Growing Smart
Local beer is fantastic – from the integration in local communities and culture, job creation, and yes, the beer is great.
We were intrigued and maybe a bit surprised by how similar a growing craft brewery is to a growing real estate firm, and we had a fantastic and enlightening conversation with Scott Roth, the President and COO of Three Notch’d Brewery in Charlottesville, Virginia, as he talked about his journey from Lehigh University to Charlottesville, finding the right partners, scaling a growing business, and inflection points.
You can listen to the podcast here, and subscribe to the podcast here.
Highlights include:
- Staying on top of and ahead of consumer expectations
- Nuances and competitive advantages of brewing and distribution
- Value of hiring the right talent and team
- 6 years from 3 to 10 to 160 employees
- Building and sharing culture with locations that are “islands” away from the home location
- Keeping things local.
- Three Notch’d are the fifth, soon to be fourth, independent craft brewery
- Looking for inspiration from Bell’s, Deschutes, Sierra Nevada
- Goal is to own their backyard (Virginia)
- How does Three Notch’d see their industry evolving in the next 5-10 years? The parallels to real estate are remarkable.
- The inflection point
We hope you’ll join us for the next episode of Sweat the Details. View the full transcript below.
TRANSCRIPT
Jim Duncan: Hey, this is Jim Duncan with Nest Realty, and thanks for joining us again on Sweat the Details. This time we were joined by Scott Roth, he’s the president and COO of Three Notch’d Brewery based in Charlottesville. And we had a fantastic conversation about how he went from a BS in Industrial Engineering and pre-med at Lehigh University to founding an amazing brewery that has grown remarkably in the last few years. We were fascinated by the parallels between Three Notch’d growth and culture and what we’re building at Nest. I hope you enjoy the conversation. I know we did. And join us next time.
Jim Duncan: You know, I wanted to jump right in and say, you run Three Notch’d. How did you go from premed-
Scott Roth: Chemistry.
Jim Duncan: It’s chemistry? I had a client years ago, we were in closing and the the attorney said, “Oh, you’re a chemical engineer. You can make meth.” My client deadpans, says, “I can make a meth at scale.” So tell us a little bit about yourself, who you are, if you don’t mind. And then, I am really fascinated by how premed led to making awesome beer.
Scott Roth: Yeah, well, thanks for having me. So I started in engineering at Lehigh University, but to be fair, I actually started cooking sausage sandwiches at a Kutztown folk festival when I was 13. So I’ve been in the restaurant industry going on 26 years now, which is kind of crazy. But when I was at Lehigh, I did a lot of bartending, you can bartend at 18 in Pennsylvania. And I started managing an Irish pub there that had 46 draft lines and this was late ’90s, early 2000s, which was pretty early for craft beer in general. And the owner there was not the best owner, I will say, but he did have a really good appreciation for beer. And that’s where my love of craft beer started. I remember hating IPAs and I just couldn’t get over why people were so into them. And then I drank one pretty much every day for a year, and I still love IPAs.
Scott Roth: So it just took me a while to come around to that flavor profile, and hops in general. But I was always into the restaurant scene. The premed thing, I was very fortunate, I did very well. When I graduated, I was afforded the opportunity to stay for free for a fifth year because of my grades, but, at the same time, my father passed away. He was a medic in the Navy and a podiatrist and he always told me, don’t go into medicine, but I think I was doing some soul searching. It was a tough time as a 22 year old to lose your Dad and we were close. And I thought, you know what, maybe I do want to do medicine. I had the academic chops for it, so I didn’t have to do a ton more just because of how much science background I had in engineering.
Scott Roth: So I had to do a couple of orgo chems and a few things, so I really just bolted that onto my degree and I was able to stay for free, like I said. And while I was there, I was still running a restaurant and I was actually working at a high end martini bar too, I was moonlighting there. So I was running this Irish pub, doing that, going to school. And then I met my now wife towards the end of that fifth year and really decided that I didn’t want to go back to school for four years. Loved the restaurant industry, talked my dear mother into giving me a loan to try to start my own restaurant because I loved it. Did not like the idea of sitting behind a table and being an engineer and doing all the things that engineers have to do, although I was good at the work.
Scott Roth: Really enjoyed the people-facing component of food service and had been in it for a long time at that point, even though I was only 22, 23, so I was able to start searching all up and down the East coast. ABC licenses are very different depending on what state you’re in. Virginia’s nice in the fact that it’s treated like a traditional license. You can apply for it, and you can get it and it’s relatively inexpensive to have one. They will take it from you if you don’t treat it appropriately. But in states like Pennsylvania and, I think, New Jersey and potentially even New York, they issue a finite number per county and they end up getting treated like real estate. They’re very expensive. So if you wanted to buy an ABC license from somebody in Bethlehem, for instance, Pennsylvania, they were all already issued. So you had to buy it from somebody and those could be six figure plus purchases. So that was a large [inaudible 00:04:19] thing to getting into the industry up there.
Scott Roth: So anyway, my wife found this place, Sharky’s Bar & Grill, on Craigslist. I think we were in Burlington skiing and she found it. I don’t even know what she would have found it on. I don’t think there was, even had smartphones at that time. But I came to Charlottesville. She was finishing her master’s in higher ed, so she wanted to be in a college town. We came here, visited Sharky’s, which was, if anybody knows Sharky’s, it was a pretty rough pool hall. It was a black drop ceiling, three futons, four pool tables and a Tiki bar in what was, what became the McGrady space. I don’t know if any of you guys have been to Grady’s Irish Pub, but I was like, “I see it, and she was like, “No chance.” And I was like, “No, no, I really do.”
Scott Roth: So I convinced a buddy from college, who also had an engineering degree and a master’s in education, to quit his job in Manhattan and move down here with me. Took a loan from my mother. He took a loan from his parents, we paid them back. So I don’t want to, you know, get any Trump accusations here. But we opened McGrady’s with that, and so I ran that. He met his now wife, she was getting her doctorate here at UVA. They moved on in 2009, so I bought him out. And then I met my business partners. Derek Naughton is one of the founders, he’s a silent partner, except for his Irish accent and how much he drinks. But he was one of my first customers at McGrady’s because he lived right down the street. And Derek’s wife, Jamie, is lifelong friends with George Kastendike, who’s our CEO and my business partner.
Scott Roth: So the three of us became friends. George and I are big Eagles football fans, so we bonded over beer and Eagles football for a couple of years, and really just started talking about the need for a Charlottesville-based brewery. At the time, Devil’s Backbone and Blue Mountain were growing up. Devil’s Backbone, I think, opened the same year that McGrady’s did, so that would have been 2006, this was 2012. They also passed a law that allowed breweries to start serving a pint without having food, which was a big thing for the state. And we just looked at it and said, “I think there’s a need here.” You know, the Charlottesville Associated Breweries were really in Nelson County for the most part. And we started putting a business plan together.
Scott Roth: We were able to find a great brewer in Dave Warwick out of the Rock Bottom chain. He was an eight year pro by the time he came on board with us. And I was excited to get out of the restaurant industry, quite honestly, and get into a business that I could scale, and that’s where it all came from, sitting in a booth at McGrady’s drinking beers and talking brewery.
Jonathan Kauffmann: That’s great. So what was the first beer?
Scott Roth: The first beer was actually Hydraulion Red, which still exists. That was a red ale that Dave, a similar red ale to what Dave had been brewing at Rock Bottom, and also that type of beer, specifically, is kind to new yeast strains. So it was smart to do it first because we were able to pitch up the yeast and then use it for some other stuff. We did Hydraulion Red first, Trader Saison was second, then 40 Mile IPA, and then, I think, No Veto Brown. I think those were the first four.
Jim Duncan: So you’re clearly in a growing, but competitive industry where there’s changing consumer expectations all the time. How do you stay on top of and ahead of your consumer expectations in terms of tastes and experience and things like that?
Scott Roth: That’s an ever growing problem, I think, in our industry. We have done things pretty unique to the state of Virginia. We have our own distribution company. Until the fall of last year, Central Virginia Distributing handled all of our distribution for all of Three Notch’d in the entire state, and that is owned by our wives. And what that has allowed us to do is get beer to market very quickly, super fresh, manage the entire supply chain from raw materials acquisition until it pours out of the tap or it’s picked off the shelf in a grocery store. And that has given us a competitive advantage in a number of ways. One, I firmly believe we still have the freshest beer in the state. If you turn our cans over at most locations, they’re typically canned within a few weeks, which is pretty incredible, especially in the IPA game. And when you’re competing with out-of-state IPAs that are warehoused and shipped, and warehoused again, and back stocked and rotated, that’s a big competitive advantage.
Scott Roth: And also, because larger distributors that have tons of brands in their portfolio, they don’t like to take every varietal you have because it’s an inventory nightmare. But when you have your own distributor that’s a sister company, we can send anything to market we want. So it’s very easy for us to brew a small batch of something and get it out into the consumers’ hands and, and test the reaction. Minute Man is a perfect example. The New England style IPA craze is real, right now. We were way ahead of it. Minute Man in Virginia came out, I want to say, four years ago already. We brewed the first one and it was hazy. I don’t know if you guys have ever had Minute Man, but it’s not hazy anymore. And the reason it’s not hazy, is because when it came out, the trend wasn’t there and people were turned off by it.
Scott Roth: There was a good 90% of the beer-drinking population that didn’t want to see cloudy beer because, quite frankly, it’s bad brewing. New England style IPAs are quick, bad brewing. You’re not clarifying your beer, you’re just letting it go. You don’t care if the yeast falls out and creates chunks. The industry’s gotten better so there’s ways that we can avoid that now, which is nice. But Minute Man was a test and it went over really well. And then we said, “All right, well, if we’re going to put this out to the masses, let’s clarify this beer so that the geeks of the beer world still enjoy the flavor profile and the smell.” And yeah, we’ve been called out a couple of times. This isn’t New England, it’s not cloudy, but the vast majority of people try it and they love it because there’s little bitterness in clarified beer.
Jim Duncan: The science of beer just fascinates me. How long did it take you to get to the point where your team felt comfortable saying, “We’re going to start on a Monday and however long it takes to put a beer out,” and then say, “That’s when we’re comfortable with.”
Scott Roth: I wish it was a more interesting story, but really immediately. I mean we, George, Derek and I are not brewers. We hire the talent. And I think that’s one of the things we’ve done very well. We have an awesome production manager now, Rob Mullin, who started with Old Dominion 25 plus years ago. He’s been in the industry for that long. Dave Warwick came to us with eight years of experience and our first cellarman had 15 to 20 years of experience. So I think we may have dumped three or four batches in six years, and mainly it’s due to somebody missing an SOP on sanitation. So I think from a product quality and confidence standpoint, we’ve been there from the get-go and Dave’s always made good stuff and we’ve trusted him with that.
Keith Davis: It started with the three of you all, how many in your organization now?
Scott Roth: Yeah, actually George wasn’t even on payroll. I think it was just Dave and I as the first full time employees, and then we had a handful of taproom staff and one other helper in the brewery. So, let’s say, maybe 10 people on payroll in total, and we’re about 165 now for the brewery.
Jim Duncan: In how many years?
Scott Roth: Six.
Keith Davis: And you started in the old McGrady spot, which was a taproom, was, as you said, pints with no food. You had food trucks that came through, each day a different truck. And now you’re in a facility that handles how many covers on an average weekend night?
Scott Roth: Yeah. We see about 22 thousand people a week. Yeah. I mean, a tremendous shift, not just in the quality of beer or the amount of beer, but just the overall scope of the entire operations. [crosstalk 00:12:02].
Jim Duncan: So real quick to push on that 22 thousand number. Charlottesville is 50 thousand people in the city.
Scott Roth: Yeah.
Jim Duncan: The County is 105.
Scott Roth: Additional.
Jim Duncan: Yeah, that’s, that’s not a bad number.
Scott Roth: Yeah, we’re doing a better job of tracking the customers. The tourism component is serious for us. Fridays and Saturdays and Sundays, we’ll do two or three or sometimes four times the volume that we do Monday, Tuesday, Wednesday, Thursday. Not that those days are bad necessarily, but we really do see a lot of out-of-towners that are coming through. And that was the goal of the IX location, to your point. When we really started looking at the best breweries across the country, the ones that were interesting enough to be acquired by somebody as well, they all had a common thread and it’s that they all had a food component. So they had a real flag in their hometown. This is our flagship location, this is where you come to really experience our brand.
Scott Roth: And we didn’t feel like a disconnected taproom in an old dairy building with a thousand square feet was ever going to be that. And we were fortunate enough to find the IX property, which is a gem in and of itself. Not without its challenges, for sure, but allows us to really showcase the brand, I think, in a much better way.
Keith Davis: So the movement, and we want to talk some about the investments in the planning of that. But I want to just ask, when you guys, when the topic began getting broached up, “Let’s go from being a taproom tasting experience to a full fledged restaurant tourism hub type as establishment.” When you guys made that, was that before the guys at Stony Point were beginning the dairy building transformation? For the listeners, this is the building that you guys were in, is now under construction to become a completely new retail and hospitality hub, if you will, with residences. Was that process already in play when you guys made the decision to go to IX, or was IX something you guys sought out and then what’s going on at dairy building happened after that?
Scott Roth: We definitely started the process of finding the flagship location before we knew that the building was going to be sold. However, we found out that the building was going to be sold while we were in that process.
Keith Davis: So it was just a great timing for everybody.
Scott Roth: It really was. And we evaluated a few properties. I don’t think it matters to say, at this point, but there was a whole city block that was potentially for sale, over behind the Bodo’s area there, that was zoned appropriately for us. We looked at the Woolen Mills project, which actually is going to have a restaurant and that’s a really neat spot out there. And then we, it was a solid year of lease negotiation for us in our current location. And that, we moved in there for, it was 2017, we made it in August of ’17 for the first Virginia Craft Brewers Fest that we hosted. So that whole process started in 2015, I’m going to say, probably somewhere around there if you talk about lease negotiation, build-out, all that stuff. So yeah, we recognized pretty early on that we wanted to do that and we had already opened our Harrisonburg location and our Richmond location and really felt like that was the next big phase for us.
Jim Duncan: For the employees at those locations, do you bring them to your flagship with any kind of frequency? Do they come to get integrated into your culture? And how do you build that, maintain that thread, if you will, through all your locations?
Scott Roth: Yeah, that’s a good question. We frequently use the term island when we’re referring to the managers at those locations, in a good and a bad way. We don’t want them to feel like they are on an island, but many times they are, especially considering that they’re taprooms so they’re very small staffs. They’re not food service. We’re in the process of changing that in Richmond actually. I think, we’re going to be adding a food service component to our Richmond location, which is exciting. But yes, they come to town once a month, the managers do. And we have a very awesome employee, his name is John Burnette. We thankfully stole him from Aramark. He was their operations guy there and was overseeing something like, I want to say, 40 different retail operations at the University of Virginia. His title’s currently still the GM of the IX location, but he’s really more like the VP of Operations, and he oversees and is in touch daily with the managers of our other locations.
Scott Roth: And we have a Roanoke brewpub too. But the Roanoke brewpub, to my point earlier about staff, has an executive chef, a GM, an AGM, full time events person. So they’ve got their own little team down there, which I think really does help with culture. But we take visits as frequently as we can. I try not to go more than four or five weeks without visiting.
Jim Duncan: How do you all communicate? Do you have any tools that you use to communicate from a technology perspective to communicate, or is it just texting, email?
Scott Roth: All that stuff. We have shared Google drives, we have, all of our POS platforms are on the same system, so that’s easy to get a view into. And then we do leadership meetings on Tuesday mornings every week. So that’s our entire leadership team and that’s when we invite those managers in too, on a somewhat regular basis. If we had the opportunity, we’d take them every week, but it’s not necessary to do that.
Jim Duncan: Right. Scott, with beer, there’s obviously a real local pride that folks have about drinking what they know is brewed here. Do you guys find that the taprooms expand that localness? Do people in Roanoke think of you as a Roanoke brewery, or do they think of it as a Charlottesville brewery with a local hub? Do you know how that culture feels?
Scott Roth: Yeah, I think they do. I mean, for me as a business owner, I’ve always felt like if you can create a business in a locality and you’re employing people from that town and creating jobs and contributing to the local economy, then-
Keith Davis: You’re a local.
Scott Roth: You’re a local business. I mean, you are, right? You’ve got people paying property taxes, and you’re paying their payroll taxes and social security and you’re creating employment. And Roanoke, specifically, it’s a sizable operation down there, no different than any other full service restaurant. And what’s cool about those facilities is that our brewers, we have full time brewers at all of our locations. They make a different beer every week. So you can go into Roanoke and get a beer that I’ve probably never had and may not ever have. We’ve had hundreds of beers made in Three Notch’d portfolio that I’ve never even seen, because they come and go so quickly, which is pretty cool.
Scott Roth: And if you’re in the local area and you don’t want a Minute Man or a 40 Mile, which is, of course on draft everywhere in all of our locations, you can have five or six other beers that you will likely never see again unless they’re really popular. So that component, I think, on the retail premise side is a driving factor for people to adopt Three Notch’d as a local brewery. It also allows us in distribution to be top of mind. So we started Harrisonburg because we were expanding distribution to Harrisonburg, again with our own sister company. And the thought was, “Well, why would I ever pick up a Three Notch’d off the shelf if I’m in Harrisonburg, if I haven’t ever experienced the brand? So let’s create a place for people to walk in and experience the brand,” and that goes to culture.
Scott Roth: So there is a good amount of cultural training around how we treat our customers, what the expectation is, how we want the place to feel and how we want the customers to feel when they come in the door. And as long as we execute on that, we feel like that creates enough of a connection with Three Notch’d that when you’re at the grocery store, “Oh, Minute Man, yeah, I had that. I tried that on my flight the other day. That was great. I’m going to grab it off the shelf.” And we’ve seen it, it’s worked. We’re the fifth largest brewery in the state of Virginia and IRI data and we will likely be the fourth by the end of the year. And we’re competing with O’Connor, Starr Hill, I removed Devil’s Backbone from that conversation, if you want to put them there at the top. So bump us down one more notch.
Jim Duncan: Why are they out?
Scott Roth: Well, just independent Virginia craft.
Jim Duncan: And they got bought by-
Scott Roth: They did, and it’s also not fair. Those guys are great, I love Devil’s Backbone. I have some good friends over there. I’m not saying anything about them, but when you’re talking about how you’re capitalized, when you’re competing against a brewery that has that kind of support-
Jim Duncan: Anheuser Busch was-
Scott Roth: Yeah, it’s apples to oranges, right? So I’m talking about independent breweries that don’t have that type of additional support behind them. We’re talking Starr Hill, which has been around for a long time. O’Connor, which is, I think, five years older than us. Blue Mountain is number four right above us. And, I think, we may, hopefully pass them in sales this year, and Hardywood which has been around longer than us too. So there’s some big boys and we’re doing most of it ourselves.
Jim Duncan: You said three of Virginia’s top five brewers are located in Charlottesville, or Nelson County, I mean-
Scott Roth: Correct.
Jim Duncan: … central Virginia, right? That’s amazing.
Scott Roth: If you include Devil’s, it’s-
Keith Davis: Four of the six.
Scott Roth: Yeah, they are. And then O’Connor, obviously, is Norfolk, which is a huge market and they’re doing incredible things with El Guapo, and then Hardywood is a big player in Richmond.
Jim Duncan: What other areas around the country have a similar vibe or culture around beer? I mean, that you look to as inspiration, or we’d like to get there, or we don’t want to do that, or you know, where do you see that?
Scott Roth: Well, I think some of our inspiration for the Three Notch’d flagship model came from Founders, Bell’s, Stone, Sierra Nevada’s location down in North Carolina.
Jim Duncan: Which is phenomenal. Yeah, it’s incredible.
Scott Roth: Phenomenal. I mean, that’s a different level, but those are sort of the inspirations there. And then, I think, there’s a couple areas in the country where the taproom model where they have multiple smaller locations has taken off. But it’s not new news in those areas, right? It was new in Virginia. We were the first ones to really do that. We were the first ones to really make a go of it with self-distribution.
Scott Roth: So, I can’t think of a specific brewery that we’re, I think we’re trying to be unique. We want two more locations. We want one in Norfolk, which we have an LOI on and hopefully we’ll have a location in early 2021 or late 2020, which is going to be really cool and we’re working in northern Virginia too. I mean, if we could be in six, you know, the major metropolitan areas, six locations throughout the state, our goal is, “Let’s own our backyard,” so we’re only focused on Virginia. We don’t send a drop of beer outside of state lines.
Jonathan Kauffmann: I want to talk about the real estate industry, where we’re operating is just evolving on a regular basis. It’s just continued and we have conversations all the time of where is the business going to be in five years? Where’s the industry going to be in 10 years? How do you see your industry evolving in the next five or 10 years, and do you have any kind of expectations of how it’s going to change?
Scott Roth: Yeah, my guess is that there will continue to be consolidation in the distribution channels. Any of the breweries who have stood up large operations as a new brand in the last four years, that have overcapitalized too much money in equipment, are going to be in trouble. It’s not easy to get into the distribution chains like it was 10 years ago. Fifteen years ago, it was real easy. I mean, it’s never easy, but there’s so much competition now and there’s variety and skew fatigue occurring at the buyer level for major national chains. You have to have really solid data to justify expanding your footprints. So I think you’ll see a lot of those breweries that have spent two million dollars on build-outs either look to sell, consolidate, become part of larger networks or dissolve.
Scott Roth: But I think the taproom model will continue to be strong. I think we’re moving more towards the traditional European brewery model, which, for the most part, there’s little breweries all over the place. And if you don’t spend an arm and a leg putting up a brewery, which you don’t really need to do. You can spend, 150 thousand dollars, which is basically what you spend to build a kitchen and put a brewery in there, and work pretty modest hours and run a lean staff and make a good living. And I know a number of my peers that are in the industry that have no desire to do more than that. They’re like, “I can put my kids through college on this. I love my job. I get to brew beer and make a different beer every week. I get to meet my taproom people and I’m good with it. I don’t see that going anywhere. So I don’t know that the number of breweries is going to dramatically decrease. But I do think there’s a section of our peers that are going to really struggle for the next couple of years.
Scott Roth: And I think we were fortunate to get in when we did and we got ahead of that a little bit. And now by adding some additional retail margin to our business by opening these other locations, it really puts us in a spot for the business to pay for itself.
Jonathan Kauffmann: Interesting. I love the way that you have started your business, and as you have grown it and gotten into it more, you’ve run into roadblocks and said we need to start our own distribution, and laws have changed and you’ve looked at new opportunities with the restaurant business and continue to look at new opportunities out there. So clearly you’re looking at, you guys are in your business and you’re very focused on details.
Jonathan Kauffmann: This podcast, Sweat the Details, I’d love to wrap up with one final question for you and just say, “What’s the one detail that you and your partners and your team are laser-focused on and sweat on a daily basis?
Scott Roth: One’s tough. It’s probably a bigger, it’s not a minute detail, but, for me, we are approaching a point in our business where we’re going to be faced with a very large decision and it’s, quite frankly, the decision that we’ve seen take down some big guys. Green Flash is one. Oh, what was the company up in … is it Long Trail in Vermont, there’ve been a couple of big breweries. When you get to a certain size, you have to decide if you’re comfortable being at that size forever. Because at some point, the facility’s maxed out or you want to take a look at a real real estate play and double down, triple down with a five, six, seven million dollar expansion and then decide whether or not you have what it takes to build enough demand and have the supply go out the door to cover that cost.
Scott Roth: And I think we’re getting to a point where that decision is going to be on the table for us in 24 months. So it’s something we talk about pretty regularly. Like, do we just want to stay in Virginia, try to max out our current facility, open a few more retail locations and just have the engine churn? But at that point then, growth, in theory, stops, right? And I’m not sure where our comfort level is there because we feel like we have an obligation to our investors to get them a return. And that’s probably sufficient if we have good [inaudible 00:28:01] and you grow the business to a good point. But as entrepreneurs and people who are inherently prone to a little risk, I think we’re always looking at it the next big play, that one I think about pretty regularly now that we’re at the position we’re in, if that makes good sense.
Jim Duncan: It does, challenges. It’s a good challenge to have and it’s great that you focus on it. So thanks for taking time. It’s awesome that you spent some time with us and keep it going.
Scott Roth: Thanks.
Jim Duncan: Scott, thanks so much. Really appreciate your time.
Scott Roth: Yeah. Drink Three Notch’d.
Jim Duncan: Will do.