Employee buyout leads to more effiency, and Miller contract helps

HOOD RIVER — As 2004 dawns, employees at the Hood River-based Full Sail brewing company feel like they’ve got the wind at their backs for the first time in years.

Industry sales are inching higher, and the employee-owned company has financial breathing room thanks to a big, new contract from industry giant Miller Brewing Co.

Five years ago, the company almost took a fatal blow when an investor revolt led to an outside buyer interested in the brand name but not the Hood River brewery.

Instead, employees pulled off an 11th-hour deal to buy a controlling interest, and set about scrutinizing the production process in an effort to survive an industrywide lull in craft beer sales.

Now, however, employees are breathing a sigh of relief.

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"We have proved to ourselves as a group of people that we can get by when things are different than we thought they would be," said Irene Firmat, Full Sail’s president and chief executive. "I feel really good about what we’ve accomplished."

Full Sail is not the only microbrewery to struggle in recent years. After booming during the first part of the 1990s, growing by an average of 47 percent a year from 1992 to 1996, microbrew sales have gone flat. Average annual growth in microbrew sales from 1997 through 2002 was 2.6 percent.

Full Sail’s annual production, which peaked in 1996 at 78,000 barrels, fell to 58,000 barrels in 2002.

But Firmat said an increase in efficiency followed the 1999 employee buyout — when workers bought majority control for $3.4 million. That helped the company make at least $350,000 more than expected each year since 1999.

Geography helped, too: Full Sail, which has a second brewery in Portland’s RiverPlace, is located in one of the world’s microbrew centers. About 10 percent of beer consumed in Oregon is made by craft breweries, three times the national average.

Even so, there are no guarantees. The upbeat mood at Full Sail now contrasts sharply with the mood in June 1998, when the board of directors voted to sell the company.

Firmat, one of the founding investors, opposed the sale, as did her husband, executive brewmaster Jamie Emmerson. But they were outnumbered by four others on the board, including Jerome Chicvara, now chief executive of Portland Brewing.

"You had investor fatigue at the end of 10 years," Chicvara said. "The bulk of these guys were interested in getting their dollars out."

The problem was, after Full Sail hired an investment banker to solicit takeover bids, the best offer came from United Breweries Ltd., a consortium controlled by international brewing magnate Vijay Mallya, who intended to close Full Sail’s Hood River operation.

In a last-ditch effort to save the company she founded, Firmat hatched a plan for an employee buyout, in which workers would borrow money to pay back the original investors. It soon became clear, however, that employees couldn’t raise enough cash to beat United Breweries’ offer.

Then, an hour before a buyer’s deposit was due in spring 1999, a surprising thing happened: United Breweries withdrew its bid, citing, among other reasons, the fact that it did not want the production facilities. The employee offer was the best one left on the table.

"We called the brewpub in Hood River, gave the news and heard this roar," Firmat said. "Eighteen months of hell had ended."

Since then, employees have found ways to increase the amount of malt extracted from pale malt, a precursor to fermented beer, by 3 percent to 5 percent, said Sarah Evans, Full Sail’s marketing coordinator. And the bottling and kegging operations are 5 percent to 6 percent more efficient then they were three years ago, she said.

"People are more attentive," Evans said. "They’re not wasting a drop of beer."

The most recent piece of good news for the brewery was a decision by Miller Brewing, which owns a former Oregon brand, Henry Weinhards, to give Full Sail a contract to brew about 30,000 barrels a year.

Full Sail is brewing five Weinhards varieties: Amber Light, Hefeweizen, Northwest Trail Pale Ale, Pale Ale and Private Reserve. Firmat described the arrangement as a "several-million-dollar, five-year contract."