Case Study: Wellspent

This St. Louis brewery was making highly regarded beer, but that wasn’t enough to keep it going in a tightening market. Here, Founder and Brewer Kyle Kohlmorgen shares lessons learned in the getting to open—and then having to shut down—his dream.

Joe Stange Apr 20, 2020 - 14 min read

Case Study: Wellspent Primary Image

Kyle Kohlmorgen of Wellspent Brewing Co. Photo: Joe Stange

The day Kyle Kohlmorgen had to close his brewery, he didn’t bother hanging a sign on the door. “I just put it out there on social media and kind of shut off notifications on all of it for a week,” he says. “And I went home and kind of put my head in the sand.”

The worst part, he says, was telling the staff—a few bartenders and his fellow brewer, Dave Daues, who stayed on an extra month to help mothball the brewhouse and pack the place up for sale.

Wellspent Brewing shut suddenly on August 1, 2019, after being open only 17 months. Its beers were highly rated and well regarded locally, but that was not enough to save it from mounting business problems, such as high debt, high rent, and an uneven flow of taproom customers.

“I’ll put it on me first,” says Kohlmorgen, who was the owner, founder, and head brewer. “The buck stops here.”

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As it turns out, that was not the end of Wellspent’s story—there was another twist to come. But anyone new to the industry or pondering whether to take the leap ought to consider the lessons Kohlmorgen had to learn along the way.

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Kohlmorgen with Dark, his (excellent) Czech-inspired dark lager. Photos: Joe Stange.

How It All Started

Like a lot of brewers, Kohlmorgen started as a hobbyist—in this case, while studying at the Rose-Hulman Institute of Technology in Terre Haute, Indiana. “I don’t know how people start homebrewing now,” he says. “Those first few batches were terrible.”

Terre Haute is also where Kohlmorgen met his wife, Angela, who was studying at Indiana State. She would later go to work as a corporate recruiter. “She’s good at what she does, and she loves it,” he says. Meanwhile he got his degree in chemical engineering and worked in that field for 10 years—and a lot of that time was spent in breweries. “Between tea and cola and baby food and beer, most of the equipment looks pretty much the same,” he says.

Thanks to that work, Kohlmorgen knew how to build a brewhouse. He also loved the industry. “Pretty much everybody who works in beer is awesome,” he says. “Especially around here.”

Along the way, the Kohlmorgens took two trips to Brussels, where Kyle fell in love with the drinking culture. In particular, he remembers a hoppy, low-strength (4.2 percent) beer called Band of Brothers, brewed by the Brasserie de la Senne for the Moeder Lambic bar. That beer and others like it had a strong influence on what Kohlmorgen would go on to brew at Wellspent, including a range of light, dry, hops-forward, saison-style ales.

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In 2013, the couple moved to St. Louis, Angela’s hometown. At that time, there were a small but growing number of breweries—such as 4 Hands, Civil Life, Perennial, and Urban Chestnut—starting small but succeeding. “That kind of showed me, as long as you have a good business plan, you can do anything in St. Louis,” Kohlmorgen says.

So, he started working on that business plan in his spare time. He was deliberate about it … maybe too deliberate. “It just took six or seven years to make it come to fruition, when it might have taken three and been more successful,” he says. Kohlmorgen believes that the brewery would have struggled less if it had entered an increasingly crowded market earlier.

Why did it take so long? “Because I overthink everything.” By the time the business plan was ready, he says, it was already outdated. “We were old-school from the get-go.”

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Kohlmorgen and Brewer David Daues in the brewhouse at Wellspent before its closure. Photos: Nicole Wayne, Nicole Marie Photoworks.

Going to the Bank

Both Kohlmorgens were successful professionals, but they didn’t have a lot of extra cash with which to start a business. “That was another part,” he says. “We didn’t have any money.”

Rather than look for investors or business-oriented partners, they went to the bank. This would prove to be one of Kohlmorgen’s biggest regrets. “We should’ve had an investor,” he says. “We should have taken investor money instead of bank money. But I didn’t want to because I wanted to have the say.”

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They got their loan, and they found an ideal space in Midtown a few blocks from where Urban Chestnut got its start in 2011. The location is central—near downtown, close to plenty of restaurants and theaters—but it’s not an area where a lot of people live, walk, or cycle. So, people would stop by after work but not stay and drink long; they still had to drive home. More high-end apartments and mixed-use buildings are in the works for that neighborhood, but those don’t spring up overnight. “I love this area, I love the building, but we just had to survive for five years.”

Wellspent opened in March 2018. Based on their sales estimates, they believed they would be able to repay the loan. Those estimates, as it turned out, were optimistic. “I over-assumed that. By a lot. I thought that if we could sell 13 barrels a month we could break even. We were almost there. We just took on a lot of debt to start with.”

Marketing, such as using social media to attract customers, was among the things they had to learn on the way. “We were slow to figure it out,” Kohlmorgen says. “There’s a difference between a discussion—an involvement, a two-way street—and just kind of barking at people, ‘This is what we have going on at the moment!’”

Kohlmorgen says he knew that they would have a taproom with great beer and occasional events, and he figured the rest would take care of itself. “I thought we would just open a brewery and sell a minimum amount of beer, and everything would be good,” he says. “That’s the whole difference between now and five years ago. You can’t just open and people will show up. Now, they might show up—if you execute perfectly.

“It was our over-shot of what we thought we could do in the short-term,” he says. “We still had a really good positive flow of people through here, but we thought too highly of ourselves and what we could do from the get-go.”

There were successes along the way. These included a few well-received barrel-aged stout releases that made for big sales days. “I loved it,” Kohlmorgen says. “But we didn’t have enough cash to buy barrels and get a whole bunch more malt.”

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When the liquor license fee came due in winter, during the slowest sales period, cash was tight, and Kohlmorgen put it off. Sales picked up in the summer, but not enough to overtake the mounting late fees plus the loan repayments. When the license expired on August 1, the Kohlmorgens realized they didn’t have enough cash.

“We always knew maybe it was possible, maybe we wouldn’t hit that in time,” Kohlmorgen says. “But we were hopeful because more people were coming in every month.

“It was death by a thousand cuts. We didn’t give up any sooner than we had to because we were super-close to making this work.”

That was it. They had to shut, and St. Louis beer drinkers lost one of their most promising new breweries. The story of Wellspent was over—or so they thought.

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The brewery on Olive Street, a few of its beers, its taproom, and its beer garden. Photos: Nicole Wayne, Nicole Marie Photoworks.

Second Life

“We were staring down the barrel of having to repay that loan somehow,” he says. “To help with that, we put the brewery on the market.” It was a “turnkey” listing; everything was there for someone interested in opening their own brewery. The asking price was basically what they needed to pay off the bank.

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There were several interested parties, and Kohlmorgen says that they had serious talks with at least three of them. Along the way, they heard from a familiar face: Eben Shantz, a local entrepreneur who had been a regular customer and loved the beers. He was looking for investments and had experience with running and growing businesses—namely, his fourth-generation auto-parts business, Modern Imports, which he had inherited and expanded. He wanted to buy Wellspent to keep it going.

“He just didn’t want to see us go under,” Kohlmorgen says. Together he and Shantz looked over the business plan to figure out what went wrong. “I had to put together the P&L [profit and loss statement] for him,” Kohlmorgen says. “I mean, I didn’t do that on a regular basis.”

Shantz looked at their costs and figured out places to cut—things that seemed obvious to Kohlmorgen only in retrospect. For example, Wellspent rented the building next door and used it as a barrel cellar, but it was expensive, and they didn’t need all that space. “It was easy stuff,” Kohlmorgen says—the kind of thing he was too swamped to think much about while brewing full-time and running the business. Shantz also asked sensible questions about which beers sold well and which didn’t. Now they plan to expand the barrel-aging program, especially for stouts.

However, they won’t be growing anything too fast. “Obviously, we’re super-cautious about growth as far as taking on more expenses every month.”

Kohlmorgen can now drop the “owner” from his name; he’ll always be the founder, but now he can focus on the brewing with fewer financial worries. “Now, post-sale, we’ll have a reduced lease, no mounting payments to the bank, and we’ll be able to operate without these huge payments to make.

“To not have that hanging over your head—‘it’s January, no one’s going out, can we pay our bills this month?’—it’s huge.

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“I can’t tell you how much we think of how it has ended for us. We had accepted all of these things. We had to go through the grief process on all this stuff.”

Advice for New Startups

In the exceptional position of having his brewery rescued, Kohlmorgen can speak frankly about what went wrong—and what he would have done differently, in retrospect.

“Shelve that business plan a few years,” he says. “Go work for a brewery and soak in the brewing and lifestyle a few years. And then go and be on the leading edge of the next wave. I didn’t take that advice.”

The soundest piece of counsel, if not the most helpful: Already be rich. “You basically need to not need money,” he says. “You need to have cash. All the time.” Failing that, he suggests finding investors or partners with business experience instead of taking out heavy bank loans.

Kohlmorgen says that it helps these days if a brewery is vertically integrated with something else. One example he cites is Bluewood Brewing in St. Louis, which shares the old Lemp Brewery horse stables with Mac’s Local Eats—where people wait in long lines for its smashburgers, then need something to drink.

It’s become cliche in this crowded market, but simply brewing great beer is not enough anymore, Kohlmorgen says. “You can never do everything, but you have to do enough to make sure the beer is great. And that’s not enough! It’s window dressing now.”

He also suggests looking at small towns where there is no brewery yet. “That’s where there’s still opportunity.”

For its part, Wellspent will remain in its previous location. “We still believe in the neighborhood,” Kohlmorgen says. They are aiming for January or February for a grand reopening; it will take some time to reorganize the place and get their paperwork and licenses all in order. (Update: They reopened in February.)

He is keenly aware of how lucky they were to have someone like Shantz come along. “We were just in the right place at the right time to have a second act,” Kohlmorgen says. “Ninety-nine times out of 100, this is not going to happen for us. I can’t tell you how grateful we are for it. We can’t believe how it ended up. The fact that we have a second shot is amazing for us.

“We’re not going to waste it.”

Joe Stange is Managing Editor of Craft Beer & Brewing Magazine® and the Brewing Industry Guide®. Have story tips or suggestions? Contact him at [email protected].

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