Colorado and Beverages

The Colorado Business Review (CBR) is a quarterly publication of the Business Research Division at the Leeds School of Business.  Past issues of the CBR have looked at things as broad as the general Colorado economy to much more specific topics like water and irrigation.  In particular, the October 2012 issue examined the beverage industry in Colorado, and so this post will look at some of content of that issue.

In Boulder, we know associate Ball Corporation with Ball Aerospace, its division which designs and builds satellites, and the jars seen at local businesses like Cosmos pizza.  In an article written by  Jim Peterson, a Vice President at Ball Corporation, we learn about the other 90% of Ball’s revenue: manufacturing cans.  The cans they produce are used by beverage companies all over the world, but many of them are here in Colorado.  One of their largest customers is Coors, located in Golden, CO (also the site of a Ball facility).  Not all of Ball’s customers are large corporations, though; some of Ball’s other customers are smaller, local firms like New Belgium Brewing and Oskar Blues.

Another article, written by Doug Caskey of the Colorado Wine Industry Development Board, talks about the thriving wine industry present on the western slope.  Centered around Grand Junction in Mesa County, the industry is aided by the abundance of sunlight and the arid environment.  Although small, the industry is growing rapidly: a study from 2006 estimated its impact at $21 million, while a later study in 2009 suggested that impact had grown to $60 million.

Erin Humphries, a Senior Product Manager at Celestial Seasonings, writes about the changes taking place at Celestial Seasonings.  The firm, headquartered in Boulder, sells its products around the world.  While usually associated with tea, the article is quick to point out that Celestial Seasonings is diversifying into other beverage types, including wellness and energy drinks.  The firm is also putting a new spin on its classic Sleepytime tea line: “Sleepytime Snooz shots”.

To find other issues of the CBR and other publications from the Leeds School of Business, go here.

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Craft Brewers in Colorado

Colorado is known for many things, including its sports teams, fantastic outdoor recreation, and others.  One of the lesser known facts is that craft brewers play a large role in the state economy.  In 2012, the Business Research Division at the University of Colorado Leeds School of Business conducted an economic impact study of craft brewers in the state of Colorado.  The daily camera has a summary of the study here.

Craft brewers in Colorado can be thought of as all the brewers besides Coors.  Coors is the elephant in the room, a giant in the industry (7th largest in the world).  Its facility in Golden is the largest single brewery in the world.  But despite the size of Coors, it is the smaller craft brewers that draw the attention of enthusiasts and economists alike.

According to the Business Research Division study, the first in Colorado dates back to 1859.  In 1975, the industry had been in a steady decline, and there was only one brewery in the state.  Thanks to legislation in the state which supports the industry, the number of establishments reached an all time high of 136 in 2011.

A slight majority of those establishments are brewpubs, or businesses which both produce beer and operate a restaurant.  The labor intensive nature of the craft brewing business (especially in conjunction with a restaurant) means that craft breweries employ a lot of Coloradans.  The industry employed an estimated 4,170 works in 2011, paying $102 million in wages.  Converted into an annual salary, that averages less than $25,000 per employee, which is well below the state average income.  Part of the reason for this is the part time nature of most restaurant/bar-tending jobs.

And the craft brewers in the state are locally oriented.  Less than a quarter of breweries export outside the state, with the rest catering to Colorado residents.  Some breweries are so in tune with the classic Colorado outdoor lifestyle that they offer ski passes to employees as a form of compensation.

In all, the industry had an economic impact of $450 million in 2011 and supported the employment of $5,800 residents.  Excise taxes were estimated at just over $1 million, and state/local taxes related to the businesses’ operations $40 million.

Coors might be the largest brewer in the state, but the smaller craft brewers shouldn’t be overlooked.

The Natural-Products Space

Boulder is known for it’s thriving natural-products industry, and in this post we’ll consider the economic impact of that industry.  The Boulder County Business Report provides an excellent list of all the natural products companies located in Boulder and Broomfield counties in their 2013 Book of Lists.  CU students can access that list online through the Business School Library here.  The list details 23 companies classified by the Boulder County Business Report as natural products companies.  The list includes information about revenue, employment, and a description of what each company does, along with some other details.

Let’s take a look at the firms’ 2012 revenue.

Revenue

The first thing we notice about this chart, which displays the revenue of the top 5 firms (ranked by revenue) is the elephant in the room – Celestial Seasonings.  Celestial Seasonings is a large, international tea company.  They produce over 70 varieties of tea, as well as other wellness drinks.  Their sales in 2012 were nearly $1.4 billion, fully 89% of the total sales of natural product companies located in Boulder.  The next largest company is Pharmaca, a pharmacy which offers general pharmacy services as well as other natural products.  Their sales were just over $100 million, less than a tenth of Celestial Seasonings.  It’s important to note that Gaiam Inc, nor Boulder Brands, Inc. were included in this list.  Those two companies are both very large, with 2011 sales over $270 million each.  However, at the time of the compilation of the 2012 list, those two companies had not released 2012 revenue figures, and so were not included.  We can see that only a bit less than $22 million in revenue comes from the 18 other firms outside the top 5.  In other words, the top 5 account for a massive 98.6% of natural product revenue.

Let’s take a look at the firms’ 2012 employment.

Employees

We see a much different picture here than with revenue.  Celestial Seasonings employs 251 people at its Boulder location, which is 45% of total natural products employment in Boulder.  It’s also interesting to see that the 18 other firms outside the top 5 account for a significantly larger proportion of employment than sales.  Together, they employ 128 people, or 23%.

Although the natural products space is dominated by giants like Celestial Seasonings, Pharmaca, Gaiam, and Boulder Brands, the small companies in the industry are a significant source of employment in Boulder.  It is because of small, entrepreneurial companies like these that makes Boulder a popular place for companies to form.

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The Case for Less Taxation and Regulation of the Colorado Brewing and Distilling Industries

The brewing and distilling industries in Colorado employ thousands of people with millions of dollars in wages, yet their economic impact on the state is underappreciated.  Specifically, high taxes and overly stringent regulation restrain growth in these industries.  The repeal of these taxes and regulations would support the creation of thousands of more jobs, and would do far more good to the Colorado economy than the current taxation and regulatory scheme.

The brewing and distilling industries are an important part of the State economy.  According to an article by John Carlson, the Executive Director of the Colorado Brewers Guild, in the Colorado Business Review, craft brewers are an important part of the state economy.  Carlson says that craft brewers (essentially all brewers other than Coors) employ 5,800 Coloradans.  A study by researchers at the University of Colorado estimates that craft brewers directly employ 4,170 people, and the total output of the industry amounts to $445.9 million.  Distilling, too, is an important (though smaller) industry.  The Redstone Meadery in Boulder is one of only a few producers of mead in the entire country.  Nationally, distilled spirits account for $117 billion in economic activity, according to Rob Masters, Head Distiller of Spring44 Distillery and President of the Board of Colorado Distillers.

The regulation and taxation of these industries is ostensibly for the purposes of consumer protection.  While the drinking age is a particularly controversial regulation concerning these industries, it is not the focus of this post.  Rather, this post is concerned with the regulation surrounding the mechanics of the industry.  Examples include the regulations surrounding distribution of alcohol in the state (which while looser than in other states, still inhibits growth), and the process of issuing liquor licenses.  Although casual research of the subject might suggest that Colorado imposes far fewer regulations and taxes than other states (true), the regulations and taxes it imposes create an unnecessary burden.

Despite the good intentions of these regulations, they serve only to disrupt the functioning of the markets, and ultimately harm the economy.  Masters says the tax on distilled spirits (as high as 54%!) suppresses growth.  Although it has already been noted that Colorado regulatory regime is less burdensome than other states’, the state can do better.  Uncertainty about future regulation is a large concern for the small craft brewers and distillers in the state.  Where a large brewer like Coors has the scale and clout to continue a profitable business in the face of regulation, smaller businesses might be forced to close us shop.  These past success of these businesses is a source of pride to the state, and their continued success relies on less regulation and taxation.

For more information, look for the Colorado Business Review, a publication of the Business Research Division at the Leeds School of Business.

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Weekly Recap

This week we inaugurated our blog with a diverse set of posts on food and beverage companies in Boulder.  So far, we’ve discussed the business environment in Boulder and some new developments taking place.

On Tuesday, we talked about Smart Balance, an organic and health foods company, which recently moved to Boulder, renaming itself Boulder Brands.  The move is indicative of the health-conscious reputation of Boulder consumers.  Furthermore, Boulder is positioned for more growth in the food industry; according to Boulder Brands Chairman and CEO Steve Hughes, “Boulder is the Silicon Valley of food”.

On Wednesday, we discussed competition and local businesses in a post about the Boulder Independent Business Alliance (BIBA).  BIBA helps small local businesses compete against large national chains.  Boulder is known as a community which supports local businesses, and BIBA supports them by offering advertising and marketing services to businesses.

On Thursday, we looked at Community Food Share, a local food bank serving Boulder and Broomfield counties.  Although Community Food Share isn’t a business in the for-profit sense, it’s just one of many local organizations which exists to serve the people in the community in which it operates.  Community Food Share has delivered over 7.5 million meals in the past 32 years, and is currently holding a charity competition with companies like Amgen, Ball Corp, WhiteWaves Food Co, and others.

Lastly, on Friday we read about Trader Joe’s entrance into the Boulder grocery market.  Within a few months, Trader Joe’s will join Safeway, King Soopers, Sprouts, Alfalfa’s, and other grocers in the Boulder market.  Trader Joe’s will be located in the 29th street mall, and in coming to Boulder, the company stresses its’ wide and sometimes eclectic mix of food.

What is this blog about, and why did we make it?

Our blog topic is centered on various segments of the food and beverage industry in Boulder, Colorado. These segments include entrepreneurship, sustainability, restaurants, beverages, and organic operations. The primary motivation for this topic selection was the particular uniqueness of the industry in Boulder. This mainly stems from the ripe environment for entrepreneurs, commitment to environmental issues, and general openness to new ideas such as organic food projects. These ingrained traits of Boulder differentiate it drastically from not only other cities in the state, but nationwide.

The specific posts of the blog will be dedicated to investigating these traits and the effect that they have upon the local food and business industry’s development. These posts will vary in both focus and content, with an emphasis on certain issues on different days of the week. The blog will consist of persuasive pieces, analysis of company behavior and decision making, positive developments in the local industry, informational segments, and more. With four student contributors and several formats of communication including video logging, the blog will offer a memorable and informative experience for our target audience, the citizens of Boulder.