Speakeasy to Continue

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Speakeasy, a pioneer in the emergence of the Bay Area microbrewery scene, purveyors of Prohibition Ale and Big Daddy IPA, was saved from closing its doors last month when it was purchased by Hunters Point Brewery, a new company owned by Oakland businessman Ces Butner.

The 20-year old beer manufacturer, located at 1195 Evans Avenue, ceased operations in March under a heavy debt burden, only to re-open a week later after being restructured. As part of reorganization, founder Forest Gray was ousted, the company placed under receivership, a last step before bankruptcy if the company hadn’t been sold. Staff had been cut from 40 to eight.

Hunters Point Brewery, which formed in April for the purpose of negotiating the sale, paid $2.5 million for Speakeasy. Butner previously ran Horizon Beverage Company, a major distributor that was one of the first companies to expand Speakeasy’s distribution beyond San Francisco.

In a written release, Butner touted the quality of the beer, and stated, “I thought it would be a shame if the brand, and one of the few production breweries left in San Francisco, disappeared because of financial problems. Keeping Speakeasy’s San Francisco born and brewed tradition alive is very important to me.”

Speakeasy’s difficulties arose shortly after completing a $7.5 million expansion of its operations in early 2015. The company had reported a 38 percent sales growth in 2014, gambling on those numbers by increasing its production capacity from 15,000 barrels a year to between 60,000 to 70,000. Despite setting a company record, producing 36,000 barrels in 2015, the numbers didn’t add up.

“It is pretty simple,” explained Speakeasy spokesman Brian Stechschulte. “We bit off more than we could chew. The combination of expansion, loan and vender debt became too much to bear.”

Contractors who worked on the expansion went unpaid. Centric Construction and Swisher Cement have sued Speakeasy for $116,544 and $131,987 respectively. In an email to Swisher in June, 2016, Gray admitted to the figures, but stated he couldn’t pay, and that he was “working to obtain additional capital from lenders.”

In October, Speakeasy’s landlord posted a first eviction notice at the Evans Street digs for failure to pay the $16,000 monthly rent on the 17,000-square foot facility.

Speakeasy is also being sued by Microstar Keg Management, for $249,826, and by the Brewers Supply Group, for $376,161. Five former employees filed unpaid wage claims. In addition, the company owes money to other creditors, including Union Bank; legally those secured claims will take priority over paying others.

Under sale terms, Hunters Point Brewery won’t be liable for the debts. According to Stechschulte, Hunters Point essentially purchased the assets, equipment and brand name. The debts reside with Gray, who didn’t respond to requests for comment, and the receivership. Paychecks to laid off and current employees have been distributed from sale funds.

According to Timothy Carl Aires, attorney for Brewers Supply Group, there’s been no response to his legal claim thus far. “Our client has taken appropriate steps based on the available evidence to recover the substantial debt owed to it, including pursuing suit of potentially liable insiders,” he said.

Butner, who is civically active in Oakland, became a player in the beer market when he purchased Horizon in 1987, tripling its revenues over 25 years. He ran for mayor of Oakland in 1998 on his business prowess, finishing sixth behind Jerry Brown. He’s on the boards of the Port of Oakland, East Bay YMCA and Oakland Metropolitan Chamber of Commerce.

In addition to distributing for Anheuser Busch and Tree Top Juice, Horizon dispersed beer for several craft beer companies, including Sierra Nevada, Boston Beer Company – which produces Sam Adams – Golden Road and Firestone Walker. In 2015, Annheiser Busch bought a stake in the company; Horizon’s phone number and website now defer to the beer giant.

Butner promised there’d be no immediate changes to the Speakeasy lineup. “The beer quality will remain the same, and we have every confidence that the current distribution network and territories will stay intact. We’ll be working closely with all the distributors. Right now, we just need to revive the Speakeasy brands, and I’m prepared to do just that.”

Sam Cappione has been hired as general manager and vice president of operations, titles he previously held at Horizon. Stechschulte reported that Speakeasy will be hiring additional staff over the next few months.  The tap room, which closed in March, will reopen soon.

In terms of consumer preference, the brand remains strong. In February, Blood Orange Double Daddy, an Imperial IPA, won Best Craft Brew at the 2017 Bacon and Beer Classic at Levi’s Stadium.

However, according to Joanne Marino, executive director of the San Francisco Brewers Guild, of which Speakeasy is a member, the craft brewing business has gotten more challenging over the last five years. She said that while larger mega-brewers are using their weight to get access to shelf space, the number of craft brewers has also increased. 

“It is an industry that has really exploded over the last 10 years and now there is a maturation process,” she said.

There are more than 600 craft breweries in California alone. Many are opting to stay small and distribute locally; Speakeasy delivers globally. With the trend toward consolidation – larger companies buying up craft brewers – many speculated that a bigger company would have taken over Speakeasy.

“It was fantastic to see them come out whole on the other side,” said Marino. “To have a local business owner come in and carry that brand forward was great news.”