Matthew Osterman plans to open one of Denver's largest breweries this month -- but he won't be making a single beer there for himself. Rather, Sleeping Giant will contract to brew beers for about a dozen craft breweries in Colorado and other western states.
The brewery, which doesn't have a taproom, is located in a 70,000-square-foot warehouse at 2500 West Fifth Avenue, just south of the Robinson Dairy. It includes a fifty-barrel brewhouse and eleven fermentation tanks, which will allow it to make about 25,000 barrels in its first year. By the end of 2015, Osterman plans to double his capacity and take on more clients. Eventually, he will be able to brew 175,000 barrels per year.
"Demand has been good," says Osterman, adding that he has already sold most of his capacity for the first year of operation. "The fact that we've been able to fill to capacity with no advertising or direct selling is great."
His clients include Dad & Dude's Breweria/Dude's Brews in Aurora, Backcountry Brewery in Frisco, Boulder start-up Open Door Beer Company (which hasn't yet opened), and House Beer, a brand-only brewery located in Venice, California. (Osterman says the rest of his clients haven't yet given him permission to use their names.)
Contract brewing -- in which one brewery pays another to make its beer -- is a fairly common practice, but one that has been looked down on in some cases since most craft brewers take pride in having a hands-on local approach to the art of beer-making. But as the industry grows, some breweries that don't have enough capacity or equipment at their own facilities are becoming more comfortable with the idea. Although they pay a premium for it, contract brewing allows them to package or keg more beer and sell it.
"Obviously, this isn't for everyone. There is still a little bit of stigma that exists with contract brewing, but it is going away in a hurry," says Osterman.
A good example of that is Avery Brewing, which hired New Belgium last year to contract brew one of its beers, White Rascal, until Avery gets its new facility up and running this spring. "You would never think that Adam Avery would let his beer out of his brewhouse," says Osterman. "New Belgium will do a flawless job, but that said, it speaks volumes about the state of the industry. People are ready to do what is best for their business, and they know the consumers will be okay with that."
Avery and New Belgium are using what liquor-licensing agencies call an "alternating-proprietorship"; alt-props allow one brewery to loan or rent its equipment and its physical premises to another brewery for a certain period of time. It also gives the outside brewery more control over the process and allows it to put its home-city on the beer label.
Sleeping Giant will give breweries the option of setting up alt-props as well, which is something that Backcountry Brewery plans to take advantage of this summer.
"We need to increase our capacity based on the success of our product," says Backcountry co-owner Charlie Eazor, who adds that the current brewery in Frisco simply doesn't have enough space to do that. An alt-prop "gives us a higher degree of responsibility for the product from cradle to grave and greater control."
There are several medium-sized craft brewers in Colorado with excess capacity that contract brew for their colleagues. They include Fort Collins Brewery, which makes gluten-free offerings for New Planet; Dry Dock, which makes beer for Steamworks; Prost, which makes beer for Tivoli; Crazy Mountain, which brews for Centennial Brewing; and Epic, which makes unfermented wort for Crooked Stave.
But Sleeping Giant is a new concept for Colorado, since it will be a dedicated contract brewer without any brands of its own. "We think it's an inherent conflict with your clients if you are brewing their beer and your own beer," explains Osterman.
"You run into issues about scheduling mostly. For instance, if I have a house brand and I am brewing your beer, and your beer is scheduled to go into a fermenter tomorrow, but mine needs to stay for four more days, I'm going to push you out," he says. "The margins on that house brand are better than contract. So then everything gets pushed back."
There are a number of contract-only breweries in the Midwest and on the East Coast, but none that are west of the Mississippi River. "Between the beer scene in places like Colorado, California, Oregon and Washington and the geographic advantage of being closer to the West Coast, that was the genesis for this," Osterman adds.
Sleeping Giant will have canning and bottling lines with options for twelve- and sixteen-ounce cans as well as twelve- and 22-ounce bottles. It also has the capability to pasteurize beer, as many larger breweries do; clients can take advantage of that if they want to.
Osterman is also excited about another piece of equipment called a Mash Filter Press, which he has ordered from Meura. Although large breweries around the world already use the equipment to quickly press the liquid out of boiling barley during the brewing process, the Belgian company recently came up with a way to make a smaller version.
"It replaces the lauter tun, which uses gravity to strip sugars out of grain. This thing uses force to press the grain beds," Osterman says, adding that it also requires less water. "So, your theoretical efficiency is 100 percent. Coors has four or eight of them. Ours is much smaller and only semi-automated, but it will allow us to brew a little more than twice as fast, which will effectively turn us into a 100-barrel brewhouse."
Sleeping Giant, which will have six employees when it opens, also plans to set up a $300,000 quality lab with an Anton Paar beer=analysis system: "If we don't make world-class beer, we are going to fail," Osterman says.
Since Osterman, a Colorado native who did some homebrewing in college in Vermont, doesn't have professional experience, he has hired a pair of Coors employees who have about thirty years of brewing and brewery operations experience between them.
A former employee of Boulder's New Planet, Osterman says he's not planning to take clients away from the breweries that do contract work now -- but he also doesn't t think that will be a major issue, since many of those breweries don't really need the work anyway.
"I've had nothing but positive feedback from other breweries," he says.
According to Backcountry's Eazor, the relationship with Sleeping Giant will allow him not just to make more beer, but to distribute it more widely in Colorado and out of state. And distribution is of particular importance to Backcountry, since sales at its brewpub in Frisco are so reliant on seasonal business during the summer and ski season.
"There's a 50 to 60 percent drop-off in April...and again in October and November," Eazor explains, so distribution "can mitigate some of that shift."
Backcountry will probably start by bottling some or all of its year-round beers, which include a pale ale, a pilsner and a porter. But Eazor doesn't plan to raise prices even though it will cost more to brew at Sleeping Giant. "This should be invisible to the consumer," he says. "Our costs may not be the same, but it's our choice to absorb it."
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