California Drought Forces Bear Republic to Retreat from Key Markets

bear-republic-logoIt was Halloween, and Bear Republic CEO Richard Norgrove was flying to Boston to deliver grim news to Atlantic Imports, the company’s distributor in the Massachusetts market: he was going to stop shipping beer to the Bay State, its fifth largest market, beginning Jan. 1, 2015.

It was no trick, though: the California drought is taking its toll on the top-50 craft brewer, forcing it to pull distribution.

“The impact the drought has caused has been enormous,” Norgrove told Brewbound during a phone conversation. “We have been impacted more because we are in a small town that doesn’t have major capacity for water. We have made every possible effort, through conservation, having designed and built a wastewater treatment system, but we can only do so much.”

The drought, which has been raging since early 2012, is affecting brewers and farmers across the state. The drought’s impact on Bear Republic has been especially devastating, because the Russian River, which supplies most of the brewery’s water, is running low.

Bear Republic is one of the biggest water consumers in its hometown of Cloverdale, Calif. Because of the reduced water supply, the growing company was forced to cap usage at 8 million gallons annually. So, in order to continue growing its production at 12-15 percent annually, the company’s current growth projection, Bear Republic needs water levels to increase. And the Russian River is drying up.

Massachusetts was just the final piece to a much larger puzzle, one that Norgrove and other Bear Republic officials have been trying to solve for nearly two years.

“The demand for our brand grows at a pace we can’t maintain, and continuing to cut back everyone’s orders made no sense,” Norgrove wrote in a letter to his retailers in Massachusetts. “We have limited water and over the last 18 months have already pulled out of 19 territories just to keep the rest of our Wholesale channels in product.”

Bear Republic went to great lengths to remedy the situation, according to Norgrove. Last year, the company floated nearly $500,000 to the city of Cloverdale, where it is based, to help fund the construction of two wells in exchange for water credits. In addition to increasing the town’s water supply, the wells would also help the brewery expand its own beer operations — Bear Republic was eyeing an expansion that would have nearly doubled brewing capacity. But because of the drought, and a diminished water supply, progress on the project stalled.

“That loan got us the water rights that we would need to expand,” Norgrove explained. “We have more than an acre of land that we own right in front of us. Development of that would have gotten us to 300,000 barrels.”

For now, the company will re-focus its growth closer to home and continue filling orders for its larger retail customers.

“Each state or territory has a different mix of package to draft,” he told Brewbound. “The volume of each of those, the cost of doing business there, the breakdown of these accounts…those and many more factors played into our decision.”

The decision, as Norgrove explained in his letter, did not “come easy” and was “made with a clear understanding of the impact it would have on your business, Atlantic Imports, and their staff.”

Although Bear Republic is not planning to ship any beer to Massachusetts in 2015, Norgrove remains optimistic, and said he hopes to once again ship beer to Atlantic Imports by midyear.

“My hope is that our water supply will be resolved at the earliest opportunity and that your patience and support will allow us to restore your account to ‘active status’ as this historic event plays out,” he wrote in the letter.

Bear Republic will produce about 76,000 barrels of beer this year, up from 68,000 barrels made in 2013. The company had originally projected to brew over 80,000 barrels in 2014, Norgrove said.

No Bear Republic jobs will be lost as a result of the changes, he said.

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