start with, but they need more capital.
Bill Svetz
General manager of Fritz, a gay bar in Boston
The gay affinity will make a difference only if people like the product and think it's equal to what they've been drinking. They won't support a product just because the company that makes it is gay-owned. It's a light beer, so Verzello and Goodwin have an advantage there, because light beers sell better. But beer is a taste product. People will try it, and if they like it, they'll switch. Black Sheep's price isn't bad, but at $22 a case, we'd have to sell it for $3.50, $1 more a bottle than Miller Lite. Most of your bar clientele don't have that kind of money for a beer. Will people pay an extra buck just for community loyalty?
