What is contract brewing?
Contract brewing is when a brewery is either selling more beer than it can physically produce and needs to supplement capacity elsewhere to meet demand, OR a beer brand cannot or will not fund its own production facility and instead chooses to pay someone with the existing fixed assets to brew the beer brand’s recipes for them.
Is contract brewing popular in China?
Most consumers don’t know that the majority of the Chinese craft beer brands that they are finding in bars, restaurants and retailers nationwide are actually brewed under contract either by large, under capacity domestic industrial breweries, overseas contract breweries in Hong Kong, Vietnam, or the United States, or a place called Urbrau in Handan, Hebei Province. It’s a popular way to get around minimum production requirements that the central government has set to generate adequate tax revenue off of the assumed profit margin inherent in industrially produced beer (deep breath).
Think of it like a XY chart that is graphed across time and capacity. The government gives you approval for your brewery project and if you are defined as commercial beer, your core infrastructure needs to be able to meet the national minimums, which is about 1,000,000 Hectoliters a year, or 100,000,000 liters a year, or 200,000,000 pints a year. That’s a lot of zeroes. There are only three craft breweries in America that currently hit this production mark: Boston Beer (Sam Adams), Sierra Nevada and Yeungling (#nevertrump). Before you start laughing, Yeungling is actually the oldest brewery in America and they don’t necessarily define themselves as craft beer, they just happened to meet the recently expanded maximum production limits that the Brewer’s Association set this past year. These limits exist to make sure that the ever-expanding capacity of Boston Beer and Sierra Nevada don’t define themselves out of the American national definition of craft beer. That means out of the (as of right now) 4,600 craft breweries in the United States, a whopping three would be able to legally produce beer in China for distribution.
So, now that we know how ridiculous it is to define craft beer under the same industrial scale as other breweries in China, let’s beat this dead horse and talk about that Y axis on our chart that represents time. China gives you five years to meet your stated production requirement before you start being assessed either tax penalties for not making the minimum requirements, or subsidies for exceeding the minimum requirements in a bonus period. The more you make the less you pay; economies of scale and all that. So, a brewery could fake it for a couple of years before the tax man cometh. Five years to be exact, to hit the magic number of a bazillion pints of beer. Is that what Urbrau is doing? I don’t really care, but it is good to know how the government defines scale and requirements. So there, I taught you something.
So can we expect 18 Beer of Wuhan, or Master Gao’s of Nanjing, or Boxing Cat of Shanghai to meet these production requirements within 5 years? Of course not, that’s a ridiculous expectation to put on brands in a new market. But a brewery that looks to contract brew for everyone who is too small to establish their own brewery might be on to something in patchworking a capacity large enough to skate under the minimums.
That, roughly, is why all small pack, or bottles and cans that are marketed as Chinese craft beer are 99.99% likely to be brewed by someone that is not the brand owner. That is why contract brewing is the norm in China right now.
Will Great Leap ever let someone else brew their beers on contract?
Not that there is anything wrong with that.
As of right now Great Leap Brewing is the only brewery in China that is in the top whatever in capacity sales that derives zero of those sales from contract brewing. We as a brand have worked too hard to learn the tech and the science to brew the beers we brew, the way we brew them, to hand that over to someone else that has relatively zero liability for missing the mark.
Think about it in terms of children. Beer recipes are children. You have children that you are legally responsible for, that you love with all your heart and that you would die for. Then you have your kid’s friends. You like them. They exist. Their parents would give you shit if their kid came over to your house and came home dropping F bombs and peeing on the toilet seat. Right? So when you have your kid’s friends over for a party, you are basically going to do the legal minimum to avoid the massive pain in the ass of having to talk to their parents about urine and that time you let their kid watch Casino Blueray: The Director’s Cut. You don’t want to hurt their kid, you just don’t love their kid like you love your kid. No one is asking you to. But when their kid is in your house you are going to go into survival mode and make sure that kid doesn’t die or hear you imitate Sarah Silverman from The Way of the Gun. You get my point? Contract breweries don’t love your beer. They just want to brew it to some minimum spec and get it out the door in a state that means you don’t call and complain about obvious shit. How do I know this? Because I have a kid and I make beer, that’s how.
What about other breweries that contract brew, are they wrong?
Fuck no. I proudly sell Boxing Cat beers at all three of our locations because I know that Michael Jordan, Boxing Cat’s brewmaster, refuses to let any aspect of his quality be dictated by someone else. I have the utmost confidence that every drop that Boxing Cat brews out of Handan will not only be to the highest standard possible on that system, but also incrementally makes every other contract brewed batch of beer better, because everyone that works with Michael Jordan is basically getting a master class in beer production.
Well doesn’t that make you want to at least give it a try?
Because at the end of the day there is only one example of a contract brewed brand turning into a mega-success story in the United States, and that is Samuel Adams/Boston Brewing Company. That is one success story out of 4,600. And, the funny part of the corporate history at Boston Brewing is that the minute they were able to buy their own central brewing facility, they walked away from 100% dependence on contract brewing.
To add to our case study of the American contract brewing market, there is actually a history to it and a tacit knowledge that exists in overall brewing sciences that was more applicable to contract brewing in North America than anything comparable in China. Anyone not using Handan Urbrau to brew their beers for them is basically using large scale industrial brewing equipment that was not designed to perform in any way that is useful to craft beer. We’re talking about equipment that was designed end to end to efficiently brew one kind of beer, with set raw material inputs, set targets for saccrification attenuation and packaging requirements. Equipment that was designed to propagate and store one kind of yeast, use hops in one way and one way only, and bottle the same CO2 content and aim for the same pasteurization unit rating and dissolved oxygen spec.
Basically it’s like buying a 1933 Massy Ferguson tractor and then telling it to mow every blade of grass on a golf course. You can’t make an engineering solution that is designed to do one mindlessly repeatable and yet scientifically impressive thing over and over again perform in a way that is flexible, adaptive and creative. This method of contract brewing can appear shortsighted and is creating some of the worst craft beer you can put in front of a skeptical and undereducated market. BUT, the reason why this option even exists is because several regional commercial breweries are finding it very hard to maximize all of their capacity and stay above that tax penalty minimum. As a result commercial brewery management teams across China are crafting strategies that target enthusiastic, but under experienced craft beer brand owners and telling them they can make high quality IPAs, etc, on equipment that was designed to make 2.8%-3.5% ABV horse piss. Those brewery managers should be drummed out of the industry for misleading temporarily naïve peers. Furthermore, the craft brand owners should stop, count to 20 and crack a book about package stability and flavor matching before they get into a situation where they expose their otherwise beautiful concept to the fucking rock crusher at the end of Indiana Jones and the Temple of Doom.
But Boxing Cat makes great beer via Handan Urbrau, why are you so quick to judge?
I’m not quick to judge. To be honest, I’ve toured every potential contract brewing partner for the last 4.5 years. The minute we passed our investigation and stopped distributing our beer, both me and Liu Fang’s mindsets were that we needed to get as much Great Leap on the market as possible so people didn’t think we were doomed. Even the motivating factors of willingness and pride couldn’t push us to compromise on our corporate policy to never make the same mistake twice. We’ve been to every brewery doing contract services in Mainland China, Vietnam, Japan, Taiwan and a handful in North America. Through the process of doing our research I became more and more convinced that whatever market exposure contract brewing gives you, doesn’t outweigh the potential risk of not having full accountability for the quality of your product. It was a long process and I do get pangs of doubt every time another peer of Great Leap releases a pretty can or bottle onto the market. But my doubts are assuaged the minute I taste whatever beer that is and come to realize that it isn’t in anyway more superior than what we make on our little brewpub systems.
Would Great Leap be able to make beers as high of quality as what Boxing Cat is achieving in Handan?
I would hope that the time and energy I have spent to grow in this industry and the high-quality human resources that we have always fostered in our brewing team would mean that we could figure it out. But do I want to risk it? Or do I want to deal with that headache at someone else’s brewery where they are going to just turn around and apply our solutions to the next contract brand and make that brand on par with Great Leap? No, I don’t. Because I don’t have to. I’ve made my sacrifices to earn what I have, and that means I get to make a respectable amount of beer in a brewpub system that I own. I like owning my own means of production. It’s the Marxist in me. But it’s also the reality that if you can’t control every aspect of every day and every minute of operations at the facility you are using, then you are going to constantly be battling between when you are watching their standard operations procedure and when you aren’t. I would rather bleed and struggle to open my own brewery and own my own successes and failures internally. That’s the romance of craft beer that has always made me proud to be a part of the industry.