By Ben Ruffel and Alex Maragos

Tapping Into a Thirsty, and Discerning, Market

Rockbridge County may have found something to take the edge off the weak economy. In the past two years, two craft breweries have opened their doors – Blue Lab Brewing and Devil’s Backbone Brewing.

Their arrival has left the region buzzing.

At a time when local businesses are struggling, and nationwide beer sales have only recently stopped sliding, small-volume craft breweries are suddenly taking off locally – and the area’s two craft breweries both expect to expand in big ways in the near future. Rockbridge County and Lexington have a few natural advantages, including supportive local governments and a population craving a less mass-produced taste, which make them prime beneficiaries of a flourishing multi-billion dollar national movement.

Worker at Devil's Backbone adds the mix that will eventually turn into one of its signature beers. Photo by Alex Maragos.

For Hayes Humphreys, chief operating officer of Devil’s Backbone Brewing Company, there is a simple answer to why the craft brewing business is booming in the area.

“We’re riding a growing industry,” he says. “Overall beer consumption is down but craft brewing’s share of the market is increasing. That trend is being driven by evolving palates, and here in Virginia we have an intelligent, and remarkably untapped, market.”

‘Devil’s’ in the details

Devil’s Backbone has seen meteoric growth since its founding in 2008, when it opened a brewpub in Nelson County. After reaching a limit of about 900 barrels at its home location, it decided to boost output. In December 2011, the company finished construction of a gleaming 15,000 square foot brewery in Rockbridge County. That facility is set to produce about 10,000 barrels of the company’s craft brews by year’s end, and Humphreys expects to double that figure in the next couple of years.

A barrel, which the industry uses as a benchmark unit, equals 31 U.S. gallons, or two full-sized kegs.

Judging by its success, Devil’s Backbone may indeed be on to something. The company is on track to earn revenues of about $4 million this year, split equally between its brewpub and the Rockbridge County brewery, says Humphreys. And its brewery has just recently reached profitability – no small feat given the risks involved with increasing beer production more than 10-fold.

Nationwide, craft brewing is experiencing a remarkable period of growth. Even while overall U.S. beer sales fell by 1.3 percent in 2011, the craft brewing industry’s share of that pie has increased. According to information collected by the Brewers Association, a trade association that represents Devil’s Backbone and many other craft breweries, U.S. craft brewers had retail sales worth an estimated $8.7 billion in 2011, a jump of almost 15 percent from the year before. Yet the reasons that the craft brewing industry is exploding in and around Lexington go beyond nationwide trends.

Government, at the federal, state and county level, can claim some credit for the arrival of craft brewing in the local region. For example, the decision to construct a brewery just north of Lexington, explains Humphreys, came down to the decidedly “unsexy” consideration of wastewater.

“Breweries produce a lot of wastewater,” explains Humphreys. “[Rockbridge County] has a system that’s capable of handling quite a bit of effluent [water] so that was primarily what made the decision.”

Rockbridge County’s Office of Community Development reached out to Devil’s Backbone with a solution: hook the brewery up to the county sewage lines. That issue solved, the company then secured a loan from the federal Small Business Administration to build the brewery. To top it all off, the Virginia General Assembly passed SB 604 in June, allowing breweries to sell beer on site without serving food, which has proven to be a boon for craft brewers.

Blue Lab brew

Lexington’s Blue Lab Brewing Company, the area’s first craft brewery, has benefited greatly from the new law. The brewery, founded in 2010 by Bill Hamilton, a professor of biology at Washington and Lee University, and Tom Lovell, an associate director of alumni affairs at the school, operates on a smaller scale than Devil’s Backbone.

“We are really a nano-brewery,” says Hamilton, who serves as the company’s brewer. “But business has been good. We get face-to-face contact time with our customers, and that resonates locally here in Lexington.”

Blue Lab, which according to Hamilton runs a profit, recently produced its 100th batch of beer. The company’s business comes 25 percent from walk-in customers, who purchase beer on location, and 75 percent from retail sales, says Hamilton. Several prominent restaurants in Lexington also sell Blue Lab’s beers.

After adding hops into the mix, the cylinder containing the mix. Photo by Alex Maragos.

As craft breweries go, Blue Lab’s production is modest: its facility has the capacity to produce batches of two barrels each, a process which can take several weeks. Expansion plans, however, are in the works.
“We need to at least double production,” says Hamilton. “I’d like to get to batches of seven barrels.”
To purchase the equipment necessary to get production to that level, he says, would cost Blue Lab between $100,000 and $150,000. Sales have been so strong, however, that they may take that step sooner rather than later.

For Sammy Moore, executive director of the local Chamber of Commerce and a self-confessed “vodka man, not a beer and wine man,” the surge in craft brewing in and around Lexington has a clear logic to it.

“This is all market-driven,” Moore says. “Craft brewing is growing exponentially all over the state. And we’ve all done our part to encourage it to grow here.”

Local advantages

Lexington and the surrounding area have a few advantages that make it a natural beneficiary of this development. For one, it is located at the conflux of I-64 and I-81, making transportation simple. For Devil’s Backbone, which sells beer across western Virginia, this proximity has proven a godsend, says Humphreys. Secondly, because Lexington is what Sammy Moore calls a “destination-dining” town, its emergence as a destination-drinking town dovetails nicely with that appeal. Finally, as evidenced by the help offered to Devil’s Backbone, local governments have repeatedly demonstrated their willingness to encourage craft brewers to do business in the area.

The local governments want craft brewers to come to the area for the obvious reason that they bring jobs. Devil’s Backbone employs 13 people at its county brewery, says Humphreys, and when it expands it may hire 10 more. Only Hamilton and Lovell – and a few family members at various times, Hamilton says – work at Blue Lab, but if business continues to grow it may need more help. And rumors of a third brewery, passed on by Sammy Moore but unconfirmed, suggest that the region’s strategy may be paying off.

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