After a rough year, Bear Republic Brewing of Sonoma County looks toward a bullish 2020

Bear Republic Brewing Co. intends to be bullish on 2020.

The new year can’t come quickly enough for the venerable brewer, which helped define Sonoma County as a craft beer capital. The last year has been rough on the Cloverdale company and many other craft breweries, as well.

The obstacles were varied, but included the rising cost of operating a restaurant in a high-end Wine Country town; a consolidated beer distribution network that makes retail placement in stores much tougher; and changing tastes among younger consumers who have little loyalty to brands, even to the brewery that has produced one of the legendary beers ever to come out of Sonoma County: Racer 5.

Richard G. Norgrove, who co-founded the brewery with his father and served as brewmaster for many years, was blunt on his assessment of 2019.

“I took my lumps,” said the 50-year-old Norgrove, who took over earlier this year from his father, Richard R. Norgrove, as chief executive officer for the brewery they founded in 1994 right off the Healdsburg Plaza.

The brewery has seen its distribution network shrink in recent years, from 27 states at its peak to 22 states today. Production dropped to 55,000 barrels this year, down from 68,000 at its peak. Sales, too, have slumped, on track to fall 2.5% from the previous year.

There have been staff cutbacks as well. The company, which employs 145 people, will shed 35 workers this year. The cuts include jobs tied to the upcoming closure of its Healdsburg brewpub, which will shut down on Nov. 22 after Norgrove could not work out any extension with the landlord.

The new year, however, will bring new opportunities. Norgrove plans to offer a cannabis drink with a local partner, introduce a line of spirits and ramp up a new hoppy India pale ale - an “IPA brewed for California” - that is built for younger customers and will be less bitter and more aromatic.

“When people think ‘who is the quintessential IPA producer in California,’ I want people to think of Bear Republic,” Norgrove said.

Plight of middle-tier brewers

What Bear Republic is experiencing is not unique. Many other middle-tier breweries across the country are in the same plight as Bear Republic, the 49th largest independent brewery in the country last year, according to the Brewers Association, the Denver-based trade group that represents such brewers.

It doesn’t have the market share and economies of scale of the big brewers, such as Petaluma’s Lagunitas Brewing Co., nor the nimbleness of smaller startups that have found growth with rapid-fire new releases of limited beers that are sold within a narrow retail footprint. Cooperage Brewing Co. and HenHouse Brewing Co., both of Santa Rosa, are two local boutique breweries that have had success with the latter formula.

“That middle spot has always been challenging,” said Tom McCormick, executive director of California Craft Brewers Association. “The consumer always wants something new. ... It’s hard to fulfill when you are in that middle spot.”

Attracting and keeping the attention of distributors has been tougher. The nation’s largest beer wholesaler, Reyes Holdings, has been purchasing rival distributors in the Golden State over the past two years, reducing the number of channels brewers use to place their brands in retail outlets.

There is irony in its recent troubles: the brewery is a victim of its own success with Racer 5, a quaffable India pale ale with a good balance of hops and bitterness that embodies the West Coast style of IPAs. It represents close to 90% of overall sales, Norgrove said.

He contends some of his smaller competitors would note in their pitch to distributors, “Why are you buying Racer 5? That’s old school. Why don’t you buy my IPA?” Norgrove added: “I have to try to figure out in this new world how to be small while being medium size.”

Norgrove has doubled down on outreach with his distributors and is expanding his product line. “That’s the issue of having a juggernaut like Racer 5. Everybody knows Racer 5,” said Peter Kruger, who went from master brewer to chief operating officer this summer.

Bear Republic also took a page from the new startups. The Cloverdale plant has a new canning line that makes “tall boy” 16-ounce cans in a four-pack with varying styles in a limited release run. They include an “uber dank” IPA; a dry and sparkling wine-like finish version in a “brut style;” and a low-alcohol beer that has an alcohol content of 4%.

“The dilemma is that we got to start letting these guys have fun more,” Norgrove said of his brewers.

Search for its next big seller

Bear Republic has worked to broaden its portfolio. Its Thru the Haze beer - part of the hazy IPA style that is an unfiltered, juicy brew - has “been blowing it up for us,” Norgrove said. A similar growth occurred on a much larger scale for Sierra Nevada Brewing Co. of Chico with its hazy beer.

The brewery is searching for the second big seller - one that could diversify its portfolio and generate up to 7% of the company’s overall sales. That may be the new hazy beer or a new IPA that will be released next year that “will be the best of the old and new world (styles),” Norgrove said. Another candidate for possible higher growth is Sonoma Tart, an ale brewed with guava and passion fruit.

“We aren’t just the Racer factory,” Norgrove said.

Other longtime breweries have changed with the times as well, such as New Belgium Brewing Co. of Fort Collins, Colorado, which had been primarily known for its Fat Tire amber ale but has picked up growth on its Voodoo Ranger IPA style recently, said Bart Watson, chief economist at the Brewers Association.

“It’s harder to get distributors to focus on brands that are unique,” Watson said. “The IPA category is the most fractured ... even with a brewery with a great brand.”

In the new year, the company will broaden outside the beer space by collaborating with Seed 2 Soul of Cloverdale on a cannabis drink. Bear Republic will produce the hop tonic water that will be infused at a separate plant with THC, a principal psychoactive chemical in cannabis, and CBD, a compound used to treat pain and anxiety. Lagunitas has a similar cannabis product, HiFi Hops, already out in the market produced with CannaCraft of Santa Rosa. But Norgrove said he senses an opportunity with that segment.

“They want hyperlocal,” Norgrove said of cannabis buyers.

It also will release a whiskey that has been aged at least 12 years and produced at the Charbay Distillery in Ukiah. A whiskey still imported from Scotland will arrive by the end of the year to help expand the program.

While the production side has ambitious goals, the restaurant side of the business is murkier, Norgrove said. Like other food establishments, Bear Republic has found it hard to recruit employees in Healdsburg, where service workers have a hard time living because of expensive housing costs - even though some kitchen workers made $25 an hour.

“The labor cost for 2020 are going up. At some point you can’t serve a $27 or $28 hamburger,” he said. “You aren’t going to buy it.”

Tough but sensible choices

While emotionally hard, the decision to walk away from Healdsburg made financial sense because the company has another location in Rohnert Park. Its brewpub, which opened two years ago, features a large bar area next to a small lake, he said.

Bear Republic can recruit from a much larger worker base in Rohnert Park and has found a larger base of customers in the city, which boasts a four-year university and a large casino.

“The Healdsburg demographics have changed so much,” Norgrove said. “Rohnert Park is just a different world.”

Other breweries that serve food are facing similar challenges as well. Many smaller breweries have opted to have an outside food truck to cater to their customers, hoping to keep customers at their bar stools.

A likely scenario in the future will be brewpubs with no wait staff, where customers order at the counter and receive a pager to inform them when their food is ready, similar to what is done at Stumptown Brewery in Guerneville, he said. Down the road, Bear Republic would like to open another location somewhere in the state, but it will likely have a much smaller footprint than the traditional restaurant of today.

“Every restaurant is going to struggle,” he said. “The current model in Healdsburg is not going to work in 2020.”

The focus going into the new year will be to educate customers that Bear Republic is the biggest family-owned brewery in Sonoma County and promote the badge of independence as consolidation grows in the craft beer sector among titans such as MolsonCoors and Anheuser-Busch InBev.

“I’m back to 1990 and the early days where I’m educating people to what the term ‘independent’ means. We are a family-owned business,” Norgrove said. “The independent model for us is really going to be the future for us.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com.