Raise a glass to the plan Featured

9:57am EDT July 22, 2002

As Dan Conway’s station wagon rumbled south on I-77, the back end sagged under the weight of the beer, stacked to the roof in cases. His older brother Pat was driving, when the headlights of a car behind them suddenly started to flash.

Their stomachs lurched, even though the absence of red lights told them immediately that it wasn’t the law. They drove on, trying to ignore the motorist behind them, but he was both frantic and persistent.

Finally, Pat put on his right blinker and pulled off onto the shoulder. The other driver followed.

“The guy gets out of his car and tells us he’s been looking for us,” Pat says. “He says he has a retail store and wants to carry Great Lakes beer. Then he made us follow him back to his store.”

Things have changed for the brothers—owners of Great Lakes Brewing Co.—since that summer night eight years ago. They no longer limit retail sales of their beer to the number of stores they can hit in the family car on the way home after work.

“We eventually decided that distribution wasn’t our business,” Dan says. “Brewing is.” But at the time, they didn’t have a choice. “It was always something we knew we were going to do because we couldn’t afford distributors. But tactically, we didn’t have a clue. We had a small number of accounts on each side of town, so getting the beer to them was a little tricky.”

Today, Great Lakes beer is handled by eight different distributors in a region extending from Toledo to Youngstown.

One thing hasn’t changed: The increasingly successful beer-brewing duo has continued to operate under the same business plan that set the scene for that odd meeting on the highway in their second year of business.

In fact, the brothers say their careful adherence to that plan is the main reason Great Lakes Brewing has been able to rise above the continuous shakeout that exists among craft brewers everywhere, to join the small handful of stable regional brewers across the United States.

When Cleveland first fell in love with Great Lakes beer, there was only one place to get it: at Great Lakes Brewing Co., the Ohio City restaurant that was the larger and better-known portion of the Conways’ business.

The restaurant opened in 1988, when the craft beer explosion—which has since put such names as Anchor Steam and Red Ass Ale on the shelves of the nation’s better stocked grocery stores—was in its infancy.

Pat and Dan knew that if they tried to push their way into Northeast Ohio’s bars, restaurants and stores as a start-up brewery, they would fail. Instead they would start with a restaurant to provide three important things: cash, a captive market to buy every pint of beer they could produce and word-of-mouth buzz.

At times, the strategy was hard to swallow. They never wanted to be restaurateurs.

“All we knew,” Dan says, “was that we wanted to be the biggest brewery in the Great Lakes region. We didn’t worry about how long it would take to get there. We just wanted to stay focused on slow and steady methodical growth.”

But to the people who drank their beer in those first years, Great Lakes represented, more than anything, just another good place to go on Friday night.

It would be a decade before the beer business grew larger than the restaurant.

“There was a lot of frustration sticking with the brewpub concept because it is the restaurant business,” Pat admits. “So many things can go wrong with a restaurant. We went through a lot of pain, but we learned that end of the business.”

Last year, as the restaurant hit its 10th anniversary, revenues closed in on $10 million—of which 55 percent came from outside sales of beer. As if to celebrate that milestone, the Conways unveiled a new $6.5 million brewing facility. Located in the old Schlather Brewing Co. building across the street from the main business, the expansion boosts capacity to 30,000 barrels a year.

Great Lakes really began three years before the restaurant opened—and just a year after Christian Schmidt, Cleveland’s last brewery, shut down. At the time, Pat Conway was teaching English to inner city kids in Chicago and Dan was a commercial banker at Huntington National Bank.

For years, the two shared a love for European beers—a taste they had acquired while studying abroad during college. “Those experiences left lasting impressions,” says Pat. “Dan and I talked all the time about how we should bring that European beer taste to Cleveland by opening a microbrewery.”

Beginning in 1985, they spent two years developing a long-range business plan. While their dreams were big, their wallets weren’t. Out of necessity, they committed to slow and careful growth. But when they incorporated in 1986, they chose the name “because we wanted to set the goal of expanding to the entire region at a later date,” Pat says.

Great Lakes Brewing Co. opened in September 1988 on Market Avenue in the depressed Ohio City neighborhood. With four of their own beers on the menu and just two brewing vessels, the Conways juggled to keep their featured product on tap.

Well before opening, the Conways hired Thaine Johnson—a former Christian Schmidt brewmaster—out of retirement. His job was simple: make good beer.

Johnson’s first step was an expedition to find some used brewing equipment. He called the Conways from Colorado, saying he had located the perfect setup.

With the money already allocated, the brothers hopped on a plane, prepared to write a check for the $100,000 asking price. But the evening before they were to sign the deal, the trio met for dinner at a restaurant outside of Boulder. As they discussed the deal over beer, Johnson started to identify things that were less than ideal about the equipment.

After still more beer, they decided to make a swing through California’s microbreweries to see what else might be on the market.

A few days later, on the plane back to Cleveland, a disappointed Johnson told the Conways he didn’t like anything he’d seen and suggested designing their own plant.

The ideas were scribbled on scrap paper, and when they arrived in Cleveland, Johnson called an old friend from his brewing days to help design the brewery, while the Conways found a manufacturer in Dayton to build it. “It ended up costing a little bit more in the end,” says Pat. “But it was exactly what we needed.”

The Great Lakes start-up had been funded with the Conways’ own money; Pat sold a piece of property he owned in Chicago and Dan liquidated some of his investments. But by 1987, a year before they opened, it became obvious that they would need outside capital. The main problem was scraping together the most basic financial projections.

“There weren’t too many breweries in the nation,” Pat says. “The ones that were around were closing, not opening. Restaurants were closing, too. So we not only picked two industries that people don’t traditionally lend money for, but then we were looking at a location in a depressed part of Cleveland.”

The Conways contacted the California breweries they’d visited while looking for equipment. Those owners graciously opened their books to the young entrepreneurs. “We poured over tons of projections,” says Dan. “Those really helped us put some solid figures in writing.”

In part because of Dan’s former ties to Huntington, when the duo approached the bank, they were quickly approved for a $400,000 loan.

By the end of 1989, its first full year of business, Great Lakes produced 750 barrels of beer—roughly three hours of worth of production atthe old Christian Schmidt. The Conways delivered beer to three wholesale accounts—one each on the Cleveland’s W est, East and South sides. Total revenue: $1.5 million—mostly food sales.

Theirs was the kind of early success that so often leads to distraction and mistakes. The more aggressively the Conways stuck to their business plan, the better they looked. And the better they looked, the more their phone rang with opportunities that were flattering, enticing and outside of their focus.

“Over the years, we’ve been approached by more people than you can imagine who wanted us to make beer for them and put their label on it,” says Dan. “We’ve always had the resolve to say no. It’s just not part of our strategy.”

The Conways also were approached to open a second location of their restaurant in Columbus. The idea of rolling out a nationwide brewpub franchise has also been tossed at their feet.

While they believe they now have enough restaurant management savvy to make it work, they’ve stuck with a plan that makes them brewers rather than franchisers. They have expanded six times, each effort larger than the one before it. In all cases, the expansion was driven by their plan to build a name brand for their beer—rather than the unforeseen opportunity that so many other entrepreneurs would seek.

But even within the constraints of their strategy, the Conways must resist the temptation to grow on a near-daily basis. For example, as their brewing capacity and financial stability increase, the brothers have stuck by their original promise to maintain product quality by only brewing enough beer to meet standing orders.

Store owners who want to stock up on extra Budweiser for the Super Bowl or Memorial Day weekend merely have to wait for the beer truck to arrive, and they can get what they want.

But with Great Lakes, distributors must place advance orders with the brewery. If a customer wants extra, the distributor can’t get it.

There’s a reason. To maximize its flavor, the beer isn’t pasteurized or infused with preservatives. It has a 90-day shelf life under refrigeration, compared to six months warm for big national brands.

“You have to educate them about how to store our beer. It’s a quality issue,” Dan says. “We treat inventory in everyone’s warehouse as our own.”

The distributors hate it—but overlook it because the beer sells well and is in constant demand. Still, they are constantly nagging Great Lakes to change its brewing policy. The Conways, in usual fashion, say that’s not in their plan.

“Our strategy at every turn addresses quality and customer satisfaction,” maintains Pat. “We’re not Anheuser-Busch or Miller and we’re not trying to be them.”

While the adherence to a “pure product” doesn’t always sit well with distributors, it has impressed the bankers.

“It takes a lot of discipline to say no,” offers Douglas Wigton, a loan officer at Huntington National Bank.

Huntington has financed several Great Lakes projects, most recently issuing a letter of credit to back $5.7 million in industrial revenue bonds for the latest expansion. “That’s one of the things that’s given me a lot of confidence in them. People approach them all the time and beg them to expand. And they just don’t do it.”

Explains Pat, “If we’d gone and tried to pursue those other plans, it would have taken us away from our focus. We walk away from more business than we would know what to do with. But don’t get me wrong, you do get very enamored by the dollars people try to throw at you, so it’s easy to see why other breweries do it. But when you do a gut check, you find out that what they’re asking us to do doesn’t satisfy either our economic intuition or business sense.”

Even after building a 10-year track record of level-headed decisions, the Conways protect their business carefully. The most recent expansion included plans for a corporate tasting room overlooking the brewing floor. It would be used for private parties, high-level entertaining and the most important kinds of dealmaking.

But the room—a little bit of easily justified luxury that ought to be due after 10 years of success—is now on hold. The production end of the expansion cost more than expected.

“We’ll finish that when our cash flow allows,” Pat says, when giving a tour of the roughed-in tasting room. “Until then, we’ll take people for tours of the new plant, then bring them back to the restaurant for a tasting.”

“Two years ago, when we started on this expansion, that was a decision they included in the proposal,” says Wigton, their banker. “If they had money left over, or if they found it along the way, they’d build the tasting room. But they were adamant about moving it to the next phase of Great Lakes’ growth if they couldn’t afford it. They just don’t sway from their plan.”

No plan is perfect, and even baby steps occasionally fall in the wrong place. Consider the Conways’ first effort to upgrade their bottling line in 1990. Until then, Pat says, “it was brain damagingly slow. Each bottle would be filled, then handed to the next guy, who’d cap it. It took all day to fill 30 cases of beer.”

When they started shopping for a bottling line, they didn’t find anything for less than $30,000. “We didn’t want to spend that kind of money,” says Dan. “But bottling by hand was very time consuming and unprofitable. So we decided to build our own machine.”

It took just $10,000 and a few months time to put something together. It took even less time—but more money—to figure out that the contraption wouldn’t work.

“We just kept throwing money at it,” admits Pat. “We shouldn’t have done that, but we were trying to grow slow. Finally, we bit the bullet and bought that $30,000 machine.”

They’ve since added a faster line, but the homemade machine still has an important job at Great Lakes Brewing: It serves as a reminder of the mistakes the Conway brothers are capable of making.

“It’s still upstairs in the corporate offices,” says Dan, “with a potted plant in it.”

Last year set an important milestone for Great Lakes Brewing. Not only did the beer business grow larger than the restaurant business, the company entered 1998 with plans to brew about 15,000 barrels—the top capacity, according to the Institute for Brewing Studies, for a microbrewery.

It completed the year with the ability to brew twice that amount, officially putting it in the industry category of regional brewers—a title the Conways will have to be satisfied with unless they can figure out a way to make and sell more than 2 million barrels.

But that, the brothers insist, is not in their plan.

“We’re convinced this is not a national deal,” says Dan. “It’s a regional one.” The Conways define the Great Lakes region as Minnesota to Western New York, and as far south as Cincinnati.

They have plenty of work to do before they cover it all, and if they succeed, it will be one city at a time.

They’ve hired an ad agency to help develop a strategy for making Great Lakes beer a household name in their target markets and they’ve started looking for distributors to handle their fresh, chilled beer.

And if their record holds up, they will succeed. Great Lakes will become the best-known, most-purchased craft beer around the Great Lakes.

It’s just going to take some time. You can plan on that.