New Belgium Brewing Company: Brewing With a Conscience doc

Fueled by the success of their flagship beer, Fat Tire, New Belgium Brewing Company’s growth greatly outpaced that of regional competition in a highly competitive industry that exploded

New Belgium Brewing Company:

Brewing With a Conscience

By Christopher Asher, Elina Bidner and Christopher Greene

New Belgium Brewing Company: Brewing With A Conscience

Christopher Asher Elina Bidner Christopher Greene

Faculty Advisor: Thomas J Dean Leeds School of Business University of Colorado at Boulder

Introduction

Jeff Lebesch and Kim Jordan founded the New Belgium Brewing Company in 1991

(“NBB”), with a mission “to operate a profitable company which is socially, ethically, and

environmentally responsible, and that produces high quality beer true to Belgian styles.” From this initial vision, they developed a set of “core values and beliefs” that guided the company

through its early, fast paced growth Fueled by the success of their flagship beer, Fat Tire, New

Belgium Brewing Company’s growth greatly outpaced that of regional competition in a highly competitive industry that exploded on the Colorado scene in the early 1990s NBB was able to

specialty brewer in the United States by 2002, and winning numerous awards along the way at the industry’s most prestigious events

The company’s focus on energy efficient brewing processes and environmentally friendly technologies and practices were reflected in their mission statement and core values By holding true to these beliefs, NBB has set new standards for efficient brewing operations, environmental stewardship, and employee happiness for the industry The 1995 design of a new brewery and operations facility, which became the industry paradigm for energy efficiency, indicated the

company’s level of commitment to minimizing environmental impact In 1999, NBB became the first brewery to purchase 100% of their electricity from wind-generated power The latest expansion, which was completed in 2002, displayed the intent of NBB to continue growing in a way that is environmentally sustainable and their commitment to maintain the quality of their

products as batch sizes increased to help supply a wider range of distribution and greater overall demand

The Brewing Industry

The brewing industry in the United States had evolved from an industry dominated by numerous small local breweries (pre-Prohibition), into one dominated by few very large

companies that had survived Prohibition From the 1930s, until the late 1980s, large domestic brewers dominated the market, and beer drinkers did not have many options on the shelf Then

the introduction of Sam Adams, by the Boston Beer Company, in the early 1990s helped spur a

microbrew craze that spawned over a thousand breweries in the United States in the next decade The Boston Beer Company used clever radio advertisements featuring the company’s founder, James Koch, to help educate beer drinkers about the difference between all-malt craft brews and the mass-produced domestic beers made with only about 60% barley malt and 40% rice, or corn (as a cheap substitute) In the following 20 years the craft brew market matured, with many

breweries going out of business, and others consolidating operations or merging with other small operations

While the entire beer market did not grow significantly during the 1990s, the market

share of craft brewers grew every year between 1980 and 2001 (Beertown.org, 2002) (Exhibit 1

displays the craft brewing industry facts from 2001, as well as industry definitions.) Even though craft brews only accounted for about 3% market share of the national beer market in 2001, large domestic brewers paid close attention to this movement that had carved a $3.35 billion dollar

market out of a pie that wasn’t getting any larger In 2001 craft brewers received 6.5% of the revenue in a $51 billion market, and only produced 3% of the country’s volume

Since the inception of the craft brew industry, major brewers branched out into several new specialty products, many successful microbreweries expanded to become regional specialty brewers, and the number of other brewpubs and microbreweries around the country continued to grow These two trends resulted in the U.S having the largest number of specialty brewers in the world While California boasted the largest number of breweries (over 100), Colorado produced the largest volume of beer with just over 80 breweries (partly due to the production at Coors and Anheuser-Busch breweries.)

Colorado has some of the purest water in the country as a result of being in such close proximity of the continental divide, and is close to many of the top grain producing states;

making it an ideal location for brewing operations Denver, Colorado was also home of the Great American Beer Festival, America’s premier industry showcase; over 1,500 beers from 300 breweries around the country are judged by category and awarded medals (Beertown.org, 2002)

Environmental Issues and Sustainability in the Brewing Industry

Some of the major inputs involved in the brewing process are water, electricity, malted barley, natural gas, and packaging materials such as glass, cardboard, and plastic The major outputs are wastewater, spent grains, carbon dioxide, heat, and recyclable packaging materials

(see Figure 1 for beer production life-cycle analysis model; see Exhibit 2 for the Asahi Brewery

Environmental Output model, which is the result of life-cycle analysis.) Spent grains, mixed with other by-products (yeast slurry and trub), were generally sold to cattle farmers for feed

Wastewater is one of the most significant by-products, with a large amount resulting from

cleaning tanks and other equipment Breweries can use up to 8 gallons of water for every gallon

of beer packaged

More and more breweries, both domestically and worldwide, attempted to modify their processes to minimize the environmental impact from their operations To accomplish this, many breweries attempted to “close the loop” by converting waste into sellable products, or inputs for other production processes While new technologies made the brewing process more efficient, it remained an energy- and water-intensive process that required continuous improvement

Figure 1

New Belgium Brewing Company

Everyone loves a good “rags-to-riches” story, and in terms of turning a dream into a business, the New Belgium Brewing Company is a classic Jeff Lebesch came up with idea of brewing fine Belgian-style ales while mountain biking across Europe in 1986 Jeff, an electrical engineer, had always dreamed of opening a brewery back home in Colorado As soon as he arrived home, he began developing home-brewed trials of ales inspired by those he had

experienced in Belgium Not long after these trials began, the taste tests of these pilot brews began to earn enthusiastic approvals from all of Jeff’s friends

Jeff knew, however, that there was more to a successful commercial brewery than good beer Kim Jordan, his wife, had always suspected that Jeff saw more than just a wife in her; she speculated he also saw his brewery’s marketing arm In 1991, Jeff and Kim brewed their first commercial batch of New Belgium beer in the kitchen and basement of their home The brewing operation had a capacity of 8½ barrels per week, and Jeff and Kim did all of the work, with some help on bottling days from their son Zack A neighbor created the watercolors that were used as artwork for beer labels Kim, who was also in charge of calling on the accounts and delivering the beer, would often pull up between two 16-bay Budweiser trucks in her Toyota station wagon

to make the delivery Kim commented on the early days, “The contrast was amusing, to say the least.” (Wann, 2001)

The Fat Tire Amber Ale (named after Jeff’s memorable bike ride) and the other New Belgium beers quickly developed a small but steadily expanding following first in Fort Collins and then in the rest of Colorado Soon, Jeff and Kim had to hire a small crew, including the first employee-owner, to help with the brewing operations The brewery quickly outgrew its

basement operation and then overflowed a second location at a former railroad depot Finally, in

1995, NBB moved into a new brewing facility, which quickly became a nationally recognized paradigm for energy efficiency In 1998, the entire NBB staff agreed to the financial

commitment to make their facility the first wind powered brewery in America (Source:

NewBelgium.com)

New Belgium’s Growth

Fueled by the success of their flagship beer, Fat Tire (which accounted for about 75% of

production), New Belgium Brewing Company’s growth had been exceptional in an industry that exploded on the U.S scene in the early 1990s By 1996 there were over a hundred breweries in Colorado, and competition was getting fierce While many breweries in Colorado slashed prices

in an attempt to increase sales volumes, NBB maintained their high price-points on all of their products Slashing prices in the beer industry can easily turn into a vicious downward spiral Once a brewery starts selling kegs at $50, their perceived quality is lowered and no one will be willing to pay higher prices in the future Not only did NBB maintain their high price point, but achieved growth rates that have made them the largest specialty brewer in Colorado and the

entire Mountain West Region (New Brewer, Aug 2002) Table 1 displays their production

volumes for 1992-2001:

Table 1

(Source: The New Brewer)

In 1998, as demand for Fat Tire increased, and the brewery’s capacity became strained,

NBB began construction of a "tank farm" that would house eight new 600-barrel fermentation

tanks and allow plenty of room to add more tanks in the future This addition to the Fort Collins

plant almost doubled New Belgium's capacity from 75,000 barrels to 140,000 at a cost of about

$3.5 million (BCBR, 1997) In 2001, the New Belgium Brewing Company was ranked the #6

regional specialty brewer in the United States, based on volume produced (Jones, 2002) NBB’s

Belgian-style ales have won numerous awards at such well-known events as the Great American

Beer Festival and the World Beer Cup

New Belgium’s Commitment to Sustainability

After a year of working at NBB employees were rewarded with a new cruiser bicycle

This bike symbolized much more than just the company’s flagship beer, Fat Tire, but also the

founder’s commitment to running a sustainable business On a nice day, typically a third of

NBB’s employees could be seen riding their cruisers to work, usually including one of the

founders, Jeff or Kim The company’s focus on energy efficient brewing processes and

environmentally friendly technologies and practices were reflected in the company’s mission

statement: “to operate a profitable company which is socially, ethically, and environmentally

responsible, that produces high quality beer true to Belgian styles.” (Farrell) By holding true

to their mission statement, NBB had been setting new standards for brewing operations,

environmental stewardship, and employee happiness Their commitment to sustainability and

environmental stewardship had been recognized with several environmental awards and

certifications (listed in Exhibit 3)

Visitors to the New Belgium Brewery quickly realized that there was something very

different going on Besides the enormous fermentation vessels, shiny copper kettle and maze of

stainless steel piping, there was an obvious vibe about the place that was unique to the 150

employees who worked there every day As you walked up to the beautiful facility, you would

notice the several dozen bicycles occupying the well-used employee bicycle racks outside the

front door Once inside the brewery, after speaking with employees, it would be easily apparent

that they enjoyed their work and took great pride in their beers

Describing the mindset during the early years, Jeff said, “There were never aspirations to

shoot for the big bucks; it really was beer passion at the top of the list and still is.” Kim added,

New Belgium Brewing Co Yearly Production (in 31gal bbls.)

Barrels 993 5,837 18,951 31,770 55,000 80,028 104,835 147,950 165,000 230,000

“We talked about being environmental stewards before we ever made beer.” From this humble idea, NBB developed a list of ten “core values and beliefs” that became the threshold for all

company decisions The employees of NBB have helped maintain the culture originally

envisioned by the founders, and many of the original employees are now employee-owners that continue to place importance on environmental stewardship NBB’s core values and beliefs are

as follows:

“At New Belgium Brewing Company, We Believe In:

- Producing world-class beers

- Promoting beer culture and the responsible enjoyment of beer

- Continuous, innovative quality and efficiency improvements

- Transcending our customers' expectations

- Environmental stewardship: minimizing resource consumption, maximizing energy efficiency and recycling

- Kindling social, environmental and cultural change as a business role model

- Cultivating potential: through learning, participative management and the pursuit of opportunities

- Balancing the myriad needs of the company, staff, and their families

- Committing ourselves to authentic relationships, communications, and promises

- Having fun! “

(Source: NewBelgium.com)

Choosing Sustainability Over Profit: Wind Power

In 1998, NBB conducted an in-house environmental audit of their brewery to determine

fermentation However, it was discovered that the electricity NBB consumed during the brewing

process had the largest adverse impact on the environment (Figure 2 displays the result of the

coal-burning generating plants of the local utility company.)

Figure 2

Total: 22.5 kg/hl

electric 34%

purchased 15%

fermentation 23%

natural gas combustion 28%

When the audit team presented these facts at a subsequent staff meeting of owners and employee-owners, where 72 employee owners were present, Lebesch proposed the idea of meeting the facility’s entire electrical needs with wind power He explained that the company would have to pay a premium for the power, and that the expenses would come out of the

company’s profits, possibly affecting employee-owner wages and bonuses (The switch to wind power would increase their power costs by roughly $.025 per kWh.) “There was stone silence in the group as they thought about it,” described Lebesch “But the silence didn’t last long Within

a minute or so we had decided to become the world’s largest single user of wind power.” (Wann, 2001)

In 1999, NBB became the first brewery to power all the electrical needs of their business

with electricity generated from wind power (Figure 3 shows the results of the same

environmental audit, with wind power replacing conventional power generation methods.)

Figure 3

The ten-year contract to buy wind power at a premium price from the City of Fort Collins allowed the Platte River Power Authority wind site near Medicine Bow, Wyoming to build a new 660 kW wind turbine to support NBB’s power needs Since becoming 100% wind powered

in 1999 through August of 2001, NBB has saved 8,277,998 pounds of coal from burning and

The unanimous employee-owner decision to use 100% wind power was important to the

company for many reasons It was a defining moment for the culture of the company, and

solidified NBB’s stance as an environmental steward by staying true to their Core Values and Beliefs The company has not only served as a role model for the sustainable industrial practices, but also for employees, of which 15% subscribed to wind power at home (NBB)

Total: 14.9 kg/hl

electric 0%

natural gas combustion 42%

fermentation

36%

purchased 22%

Employee Ownership an “Open Book Management Philosophy”

Since early in the history of the company, NBB desired to create a living, learning

community amongst the staff Essential to this principle, the company provided an

“Employee-Owner Plan” which allowed the employees actual ownership in the company In addition, the

company practiced a unique and innovative combination of an “open book management

philosophy,” and a “consensus model” for decision-making “Open book management

philosophy” includes employees in the financial planning of the company, and the “consensus model” is used to aid decision-making and conflict resolution; thus providing the information and voice to complement an employee’s financial interest

Heavy investments were also made in employee education as evidenced by the advanced taste training in the “sensory laboratory.” Each employee underwent tasting sessions in order to determine those with “advanced palate capabilities” who could be used for quality control

Employees with 5 years of experience were also sent to Europe to visit breweries and gain a

better understanding of the German and Belgian approach to brewing beer

These philosophies have allowed many of the original employees to move up in the

company and earn better salaries, buy a piece of the company, and learn new roles in the

company Examples of people moving up in the company by learning new roles included the

CFO who started on the NBB packaging line, and one of the first bartenders ever to serve a Fat

Tire draft has moved up to regional director of Beer Rangers (distribution managers)

(NewBelgium.com)

Quality Beer = Employee Pride

When asked to describe how they felt about NBB and the beer they produced, employees often used the word “pride.” Environmental responsibility was important to the employees, and they were proud of being both a community and an industry leader in actually putting into action what everyone else was merely talking about Even with all the interest generated by the

environmentally friendly practices, innovative brewing methods, the state of the art facility, and the creative management, NBB maintained that these were never necessary as a selling point because the beers had won plenty of gold medals and loyal customers on the basis of taste alone

NBB’s commitment to producing the best beer could be seen not only in the company’s rigid enforcement of daily test panels in three separate labs on site, but also in the extraordinary decision to produce a collection of proprietary yeast strains in order to make sure that the quality

of such an important variable in the brewing of their beer was preserved In fact, in 2001, the Brewery was voted the “best mid-sized brewery in the U.S.” at the industry’s largest gathering, the Great American Beer Festival – a huge honor among those in the industry, and a source of

great pride for those at NBB

music of choice may have even been “The Wedding March”, during one of the four

intra-brewery marriages the Warehouse Manager officiated

Philanthropy and Community Participation

While much of the effort at NBB appeared to focus on the company, the company

actually went one step further by reaching out to the various communities they were a part of in order to share their knowledge Several of NBB’s core values focused on participation in and contribution back to the brewing and business communities, as well as the local community in general The brewery pledged that $1 per barrel brewed each year would be donated to

philanthropic causes, including cultural, social, environmental, and alcohol awareness programs Commented Jeff of the program, “In 1999, we had $104,000 to contribute to organizations such

as The Nature Conservancy, Emily Griffith Center, The Hope Center, and other non-profit

organizations.” (Wann, 2002) NBB was also a common sponsor of many local events including bicycle races and musical events In addition to typical contributions of products and money, the brewery took advantage of the event to set up information booths at these events to present the brewing processes and the environmental practices used at NBB The purpose of these

presentations was always to encourage audiences to take personal environmental steps in their own lives

The New Belgium Guest Relations Team also traveled to various conferences and

corporate meetings to make similar presentations in order to demonstrate how the company was bringing its corporate values to a reality The primary message in these presentations was that any company could demonstrate environmental stewardship by minimizing resource

consumption and maximizing energy efficiency and recycling

Innovative Design and Techniques

Innovation was always one of the key components of any corporate action at NBB From the executive offices to the bottling line, the company was not afraid of being the first to try an unproven way of doing things When the company built a new facility in 1995, NBB’s design team insisted on a higher level of innovation than is typical for a brewing facility “Design by

default was not what we wanted”, said Lebesch “If ideas such as natural day lighting with

‘light-pipes’ are included in the design phase, they are much less expensive than if they are later added on, and they can begin to save money right away.” (Wann, 2002)

As a result, these sun light-pipes were incorporated into the design of the brewery to help lower energy costs Natural day lighting was further utilized with large windows and skylights around the brewery coated with a special glaze that allow large amounts of light in, but

minimized glare and heat Where (or when) additional lighting was needed, fluorescent light fixtures and bulbs were used in conjunction with motion detectors to further enhance energy savings (NBB)

As of October 2002, New Belgium finished its latest building expansion phase In line with New Belgium’s environmental agenda, its newest facility was designed and built complete with features that would increase energy efficiency For example, the truck dock area

incorporates a hydronic snowmelt system that utilizes waste process heat The warehouse is cooled with a highly efficient, custom-designed glycol cooling system and the brew-house is naturally cooled using thermal chimneys Radiant floor heating was utilized with steam produced from a boiler and circulated through a series of pipes buried in the floor of the tasting room The heat could be kept 10 degrees cooler than other heating methods and achieve the same level of comfort They also had two swamp cooling systems: one in the office addition, and one to cool off the condenser for the glycol (cooling) system The construction company was also able to incorporate green building materials - wood structure, floor coverings, paint, tacking surfaces and systems furniture from 98 percent recycled materials - not only to be environmentally

correct, but also to create a "hip, fun and funky" image for the company (Neenan, 2002)

Operational Efficiencies

This proactive approach was not only applied to the plan of the building, but also to the design and layout of the brewing process When researching more efficient operational methods, NBB looked to the German beer industry for inspiration In Germany breweries had been forced

to be more efficient due to the high costs of energy and water discharge

From these and other sources, NBB researched innovative methods of heat exchange and refrigeration They decided to invest in a cooling system using ammonia (rather than traditional Freon-cooled) that would cut energy consumption in half and pay for itself in five years

Ammonia can be toxic when inhaled, but it is less harmful than Freon exposure, and the closed system used in refrigeration reduces this risk Other efforts to research and implement more

efficient methods of refrigeration included, “natural draft cooling,” that draws air from the

outside when the temperature is below 40 degrees Fahrenheit, rather than using refrigerated air (NBB)

A heat exchanger was also installed on the stack of the kettle to utilize the heat and steam that is discharged from the kettle (water is heated and the steam is condensed to recover the water) Another heat exchanger was used to cool the wort (unfermented beer) to proper

fermentation temperatures on the way from the kettle to the fermentation vessel with cold tap water The hot water resulting from these two processes was then used for brewing and cleaning tanks (NBB)

Waste Water Treatment

NBB has also made efforts to reduce the amount of water used in the production process Most breweries typically use 7-8 gallons of water for every gallon of beer produced; New

Belgium used 3-4 times the amount they packaged (NBB) Obviously, brewing is a

water-intensive process, and NBB had made significant efforts to reduce their water consumption By use of mathematical models they also attempted to determine the minimum amounts of water needed for cleaning and rinsing tanks

Despite their efforts to reduce water consumption, the fact was, a brewery of their size created a considerable amount of water waste At the 2001 production rate of 230,000 bbl/yr, they produced approximately 24 millions gallons of wastewater from brewing operations at the NBB facility Obviously concerned with having to treat an increasingly large amount of

wastewater, the City of Fort Collins approached NBB to resolve the issue The City told them how much it would cost to build a new water treatment facility to treat their output, which NBB would have to fund

Instead of funding this new facility, NBB conducted a financial analysis and discovered they could build their own treatment facility for much less An onsite wastewater treatment

facility would not only pre-treat the brewing waste to reduce solids before release in the city sewer, but also the methane generated in this process can be captured and used to co-generate electricity at the brewery (projected to provide 80 percent of annual power needs) (Neenan, 2002) In May of 2002 they finished construction of their biological process water treatment facility, which used a combination of anaerobic and aerobic digestion ponds, commonly known

as a “bio-digester.” The methane gathered from the anaerobic ponds is then used to run a

co-generation plant for an additional power source used to reduce energy consumption from the grid during peak hours when it is more expensive, or to use in the case of a power outage Just the savings in power expenses were expected to pay back the initial investment of the project in just

2 to 3 years (NBB)

Other Miscellaneous Green Practices at New Belgium

Recyclable and reusable:

• Brewing by-products Spent grain, trub (protein and hops left in kettle), and yeast slurry

were combined and sold as cattle feed Spent DE (diatomaceous earth) was sent to local

organic farmers for use as a soil amendment

• Brewery-wide waste Recycling of materials included: cardboard, aluminum, glass,

plastic, Styrofoam, chipboard, wood, wire, paper, and many others

• Cleaning products Many citrus-based cleaners were used in the packaging area Spent

chemicals went through a neutralization process that broke them down into salt and

water