solve the case study

John K. Visich, Christopher J. Roethlein and Angela M. Wicks

Introduction to Narragansett Brewing Company

Narragansett Brewing Company (NBC) was originally founded in 1888 in Cranston, Rhode Island, and it experienced tremendous growth right from the start. By 1908 the company was producing 196,000 barrels (1 barrel = 2 kegs = 31.5 gallons) annually and the rapid rate of growth continued right up until prohibition. NBC survived prohibition and in 1959 production reached 1,000,000 barrels. NBC reached their peak of popularity in the 1960’s with 65% of the New England market share, and Narragansett was available at 80% of the bars in Rhode Island and 100% of the retail stores. Competitive pressure began to increase significantly during the later 1960’s and in 1974 Falstaff Brewing Company, of St. Louis, Missouri, purchased NBC. At the time of sale, NBC was brewing 1.27 million barrels annually. Profitability problems led to the closing of the brewery in July 1981 and in 1983 the Narragansett Brewery closed their doors for the last time. Most of the brewery equipment was shipped to China and in 1998 the once-proud brewery was demolished to make way for a retail complex.

In 2005, lifelong Rhode Islander Mark Hellendrung and a group of New England investors purchased the rights and licenses to sell and market Narragansett beer. Mark recruited the Brew Master from the former Narragansett Brewery in Cranston, Rhode Island and in 2006 the original recipe Narragansett lager was available for sale. Narragansett’s sales have grown steadily since the rebirth as both product variety and geographic spread have increased. Currently, Narragansett’s beers are brewed in two locations: all bottles and cans, and year-round kegs at the High Falls Brewery in Rochester, New York; seasonal kegs in Coventry, Rhode Island. Because the majority of the beer was produced out-of-state, Mark received push-back from restaurants, bars and liquor stores in Rhode Island about why they should sell a Rhode Island beer made in another state. Narragansett turned this around with the slogan “Buy a Gansett, Build a Brewery,” which became a major marketing campaign. Building a brewery in Rhode Island would validate the success of Narragansett and help to grow sales in the entire New England region. Pressure to build a brewery in Rhode Island was also coming from new craft beer competitors who were popping up all over Rhode Island and could lay claim to being a locally produced brew.

Mark knew Narragansett needed to brew beer in Rhode Island. Moving the entire production from the High Falls Brewery in New York to Rhode Island would be expensive and disruptive. A significant investment would have to be made in equipment to brew and package large quantities of beer. Bottled and canned products are pasteurized and have a 180 day shelf life after which the beer will begin to taste stale and/or flat. Keg beer is not pasteurized and has a shelf life of 60 days although at 90 days it is still acceptable. A considerable amount of space would be required for storing ingredients and packaging materials, brewing, bottling, canning and keg filling, as well as temperature controlled storage for finished product. Due to the scale that would be required to perform all brewing in Rhode Island, Mark and his team decided that the best strategy would be to operate a keg-only facility in Rhode Island. This would require a much smaller investment in a facility and equipment, while giving Narragansett tighter control over a short shelf life product. Control was especially critical for the four seasonal beers (Bock, Summer Ale, Fest and Porter). With a keg-only facility, Narragansett could also compete with the local craft brewers by producing a variety of unique, short-run styles.

The Keg Facility Location Decision

Keg sales in 2011 were around 5,500 barrels and Mark estimated that the annual production of a keg facility should be approximately 7,000 barrels, with a monthly seasonal peak of 700 barrels. This would require a minimum floor space of approximately 30,000 square feet (sq. ft.), provided the space available could be utilized in a highly efficient manner. Inefficient floor plans would require a larger amount of space for operations. The minimum ceiling height needed to install the brewing equipment was 12 feet. The facility would need to include room for production, inventory storage, office space, a tasting / heritage room and a gift shop. Mark also envisioned plant tours as a way to help promote Narragansett and build customer loyalty.

Rhode Island accounted for the largest percentage of Narragansett’s sales and was distributed by two wholesalers that were both located in Cranston off exit 14 of major highway I-95. The first distributor, McLaughlin Moran, is located at 40 Slater Road. The second, Wayne Distributing Company, is at 45 Sharpe Drive. Being close to the wholesalers would reduce Narragansett’s transportation costs to deliver filled kegs to the wholesalers.

Other factors that are important to NBC included community approval, the advertising and promotion potential of the building through billboards and signage, the number of vehicles that drove by each day and the accessibility of the building to the general public for facility tours. Because breweries emitted a strong aroma that might be considered an annoyance by some residents, a good fit with the local community was critical. The cost to lease the building as well as any costs to upgrade utilities and or configure the building for a brewery would have a major influence on the facility location decision. The estimated operating costs were also very important since a low lease cost could be offset by a high operating cost. The number and location of loading docks would also be important. Proximity to a major highway, sufficient space for a heritage/tasting/merchandise room and expansion also needed to be considered.

In the early winter of 2012, Mark and his team began exploring properties throughout Rhode Island in order to develop an understanding of the commercial real estate market in Rhode Island. They took an unstructured approach by doing on-line research, visiting buildings and gathering information from local real estate agents. After a few weeks of fact-finding, Mark’s team identified the three best locations (labeled A, B and C) that had been investigated.

Location A: 90 James P Murphy Highway, West Warwick, Rhode Island

This 50,000 square foot building on 7.8 acres had 26 foot ceilings and 16 loading docks with bumpers and levelers. The loading dock doors are 10 feet high and 8 feet wide, and could easily allow access for the brewing equipment. The lease cost is $4.00/sq. ft. which would be $200,000 a year. The insulated building is equipped with high efficiency lighting and motion sensors, which would help keep down operating costs. Renovations and upgrades would be minimal and there is ample room for parking cars and tractor trailers. There are 40 parking spaces in front of the building for visitors and a large lot nearby for employee parking. Interstate highway I-95 is 1.5 miles away, a 4 minute drive, and a billboard on the roof would be visible to the thousands of cars that drove by each day. The building is located in a business park, so noise and odor would not be a problem, and the lot had two entrances; one in the front for visitors and another one that led to the back of the building for deliveries. The open floor plan meant that a highly efficient layout that did not utilize all 50,000 sq. ft. of space could be designed. However, the vacant space cold be used to expand brewing production beyond the 700 barrel maximum peak production.

Location B: 95 Grand Ave., Pawtucket, Rhode Island

This massive 400,000 square foot, two- floor building was constructed in 1930, but was renovated in 2009 and would require little in the way of utility upgrades. Located in an industrial zone, the building had 14 to 18 foot ceilings and 10 loading docks. Approximately 350,000 sq. ft. on the ground floor was warehouse space, while 50,000 sq. ft. of office space was located on the second floor. One year leases could be signed as follows: warehouse space at 10,000 to 75,000 sq. ft. for $2.50 to $3.00 sq. ft. and office space at 10,000 to 50,000 sq. ft. for $6.00 to $7.00 sq. ft. This space flexibility would facilitate future expansion of the brewery. Renovations would be required to secure both the production area and the office space, and the flow between the two areas would not be smooth unless offices were constructed in the warehouse space. There is ample room for signage, sufficient parking for employees and visitors, and though the building is located only 2.5 miles from I-95, it is a ten minute drive due to the numerous stop lights. And, the building is located near residential properties; hence odor might be an issue with the community. However, the mayor and town council of Pawtucket are very business friendly and had streamlined the processes required to open a business in Pawtucket.

Location C: CJ Fox Building, 2 Fox Place, Providence, Rhode Island

This historic Rhode Island building on 2.16 acres of land was constructed in the year 1900 and it has great visibility as approximately 166,000 cars drive by daily on I-95. There is easy access to I-95, as well as I-195 which leads to a distributor in south east Massachusetts. The building has four floors, each at 16,125 square feet and rent is $2.00/sq. ft. All four floors are vacant so Narragansett has the option of leasing any number of floors. The ceilings are 16 feet high, there are three loading docks, one large drive in door and parking for 100 cars. Access is tight for a 40 foot tractor trailer, but manageable if the driver has sufficient skill. The building is fire code compliant, is fully air conditioned and has a security system. However, due to the age of the building, extensive renovations would be required to upgrade some utilities. While brewing operations could be conducted on the ground floor and the offices and other rooms could be located on the second floor, expansion of brewing operations would require the use of a new floor which would lead to costly production inefficiencies. The building is located within walking distance of the Providence Train Station, the Providence Convention Center, and the downtown area. Visitors to Providence could easily walk to the brewery for a tour and merchandise. The entire area around the building is zoned commercial so brewing odor would not be a problem with the local businesses. However, due to the proximity to the downtown area which had a high pedestrian volume, the aroma might be a problem on humid summer days.

The Brewery Location Decision

In order to back up Narragansett’s “Buy a Gansett, Build a Brewery” slogan a decision needs to be made regarding the location of a keg-only brewery in Rhode Island. Mark needed to utilize one or more formal facility location methods to help him compare the three locations and decide which would best meet Narragansett’s current and future needs.

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