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Northern Eagle Beverages brews growth strategy

By Norman Poltenson

Date:

The Eagle has landed — Neil Armstrong

ONEONTA — On July 20, 1969 at 4:18 p.m., astronaut Neil Armstrong told NASA’s Mission Control in Houston that the Lunar Lander he piloted had landed safely on the moon. The words meant mission accomplished.

Glens Falls Brewing Company
Northern Eagle Beverages, Inc. (Northern Eagle) hasn’t accomplished its mission yet, but it is definitely on its scheduled flight path to vertically integrate the company. The distributor of alcoholic and non-alcoholic beverages in Chenango, Otsego, and Delaware counties plans to close its second corporate acquisition in the second week of November. “Northern Eagle is purchasing a 75 percent interest in Glens Falls Brewing Co., LLC, the brewing operation of Davidson Brewing Co. located in Queensbury, New York,” says George Allen, president of Northern Eagle.

Tri-it Distributing of Lancaster, New York, parent company of Saratoga Eagle, and John and Mike Munter of Munter Enterprises in Middle Grove, New York hold 25 percent of the stock between them. Tri-it and Saratoga Eagle are distributors for both Anheuser-Busch and Cooperstown Brewing. Tribals, LLC is the property-holding company and has the same ownership control as reflected in Glens Falls Brewing Company.

“The asset sale does not include the Davidson brothers’ brewery and restaurant launched 20 years ago in downtown Glens Falls or the Davidson Brothers beer brand. Rick Davidson has agreed to manage the Queensbury operation following the transfer of ownership,” Allen says.

He continues, “Our plan is to invest $1.5 million to expand the facility by adding lager tanks, canning equipment, and other machinery in order to produce more craft beverages. The renovations will also include a tasting room and retail outlet. The location on Route 9 is just a mile from the Six-Flags Great Escape, which draws thousands of people daily past our doors … We’ve had a good relationship with the brothers since they began producing our beer in 2014 under the Cooperstown label.”

Details of the deal were not disclosed, but Northern Beverage assumed the balance of a 20-year mortgage held by the Glens Falls National Bank & Trust Company. Northern Eagle received a 10-year payment-in-lieu-of-taxes (PILOT) from the Warren and Washington County Industrial Development Agency.

“The assets of the Davidson acquisition include a 22,000-square-foot manufacturing plant sited on 4.8 acres,” notes Allen. “The improvements to the plant will boost its current production capacity from 15,000 barrels to 25,000 barrels. In addition to brewing and packaging Cooperstown brands, the Queensbury brewery will also be a contract manufacturer to small, craft breweries which can’t afford the brewing equipment or packaging line; act as a collaborative resource for these small brewers; and serve as a retail outlet. The minimum order is only 660 cases, and a small brewer, with very little risk, could work with us at a reasonable price. Northern Eagle can also help them navigate the distribution channels available to their products … The plant is currently staffed with five full-time and three part-time employees. We’re projecting annual sales from the facility of approximately $3.5 million.”

Northern Eagle Beverages
Northern Eagle’s latest acquisition comes just four months after the company moved into a new, 68,000-square-foot warehouse and office facility located at 41 Browne St. in the town of Oneonta. The property is situated between UPS and Ioxus. Eastman Associates, Inc. of Oneonta was the general contractor on the project. “The offices comprise 6,500 feet, and 46,000 square feet of the warehouse are refrigerated,” notes Allen. “We bought the plot in August 2013, and in 2014 the Otsego County Industrial Development Agency approved a PILOT for the $7 million project. The 14.6 acre site cost Northern Eagle, LLC, the operating company’s real-estate arm, $200,000 with the remaining $6.8 million allocated to site-preparation, soft costs, and construction. The operating company employs 42, serves 390 accounts, and generates $13 million a year in sales.”

The new warehouse is just phase one of expanding the company’s warehousing capacity and improving operational efficiency. “We plan to add another 14,000 feet here at the Browne St. site,” avers the company president. “The expansion, which is scheduled to be completed toward the end of 2018, will also include a tasting room and retail outlet for our Cooperstown brands and for New York state products, such as wine, cheese, and syrup. Our plan calls for using some of the additional space for research and development … Northern Eagle continues to operate its original 42,000-square-foot facility containing 4,000 feet of cold storage at 7 Railroad Ave. in Oneonta, where it processes, dries, ‘pelletizes,’ and packages farmers’ hops for brewing its own Cooperstown beers and for sale to other breweries. Most of the pelletizing is done for farms within a 50-mile radius of Oneonta. The Railroad Street plant also has packaging equipment. In addition to its role as a beverage distributor, packager, pelletizer, and brewer, Northern Eagle is the U.S. hops importer for Hopfen in Spalt, Germany. We are currently selling these hops to 30 craft breweries.” Next door to the Railroad Street plant, Northern Eagle also runs a redemption center for bottles and cans.

Cooperstown Brewing Company
Northern Eagle’s first acquisition came in April 2014 when the company took title to the Cooperstown Brewing Company, located six miles south of Cooperstown in Milford. Northern Eagle was the first distributor in the country to own 100 percent of a domestic brewery. The Cooperstown brewery, started in 1995 by Stan Hall, had closed prior to the negotiations. “The deal was an asset sale,” states Allen. “We bought the building, which has about 3,000 square feet set on 2 acres, some equipment, and the recipes. From my perspective, the most important asset was the name, which has not only national but also international recognition. We’ve built our brands on the basis of this instant recognition with labels such as Old Slugger Ale, Nine Man Ale, Benchwarmer, Bases Loaded, Strike Out, and our latest — Bambino. The Milford location is on the Cooperstown Beverage Trail, which attracts thousands of visitors yearly, and the Cooperstown Brewing Co. is the stop next to Brewery Ommegang, which by itself is a huge draw.”

Cooperstown Brewing Co. is open nine months a year and employs two people full-time and another four part-time. It generates annual sales of about $500,000.

That’s why Northern Eagle invested between $150,000 and $200,000 to create a tasting room and gift shop as an outlet for its products. The Cooperstown Brewery Co. already is licensed in New York State as a microbrewery and is applying for a Farm Brewers license. “This allows Cooperstown Brewery to manufacture up to 75,000 barrels a year; sell our products to wholesalers and retailers and sell to out-of-state entities if the buyer’s state allows it; set up tasting rooms for New York State labeled beverages; sell our products at farmers’ markets, county fairs, and the State Fair; and hold tastings at charitable events and licensed grocery stores,” explains Allen. “The Farm Brewery license also allows us to sell our beverages by the bottle for off-premises consumption at a number of venues and sell by the glass on our premises, which can include five locations. Our plans also include creating an online store for home brewers to buy hops.”

Hager Hops Farm
The catalyst and financier behind Northern Beverage’s strategic plan to create a vertically integrated company is Louis B. Hager, a great-great grandson of the Busch family that founded the Anheuser-Busch brewery. He is the chairman of the board of Northern Eagle and the major stockholder. Allen is a minority stockholder. Hager’s ancestors immigrated to Cooperstown more than a century ago — in order to grow hops. He worked for the Anheuser-Busch Corp. from 1980 to 1986, when he bought LaMonica Beverages located in Oneonta. Hager chose the  name Northern Eagle Beverages, because the eagle was on the Anheuser-Busch logo.

Northern Eagle focused on distributing beverages within its three-county franchise from 1986 until 2011. “Lou was concerned about the limits to our growth as a distributor,” recalls Allen, “since we serve an area with only 170,000 residents and a static population. He recognized that consolidation of the industry limited our options to grow through acquiring other distributors and saw the potential of expanding into the brewing business. Lou also owns a 1,000 acre farm outside Cooperstown, and in 2013, he prepared 11 acres to grow hops. That November, Northern Eagle bought the pelletizing machine, and in May of 2014, the Hager family purchased 11,000 hops plants (seven varieties) from Pacific Coast nurseries. This year, the family harvested 3,500 pounds of hops and plans to add another 14 acres to meet the growing demand. Currently, most of the harvested hops are sold to brewers within a 50-mile radius, but the farm has also shipped product to Pennsylvania and Vermont.”

Business strategy
In just a few short years, the Oneonta enterprise has morphed from its role as a beverage distributor to also being a brewer of beer and soft drinks, a contract manufacturer, a grower and importer of hops, and a bottle/can redemption center. “I think the public’s taste for craft beers will continue to grow,” intones Allen, “which offers us an opportunity to capitalize on the trend. While our distribution business is not forecast to grow very much, it provides a steady cash flow to help finance our investments in other revenue streams as we vertically integrate the company. I like to call our strategy ‘dirt to lips.’

The business strategy also utilizes long-tail marketing. “We recognize that a small group of popular items dominate our sales,” notes Allen, “but we also understand that our inventory includes items that continue to sell without special promotions. No single item in this group stands out, but collectively the sales can be impressive and the margins are often better than the fast-selling items. Our new warehouse allows us to carry a greater variety of inventory to reach more customers and generate more total sales and higher profits. The key is our ability to manage a large number of customer segments and to update our inventory in response to changing demand. The investment we have made in inventory control and logistics is already showing a return.”

Industry trends
The overall U.S. beer market, the second largest in the world, was valued in 2015 by the Brewers Association research at $105.9 billion. While overall sales consumption rose a scant 0.2 percent, the sale of craft beer rose 12.8 percent, imported beer increased by 6.2 percent, and export craft beer jumped 16.3 percent. The craft-beer market now generates a 12.2 percent share of the total domestic market volume and 21 percent of the revenue. While beer preference is flat for the 50-plus age group and has fallen a few points in the 30-to-49 age group, Millennials are gravitating to import and craft beers. In 2012, the U.S. brewery count was 2,456. At the end of 2015, the number nearly doubled to 4,269, driven largely by regional-craft breweries, microbreweries, and brewpubs. The explosive growth of the craft-beer industry is now attracting investment from private-equity groups as well as strategic buyers.

In New York, the Stonebridge Research Group found that since the passage of the New York Farm Brewery legislation, which became law in January 2013, the number of craft breweries has more than doubled from 95 to 207 (January 2015). Just between 2011 and 2013, craft-beer production was up 54 percent. By the end of 2014, the craft-beer industry had a significant impact on the state economy — $3.5 billion, creating 6,552 direct jobs and another 4,814 jobs in related industries.

The big players in the beer industry have reacted to trends first by consolidating. In 2008, the Anheuser-Busch Companies approved a $52 billion all-cash takeover by Belgium–based InBev, creating the world’s largest beer maker with brands such as Budweiser, Bud Light, Stella Artois, and Beck’s. InBev itself was a product of a 2004 merger of Interbrew, headquartered in Belgium, and Brazilian brewer AmBev. InBev on Oct. 10 closed on its latest deal — a $108 billion takeover of SABMiller. The new combined company will control one-third of the global beer supply.

The major beer players have also employed a strategy to buy large craft-beer breweries. In 2011, InBev bought the Goose Island Beer Co., a deal which started the company’s buying spree of craft brands. In nine of the 15 states where it’s legal, InBev now owns 21 distributors nationwide that handle about 7 percent to 8 percent of the company’s sales volume.

The Brewers Association sees these moves by InBev as the greatest threat to the industry’s growth. In real estate, the mantra is location, location, location; in the brewing business, it’s shelf space. InBev is not only moving to control the production of beer but also its distribution. Independent brewers fear reduced access to the market because of InBev’s growing distribution muscle.

Allen’s past and future
Allen, 51, is an Oneonta native, who graduated from the State University of New York at Oneonta with a major in English and journalism. He joined Northern Eagle in 1988 as a junior sales rep, advanced to sales supervisor in 1998, assumed a position as manager in 2001, then VP of sales and operations in 2008, and president in 2012. He likes to quip that he has worked at every position in the company except for truck driver.

Northern Eagle Beverage’s president is busy piloting his own Lunar Lander as he navigates implementing the strategic business plan while simultaneously running operations. The flight plan, however, is clear: Continue to integrate the business vertically, look for opportunities to grow, and leverage the company’s strengths. “We have a great group of employees,” posits the company pilot. “I don’t have any ‘yes’ people, and they work well as a team. I know we can reach our goals. That’s why I get up every morning eager to go to work.”

Allen may not call Houston to say the eagle has landed, but he is determined to call Lou Hager and say “mission accomplished.”

Contact Poltenson at npoltenson@cnybj.com