“We were an old brewery known to make kind of crappy beer,” recalls Doug DeGeest, vice president and general manager of Cold Spring Brewing Company. “We were at a low point in the industry and knew we had a lot of work to do to change consumers’ perception.” He’s referring to the 1990s, when Cold Spring’s name conjured images of low-brow lagers relegated to the back corner of liquor stores.
That stigma has kept Cold Spring off the radar amid the well-publicized craft beer boom. But strategic investments, rebranding efforts, and a $14 million state-of-the-art brewhouse have morphed the company into a diversified beverage-industry powerhouse—one that produces and packages millions of cases of nonalcoholic beverages and craft beer each year for clients from all over the country.
During its storied history, Cold Spring has been forced to reinvent itself more than once in order to stay afloat. Its latest incarnation has more to do with pride, reputation, and long-term sustainability than with any short-term business impetus—but a new focus on higher-margin craft beer is quickly adding to the company’s bottom line.
Now it’s eyeing more growth, betting its new proprietary brand will take center stage in an increasingly crowded craft beer market.
The Bottom of the Barrel
Cold Spring Brewery was founded in 1874 near the cold spring from which it and the surrounding central Minnesota town derive their names. It navigated Prohibition by marketing alcohol-free malt tonic beverages, and by the mid-20th century, its beer and mineral water were national staples.
By the mid-1990s—after a group called Beverage International bought out the company’s longtime family owners and made an unsuccessful push to go public—the company was on the brink of extinction. It made last-ditch efforts with gimmicks like Elvira’s Night Brew, branded with TV horror-show hostess Elvira, Mistress of the Dark.
Funds ran dry, paychecks bounced, and all employees were laid off. But a handful of dedicated employees rounded up an investor group, including a local banker, to keep the company afloat, in part by emphasizing the iconic Gluek’s beer brand. In 2000, John Lenore, owner of a California distributorship, acquired the business and shifted focus to nonalcoholic beverages.
DeGeest says Lenore invested “millions and millions” in cutting-edge equipment for the company’s 170,000-square-foot production facility, where Cold Spring “batches” non- alcoholic beverages—mixing water with sugar, caffeine, and other ingredients—and bottles, cans, and packages them for distribution. Today, the facility runs three packaging lines that move roughly 25 million cases each year of both beer and “nonalc” products such as energy drinks and juices.
Upgrades enhanced efficiency and capabilities. For example, the facility added several new “fillers,” which cost around $1 million each. It takes hours to convert a filler for a new use (say, from 12-ounce cans to 16-ounce), but Cold Spring switches them out without missing a beat—a major advantage, considering a single machine fills between 400 and 1,000 containers per minute.
When DeGeest joined the company more than two decades ago, “it was putting out about 40,000 cases of product a month. Now we can do that in less than 12 hours.”
Lenore leveraged connections with companies like Monster Beverage Corporation, the $2 billion California-based energy-drink behemoth and a key Cold Spring client today. And in 2006, the company acquired Monarch Custom Beverages, which develops and produces private-label beverages for convenience store chains, such as Snake Eyes energy drinks for Holiday Stationstores, further diversifying its operations.
From the West Coast to Here
Meanwhile, Cold Spring was contract-brewing—making and packaging clients’ beer for a fee.
Such services are attractive to brewers that can’t foot the bill for their own equipment, seek to increase production beyond their own facilities, or want to reduce freight costs by expanding geographically.
Such services are also rare in the region. In 2008, when Nico Freccia, cofounder of San Francisco brewpub 21st Amendment, began scouting for a partner that could accommodate rapid growth, “there was literally not another option between California and Minnesota.” Inking a deal with Cold Spring, he says, “allowed us to grow on both coasts simultaneously.”
Some of the Beer Brands Brewed at Cold Spring
21st Amendment (California)
Big Wood Brewery (White Bear Lake)
Lift Bridge Brewing Company (Stillwater)
Tallgrass Brewing Company (Kansas)
Third Street Brewhouse (Cold Spring)
Cold Spring also lured local clients, including Stillwater-based Lift Bridge Brewing Company. But as the craft beer industry took off, Cold Spring began struggling to attract high-caliber customers because of its antiquated brewing equipment, which had been virtually untouched despite investments in nonalc production equipment and packaging operations. Case in point: Its brew kettle was from the ’40s, and several components were homemade.
“The breweries we attracted had a lot of concerns about our facility,” says DeGeest. The reputation of Cold Spring’s own low-price beers Gluek and Northern only exacerbated the problem. To compensate, the company ramped up production of flavored malt beverages such as hard lemonades—essentially flavorless, clear beer to which flavors are added.
“We could’ve brought the beer gods into that facility and they would’ve failed to make great beer,” says DeGeest. “I certainly was not satisfied with our mediocre beer,” he adds, referring to the company’s proprietary brands. “To walk around with your peers and know that we were the laughingstock of the industry, that was an impetus” for change.
DeGeest consulted with system manufacturers and other brewers, developed a plan for a new $14 million brewhouse, and pitched it to Lenore, who replied: “What the hell are we waiting for?”
Shifting focus to craft beer was fueled largely by a desire to remake Cold Spring’s image, rather than because of an immediate business need, says DeGeest. “It wasn’t that we had to—it’s because we wanted to. How can you be a world-class nonalc producer and not a world-class beer producer? I thought, ‘If we can’t be among the best at it, why do it at all?’ ”
But the move was also meant to ensure long-term stability, as Cold Spring recognized that consumers’ tastes were moving away from lighter, cheaper beer.
The ‘Dream Team’
Cold Spring’s plan called for demolishing an administrative building near its production facility to make room for the brewhouse. Neighbors who had already complained about odors from a wastewater treatment facility on Cold Spring’s property, which is nestled in the heart of the town, initially opposed the expansion, fearing it would intensify the problem. With the help of the city, the brewer convinced doubters that the project would not compound the issue and that work was underway to resolve the problem.
Amid those discussions, the company never explicitly threatened to move, but Cold Spring City Administrator Paul Hetland says the concern was top of mind: The company employs 240 in a town of roughly 4,000, it “didn’t ask for a penny in tax subsidies,” and is the city’s largest taxpayer. (Of the roughly $534,000 that the company paid in 2012 property taxes, $91,000 went to the city of Cold Spring, exceeding the combined contributions from the city’s second- and third-largest taxpayers, Gold’n Plump Poultry and granite company Coldspring.)
Approvals procured, the company embarked on a year-long construction project, erecting an 80,000-square-foot brewhouse equipped with 17 miles of stainless steel and a computerized system that makes the brewing process 90 percent automated.
A fancy facility, however, would not brew quality beer on its own, nor would it erase Cold Spring’s image problem. So the company branded its new operation the Third Street Brewhouse, named after a street that runs through its property but was long ago abandoned by the city. For new designs—from logos to tap handles—it enlisted Gaslight Creative from nearby St. Cloud.
The company also halted production of the 150-year-old pilsner brand Gluek. “The minute we announced it, there were 20 TV stations asking, ‘How the hell could you discontinue such an iconic brand?’ ” recalls DeGeest. “I responded: The beer’s mediocre, we don’t sell much, and when we do, we at best break even.”
Meanwhile, Cold Spring assembled what DeGeest dubbed the “dream team,” starting with the hire of Summit alum Horace Cunningham as director of brewing. Then came Bob McKenzie, formerly of Minneapolis’ Rock Bottom Brewery, Adam Theis, a Cold Spring native who worked at Minneapolis Town Hall Brewery, Chris Laumb of McCann’s brewpub in St. Cloud, and Steven Gittens of Banks Breweries in Barbados, among others. They teamed with Mike Kneip, who for four decades had manned the company’s brewery equipment.