Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 103 The Clute Institute

Blackrocks: Craft Brewing – From Hobby

To Business: Applying Strategic

Management To The Small Firm Brian Gnauck, Northern Michigan University, USA

Claudia Hart, Northern Michigan University, USA

Larry Pagel, Northern Michigan University, USA

ABSTRACT

Blackrocks, a craft beer start-up company, first opened in Marquette, Michigan, a town of 20,000

residents, in 2010. The business evolved around a friendship and a mutual interest in craft beer

and is located in Marquette’s “Village,” an area close to the local university consisting of several

full-service restaurants, sandwich shops, bars, and retail shops. The Village considers itself an

independent retail section of Marquette.

The ambience of Blackrocks is “fun and good times.” People of all ages are attracted to the bar to

enjoy craft beer with their family and friends. The physical setting is rustic with a current capacity

of 50 customers (soon to expand to 100 customers). Customers can bring in their own food or call

a local eatery for pizza or sandwich delivery.

Blackrocks has a very loose organizational structure which has worked well in the past. This case

will allow students to identify the problems faced by Blackrocks in today’s economy; to describe

the internal and external environment of Blackrocks; to identify their core competencies; to

identify Blackrocks’ strengths, weaknesses, opportunities, and threats; and to develop

management strategies which could further enhance the business and help them attain their

mission and goals.

Keywords: Craft Beer; Organizational Strategies; Organizational Structure; External Environment; Internal

Environment; Core Competencies; Management Strategy

INTRODUCTION

et’s meet the employees of Blackrocks. The owners, the Ambassador of Fermentology and Brewsician –

Andy Langlois and David Manson were two, but there were also characters like the Wizard of Ales, the

Monk of LaMash, the Gangster of the Great White North, and the Friend of Woodland Creatures

Everywhere (the longest name of any employee in the business).

Blackrocks, the company, liked to enjoy life, have fun, and at the same time make money. The general

attitude the business presented was pure Adam Smith “laissez faire,” anything goes. Formal titles were few, but fun

titles abound. At the same time, it was a real business with concern about sales, cost controls, growth, and serving

customer needs.

Andy and David expressed concerns about the future demand for craft beer and beer in general. Craft beer

in the U.S. represented 7.5 percent of beer by volume and 9.1 percent by revenue. Would the demand for craft beer

crash or begin to fall off? (Remember, the demand for pop in the U.S. declined in the last 10 years.) Would the

overall interest in craft beer begin to wane? These were unknowns. They also expressed concern whether the

demand for onsite beer would decline. Should they develop bottled beer for resale through wholesalers to retail

L

Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 104 The Clute Institute

outlets? The policy of Blackrocks had been to stress variety. Each week new and different flavors of beer were

created. Since opening in December 2010, they brewed over 150 different beers. Some beer rotated on a semi-

regular basis, but the majority was new every week. They had not established a “brand” that represented the brewer,

“Blackrocks.”

Samuel Adams, for example, had created “Samuel Adams Boston Lager,” which supported a variety of

other beer. Could Blackrocks create a brand that would sell over the counter? Did they need a beer that represented

the brewer, “Blackrocks”? Was their business model sound? What issues should Andy and David focus on?

Answers to these and other questions were constantly on their minds.

THE ORIGIN

Blackrocks started in December 2010 in Marquette, Michigan, a town of 20,000 residents, which expanded

by 50 percent when the students of Northern Michigan University arrived each fall. The business was the brain child

of Langlois and Manson.

Both men were in their 40’s and faced the typical challenges of family life. Andy was married with two

kids. He was a Northern Michigan University graduate. His previous work included Director of Sales for a surgical

parts company and a drug representative. David was a Michigan State University graduate and worked for a

Midwest food distribution company and also as a pharmaceutical sales representative for 16 years. Their wives

worked – one was a school teacher and the other was a government manager.

The business evolved around a friendship and a mutual interest (avocation) of craft beer. This hobby grew

into the idea of a business, and in 2010 they opened to the public in an old, private residence (zoned business by

2010) at 424 N. Third Street in Marquette, Michigan (see Figure 1). They were able to buy the building, giving up a

small interest in their business.

Figure 1: Blackrocks, 424 N. Third Street Photo by M. Vroman, 2013

Third Street in Marquette, Michigan, was called “The Village” and consisted of a number of full-service

restaurants, sandwich shops, bars, and unrelated retail outlets. The Village promoted itself as an independent retail

section of town. It was a natural corridor of 13 blocks leading south from the university to the “Main” Street of the

town.

Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 105 The Clute Institute

Given that Marquette was a university town, it was common for students to start a night celebrating by

moving from bar to bar along Third Street. In this context, Blackrocks was a flow-through site as the customers

moved north or south along this street. In simple terms, it was a great location for a craft beer business.

The ambience of Blackrocks was “fun and good times.” Its physical setting was rustic. The hardwood oak

floors creaked, as did the stairs to the second floor. The bar was an old, aged-oak structure that had seen extensive

use by customers and lots of spilled beer (see Figure 2). In the spring of 2013, Andy and David planned to renovate

the second floor to accommodate an additional 50 people. When finished, the legal capacity was 100 people (1,200

sq. ft.). There was a porch around the building which served as overflow when temperatures reached over 40 degrees

(outdoor heat lamps were prevalent) and in the summer and fall periods. Seating capacity was limited to about 15 so

the rest of the patrons stood.

Figure 2: Blackrocks Bar

Photo by M. Vroman, 2013

The fun-loving, informal atmosphere was even more evident by patrons carrying in their own food or

calling local eateries for pizza or sandwich delivery. Crowded tables and benches were often filled with crock pots

full of soup, appetizers, or other favorite accompaniments. Blackrocks did not have a kitchen so food regulation was

not an issue. A night at Blackrocks was characterized by a high decibel rating and lots of conversation and laughter.

Local musicians frequently entertained and open mic nights were common.

TARGET MARKET

Blackrocks targeted patrons of all ages. Lots of 21 st birthday parties occurred, but the brewery attracted

people in their 30’s, 40’s, 50’s, and 60’s, as well as an occasional 90 year-old. It was not uncommon to see a 21

year-old sitting next to a surgeon with a university professor as part of a conversation.

THE MUGS

Shortly after opening, a friend and an art teacher at NMU suggested Blackrocks try to promote interest in

German ceramic beer mugs. These mugs were all unique and fit the fun, rustic ambience of Blackrocks (see Figure

3). The mugs cost the customer $40, but they brought the customer to the business. They hung on the walls, ceiling,

and just about everywhere at the bar. Customers came in the door, grabbed their mug and had it filled at the bar. The

mugs were truly works of art. In the course of 2½ years, they sold 986 mugs. A side benefit to Blackrocks was that

the company did not have to invest in as many glass mugs because the customers supplied their own. The mugs also

accommodated the rustic nature of the building and enhanced the “fun and good times” ambience.

Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 106 The Clute Institute

Figure 3: The Mugs of Blackrocks

Photos by M. Vroman, 2013

THE MISSION

Even though the environment was one of fun and laughter, there was a serious side to the business. Andy

and David established their “mission” as an integral part of what their business stood for when they created it in

2010 (see Figure 4).

Blackrocks is committed to fun, our community and diverse craft beer. We started as a nano brewery and will

operate as such always. Our goal is steady growth brewing with quality ingredients and keeping a little crazy in our

culture. We encourage our members, employees, and customers to give input in our operations and demand they

know the brewing process and encourage mistakes.

Figure 4: Blackrocks Mission Source: Company Records, 2013

Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 107 The Clute Institute

This mission tied the product to the customer and helped define what Blackrocks was all about – a happy,

fun place to be and a mutual interest (proprietor – customer) in craft beer.

ORGANIZATIONAL STRUCTURE

The easiest way to explain Blackrocks’ structure was to say there was none. Andy and David were the

owners (the former building owner had a small interest). There were four full-time employees of the company.

Besides the owners, the following is a description of the two other full-time employees, Andrew Reeves and Chris

Hutte.

Andrew Reeves: Andrew was the head brewer. He was a 27 year-old having grown up in Holland,

Michigan, and then worked for AmeriCorps in Colorado where he was exposed to the craft beer business. He then

attended Northern Michigan University majoring in history.

Chris Hutte: Chris earned a Computer Information Systems degree from Northern Michigan University.

He had been a part-time worker at a local party store that sold home hobby craft beer supplies and equipment.

There were seven part-time employees of the business. These people were brewers, bartenders, servers, keg

cleaners and took on marketing responsibilities.

The organizational structure was flat with two levels of management. Andy and David were co-owners, and

the rest reported to them in somewhat of an undefined, unknown manner. Things seemed to get done, however. To a

degree, beer was brewed on schedule to make sure sufficient supplies were available when the business was open,

supplies were ordered (barley, hops, wheat, rye, oats, nutella, lavender, honey, and peppers), and hours were

assigned for work shifts.

THE 2013 ECONOMY

The Wall Street Journal reported that the 4 th

quarter gross domestic product of the U.S. in 2012 was revised

upward from a -.1 percent growth to a +.1 percent growth in January 2013. At the federal level, the U.S. House of

Representatives was in an ongoing stalemate with the U.S. Senate and the President regarding spending cuts and tax

increases. Unemployment stood at 7.7 percent, and interest rates were at historic lows. The federal funds rate was 0

to .25 percent, while the home mortgage rate for top-line borrowers was 3.25 percent for a 30-year mortgage.

The State of Michigan had recovered from its depressed state with a balanced budget and 8.8 percent level

of unemployment (“Department of Numbers,” 2013). The Upper Peninsula of Michigan was somewhat depressed

with an unemployment rate of 10.3 percent (Walton, 2013). However, the City of Marquette, the largest city in the

Upper Peninsula of Michigan, was rather robust. This was because of Marquette General Hospital’s 2,000

employees and 200 physicians (a for-profit hospital, part of the Duke Lifepoint System), Northern Michigan

University’s 1,000 employees (student body of 9,500 students), gambling in the Upper Peninsula which employed

about 1,500 in the Central Upper Peninsula, and Cliffs Natural Resources’ 1,800 employees (an iron ore mining

complex located 40 miles west of Marquette).

THE BEER BREWING PROCESS

Brewing the beer began with the raw grain, which was most commonly malted barley for most beer styles.

Other raw materials were wheat, rye, and oats, which could be added at different proportions for various beer styles.

The malted barley was first crushed to break open the hulls. This was then mixed with hot water (roughly

145-158 degrees) to create the “mash.” During the mash, two enzymes (alpha and beta) worked to break down

complex carbohydrate chains into simple sugars within the grain. This was important because yeast needed simple

sugars to convert to alcohol later in the fermentation process.

Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 108 The Clute Institute

Mashing usually lasted for 60-90 minutes, then the liquid (called the “wort”) was transferred to the boil

kettle, and the spent grain was disposed of. The wort was then boiled for 60-90 minutes. During the boil, hops were

added to balance the beer and provide bitterness and hop flavor/aroma. Hops added during the beginning of the boil

were called “bittering” additions since the longer hops were boiled, the more bitterness they provided to the beer.

Hops added at the end of the boil were called “aroma” additions because these provided hop flavor and aroma

without as much bitterness.

Once the boil was completed, the wort was cooled and transferred to a fermentation tank. This was

essentially the end of the first step.

Step 2 was the fermentation process. Once yeast was added to the cooled wort, sugars were metabolized

into alcohol and carbon dioxide, and the product can be called beer for the first time. This process usually took 1-2

weeks. The style of beer and strain of beer affected how long fermentation took. This was an incredibly interesting

process and had a lot of factors that affected the end beer product. It essentially came down to yeast converting sugar

to alcohol, thus creating beer.

Once fermentation was finished, beer was transferred into what was called a “brite” tank. This was where

the beer became carbonated. CO2 was applied to the beer until a desirable level of carbonation was achieved. The

carbonation process took about 12 hours on average in a brite tank. Then the beer was transferred into kegs, cooled,

and made ready to be served.

BREWING AT BLACKROCKS

Blackrocks had about a 600-barrel beer capacity per year. Their major competition, the Vierling and Ore

Dock, had approximately 350- and 1200-barrel capacity, respectively. In the spring of 2013, Blackrocks bought an

old Coca-Cola bottling plant on Washington Street, about a mile from the Blackrocks retail outlet, with the prospect

of producing a bottled craft beer.

COMPETITION

From a broad perspective, craft beer was in competition with all beer; but in reality, craft beer like that

made at Blackrocks was in competition with two other craft brewers in the city – the Vierling and the Ore Dock. In

the general area, Jasper Ridge Brewery in Ishpeming, Michigan, a city about 15 miles west of Marquette,

represented nearby competition. Also, KBC in Houghton (90 miles north) was, to a degree, a competitor. They sold

craft bottled beer that was distributed in the area. Indirectly, Blackrocks also competed with the largest craft beer

company in the nation, Samuel Adams. According to Jim Kock in an interview with Eng (2013), there were about

2,400 microbrewers in the United States as of January 2013. Rolling Rock, Ambersteam, Killian’s Red, and Honey

Brown were some of the products produced. Literally, tens of thousands of other national, regional, and local

specialty beer were a form of competition. The interesting thing about these beers was that they had established

followers and were known brands of their respective brewers.

Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2

Copyright by author(s); CC-BY 109 The Clute Institute

FINANCIALS

Blackrocks Income Statement and Balance Sheet for 2012 appear in Figures 5 and 6.

Blackrocks Brewery Income Statement

January 1, 2012 – December 31, 2012

Percent of Net Sales

Sales (net) $ 328,906.26 100%

Cost of Goods Sold $ 85,491.55 26%

Gross Profit $ 243,414.71 74%

Total Expense $ 195,037.99

Net Ordinary Income $ 48,376.72

Net Other Income $ 529.77

Net Income $ 48,906.49

Figure 5: Blackrocks Brewery Income Statement Source: Company Records, 2012

Blackrocks Brewery Balance Sheet

31 December 2012

Assets

Current Assets $ 6,790.58

Fixed Assets $ 253,422.05

Total Assets $ 260,212.63

Liabilities

Current Liabilities $ 17,594.05

Long-term Liabilities $ 92,654.11

Total Liabilities $ 110,248.16

Equity $ 149,964.47

Total Liabilities & Equity $ 260,212.63

Figure 6: Blackrocks Brewery Balance Sheet Source: Company Records, 2012

GENERAL INFORMATION

Blackrocks did not advertise except for one ad in Brewers Guild when they first started business. They did,

however, get lots of word of mouth, Facebook, and Twitter activity. General labor was relatively inexpensive in the

$10 to $12 per hour range. Their brewers were all self-taught. They did not hold any certifications; but together, the

brewers had 20-25 years of home brewing experience. David believed that some formal schooling would add

knowledge to their brewing activity and should be considered in the future.

From a regulatory point of view, Blackrocks had to purchase a $50 license from the State of Michigan and

a Brewer’s Notice (bond) of $1,000 from the Feds. They also faced access, parking, a

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