Standing on a hillside overlooking the Cottonwood River in 1860, German immigrant August Schell must have felt great exhilaration, mixed with trepidation, at the thought of opening a brewery in the small town of New Ulm, Minnesota.            

He clearly had an eye for beauty, as the site remains as pristine today as it must have been when August first surveyed it. August also had an eye for the practical. The location offered the brewery several important commercial advantages. The brewery was located near fresh spring water, and the river provided both a mode of transportation and much needed refrigeration in the form of winter ice harvests.

Schell could not have foreseen, however, the winding road the brewery would travel on the way to its 140th anniversary. Putting aside the crushing challenges posed during Prohibition, Schell's descendants have dealt with the marketing onslaught of the national brewers, while surfing the better beer trend wave. These challenges crushed dozens of other regional breweries.

With a downturn in the contract brewing market, continued pressure from better beer providers, and the smothering size advantages leveraged by the national breweries, regional breweries such as August Schell still face an uncertain future. As the few remaining regional breweries mull their respective business situations, they must consider the question often asked by the loner - where do I fit in?

I recently spoke with Ted Marti, descendant of August Schell and current president of the August Schell Brewing Company, to discuss the challenges facing regional breweries, his ancestors' ability to sustain and grow the family business, and his plans for the brewery's future.

ANDY CROUCH Tell me a little about the history of the August Schell Brewing Company.

TED MARTI We we're founded in 1860 by August Schell, and he built the brewery on the same site we are on now. Actually, the home and the initial brewery are what is now our office. He is my great-great grandfather, and his daughter married a Marti. Then, when August Schell turned the reins over to his son, Otto Schell, his son-in-law George Marti came into the business at the time, helped manage it and he ended up taking it over. And it went down from Marti to Marti to Marti.

AC Michael Jackson has described your brewery's location as one of the most beautiful in America, but it is also very industrial. How would you describe the site?

TM We are obviously an old brewery. I don't know that I'd describe it as industrial as I don't know that we are much different from any other one. I guess we're probably not like a new microbrewery, that's true.

AC What challenges does such an old brewery pose for the company?

TM We just added on a 60x100 foot building, and we, of course, have to dig that into the hillside. We're obviously out of room now. Trucking is pretty much a nightmare, getting trucks in an out of here. It wasn't so bad when they were only 40 feet long, but now they're 53. So it's been a challenge.

AC August Schell produces several different lines of beer, including craft beers and American style lagers. Where does Schell fit on the brewing spectrum?

TM The term "regional brewery" applies to the older ones which have survived a long time. I wouldn't classify us as a big regional, certainly a small regional. The craft brewer designation probably applies to breweries that are twenty years old or so. We certainly make craft beers, and that's a huge part of our business. But I think the term "regional brewery" sort of implies that you make American lagers, as well as craft beers, and you're old. So I think small regional.

AC As you noted, Schell has a wide-ranging portfolio of beer. Tell me about your brands.

TM From 1860 coming forward, of course, all breweries started out with classic European style beers. Then they gradually lightened and lightened them to the public's demand. And that's what we did. So we ended up with what was called our Deer brands. We changed it a few years ago to Schell's Original. That's a very popular style. Within our small rural area around here, it is our most popular brand. And we obviously have a light counterpart and a dark counterpart to that, and they are all American style lagers. Then about 1985 - even before that with our bock beer - we started producing more and more all-malt beers. We have pretty much had four year-round, all-malt craft beers. That's our Pils, our Firebrick, our German Pale Ale, and our Schmaltz's Alt. The we compliment that with seven seasonals. Bock and doppelbock in spring, then our Maifest. Then in summer, we have our hefe-weizen and Zommerfest, then our Octoberfest. Finally, we have our Snowstorm beer, which is our Christmas beer. That's a beer we actually change every year.

AC What is the market for Schell's beers?

TM The local area here encompasses a broad range of consumers, young to old, and we're competing against Bud and Miller in those cases. On our craft side, I'd say maybe 25 to 40 in that range, and the typical craft beer consumer.

AC And what about your geographic distribution?

TM Primarily Minnesota, Wisconsin, Iowa, the Dakotas, and Illinois, with some pockets in Pennsylvania and Michigan.

AC The local market in New Ulm has always been important to Schell. What percent of your beer stays in the local market?

TM Our New Ulm area is probably 30 percent of our market.

AC And in the rest of Minnesota?

TM I'd say another almost 55 percent.

AC What are the volume numbers?

TM We're about - with the actual Schell line - 15,000 barrels.

AC Contract brewing plays an important role in your business. Which breweries currently contract from you?

TM We brew for about four other breweries. At one time, our largest contract was Spanish Peaks, but we no longer brew for them. So we're brewing for James Page, the Saint Louis Brewery, Three Floyds, and a couple other smaller ones.

AC The contract brewing business has been in recession for several years now. What is your view of the state of the contract brewing business?

TM It's diminishing all the time. Will it completely go away? I wouldn't say that, but I see it becoming less and less a part of our business. It's a very difficult business nowadays for everybody.

AC What are the biggest challenges you face as a contract brewer?

TM I think probably one of the bigger ones would be the fact that you don't have the same sort of control - obviously you have control over the production - but it's difficult to measure the demand and it's a constant battle of making assumptions and trying to determine what is expected of a contract brewer, and you don't have the inside track on that. Production-wise, we obviously have to deal with a lot more ingredients than we do with ours, so it's a constant inventory issue - making sure we have the right inventory, and not too much of this. We try and get it to fit halfway into our system and it's not too bad.

AC How does contract brewing fit into Schell's business operations?

TM We have a 100 barrel brew size, anywhere from 100 to 140 barrels, and those numbers generally work pretty well with what the industry might consider smaller contract brewers. That sort of niche works well with us - it fits in. I should add that another one of the challenges is maintaining the different yeasts for different people.

AC Along those lines, I know some contract brewers dictate the yeasts that other breweries can use. How does this work at Schell?

TM I think we're probably fairly easy to work with as a brewer and we try to do whatever we can to accommodate other people's desires - to a point. At a certain point, we're simply not able to give everyone what they want. At that point, we have to find the best possible solution we can do and work with that.

AC Tell me about how the relationship works between the contract brewer and, for example, your work with Three Floyds. That company produces a few tremendously hoppy beers.

TM Typically, we get the formula from them and then ramp it up to a bigger brew. We have a pretty good idea of the sort of yields we get as opposed to maybe a smaller brewer. We have to use a judgment there trying to figure out their system, and then adapting it to ours. With some ingredients, we get better utilizations. Typically, we get better yields with malts. It depends on their system. Sometimes we get higher yields out of our hops and sometimes lower. So there is a little bit of experimentation there. And that's challenging because we're not able to do unlimited test brews. So we try and hit the mark as close to the first time as we can.

AC Does Schell plan to continue in the contract brewing game?

TM I think we're willing to as long as we're able to. Obviously, I think if and when we get busier with our own products - that's especially true with the acquisition of Grain Belt here. We'll have to take a hard look at how aggressive we are in getting new contracts.

AC During a recent visit, someone mentioned to me that Schell was considering the production of a line of Belgian beers. Is that true?

TM We have discussed that. I wouldn't call it a line. We have tossed around the idea of coming out with a Snowstorm beer as a Belgian beer. What we've done in the past is, we've made the beer, put it out as our Snowstorm - it was called Blizzard Ale at one time - but it's our Snowstorm beer now. If we get a really good response, and people really like it, then we consider bringing it out on a full-time basis. That's kind of our little test market for the beer.

AC How has Schell weathered all of the changes in the beer industry over the last century, let alone the last 15 years?

TM Of course, I wasn't around then, but coming up around Prohibition obviously was tough, and then you had the glory years of the small regional brewers in the Forties and Fifties. Then, starting in the Sixties, it started to get more challenging as the national breweries began putting pressure on all the small guys. We've always had great local support, and that's really helped us through a lot of the changing here. I think we've always remained fairly adaptable and able to produce different things to meet the market demands. We've always stuck money back into the plant. We still have lots of money to stick back into it or what is needed. We've always needed to put that money back into the plant instead of taking it out to go elsewhere. So, we've been able to not be stuck with a worn-out plant and we've always been able to produce and keep on producing. And we have a story to tell, and I think the consumer likes that story. So, we continue to keep our support and I think that has helped us get here and stay here.

AC Schell has been in the news recently with its purchase of the Premium Grain Belt brand from the bankrupt Minnesota Brewing Company. Why we're you interested in the brand?

TM We've kind of had our eyes on that for a long time. I guess in my mind, I didn't hold too much hope for their situation for the last couple of years up there. So, when it became available, we we're certainly interested and put in a bid and eventually won the bid for it. You know, it brings a few things to the table for us. It brings some volume and efficiencies. We are primarily, almost exclusively, interested in the Premium brand. It's an American lager, and actually its greatest strength is up in the Twin Cities market. We're not overly strong up there with our American lager, our Schell's original, so essentially we're not competing with ourselves. We do much better up there with our craft beers. I think the Grain Belt drinker is a very loyal drinker. Obviously, they have some older drinkers but I think they have a strong core of younger drinkers that all brewers are really after. The similarities with the heritage and history of the two brands is something we feel is important. I certainly don't mind the fact that the public looks at us as helping to preserve one of the classic Minnesota beers. So there's lot of good things to come out of this.

AC How did this acquisition occur?

TM They filed bankruptcy - Minnesota Brewing did - and ultimately got thrown into Chapter 7. At that point, they were looking to sell assets. The first assets to sell were the labels they produced. We were contacted and we put in a bid on it. We've been filling their returnable bottles for almost two years. They got rid of their returnable line and so they came down to us to fill them. So we've had some history with them.

AC There has been some concern about the decreasing supply of the brand in the Twin Cities.

TM Yeah, that's a real concern with the dwindling supply. They have some beer in their cellars that is available to fill - to bottle - which we plan on doing until we can get ramped up and make the transition. So there's a little bit of delay here we hope is minimized.

AC Do you plan any changes to the recipe?

TM No. It was an adjunct beer and it will remain that. We have no plans to change that recipe at all. I think that would be a big mistake. The consumer likes the product and we don't want to mess with that.

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Article appeared in the September 2002 issue of Beverage Business Magazine. For information on reprinting any of the above articles, please contact Andy Crouch.

All materials, content, and articles remain under copyright held by Andy Crouch.  2002-2006 © Andy Crouch.