Brewery struggling to stay afloat
Flying Bison owners to consider offer from F. X. Matt for buyout
Published: January 24, 2010, 12:30 am
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Almost 10 years after rolling out its first kegs, a beloved Buffalo brewery is working to save itself from extinction.
Tucked into Buffalo’s Black Rock neighborhood on Ontario Street, the tiny Flying Bison Brewing Co. has been struggling lately to stay in business.
With a promising start and widespread community support, it once looked as though Flying Bison might revive the city’s rich tradition of locally distributed suds. It offered such affectionately named brews as Aviator Red and Rusty Chain.
But the recession, coupled with high ingredient costs, has brought the brewery almost to its knees. Now, however, an offer from Utica-based F. X. Matt Brewing Co., which makes Saranac beer, could keep the doors to Flying Bison open.
Flying Bison, first hatched in 1995 by a small group of friends, has grown into a beloved local brand that flows through more than 100 bar and restaurant taps and has seen wide distribution to grocery and convenience stores.
“A couple of years ago, Tim was right on the edge of turning the corner and really making it,” said Dave Chudy, a Flying Bison shareholder and original investor, referring to the company’s president, Tim Herzog.
But two years ago, the price of ingredients brewers rely on started to spike. Malt prices quickly doubled. Hops tripled, then quadrupled in cost. And a marketplace of newly cost-conscious consumers meant Flying Bison couldn’t raise its own price tags to make up the difference.
Three months ago, the brewery stopped bottling the beer it had widely sold through Try-It Distributing and since then has only shipped kegs.
In the meantime, Matt Brewing Co. has made an offer to buy Flying Bison for $100,000 plus a partial assumption of the company’s debts.
While no deal has been signed and any points of negotiation are subject to change, the particulars of the offer include keeping Herzog on and the Ontario Street facility open, while further investing in its infrastructure and equipment.
“We think there is an opportunity there with better resources — which we can provide — to build up the brewery and the business,” said Nick Matt, chairman and chief executive officer of the family-owned Matt Brewing Co. “We’re going to try to ramp up everything, starting with sales.”
Initially, all Flying Bison production would remain in Buffalo, Matt said. Eventually, Flying Bison’s most popular bottled brands would be produced in much larger quantities at the Utica facility, where it can be produced less expensively and more efficiently.
“[Matt’s] capacity is tremendous,” said Chudy. “Bottling alone, they can do 10 times the amount of bottles and probably at half the cost.”
Small batch “short run” specialty brews from both Flying Bison and Saranac could be produced in Buffalo, but for the most part, Ontario Street would take care of wholesale keg production for area restaurants and bars.
“Utica is very efficient at doing long runs, Buffalo is very good at doing short runs,” said Steve Jackson, a shareholder and member of Flying Bison’s board of directors. “The two facilities would complement each other.”
While Matt’s purchase would keep Flying Bison alive, increase sales and production and introduce Buffalo’s brands to new market areas, it would also help the Utica-based company increase its presence here.
“New York is the market we understand. We like Flying Bison as a Buffalo-based brand, and we think there is more opportunity for a Buffalo-branded product,” said Matt. “Frankly, we think it can be a lot bigger than it is today.”
Echoing the contention that this has been a rough time for the entire craft beer industry, Matt said his company’s bulk purchasing power and long-established relationships with suppliers would be a boon for Flying Bison.
Even as Flying Bison sales have flourished, increasing by $25,000 in 2008, the cost of ingredients increased by $35,000 the same year, said Jackson.
“The huge increase in prices has made it difficult for us to stock what we need to stock,” said Herzog. “We’re trying to find some help to move forward.”
Matt’s offer, which Herzog has urged shareholders to approve, is scheduled for a vote Feb. 11. Herzog’s 50 percent ownership of the company and other shareholders’ favorable reaction mean Matt’s offer will probably be approved.
But that doesn’t mean everyone is happy.
Two investors have warned they are considering legal action to block or delay the sale of the company. Terms of the Matt deal require Flying Bison be free of legal embroilment.
“I have nine years of sweat equity in addition to the money I spent on shares. I’m probably going to end up being the biggest loser of all,” said Phil Internicola, a founding member of Flying Bison and a 19 percent shareholder.
According to Matt’s offer, the company would have to sell more than 3,630 barrels of beer a year before it would start to pay back Flying Bison investors.
“In order for Flying Bison to pay out on any level, it would have to perform three to four times higher than it ever has in the past,” said Internicola. “I don’t foresee that happening.”
Shareholder Wes Froebel is also against the sale to Matt.
“I knew I would never get rich with Flying Bison, but I did expect a return on investment at some point . . . I have not seen a plan from Matt other then their statement that ‘their current intention is to keep the brewery in Buffalo’ — until the ink is dry,” he said.
In fact, the fear that Flying Bison’s operations would leave Buffalo is a common one, but one that is unfounded, according to Matt and other shareholders.
“We like having the brewery in Buffalo. We know there is concern that Matt Brewing would close that center, but I can tell you we would not,” said Matt, who emphasized his family’s ties to the region.
“The two facilities are very different sizes and have very different abilities,” Matt continued. “It makes sense to make certain things in Buffalo, and we will do it as long as it makes sense.”
Buffalo’s Pearl Street Grill & Brewery has expressed very preliminary interest in taking a closer look at Flying Bison, too, as has a Texas investment firm. And if there is one thing everyone seems to agree on, it is that they want Flying Bison to succeed — and they want it to remain in Buffalo.
“Sure, we wanted a return on our investment, but I gave Tim my money because I wanted to put Buffalo back on the map for craft brewers,” said Chudy. “And Tim is right on the cusp of emerging big. I think if people saw a Flying Bison truck driving down Hertel or Elmwood Avenue, I think they would clap.”
schristmann@buffnews.com
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