Case Study: Fernson Brewing Co. | Brewing Industry Guide

Case Study: Fernson Brewing Co.

Being one of the first craft breweries in South Dakota helped Fernson Brewing Co. make inroads into the market, but it was listening to local customers and not necessarily the national trends that helped them succeed and create award-winning beers

John Holl 2 months ago

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Photo Courtesy of Fernson Brewing Co.

For Derek Fernholz, founder of Fernson Brewing Co. in Sioux Falls, South Dakota, the strongest thread that has held his life and career together has been a desire to create things.

The pre-beer backgrounds of a lot of brewers usually fall into the engineering or scientific camp or the art bucket. For Fernholz, he was in the engineering camp, he worked in Web development, “and made things that people could enjoy.” He worked at a number of start-ups and then some “cool companies” and did work for big corporate clients while living in the Twin Cities of Minneapolis and St. Paul, Minnesota.

While there, he and some of his colleagues would go to the local Old Chicago restaurant and make their way through the expansive tap list, trying to hit all the different styles and brands. On one particular afternoon, the group got it into their heads that homebrewing seemed like a logical next step, especially because of their interest in creating things. Luckily, two of the country’s better-known homebrew shops, Midwest Supplies and Northern Brewer, were a short distance away, so they went all in, bought a full kit, skipped bottle conditioning, and went right to kegs.

The first beer they made was a clone of Surly Brewing’s IPA, Furious, “and it turned out really well, which is like the worst thing that can happen to a homebrewer,” says Fernholz, a veteran of the South Dakota Army National Guard with which he spent 9 years including a deployment to Iraq for Operation Iraqi Freedom and left service as a sergeant. “So we were like, ‘we’ve got this.’ And then, of course, our next six batches were terrible because we were cavalier.”

Soon enough, Fernholz discovered that his friends preferred drinking beer to making it, so he inherited the equipment and soon fabricated his own system, building an all-grain brewery in his garage. He joined the local homebrewing club, became a BJCP judge, and eventually turned his attention to opening his own brewery.

“It was feeling the urge to create something and seeing people enjoy what you made,” he says. He and his fiancée, now wife, Hilary, planned to settle in the Twin Cities, but finding a job for her proved difficult, so in 2011 they decided to head back home to South Dakota.

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Big Empty Space

It made sense to build a brewery in Sioux Falls. South Dakota is a big state, but nearly half of the population lives within 60 miles of the brewery, and at the time, there wasn’t a single brewery serving the area. Fernholz dusted off the business plan and got together with family and partners to raise the money needed to open. Fernholz’s business partner is Blake Thompson, a graduate of the brewing school at University of California, Davis. Throughout early and mid-2014, they were licensed, ordered a 30-barrel brewhouse, and found space, but the usual delays meant they didn’t open until February of 2015.

Like so many others, their plan was to brew ales, not only because of the relative (assumed) popularity but also because of the quick turnaround time. But the following winter when sales slowed a little and they had some extra tank space, they decided to brew a European-style lager, Lion’s Paw Lager. Soon after it was released, it became a hit. By offering beer with which the local customer base was more familiar, albeit one with more flavor, they hit upon the beer they needed to make inroads into a largely macro market.

“Lagers really weren’t on our radar at all. We weren’t going to do anything crazy; we wanted to do traditional four-ingredient beers,” Fernholz says. “Slowly and steadily, Lion’s Paw Lager became the beer of Sioux Falls.”

The beer now accounts for 70 percent of what Fernson brews annually.

“I’m glad we didn’t do it right away,” says Fernholz. “We had to figure out our chops and dial in everything before we were able to do this beer justice. In hindsight, it could have been amazing to start with a rocket ship, but at the same time, I think it would have pulled us too far too fast, and we would have lost sight of what we were doing.”

Precautions in the Marketplace

Fernholz is purposeful when he uses the term “distribution partners.” Since 99 percent of the beer the brewery makes goes into those channels, the brewery needs to make sure that the beer is taken care of at each step. It’s why they write cold storage provisions into distribution contracts and have invested so heavily in the quality controls.

They want to make sure that when the beer reaches the customer, they’ve done everything they can to ensure that the beer is fresh and not adulterated by outside forces. The lager has a 6-month shelf life, but even their farmhouse ale, a petite French saison (modeled on Saison Dupont and Boulevard Tank 7) that won a gold medal at last year’s World Beer Cup, still tastes fresh after a year and a half in the can.

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That’s why everyone on staff—not just the brewers—does triangle tastings, looking for anything that’s off, and if they find anything, noting it, and working to resolve the issue before it becomes widespread.

Fernholz also looks to the brewery’s customers to reach out and offer feedback. Sometimes it’s praise, and other times, it’s people noting a beer and a date code and offering a suggestion that it’s not quite what they expected or that something might have been off.

“And for every one of those, there are ten, twenty, a hundred people who don’t say anything,” Fernholz says. “I love it when people come forward. We can’t fix problems if we don’t know about them. We love feedback even though it hurts when it’s negative.” He says that the brewery isn’t afraid to dump beer that doesn’t pass muster, often to the tune of several thousand gallons per year. “I call the city water department to give them a heads-up, and they just ask us to do it slowly over the course of 24 hours. It hurts for a minute, but there’s no alternative.”

World Beer Cup Bounce

The Fernson Farmhouse Ale that won gold at the 2018 World Beer Cup was a recipe Fernholz wrote in his homebrewing days. Despite trying to monkey with it over time, he says that the original recipe still has worked out best. While it was a beer that was modestly well received in the local market, the win at the competition has helped bring new recognition to the brewery.

“It’s validation in the sense that we’re been doing this thing in the oasis that is Sioux Falls and thinking that we like what we do. But, to have someone else tell you on some level that you did a really good job brings the validation home.” And while it hasn’t led to a huge bounce in sales just yet, Fernholz says that a win like that has brought new people into the fold, including customers who previously would avoid the beer.

Diversifying a Portfolio

Fernholz is “hyper-aware” of the fraught nature of the beer business and what comes when your most popular beer accounts for more than two-thirds of your output. “It’s a tough place to be in if the market changes rapidly, and we’ve seen that with larger brands.”

To keep up with the changing times, the brewery recently doubled down on it’s quality-control initiatives, purchasing new dissolved oxygen (DO) meters, a centrifuge, and other tools that will help make sure that the brewery is putting out the best- quality liquid time and time again to avoid any of the slings and arrows that can hurt brewers. They also installed a 5-barrel pilot brewery from Ss Brewtech that will help them make a wider variety of styles for their two taprooms and for special releases, workshopping beers to see what resonates with customers and could potentially see growth in the overall portfolio.

The brewery currently distributes to five states (South Dakota, North Dakota, Nebraska, Minnesota, and Iowa) and has been steadily doubling volume, expecting to close out 2018 at about 6,000 barrels. Nearly all of their beer is sent through their eleven distribution partners.

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And with that, they are looking toward the more discerning craft drinkers. “We’re trying things because yes, the older generation that is loving our Lion’s Paw Lager and loves to order the same thing every time is great, and hopefully that lasts until we find the next thing.”

John Holl is the Senior Editor of Craft Beer & Brewing Magazine®. Email tips and story suggestions to [email protected].

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