Trouble brewing.

Byline: Greg Bolt The Register-Guard

Mike West and Bob Jensen are part of a growing business brotherhood: recovering brew pub owners.

West, who owned West Bros. BBQ, and Jensen, co-owner of the late Wild Duck Brewery, both got into the small-brewery game in the early and mid-1990s when the going was good. They both did well for a time. But their boutique breweries went flat in the post-millennium marketplace and finally closed earlier this year.

"The notion that a brewery was a license to make money - which was the perception of a lot of people, to a certain extent including myself - is a pipe dream," West said. "Breweries are expensive to capitalize, they're not inexpensive to operate and to make a go of it, you've got to have a good restaurant business."

For both West and Jensen, it was the difficulty of running a successful restaurant in downtown Eugene more than the popularity of their beer that ultimately closed the doors. High labor costs, a lack of downtown attractions to draw customers and changing entertainment tastes are among the challenges they faced in what is still essentially a food-service business, a difficult undertaking in the best of circumstances.

Their demise, along with the earlier failures of the Fields brew pub in Eugene and Spencer's in Springfield, left a total of four empty brew pubs in the area's once-burgeoning craft brewing market. For a time, that left the populous Eugene-Springfield area with just two pubs with on-premises breweries: McMenamin's High Street Cafe and Steelhead Brewing Co.

Since then, the Rogue Public House has opened in the former West Bros. location and taken over the brewing operation. But the landscape is changing in the craft brewing industry, with single-location businesses such as those of West and Jensen being edged out by chains that can operate more efficiently.

All three brew pubs now operating in Eugene-Springfield are part of larger chains. McMenamin's, which also owns the East 19th Street Cafe and the North Bank restaurant in Eugene, is the largest, with more than 50 outlets in Oregon and Washington. Rogue has six pubs in three states, and Steelhead has two in California in addition to its Eugene operation.

Nationally, single-location, owner-operated pubs are having the hardest time surviving. While the craft brewing industry as a whole continues to show modest growth, most of that comes from the larger regional breweries such as Deschutes Brewing, Widmer Bros., Pyramid Brewing and Full Sail Brewing.

According to figures compiled by the Association of Brewers, production by regional American brewers grew 433,000 barrels in 2003, to 4.4 million. But production by microbreweries and brew pubs both fell, by 8 percent for micros and 6 percent for brew pubs.

Regional breweries are those with annual production of 15,000 to 2 million barrels. Microbreweries sell less than 15,000 barrels and sell through distributors as well as on-premises; brew pubs primarily are restaurants that have breweries and sell most of their beer on-site.

In 2003, 60 brew pubs opened nationwide and 61 closed, the AOB said. Through the first three quarters of this year, 22 brew pubs have opened while 24 have closed.

Selling locally made beer these days is nowhere near as easy as it was in the 1990s heyday of brew pubs, when even small Northwest towns could boast of one or perhaps two back-room brewing outlets. These days, there are many more beers for customers to choose from, making it harder to get noticed in the craft beer marketplace.

Add in things such as insurance costs - which tripled for nightclubs such as the Wild Duck after the February 2003 fire that killed a hundred people at a Rhode Island night spot - a bad economy and the rising popularity of computer and video games keeping younger people at home, and a tough business gets even tougher.

But what many brew pub operators in Oregon bemoan most is labor costs. Oregon is one of only a few states that don't allow tipped employees to be paid less than the minimum wage, and the state has one of the highest minimum wages in the country at $7.05 an hour.

"In Eugene, a waiter, bartender or server is getting $7.05 an hour when you only have to go as far as the Idaho border and the guy running a brew pub or restaurant in Boise is only paying $2.13 an hour," said West, who still operates the River Ranch Steakhouse on Franklin Boulevard. "That's a pretty dramatic difference in terms of your labor structure."

Jensen said the minimum wage was $4.75 an hour when the Wild Duck opened in 1996. When it closed, he was paying $4,000 to $6,000 more a month in wages than when he started, he said.

But other Eugene restaurants and brew pubs survive under the state's wage laws, and West and Jensen acknowledge that's not the only thing that makes the restaurant/brewhouse business difficult here. For one thing, they both were operating in downtown Eugene, and they said the relatively slow nightlife was part of the problem.

The Hult Center doesn't put on as many shows as it did when the Wild Duck opened, Jensen said, and the city has been unable to draw any large retailers or employers back downtown, even as growth has continued in Springfield's Gateway district, the Oakway Center on Coburg Road in Eugene, and other spots outside the city's core.

"Identifying it as a brew pub problem may not be correct, but identifying it as a restaurant-brew pub problem in downtown Eugene may be more correct," Jensen said. "I think we've seen the growth occurring on the perimeter of our town. Some of those resources just didn't come downtown to create a focal point."

Jensen, who still runs the Big Green Events catering and events management service, also struggled under a heavy debt load. It cost more than $2 million to build and outfit the Wild Duck, and the business wasn't able to draw the volume needed to handle that debt and cover operating costs.

Perhaps the most successful example of the local restaurant-brew pub is Steelhead near the Fifth Street Public Market, which draws big crowds on weekend nights and during Duck sporting events and also attracts a strong lunch business and weekday diners. Jamie Floyd, Steelhead's brewmaster, said part of that is because they put a lot of effort into the beer, but he said one of the old truisms of business also comes into play.

"One rule of thumb for any business, let alone restaurants, is location, and I think Steelhead has the best location in town," he said.

Steelhead also has streamlined its menu over the years to keep food appealing but simple to prepare, which helps hold down labor costs. And the business works hard to keep its customers happy, something Floyd said is an ongoing struggle.

"Eugene is pretty finicky," he said. "It's a big risk to open a business in this town because people can be so particular. And there's not a lot of back-up money; when the economy goes bad, everyone in town feels it."

Chip Hardy, the former West Bros. brewmaster, agrees that pleasing people in the Eugene market is difficult. He once thought of opening his own brew pub but now is working on a different venture, although he thinks there's still room for a smaller, owner-operated brew pub in town.

Hardy noted that it costs only about 25 cents to 45 cents a pint to make beer and said brewing equipment that once cost more than $250,000 now can be found for $30,000 to $40,000.

"I don't see any reason why the small guy couldn't do it as long as he's supported and he's making good beer," he said. "I think it totally could be done."

Both West and Jensen agree that the key would be the restaurant side. The smaller the kitchen and wait staff, the easier it will be to clear a profit in Oregon's higher-wage environment, they said.

"People like Bob and myself, we were all guys that were backing into the brewpub business from the perspective of a full-service, sit-down restaurant operation," West said.

"Once you've done that, the only thing that you've done to differentiate yourself from every other poor bastard who's silly enough to be in the food service business is that you make your own beer too, and that from a start-up standpoint is very expensive."

A place with a smaller menu weighted toward standard tavern fare could let someone with a passion for brewing put out some interesting beers and still pencil out at the bottom line, they said. Jensen added that's an idea he hasn't given up on.

He's not ready to make any announcements but said he'd like to get back into the brewing business on a small scale. He thinks that's something Eugene still needs.

"I think we need a hometown beer, a hometown product," he said. "The idea of a smaller brewing system or one that just supports a pub becomes a little more interesting now. And I'm not going away. I was born and raised here. I love this town."

CAPTION(S):

The Wild Duck Brewery on Sixth Avenue closed in January. It was one of four brew pubs shuttered in the area's once-burgeoning market. Co-owner Bob Jensen says the Wild Duck Brewery couldn't draw the volume it needed to handle its operating costs and $2 million in debt.