Value Added: Suds And Money

Here's Tom Heath's latest column on Washington's entrepreneurial set:


My wife, Polly, used to work with a guy named Jim Koch. You probably never heard of him, but you may have heard of the beer he invented: Sam Adams, made by another Koch invention called the Boston Beer Company.

Koch, whom I only know from television commercials, has become sort of a cult hero to other beer entrepreneurs. There are more than 1,400 independent regional brewers in the U.S. who either have, or are attempting to, duplicate his success.

One of them is Bethesda-born Matt Fleischer, 32, creator of the Hook & Ladder Brewing Co. of Silver Spring.

Good luck.

This graduate of Bethesda Chevy Chase High School and the University of Maryland Smith School of Business ('05) has turned a school project into a microbrewery that expects to gross between $7 and $8 million this year. He expects to turn a first-time profit of close to $1 million in 2008.

Pardon my skepticism. Look at Anheuser-Busch, the St. Louis-based beer giant with half of the U.S. market. Bud stock for the last few years has been as flat as a four-day-old beer. Belgian-based beverage giant InBev is offering a fat premium to Bud shareholders to buy the company.

The beer market has just not been growing.

Another threat: I am pretty sure wine and spirits have also been nibbling away at beer sales over the past several years.


Rich, left, and Matt Fleischer, owners of Hook & Ladder Brewing, plan to open a restaurant and pub in a former Silver Spring firehouse. Rich Fleischer got into the brewing business in California but brought it home to Maryland in 2005. Credit: Hook & Ladder Brewing Co.

Not to worry, said Fleischer, whose beer recipes date back to the trial-and-error years in his brother's garage in the Bay Area of California. Matt and Rich would throw parties and try out their beers on the guests, gauging what worked and what didn't.

The company is going after an upper-mid-market brewing niche that is growing at 13 percent a year, he said.

Six packs cost between $ 6.99 to $8.49, and you can find them in Whole Foods but not in Giant.

"We are providing value to our customers through a quality product that also has a mission of giving back to their communities," said Fleischer. His sales pitch is that Hook & Ladder donates a penny a pint or a quarter a case to local firefighting charities or hospital burn units in the communities where the beer is sold. The company has given away about $40,000 out of around $1 million in revenue in it first two years.

Its brands are Hook & Ladder Golden Ale, Hook & Ladder Backdraft Brown and Hook & Ladder Lighter.

The company employs 25 people at its 6,000-square-foot Silver Spring headquarters, where it expects to double its staff to 50 within a year.

A few numbers for scale: Fleischer owns about a third of the company, which has raised $2 million to date from 20 or so investors, none of whom Fleischer would identify. The biggest investors have $250,000 to $400,000 at stake. Where did he find them? "Networking, networking, networking."

The company is growing fast. It sold 500 barrels in 2006, 4,200 last year and this year expects to sell 42,000 barrels through its 80 distributors across 21 states. The beer is brewed in Rochester, N.Y., where Hook & Ladder pays the owners of an old Genesee Beer plant to fill his orders. The product is then shipped to wholesalers.

The hardest part is anticipating product sales. There's not much of a track record to go on, so Fleischer has had difficulty getting a handle on whether next month's demand will be 400 percent or 700 percent. One stumble: 12-packs of Backdraft Brown are in short supply.

"When you have been around many years and are growing at a consistent rate of 10 or 20 percent, you know how much product you need, how much supplies to buy, T-shirts and all other merchandise," he said. "When we have a growth rate that is 600 percent one month, 400 percent the next month...the challenge is to take the data and analyze it and make sense of that in order to anticipate demand."

Fleischer's persistence reminds me of the stories about the founder of Vitaminwater, who once personally delivered his product to New York's Upper East Side grocers out of the trunk of his luxury sedan.

"You gotta want it bad," Fleischer says of his success.

Fleischer's business plan for Hook & Ladder was so convincing that Maryland's business school gave him a scholarship for his second year. Maryland's Dingman School of Entrepreneurship even invested in the company.

Fleischer said he sold his first batch -along with its inimitable "fire axe" tap holder - to The Barking Dog in downtown Bethesda. He bought supplies with his credit card. He would lug eight kegs of draft in the back of his Nissan Pathfinder to the Montgomery County liquor authorities, who would in turn deliver it to the bar. The beer is still sold there, as well as The Four Fields, which is a few doors down from the Uptown Theater in Cleveland Park. The Four Fields, my friends tell me, pours one of the best pints of Guinness in Washington. You can also get Hook & Ladder at the Crystal City Sports Pub in Northern Virginia.

Raw materials and transportation costs are ripping into profits. But futures contracts have helped somewhat. And the economies that come with greater penetration in markets is pushing revenues up much faster than costs.

The company hopes by the end of this year to open a flagship restaurant brewery at a 114-year-old firehouse in Silver Spring.

I told Fleischer about my wife's recollection of Koch and how she regarded the former business consultant as a smart guy. Fleischer didn't skip a beat.

"I like to think I'm a smart guy too," he said.

By Dan Beyers  |  June 17, 2008; 6:48 PM ET  | Category:  Value Added
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So the Silver Spring brewery isn't a myth?! That firehouse on Georgia Ave. has been empty for a long time. You'd think they would rush to open it - they have a built-in customer base at the new firehouse across the street. I'm interested to see how the brewery will help that part of Georgia Ave. grow - will it help pave the way for other new businesses on that block? It's sort of a "No Man's Land" there now and has been for as long as I can remember.

Posted by: Luis | June 18, 2008 8:16 AM

I'm not a beer drinker, but I am a fan of Tom's column. Another good story! I like the concept of a "penny a pint donated to local firefighters."

Posted by: Polly Elmore | June 18, 2008 9:47 AM

I get Tom's skepticism, but it seems that while the Bud Lights of the world have flat sales, craft is up, and that's where you'll find Hook & Ladder beers. The story says that's growing by 13 percent a year, but how many of those drinkers can this company capture?

Posted by: Brooke | June 18, 2008 12:32 PM

When I want to shotgun a beer, i'll do miller lite or Schlitz -- why waste good money on a beer you drink in 2 seconds. When i want a quality beer, i go for Hook & Ladder... Kudos tom for spreading the gospel (as long as that doesn't mean they'll run out of beer next time i go to the store).

Posted by: Mr. Shotgun | June 18, 2008 12:34 PM

What a country. Local guy makes good. Abiltity to secure and make money within a relatively short period of time. For an industry that might not be growing, this is a nice accomplishment. Nice postive story.

Posted by: Mike | June 18, 2008 12:39 PM

good comment brooke. think out loud, i am guessing bud has tons of store sales and craft beers like H&L rely more on bars and their soon-to-be flagship bars. i cant help but think if bud hasnt been able to drive sales, how can these smallish craft places, even with a different demographic. maybe they can peel customers from wine and whiskey with their appeal to philanthropy. i dont know.

Posted by: tom heath | June 18, 2008 12:42 PM

Another interesting piece about local entrepreneurship - again the details and business plan are very interesting.

I didn't understand where the firefighter theme came from -- why Hook & Ladder?

Posted by: Better than Strohs | June 18, 2008 12:50 PM

dear better than strohs. great question. hole in story.but its been reported before: matt's brother rich is a volunteer firefighter. they are committed.

Posted by: tom heath | June 18, 2008 12:56 PM

Tom, again, I see where you're going with this, but if I want a glass of red wine, I won't seek out a beer, Hook & Ladder or not. So I guess my question is where are the new followers of Hook & Ladder coming from? Are they new to beer? Or new to craft? Or are the wine and spirit drinkers shifting habits? Your skepticism raises a bunch of broad questions!

Posted by: Brooke | June 18, 2008 1:05 PM

brooke. you raise great points and i would love to see research on who are drinkers of craft beer. i would have to do more reporting on that. but i am guessing a relatively young (21 through 34) demo.skewed male? probably professional skew as well because of price. urban professionals. good for a foloup story. what do you think?

Posted by: tom heath | June 18, 2008 1:10 PM

is there anybody out there who knows answers to some of brooke's questions?

Posted by: tom heath | June 18, 2008 1:14 PM

I'm on board with Brooke as well, comparing AB to some of the growing micro-brews around the US is, I shudder to think, not all that fair of a comparison in what appears to be a pretty diversified market (DISCLOSURE: I know nothing about the market, just a consumer perspective). Microbrew drinkers are very different than Bud drinkers. Living in Colorado where local breweries are more prevalent than Starbucks, I notice these microbrew lovers are very particular and loyal to their flavor filled brew with that hometown touch. And they'll pay for it which may also say something to possible the economic class of folks that prefer their $8.00-$10.00 six pack over the standard $4.99 King of Beers - I would guess following the approach of The Boston Beer company seems to be the right direction.

Posted by: Tony | June 18, 2008 1:55 PM

smart comment, tony.do you think these guys are just hoping to get big enough for a mid-size privte equity firm to eventually buy them out? i think Anheuser-Busch bought out old dominion last year. tho AB is not a private equity firm.

Posted by: tom heath | June 18, 2008 2:03 PM

love beer and love the story!

Posted by: ald | June 18, 2008 2:19 PM

thanks ald

Posted by: tom heath | June 18, 2008 2:26 PM

Interesting story...I like to hear about local businesses that make a great product and support the community!

Posted by: H&L Supporter | June 18, 2008 2:28 PM

Fun story....excellent beer.....i love the "trail and error years"...test and measure is a great skill of an entrepreneur.....well done boys!!!

Posted by: BZ | June 18, 2008 2:38 PM

thanks bz. pretty funny how H&L boys threw parties so they could try out their product. gotta start somewhere.

Posted by: tom heath | June 18, 2008 2:41 PM

Tom-Yeah I think its a valid guess, a PE firm or perhaps one of the big breweries. As brewing evolves and more flavors become more available I think beer drinkers will start to have a more experienced palet, making these popular little microbrews ripe for the picking. Another thought - as more kids become of age, its being realized that its more hip to drink the expensive stuff, so your next generation of drinkers will be more slective regardless of how funny the commercials are (altho you should check out the 'swearing jar' bud light comm at YouTube, great stuff).

Posted by: Tony | June 18, 2008 2:43 PM

My favorite slant of this story was Hook & Ladders' commitment to the community. Like the tie in to the name and overall brand. Think this will help differentiate the brew. Will definitely keep my eyes open for it. Hope that Fleisher gets back to UMD to share his story... always great to get real world examples from alums.

Posted by: Christopher Gergen | June 18, 2008 4:15 PM

Love the idea of a local brewery making a go of it! Although I've never tried Hook and Ladder, I'm going to. I certainly think these guys are picking the right area to launch. In Washington you've got a sophisticated beer drinking community and many liquor stores that will carry specialty / small quantity beers. Just down the road from me in Chevy Chase I can think of two such liquor stores -- Chevy Chase Liquors and Magruder's.

I also love the idea that they're making philanthropic donations. Reminds me of a story I heard a few years ago about another small local brewery call New River, maker of a fantastic beer called New River Pale Ale. I heard that the founder (young guy around 32 y.o.) died of a heart attack just as the beer was starting to take off. Not sure if it's true, but I also head that Dominion Brewery swept in, bought the recipe and donated a percentage of the profits to the founder's young widow and child. Sadly, I can't find the beer anymore, as great as it was.

Stay healthy Rich and Matt, and give it a strong run!!

Posted by: zenoss guyz | June 18, 2008 4:53 PM

Tom, thanks for highlighting this very cool and socially responsible company. We'll be trying out some Hook and Ladder at next week's Zenoss company gathering.

Posted by: Mark Hinkle | June 18, 2008 4:56 PM

hey zenoss guys! who are you? what are you up to?

Posted by: tom heath | June 18, 2008 5:10 PM

chevy chase liquors! that's where i buy my wine and, um, bourbon. in fact, i get most of my spirits there. cool store. can yo get H&L at chevy chase liquors?

Posted by: tom heath | June 18, 2008 5:12 PM

Great story and a great use for the old Silver Spring Armory turned fire department!

This sounds like a use that will draw much needed business to this part of Silver Spring.

I love the tie in to the FD and the associated giving. Great idea.

Definately becoming a regular reader of this column.

Posted by: Gary | June 18, 2008 10:02 PM

I have tried Hook & Ladder at a golf tournament in Myrtle Beach. The brew was quite good and I even received a Tee Shirt for my efforts. In years past I always ordered a Bud Light. This year they had this new beer and I was told I had to try this new beer that is brewed by a firefighter. It was good and on top of the good beer I learned that a portion of any beer sales went back to those who have suffered burns. Good beer, giving back, upstart company, how could anyone not root for their success? Great article!

Posted by: Firefighter Dan | June 18, 2008 11:05 PM

hey. i was at oriole park last night watching the Os manhandle the houston astros, and lance berkman post another homerun, when i noticed a Hook & Ladder sign and the inimitable fireaxe tap handle. my two buddies and i ordered a beer each. not bad.

Posted by: tom heath | June 19, 2008 1:18 PM

hey gary. thanks for the kudos and for becoming a regular reader. give me feedback on what business or sectors you want to read about. thanks. tom

Posted by: tom heath | June 19, 2008 1:20 PM

Great beer for a great cause and a great article to showcase local talents and good people! Can't wait for the restaurant/brewery! You can find Hook and Ladder at the Crystal City Sports Pub.

Posted by: Meghan | June 19, 2008 2:59 PM

Tom,

I share your skepticism, though I hope I'm wrong, if for no other reason than H&L's good intentions. While the proposed Silver Spring restaurant would raise the company's visibility, at least locally, and would boost the image by setting up shop in a firehouse, running a restaurant is much different than brewing beer. I hope Fleischer is not biting off more than he can chew, especially now that he is finally going to start turning profits.

If it works though, lets get him to open another place somewhere in Fairfax County. Sweetwater could use the competition.

Posted by: Chris | June 19, 2008 11:03 PM

I tried the Backdraft Brown - excellent beer! Regarding demographics, I'm 55 years old and not a frequent beer drinker. I've tasted enough Buds and Miller Lites in my lifetime, so, when I'm at a restaurant/bar, I alternate between Guiness and whatever unique brews they carry. Variety is the spice of life; maybe that explains the marketing appeal of Hook and Ladder as Bud's appeal declines.

Posted by: PJ | June 20, 2008 9:44 AM

dear pj. i am not a beerdrinker, although i do love a fresh pour of guiness now and then.

Posted by: tom heath | June 20, 2008 12:04 PM

I for one am a beer drinker and will be drinking a lot more Hook & Ladder now that I know I'll be supporting a DC-area entrepreneur. Brilliant marketing concept as well.

I'll keep an eye out for the fire axe!

Posted by: Teddy | June 20, 2008 3:26 PM

Nice article.

Posted by: Bob Schattner | June 20, 2008 3:40 PM

Good for the local guys! Great blogging..

Posted by: Lisa | June 20, 2008 3:42 PM

Great article. Love to read more.

Posted by: Marcie | June 20, 2008 4:41 PM

A toast to you Tom on a great article and to Matt & Rich on their hard work, brilliance and successes. I truly enjoyed reading this article.

Posted by: Celebz | June 20, 2008 10:41 PM

i will pay $10 for a six pack of beer from silver spring...just to try it. HOWEVER, come on guys...$10 for a six pack...micro breweries come and go...the beers they brew are usually fads. hope he continues to expand product line with "new stuff" all the time. love the the philanthropic approach and love a local guy doing good!

Posted by: pete | June 21, 2008 6:43 AM

YOUR COLUMNS SHOW OPPORTUNITIES ARE WAITING TO BE RECOGNIZED.

HOOK AND LADDER IS AN EXAMPLE OF PERSEVERANCE AND MUCH EFFORT. THE IMPORTANT INGREDIETS ARE THAT THE FLEISHERS RECOGNIZED A GOOD POTENTIAL AND PERSUED IT, EVEN WITH LACK OF INITIAL CAPITAL TO FUND IT.

I DON'T DRINK BEER, BUT I MUST TRY H&L.

Posted by: bob s. | June 21, 2008 12:50 PM

dear pete. i agree that microbrewers may be a fads and most may fade away. but new industries are filled with wannabees. the good ones survive. 100 years ago, when the car industry was nascent, there were hundreds of manufacturers. now we have the Big 2 AND A HALF left, not to mention the foreign automakers. it will be interesting to follow H&L progress.

Posted by: tom heath | June 22, 2008 12:05 PM

Tom-
Tried the beer this weekend- not bad. Kudos to the local guys.

Posted by: Beth | June 22, 2008 8:05 PM

The diverse mix of entrepreneurs profiled in this column is great! I wish Matt & Rich the best of luck - despite a challenging landscape, it seems they have the passion and determination to make this endeavor succeed. I appreciate their commitment to building a business while giving back to the community. As a beer drinker, I also appreciate their commitment to good beer.......look forward to trying Hook & Ladder.

Posted by: MC | June 23, 2008 10:19 AM

Great column, i really enjoy reading Value Added since it started up. How can we get updates on the companies/entrepreneurs you're profiling? Would love to see how a biz like Hook & Ladder fares over the next year or so, especially now that costs on everything are increasing. Will you be posting updates? Keep up the great work!

Posted by: JmN | June 23, 2008 11:01 AM

dear JmN. value added will follow these businesses as they evolve. so yes, we will do some sort of update. they way to get those updates will be to stay tuned to value added and the washbizblog. thanks for paying attention.

Posted by: tom heath | June 23, 2008 2:50 PM

When I went to college in Boston in the late 80s, Sam Adams was not yet a nationally known brand. Drinking Sam Adams was very beer cognoscenti, Boston-beer-snob hip. If Sam Adams had never made it big nationally, it would probably still be very popular in the Boston/New England area.

But Hook & Ladder doesn't seem to be taking the same regional approach. It's understandable, the Washington metro area doesn't have the same kind of cohesive identity.

I admire entrepreneurs. There seems to be an endless variety of regional microbrews with wacky names, colorful packaging, and purportedly distinctive tastes. From my perspective, a person would have to really believe in their product, believe in their ability to compete, and have guts to enter this market.

Think global. Drink local?

Posted by: David Sutton | June 23, 2008 3:54 PM

thanks david. smart observations.

Posted by: tom heath | June 23, 2008 5:07 PM

I have to question how H&L can grow from 4,200 barrels in 2007 to 42,000 in 2008.

This isn't a physical problem. H&L simply has to pay the folks who used to make Genny Cream more money to make more beer. But 42,000 barrels a year would put H&L in the top 40 breweries (or brewing companies) in the nation--around the level of national micros Rogue, Abita and Dogfish Head. There's no way to sustain that sort of growth if you don't have someone backing you. Not monetary help (necessarily), but aid on the logistical side...like (this is pure speculation) SABMiller giving H&L a mainline into its distributing network, kicking in some advertising, etc., in hopes (or expectation) of a future deal.

If you look at the top microbrewers in the country (Boston Brewing, Sierra Nevada, New Belgium, etc.), they've grown steadily and they make distinctive, outstanding beers. Others have sold out to the big boys (Pyramid, Red Hook, Widmer, etc.) once they hit the edge of their expertise.

None of those breweries, though, had growth resembling 4,200 barrels to 42,000 barrels in one year. Those figures stagger the mind.

Posted by: Jon Worley | June 23, 2008 10:38 PM

jon. A 10-times jump in size at H&L is indeed staggering. That's what Matt Fleischer said. I will check with him at the end of the year, six months from now, and see what the number is. Matt, if you are there, will you confirm that you are on track for 42,000 barrels/kegs?

Posted by: tom heath | June 24, 2008 12:04 PM

Tom,

I asked around a little and heard the beer is tasty. Did you get some samples we can work on this weekend? I have some time to help you with a proper analysis. On a less serious note - I enjoyed the article.

Posted by: your good neighbor | June 24, 2008 6:29 PM

thanks josh. we can replace the rum and coke with some H&L

Posted by: tom heath | June 24, 2008 6:36 PM

Good article. I like the charity donation that is tied in with sales, it appeals to the niche market they are targeting. Everything is in the marketing, a huge untapped potential pool of clientale exists in the US for beverage alcohol it is a simply a question of knowing how to appeal to them and capture new markets.

Posted by: Steve Krasner | June 25, 2008 1:06 PM

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Posted by: Vubbomefleell | June 28, 2008 3:47 PM

Very interesting/informative article. The beer itself I am sure has a certain pallet that it fits very well; mine isn't one of them.

Posted by: Mike | July 4, 2008 2:18 PM

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