Production Mindset, Taproom Mentality: Why Grant Pauly & 3 Sheeps Don’t Want a Small Portfolio

The 3 Sheeps Brewing story would have played out much differently if Grant Pauly opened up the Sheboygan, Wisconsin brewery’s taproom at the start. Instead, coming from a family concrete manufacturing background, Pauly, a homebrewer, teamed with James Owen and opted to lean into the production side of brewing and for five years toiled away on a 10-barrel system to make beer to be sold in kegs and bottles that were distributed throughout the state.

“Because we were just packaging, I think it kept our focus and making sure that we didn’t just sit on our heels and say, okay, the tap room is making some nice money. Maybe we don’t have to do that rebrand, or we don’t need to look at changing up our lineup,” Pauly recalls. “It would have changed the course of what we were doing for sure. We, right out of the gate, had to be competitive back then with Lagunitas IPA, Oskar Blues, and all those great breweries who were in Wisconsin and were the fixtures for craft.”

Pauly said it forced the small brewery to be more competitive and always keep looking at how it could improve.

“We needed to grow a lot in order to make that model work,” he said. “I figured if we hit 4,000 barrels, it would allow us to have a hiccup and not have a lot of trouble.

“We could drop down if we had a bad year or if the market changed. Or if we had another recession (like in 2007-09), we had some wiggle room. We just had to keep focused on that growth and keep going.

“I think it would have been a whole lot easier to have a taproom but I don’t know if we’d be where we are right now if we had started like that.”

Now producing around 14,000 barrels per year and solely focused on the state of Wisconsin for sales — both through wholesale and its 10,000 square foot taproom that was added along with a 30-barrel production facility in 2017 — 3 Sheeps is looking to the future in a crowded craft beer market that is much more locally-focused versus gaining traction farther and farther away from where the beer is made.

Wisconsin craft breweries were still small in the early 2010s, and Pauly said taverns and restaurants would import way more craft beer than export, so it was an uphill climb as the 68th brewery in the state back when they opened in 2012 in a city of around 50,000 that is located about 50 miles north of Milwaukee — home of Miller Brewing. Craft beer isn’t an unknown though as New Glarus has built itself into one of the largest craft breweries in the country by only serving thirsty Wisconsinites (and those states willing to drive into the state to snag a case of Spotted Cow to mule back home as well).

“We thought there was an opportunity,” Pauly said about being confident in opening as a production brewery in 2012. “Besides New Glarus, the other bigger gorilla is Miller because they are local here. You know someone who knows someone who works there. It’s more than just a macro in the state … there is still that pride for a lot of people. It’s still made here so it has been interesting living in that in that sandbox with all these really huge breweries.”

Manufacturing is manufacturing from a consistency standpoint, and Pauly said having that background helped build a backbone for what 3 Sheeps now stands for.

“We made precast structures that get buried in the ground. Getting to work with the engineers to come up with structures that make the most sense, build them, but once you are done, you bury them. And the only time you saw them again is if they failed,” Pauly said. “So you hope to never see what you made.

“I love manufacturing beer, but you actually get to see people joining it. Way more fun.”

Working in that environment helped him, he said.

“We had everything from inventory management, cash flow analysis, all those things that go into running a brewery,” he said. “Yes, it was very, very, helpful.”

Pauly said he thought a production model in an age of small taprooms and systems was an opportunity that he knew they could make the numbers work doing it.

“[We] just really had to focus on batch after batch after batch, which was huge for us,” he said. “I won’t call the taproom a distraction, it’s a great opportunity to interact with people and get to hear directly from them and what their thoughts are.

“But we just got to live in the brewhouse every day, and focus there.”

Pauly knew they would have to move, eventually, when they had the opportunity. And Pauly joked he knew that it wasn’t a terrible life choice to run a brewery, they got to work with the bank to get a nice loan and worked with the SBA to put the new place together.

“[It] was pretty incredible, getting to really invest in this with learning over five years of production, and what we really want, what was really important, and then go to town.”

Growth can sometimes be hard to perceive, he added.

“People get fixed on the income statement. What’s that bottom line, but especially early when you’re growing, cash flow is more important than to look at,” he said. “You can be growing like crazy and just still fail because it catches up to you. And then it’s too late. Thankfully, having a good business background was very fortunate.”

Despite not actually having a true flagship and being willing to adjust to the consumer market, an Amber Ale like Rebel Kent has been around from the start along with Waterslides IPA, but the top seller now (around 30% of sales) is a newer creation with Fresh Coast, a juicy Pale Ale, which came into being five years ago.

“We don’t need one beer to represent 75-80% of our beer,” Pauly said. “Fresh Coast is our leader right now. We sell a lot of our Pale, and we sell a lot of our Amber … Pilsner, but we need more than just five beers that hit different spots in Wisconsin.

“We have that debate of whether a flagship is important or not — while it sure would be nice to make one beer and just have half our tanks filled with that one beer, there’s value to that from a manufacturing standpoint — it’s not as much fun. I’d much rather make a whole lot of different beers and have them go out there and I’d like to hope that if you see beer from 3 Sheeps, you can trust that it’s going to be to style, consistent, balanced, and drinkable. And that’s our goal.”

Pauly also said he doesn’t think anyone will recreate that New Glarus model.

“I don’t think it’s possible these days, now that there’s so much beer out there,” he said. “But we are still trying to be relevant and keep people excited and interested. It’s just coming up with how we want to do that. For us, it’s coming up with new beers. We want somebody to try something, get excited about it, but still walk home with that six or 12-pack of Fresh Coast.”

Distro and taproom releases are the balance between that, and Pauly said they try to put out at least a beer once a month.

“Something fun for distribution,” he said. “I think we peaked that first year of COVID, like 230 releases, just to get people to come in and grab it.

“Because if they came in on Tuesday to grab something, they’d come back on a Thursday to grab something else. And then they’d also grab Fresh Coast and tip our bartenders comparatively generously.”

That rejuvenated the brewery because Pauly said they were kind of becoming stale by just focusing on the core brand.

“We put out releases, but it wasn’t a huge part of what we were doing,” he said. “COVID reminded us how much we love making new beer.”

In 2022 they only scheduled 65 new releases but ended up making 130. So the creativity hasn’t stopped.

“But we love that part. It’s fun. They’re not all huge ones. A lot of them are small,” he said. “We try to make sure we always have something new each week here. I think that’s what craft fans want, they want to try something new, and then they come back to their favorites.”

Taking over a Coca-Cola plant made up of two buildings, the plant became a 30-barrel production facility while the cargo loading area was made into a 10,000-square-foot taproom with lots of seating and two semi-private areas that can be rented out. Small touring musical acts can book a show there in between larger gigs and being in a smaller community, things like wedding showers, birthdays, and fundraisers for local charities all happen in the taproom.

“We definitely can be more experimental here. As much as I love Belgian beers, just selling only Belgian beers right now is really tricky,” Pauly said. “But we can always have one on tap here.

They can do a really small canning runs around some Belgian brands as well and give more people a chance to try it.

“I know they’re ever gonna like the world on fire. But I want people to be able to have a Belgian beer and experience that,” he said. “They’re my favorite kind of cultural styles of beer and getting to share that is nice. And we wouldn’t be able to do that without the taproom. We get to play around.”

But with 26 taps, a robust barrel-aging program now, and a crew of employees that can have insights into all those styles and brands, 3 Sheeps hopes to never run out of ideas that can welcome any type of beer drinker.

“Early on I don’t think I let myself believe that we could actually make the quality of beer that we are today,” Pauly said. “I was a home brewer for 10 years, I loved it. I was running a concrete plant. I love manufacturing and putting the two together and the emphasis on that consistency — that quality time after time so that the beer tastes the same — was huge for us.

“The depth of beer styles that we do now and things like that, you know, it just almost seems a little arrogant to think that we could actually live at that level. We redid our packaging a few times over once we kind of realized this was a mistake, let’s focus on this. At the end of the day, we kind of went back to, it’s always going to be about the beer. All of our packaging now is a reflection of either what’s inside the bottle or can or what the environment or the opportunity to drink that is. So tying that all together just really helped us establish ourselves.”

3 Sheeps is currently only in Wisconsin but Pauly said they talk with distributors throughout the country all the time.

“We’re very friendly with them, but we are waiting to see when it makes sense,” he said of future growth outside the state, or if it’s even needed. “Thankfully, especially during COVID, people were very passionate about buying local, whether that was from your city or from your state, which really helped us here in Wisconsin and kept us going.

“On the counter side, it makes it a little tougher to get into Illinois, or Minnesota, or wherever. We think there is a time and place when we will continue to branch out and look at other markets. I think as people’s desires and what they want in craft beer shifts, the importance of local is there. But also high-quality beer is there.”

He compared craft beer to the car industry.

“People were buying local in Detroit until foreign cars became such a better value and higher quality. Well, then they jumped ship,” he said. “I think we’re seeing that inflection for beer. People are making really great beer all over the country and are innovative and thoughtful about it. But I think there are — just like any industry — people who are buying beer because it’s local, but not really knowing necessarily what great beer is.

“As everyone’s skills get better at what is good beer, what’s good tasting. What’s that mean? I think that’s going to shift how people are buying. And I think it provides more opportunities.”

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