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The painful search for a new cidery

We're Moving! No we're not... We're Moving! No we're not... Here's Why

Over the past four years, we've grown as a company, as a team, and as individuals. The goal was always slow, steady, and sustainable growth as we prioritize building relationships with our customers over just moving volume. Going deep locally has always sounded better to us than hitting the market by getting into as many states as possible. And that slow growth model has worked really well for us!

However, with all that sales growth, we have yet to grow the size of our production space. And, as many of you know, it has not been for lack of trying.

We started our search for a larger facility back in the summer of 2017. We had grown over 100% from 2015 to 2016, and we were on track to double again in 2017. We assumed if we started the search then, by the time we really needed it in early 2018 we'd be ready to fill up the new spot with tanks, equipment, finished product, and additional team members. Unfortunately, as we enter July of 2019, we are still without a new location. We thought it would be helpful to provide a bit of a narrative on what that search for more space has looked like over the past couple years and why it seems to still be just beyond our reach. So let's take a trip down memory lane, or more appropriately - the avenues and boulevards of South San Francisco, San Mateo, and even Sunnyvale.

Aug 2017 - Littlefield Ave - South San Francisco.
This was our first onsite visit with a potential architect, building owner, and some bright-eyed, slightly naive business owners (aka: us). This 4000 square-foot location was about 1/3 offices and 2/3 warehouse. The ceilings were a decent height (18ft), but there were no sprinklers, minimal parking, not enough power, and most of the space from insulation to lighting would need a significant overhaul. Our architect pointed out that if we expanded to the adjacent warehouse, we would also need to install sprinklers in the entire 20,000 square foot building, not just our spot due to new municipal fire regulations. So with hesitation but a confident stride, we walked away in pursuit of a better setup.

After navigating through another half-dozen potential locations online, we stumbled upon a spot outside South City. It had potential, so we decided to pursue it.

December 2017 - Howard Ave - San Mateo
The current landlord was renting the space from a family that owned several buildings in a trust. He was looking to sub-lease this location and had already made some improvements like a new industrial AC unit and rewired the power. The building had no parking, but after Jenn did some digging with the zoning department of San Mateo, they found that it had been a retail establishment several decades ago. This allowed the building to be grandfathered in for the parking requirement that would support a taproom (1 parking space per 100sq/ft of public retail). LET'S DO THIS THING! We put together an in-depth proposal with the landlord so he could share our plans with the building owners and we were off to the races. We met with the architect, construction manager, and engineers onsite for a walk-through. Unfortunately, that's when it started getting scary. San Mateo has a rule that any building that goes through construction or change of use requires the addition of sprinklers. It certainly saves lives, but the cost had us on edge and extremely concerned about the budget. Pair the need for sprinklers with the updated electrical panel we would need and it started to get messy. We wouldn't just need a new panel, this building would also need an additional transformer, which would most likely need to go underground. Tack on another $70,000 for that to the $75,000 for sprinklers and a new main water line and it was almost time to call it quits. We were frustrated and scared but still wanted to make it work. We started working on drawings, running the lease through the lawyers, and working with the bank to secure our loan. WE CAN MAKE IT WORK!

Four months into planning and design, it all completely fell apart. Apparently, one of the members of the family trust that owned the building is a recovering alcoholic. Due to recently discovered religious beliefs, they weren't comfortable with alcohol production in their building or any sale of alcohol on the premises. WHAT?! Where was that information 4 months ago? Is this some kind of really bad joke? Are we getting PUNK'D?? Looks like the other family members had tried to reason with this one outlier but it was not to be. Luckily, the landlord was nice enough to give us our rent back but we lost several thousand dollars on mechanical, electrical, and plumbing engineering, not to mention a huge hit to our hopes for a new spot.

So the search continued…

April 2018 - Airport Blvd - South San Francisco
A spot just opened on Airport Blvd only blocks from Grand Ave and downtown SSF. WE CAN FINALLY BE IN SOUTH CITY! We explored this 8000 square-foot location with the building owner, our architect, and members of city planning and economic development. It looked like it had potential despite a few requirements that would mean some changes to our business model. Because of its location, the zoning for this location would allow the building to be used as storage or a restaurant. However, because our primary use was for manufacturing, we would be required to utilize 51% of the location for food service. We had no desire to run a restaurant, but the location would do well for a taproom so we rolled up our sleeves and looked at alternatives. We found a potential partner who would take on the food production, kitchen, etc... This time we started the conversation with the owners sooner rather than later. LET’S DO THIS THING! The building owners were willing to sign a 10-year lease but were requiring a 5-year "fair market value" price increase. FMV, as it's often called, can be a challenging item to agree on in a lease negotiation. This meant that in 5-years if that area was doing well, possibly because of our impact on the area, our rent could increase to whatever rate the third-party assessor deemed as "fair". WHAT?! As you might have seen with restaurants, bars, and even breweries in the Bay Area this can be a company killer with rent increases beyond an achievable amount. The second deal killer was they were likely tearing the place down to redevelop the whole block at the end of that 10 years. Given the money we would need to put into the building and the increase in rent, we had to walk away.

So the search continued…

June 2018 - San Lazaro Ave - Sunnyvale
With frustration mounting, time ticking away, and our current facility looking more like a game of Tetris each morning and evening, it seemed imperative that we find a new spot SOON. And at this point, we came to the realization that despite "location, location, location", we could no longer be picky about where we ended up. With that new mindset, a spot came up that could have been awesome, even if it was down in Sunnyvale. This 6,000 square-foot location had one section with a two-story office area of which we'd turn the downstairs into a taproom, plenty of parking, a budget for tenant improvements, and a killer corner location just a few blocks from the new "Apple Campus 3". It would need a power upgrade, a fire-rated wall between the offices/taproom and the production, and a removal of part of the second floor to make the taproom ceiling higher. There weren’t any zoning restrictions on use, we didn’t have to add a kitchen, and the landlord seemed really interested in having us onboard. After some creative thinking with our architect and several iterations of a taproom floor plan, we think this one might work. LET’S DO THIS THING! Call in the lawyers. We worked through the basic commercial lease they sent us, which unfortunately consisted of a basic download from the internet. Our lawyer cleaned it up and made it specific to this location, etc... We got through some changes and then the owners shut it down for no apparent reason. WHAT?! Unfortunately, we were never able to have a conversation with the actual building owner. They refused to talk with our lawyer or us. With a 10-year lease and $500K of improvements to their building, we couldn't get to an agreement and had to call it quits.

And so the search still continues…

All in all, this has been a really frustrating, heartbreaking, and stressful process. We have some leads on new spaces but as of now, we are still in a holding pattern, and still playing Tetris at 1236 Montgomery everyday. Luckily for us, our current landlord and management company have been really supportive and have given us a home for longer than we had originally planned. One other point that we want to make sure we hit home is how amazing the cities have been that we have worked with when these opportunities have come up. The staff members have a ton on their plates and have to work within very strict and sometimes very archaic building codes, but they have been on our side every time. So we raise a glass to them! The landlords - not so much.

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We're Going Green(er)! 

We’ve Taken Cleaning to the Next Level with Ozone!

Cleaning and sanitizing are part of daily life at the cidery. It’s required when getting a fermentation tank ready for juice to arrive, transferring the must (fermented cider) to a racking tank, kegging a finished batch or just washing the floor. For most of our lives as cider makers, we’ve used steam, StarSan, and peracetic acid (PAA) to do the job.

All these products work well but take time, money, and require special handling, especially for the disposal of StarSan and PAA. StarSan is a blend of phosphoric acid and dodecylbenzenesulfonic acid. Peracetic Acid or PAA is an organic peroxyacid that forms an equilibrium mixture with hydrogen peroxide and acetic acid (same as in vinegar). They sound scary, but in proper ratios, they’re fairly mild, food safe, have little impact on the environment, and don’t require rinsing prior to adding finished cider. These products are used by breweries, wineries, and cideries around the world. They do the job and are fairly cost effective, so why did we switch to ozone?

We were first introduced to ozone for cider operations at CiderCon in 2017. John McClain of McClain Ozone was standing at his booth in the vendor zone of the conference. We introduced ourselves to learn more about the process and equipment. Thirty minutes later we walked away excited about the possibility of someday being able to move forward with the purchase of an ozone generator. Mid last year we were able to make this a reality.

Producers around the world, including some of the largest breweries and wineries in the US, are transitioning to ozone as a key part of their sanitation procedures. It took some time for the adoption of ozone to catch on but given those companies’ strict requirements for consistency we were confident it was worth a deeper look. Ozone is formed when oxygen is exposed to a high-energy field causing some oxygen molecules (O2) to break down to oxygen atoms (O). The oxygen atoms (O) then react with the oxygen molecules (O2) to form ozone (O3). Once O3 enters into an environment it is then reactive and unstable. This instability is what makes ozone an effective sanitizer. The unstable third oxygen atom attaches to other molecules including odor, bacteria, and viruses. This extra oxygen molecule then breaks apart those pollutants and reverts back to oxygen. Hooray! 

To make it work for us, we had to justify the upfront cost of the machine:

  • Where could we use ozone in production processes? Anytime we need to sanitize!

  • What were the efficiencies in time gained by using ozone instead of chemical sanitization? Time doesn't really change in using it versus the PAA sanitizing process.

  • What were the cost impact of those efficiencies on our water and chemical usage? We would be able to buy less chemicals and the water usage would greatly decrease. 

After doing the math and looking at our long-term goals, it all seemed to add up. Turns out that the ozone saves us about 20 minutes and 20 gallons of water per full cleaning cycle, per tank. (We have 10 tanks that each need cleaning more than once a week) This doesn’t seem like much, but over the course of a year, this will mean over a hundred hours of labor and thousands of gallons of water saved. 

In the long run we’ll be able to use ozone to sanitize kegs, pre-rinse cans, sanitize barrels, and even destroy any airborne bacteria in our cold room and in the cidery as a whole. For more details on ozone Click Here!

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Packaging Decisions

A brief history of packaging at South City Ciderworks

Four years ago we started the company with 12-ounce printed cans of our semi-sweet cider, South City Cider, now known as The Original Blend. A year into business we heard from our customers they wanted some drier options, so we started bottling our dry and dry-hopped ciders in 500ml bottles. The bottles provided us an easier way to test out the market without needing to commit fully to the quantities of cans. It also enabled us a path into some new retailers who preferred glass over cans. But what’s the right thing for our future?

Up until a few years ago, 22-ounce bottles were all the rage for craft beer and cider producers. As a consumer, I was happily spending $7 on a single 22-ounce bottle just to try something new or different. I didn't particularly like the larger format, and always kicked myself once I calculated the per ounce cost, but I still bought it. It wasn’t the best value but was often the only way to try a new craft brew. Many small manufacturers couldn't afford to put their products into 6-packs of 12-ounce bottles. Bottling could be done in small quantities and with a lower upfront equipment costs, so it was the only real option to get products on the store shelves.

In 2002 Oskar Blues was the first craft brewery in the US to package in cans. For a while, this was a big deal. Craft had only been in bottles while cans had been left to the huge companies pushing out volume beer. Not to say I haven’t enjoyed walking out of a store with a 30-pack in each hand, but for a long time, it was just the light beers and macro producers in cans. Sixteen years later we're still seeing the shelves stocked with bottles and cans from all size of producer. Consumers are also realizing that canned products stay fresh longer because there’s no chance of oxygen or light ever touching the product. Oskar Blues started the trend which many craft companies big and small have now followed. It took more than just consumer acceptance to make it work though. It took the growth of mobile canners to truly bring craft-in-can to consumers.

Mobile canning companies buy a canning line on wheels that they can transport to craft beer and cider makers in their region. They plug into the wall, clean and sanitize the system, hook up to the tank, and fresh cans come rolling off the line. These companies enable small manufacturers, like us, to get our products into multi-packs and on to store shelves. Combine the relatively low cost of cans (when compared to bottles) and the offerings of mobile canning companies and you now have an avenue for craft producers to get multi-packs in front of consumers instead of on the single unit shelf at the bottom of the beverage cooler.  

https://www.goodbeerhunting.com/blog/2018/10/25/the-revolution-will-not-be-bottled-how-mobile-canning-brought-us-closer-to-beer

With mobile canners, we can keep our capital investment costs down but is it actually more price? Is it a better deal for the consumer? Is it a better model for the producer?

Let’s take a look.

As a consumer, I might buy one 22-ounce bottle for $7.50 at the grocery store. The grocer would have bought a case of 12 bottles from the distributor or directly from the producer for around $64 (or $5.30 each bottle). For this example, let's say the producer uses a distributor to get their products to market. Distributors typically take 30% gross profit from the sale. So that distributor would have paid around $45/case to the manufacturer or $3.75/bottle. Calculating the packaging costs, we’ll include the bottles, the box, the labels, and caps totaling roughly $7/case. Add another $10 for ingredients and a few dollars for taxes and producer is left with $19/case of profit. This doesn't account for labor, equipment, rent, insurance, or shipping but it should give you an idea of what goes into the cost. The Huffington Post wrote an article on why craft beer costs so much. And while cider doesn't have as many ingredients, our main ingredient (apple juice) amounts to a similar if not higher cost per unit. It may be worth a look for those of us who like pictures. https://www.huffpost.com/entry/craft-beer-expensive-cost_n_5670015

So let's compare the costs for consumers and producers for the 22-ounce bottles vs a 4-pack of 16-ounce cans.

22-ounce bottles (12/case)

  • Price of single bottle on shelf: $7.49 (34.3 cents/ounce)

  • Cost per case to grocer: $64.00

  • Distributors cut: $19.20

  • Revenue per case to manufacturer: $45.00

  • COGs per case: $19.00

  • Profit per case: $26.00

  • COGS% = 42.2%

16-ounce labeled cans (24/case)

  • Price of 4-pack on shelf: $14.99 (23.4 cents/ounce)

  • Cost per case to grocer: $63.00

  • Distributors cut: $18.90

  • Revenue per case to manufacturer: $44.00

  • COGs per case (with mobile canner): $24.00

  • Profit per case: $20.00

  • COGS% = 54.5%

If the producer wanted to keep their same COGS for the 4-pack cans as they had for the 22-ounce bomber, that producer should be selling the case to the distributor for around $57. This would price the 4-pack of 16-ounce cans to the consumer at $19.40 on the shelf. Hard to swallow? Well, as a consumer, I'm hard-pressed to spend more than $14.99 per 4-pack. But doing the math as a producer, I know how thin the margins are and I'm hopeful consumers continue to seek craft products in all forms. So what’s the right format?

Packaging Options

We're constantly paying attention to changes in consumer demands, industry trends, and our bottom line. Our goal is to get our products into your hands in the most economical way possible while maintaining our bottom line. So whenever we explore packaging changes, we think through all the options. Do we go with 12-ounce bottles, 500ml bottles, 22-ounce bottles, 12-ounce cans, 16-ounce cans, 750ml bottles?? With so many options, here are a few questions we ask ourselves before proceeding.

Questions

  1. What do our customers prefer?

  2. What’s economical for our bottom line and for our customer’s bottom line?

  3. What do we prefer?

  4. What’s trending?

Answers

  1. At the grocery store, consumers seem to be leaning away from individual bottles and towards multi-packs. In restaurants and bars, 12 and 16-ounce packages both do well and are an expected size.

  2. Mobile canning is expensive but gives us a path to get our products to market. Bottling is time intensive but costs less. Consumers seem open to either as long as costs remain reasonable. Specialty and high-end products seem to still have some room for people to enjoy unique and surprising things.

  3. I personally prefer a 12 or 16 ounce serving over a 22. I’m also leaning towards multi-packs when I shop. At a bar or restaurant, I’m good with either size.

  4. Cans.

We’d love to be in a 6-pack of 12-ounce cans, but given the math, I’m not sure the average consumer is ready to pay $20 for a 6-pack, and we can’t make it for less, yet... There are extremes that will work for some, as I saw on a recent trip to the grocery store where I found a local IPA in a 4-pack of 16-ounce cans for $24.99. As a consumer, I see this and think that’s a bit crazy.  But as a producer I know it’s just the reality of what things cost to make and not that crazy. Hell, I’ll easily pay $15 for a bottle of wine which is about 25 ounces. In 4-pack of 16-ounce cans of that same wine I’d have to pay $37.85. So maybe those cheap macro beers have had more impact on consumers than we know.

My parting words for supporting craft

Single pack bottles and 4-packs give you as a consumer a chance to try something new from craft producers with minimal commitment in dollars and product needing consumption. These same packages give us, the producers, a way to get our products into your hands and hearts and gives us a way to try small batch and specialty releases. We’ll never be the same price as the big brands, but if the math works out for you, it may be worth those few extra dollars just to try us out,,, and come back and buy out the shelf. We’ll love you forever for it. Cheers!

~Alex


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