GRAND RAPIDS — When Edwin Collazo and Dave Petroelje announced plans in late 2015 to launch a craft brewery north of downtown, only one other producer had set up shop in the area.
Now nearly two years later as the co-founders of City Built Brewing Co. prepare to open at 820 North Monroe Ave., Collazo can rattle off at least five other craft breweries within a mile of the Grand River in that geographic area, with more on the way.
That increased competition — along with financial challenges — dictated the entrepreneurs change their business plan for a small “peanut shells on the floor” taproom into a 6,800-square-foot, high-end brewery and restaurant with a distinctive Puerto Rican food menu.
“I think being downtown, the game plan for breweries (had been) just open up and have beer,” said Collazo, a former financial adviser. “I think that landscape has changed. I don’t know if you can do that and sell the amount of beer that we want to sell.”
With City Built’s 10-barrel brewing system, they project to make around 600 barrels of beer in their first year, with a total capacity of around 1,000 barrels.
For Collazo and Petroelje, their focus will now shift from trying to open the business and restaurant — they had just received final state approvals to open as this report went to press — to operating the brewery on a day-to-day basis in an increasingly crowded market.
But just reaching the point where the co-founders could open their $1.6 million facility required creative financing, including selling equity in the business that the owners would have preferred to keep.
“That was the biggest barrier, finding the money,” said Petroelje, a long-time brewer.
The City Built owners raised about $180,000 in initial fundraising, and then another $400,000 in a follow-on round.
The brewery has five main investors, four of whom own less than 1 percent, the owners said.
“We ended up having to go back,” Collazo said. “We sold interest that we would rather have kept to make our goal, and we got a private loan because the bank would only give us money for a brew house.”
Collazo added that the bank loan they received only covered about half the cost of the brew house. City Built also sought favorable terms with contractors, suppliers and landlords as they worked to get off the ground, he said.
A TIME OF CHANGE
The struggle to open City Built seems increasingly common in today’s competitive craft brewing space. Executives in West Michigan and beyond say the landscape is rapidly changing for craft brewing, a $23.5 billion industry known for its collaboration and friendly competition.
“It’s definitely not easy anymore,” Jason Spaulding, co-founder of Grand Rapids-based Brewery Vivant, said of the highly competitive craft beer market in a recent MiBiz report. “A lot of breweries that are new to the business are used to making beer, throwing it out there, and it’s selling. I’ve always been waiting for the other shoe to drop, because it’s been too easy.”
To that end, Spring Lake-based microbrewery Dutch Girl Brewing Inc. filed for Chapter 7 bankruptcy in early May, about six weeks after closing its doors. Fremont brewpub Brew Works of Fremont also closed in May after the space it occupied was sold to new ownership, according to a social media post from the company’s account. The account has since been deleted.
Most industry experts have been quick to downplay the notion that a handful of brewery closures is in any way indicative of a larger craft beer bubble, citing location, beer quality, debt burden and other uncontrollable issues as the likely drivers of the recent issues.
Despite the challenges, the City Built founders remain bullish on the overall industry in West Michigan, and their chances for success.
“There’s opportunity for breweries like us to learn from the breweries that don’t make it,” Collazo said. “In the end, you have a solid business plan, you work your business plan, you’re a good steward with the money you make, and you try to operate lean.”
Initially, the brewery will self-distribute to craft beer-focused bars in the greater Grand Rapids area, focusing just on its PolyHopoury New England IPA. However, the company will focus on the needs of its taproom and scale the business over time.
Canning and crowlers are a possibility in the future, but Collazo expects those sales would be restricted to the taproom.
If the brewery owners execute their business plan and meet the initial capacity projection of 1,000 barrels of beer, they say they can see a time in the distant future where they’ll have to look at next steps.
“It’s tricky. There’s been a few recent examples of breweries that decided to expand and just picked the wrong time,” Petroelje said. “It’s a fine line you’ve got to watch about how much you need to expand and how much you can afford to expand. At this point, we just want to get open. Expansion, that’s a whole other problem. It would be a great problem to have in a year or two.”