Speakeasy brewery resumes operation as workers seek pay

When Speakeasy Ales & Lagers resumed operations this month, it was full-steam ahead. In the San Francisco brewery’s cellar, beer was once again brewed, kegs were filled and pallets forklifted. Two cellar workers packaged 260 kegs of Big Daddy IPA — more than double what the full crew, at its peak, might have done in a day.

On the surface, it might have looked like business as usual, except these days there’s no such thing as usual for Speakeasy. On March 10, the 20-year-old brewery announced it was shutting down indefinitely: terminating all employees, ceasing beer production and closing the taproom. It had failed to repay its primary creditor, Union Bank, and was forced to enter into an assignment for the benefit of creditors, an agreement that some companies pursue as an alternative to bankruptcy. Three days later, a Los Angeles court appointed a receiver to oversee the sale of the company, forcing out the brewery’s owner and founder, Forest Gray.

Exactly one week after it had closed, Speakeasy announced that it was up and running again, but with a skeleton crew of just six employees. (There are now eight.) The rationale: A brewery making beer looks like a better purchase than a brewery not making beer. “The receiver decided that finishing off the beer in process and continuing to sell beer was the best way to get a buyer,” said Brian Stechschulte, the brewery’s public relations and media director, one of the remaining employees.

Now, Speakeasy waits. The receiver, Jigsaw Advisors of Lafayette, will entertain offers from interested buyers, who have until April 14 to bid. By April 20, Jigsaw will choose the new owner.

The saga has left San Francisco’s community of beer lovers abuzz. How could this happen to a well-respected maker of San Francisco craft beer? What, if anything, does it indicate about the health of the craft brewing industry? And, most pressing: Who will buy it?

Meanwhile, five wage claims have been filed against Speakeasy, all pertaining to final pay, according to the state’s Department of Industrial Relations. Such claims typically come from employees who have not received final paychecks. Hearing dates have been set for early May, at which point the matter would fall to a new owner. Jigsaw partner Bill Brinkman declined to comment on the wage claims.

Debt was the main — though certainly not the only — factor that led Speakeasy to its current straits. In 2015, the brewery undertook a $7.5 million expansion, bringing its brewing capacity from 15,000 barrels to about 65,000.

How much debt Gray, the sole owner, incurred is unknown, but at the time, he had reason to be optimistic. “We were at our peak,” said Stechschulte, who joined the company that year. Sales grew 38 percent in 2014 over the previous year, he said. In that context, growth seemed not merely opportunistic, but necessary: “Forest was planning for the future.”

“The conventional wisdom was: Interest rates are low, the market is growing, there’s room for craft beer to take market share,” said Nico Freccia, co-founder of 21st Amendment Brewery, which also expanded its brewing operations significantly in 2015, building a $30 million facility in San Leandro meant to quintuple production. “But when there’s a market downturn, there are costs you can’t anticipate. You can get in over your head quickly.”

Since 2015, beer sales have slowed — not just for Speakeasy, but for craft beer nationally. “Sales are still growing,” said Lester Jones, chief economist for the National Beer Wholesalers Association. “But we’re talking single-digit growth versus double-digit growth.”

The costly expansion raised the stakes for Speakeasy. “We missed the numbers,” said Gray. “We just didn’t perform to where we had been.”

With sales slowing and competition intensifying, Speakeasy cut costs wherever possible — changing the packaging for its cans, for instance — and sought outside investment. “We spent the last year and a half trying to raise equity,” said Gray.

Why he couldn’t is anybody’s guess. All Gray knew was that, by March 10, he could no longer keep the brewery open.

The eulogies that followed turned out to be premature. If Gray has his way, Speakeasy under new ownership will look much the same as it did before. “I fully hope to be involved,” he said.

As an investment, the company has some obvious appeal: A beloved brand, distributed in 13 countries. A big brewery ready to go, with room to grow, plus a taproom. Tried-and-true beer recipes, like Prohibition Ale and Big Daddy IPA. Real estate in San Francisco.

Of course, the debt and wage claims could overshadow those attractive qualities, especially to a smaller buyer. That’s led many to speculate whether a larger company, on the scale of, say, Anheuser-Busch InBev, might bite. The decision is up to Jigsaw.

“I will say it’s a buyer’s market,” said Tom McCormick, executive director of the California Craft Brewers Association. “The few groups out there that are looking to buy existing breweries are being very choosy.”

It looks like consolidation will dominate the beer industry’s immediate future, in the wake of last year’s merger of AB InBev with SABMiller, the world’s two largest brewers.

Unlike a newer wave of Bay Area craft breweries, which are opting to stay micro-size and distribute only locally, Speakeasy distributes globally. That means that it has to compete with the AB InBev/SABMiller behemoth, whose power in the market is only growing.

“It’s putting undue pressure on craft breweries like ours,” said Gray. “We couldn’t make high-quality beer at $6.99 a six-pack.” Especially not in San Francisco, a difficult environment for manufacturers. Speakeasy, Anchor Brewing and, to a lesser extent, Fort Point Beer are the only breweries still producing at an industrial scale within the city limits.

But industry experts are quick to emphasize that Speakeasy’s woes, and Magnolia Brewing Co.’s filing for Chapter 11 bankruptcy last year, do not portend a craft-beer crash. Breweries opening, closing, changing hands, losing money — “That’s a natural and, I believe, healthy progression for any industry in this stage of evolution,” said McCormick. “To be honest, it needs to happen.”

One thing is certain: San Francisco wants its old Speakeasy back.

“They were absolutely one of the pioneers of craft brewing culture in San Francisco,” said McCormick. Despite opening in 1997, a year that saw a severe downturn for craft beer sales, it was one of the first of its generation (a class that counts 21st Amendment, Magnolia, ThirstyBear and Beach Chalet) that grew enough to begin packaging beer to send out of San Francisco.

Longtime fans may recall its famous Friday night parties, in which poker chips were exchanged for beer, in true speakeasy style. “They’d serve mostly experimental beers you never saw in bottles,” said Bill Yenne, a local beer historian and author of “San Francisco Beer.” “Sometimes it was awful and sometimes it was really good. That was the point.”

If the brewery were to close, Yenne said, “It would certainly rank as the biggest closure in the lifetime of most beer geeks in San Francisco.”

But it may not come to that.

“We want people to know that we’re fighting hard to keep it alive,” said Stechschulte. In the meantime, those eight employees are working in overdrive. They even released a new beer this month, Murky Business APA. (It was scheduled to ship before the March 10 announcement.) They’re sending beer to the distributor, as usual; it should be available in the same bars and retail outlets that have always carried it.

In the words of Gray: “It’s a weird time for craft beer.”

Esther Mobley is The San Francisco Chronicle’s wine, beer and spirits writer. Email: emobley@sfchronicle.com Twitter: @Esther_mobley Instagram: @esthermob