Critical Drinking

Critical Drinking with Andres Araya of 5 Rabbit Cerveceria

When Henry David Thoreau struck out for Walden Pond, he embraced a radically simple life — free of work and people and society’s expectations. So much so that when he’d venture into town, he would see farmers walking around, their shoulders hunched and tired, and rather than think of their lifestyles as idyllic and natural, he’d see them as anything but:

"But men labor under a mistake. The better part of the man is soon plowed into the soil for compost. By a seeming fate, commonly called necessity, they are employed, as it says in an old book, laying up treasures which moth and rust will corrupt and thieves break through and steal. It is a fool's life, as they will find when they get to the end of it, if not before.” 

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It’s a bleak picture of the endless work it takes to sustain something of value in this world. But the part that Thoreau cynically chalked up to some legal and financial obligation on the part of the farmers, was also mixed with the very passion and connectedness those farmers felt to the land, their families, and their legacy that Thoreau was so desperately in search of himself. 

I’ve worked with a lot of breweries. Big ones, little ones, some with clear plans and others stumbling forward every day. And one thing I’ve learned is that no matter how many people help build a brewery, there’s always one person who walks around with the whole thing in their head every day. It weighs on them almost every minute of the day as they continuously contemplate the future of their endeavor, and the great responsibility they feel for all involved. 

Andres Araya is one of those brewery owners. He’s a quiet, almost brooding character in Chicago’s brewing scene — much loved by those that know him, but not often found at events or in the press — until the legal battles over 5 Rabbit’s ownership hit the papers a couple of years ago. At the time, most beer drinkers in Chicago identified the brewery with Randy Mosher, an icon in craft brewing and one of the creative forces behind their early graphic design and adventurous recipes. But Randy was only a small part of how 5 Rabbit got started — and he had almost nothing to do with the real challenge this brewery had starting up: Andres’ and Isaac Showaki’s crumbling partnership. 

From the moment they split, Andres was left with a struggling brewery and a storyline that was mixed up, misconstrued, and misrepresented in almost every way imaginable. Rather than add to the noise of the fallout, he decided to keep his head down, focus on building the brewery, and put together the team he felt could deliver on the vision he and his wife, Mila, had laid out three years ago in Mexico — to become the first Latin-inspired brewery in the US.

Today, Andres agreed to sit down for some Critical Drinking at Sheffield’s Bar in Chicago, to hopefully lay down some of the burdens he’s been carrying, and talk about how he’s finally finding the momentum that 5 Rabbit had just three long years ago as one of Chicago’s best and brightest breweries. 

A story in four parts. 


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Building confidence and making the move from Mexico to Chicago

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That moment, when you and the family were headed to Chicago and there was no turning back. What was that like?

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We moved to Chicago in 2011. I quit my job in Mexico in September, and finished up the year. I remember Christmas dinner with Mila and my daughter. The house all packed, eating Chinese takeout, because we were going to spend our last nights in Mexico in a hotel. By the first week of January we were in Chicago. It was right in the middle of a big snow storm. I remember driving in and everything being covered in snow.  

 

Early on, people got the impression that you were a couple of marketing guys from Mexico. Even I had that impression. But after meeting you guys early on, it was clear to me that your background was much different than the press was reporting. I mean, I wouldn’t even say you guys are all that good at marketing.

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Yeah, it wasn’t marketing at all. If there’s one thing I don't feel comfortable doing, it’s marketing. I’m actually an engineer. I studied industrial engineering at Purdue, and right after being done with my studies I went back to Costa Rica and started working for a brewery. My connection with beer started there, but I was there as an engineer working in production for a big macro brewery.

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What kind of challenges were you trying to solve for in that role?

 

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I was part of the production management team. It was myself, the brewmasters, the maintenance manager, and the quality control manager. My role was all about optimization. The production schedule, raw materials inventory and finished goods. It was so interesting for me as a twenty-two year old. I had a pretty big department, about 100 people, working under me. So it was a lot of responsibility. It was an amazing challenge. 

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Where did that role take you?

 

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I went back to school to study business, and ended up doing strategic consulting work. I did that in Mexico for about five years, working for breweries at times, but also many other industries, including soft drinks, airlines, banks. We did a lot of  business growth strategy. So yeah, not a lot of marketing. Companies would come to us and say ‘Hey, we’re doing really well, selling a lot of our product, a lot of money’s coming in. What should we do? What should we invest in?’ Of course, that’s the scenario when the economy was good. When the economy was bad, we would mostly look for optimization opportunities.

 


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Adapting to a rapidly changing market in the US.

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So a lot of that work is at the macrobrewery level. Huge scales. How does that knowledge and skillset translate to opening a craft brewery? You were so small you didn’t even have your own brewery to start with — you contracted for awhile. 

 

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It doesn’t translate at all. A lot of people don’t have a sense of how much control macrobreweries have in Latin America. In comparison to the US, there is very little micro brewing or home brewing going on. In the last five years that has grown a lot, but it’s still very small. In Costa Rica, there’s one craft brewery that’s been open for about two years. Mexico is a little bit ahead. Brazil is ahead, but overall we’re all way behind. When I was working at these macrobreweries, craft beer wasn’t really on the radar. Craft beer never came up in conversation. For me, it started through homebrewing. The brewmasters in Costa Rica were making beer at home and I not only thought that was super interesting, but also exciting. Truly eye opening for me that you could make beer in your kitchen. That was unheard of for me. Everything I’m doing now was theoretical for me at that point. What I did then, compared to what I do now- even though both are about making and selling beer- just seems like two very different and unrelated worlds to me. Completely different skillsets

 

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So why open a brewery in the US instead of Latin America?

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The idea started there. But Costa Rica was a very small market because of the size of the country. Mexico made more sense at that point. But I had worked with the macros — so I knew how tough it would be to compete against them. I knew exactly the tools they have to control the market. The three-tier system in the US is flawed, there are some things that may not seem all that fair, but one thing that it does do is protect us from a situation that you have in Latin America now. You have monopolies, duopolies controlling distribution and retailers. In Mexico, the biggest convenience store chain is (or at least was) indirectly owned by a brewery. That’s more than 8,000 points of sale right there, and they only sell their beer. There’s a lot of pay-to-play in the market. I appreciate the craft beer pioneers that are there right now fighting the good fight, but at that point, I just wanted to make beer and build a brewery. Also because we had fallen in love with Chicago many years ago when living in Indiana. It just felt right

 

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The US market was certainly booming at the time, but in Chicago, we were still very under-developed when you showed up. Half Acre was here, and Metro was going, but there wasn’t much else beyond Goose. Why Chicago?

 

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We did a competitive landscape. Two Brothers and Three Floyds were the others on that list too. Maybe I’m forgetting somebody, but yeah, not a lot. Now it’s shifted completely. There’s what, forty breweries in the Chicagoland area? And the models have changed. It used to be fairly traditional where you make a few beers, some seasonals, and you grow your core. Now we see more adventurous nanos unafraid to make one-offs 100% of the time. Or CSA models like Begyle. Each one on their own isn’t a game-changer, but as a group they changed the dynamic of the market. 

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How does that make you think about your own model?

 

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When we started, we wanted to be a creative force, super inventive, lots of ideas. Beers that were unique and revolutionary. But contract brewing kind of destroyed that for us. Not everyone is going to peel two hundred limes for you, or roast your ancho chiles, or cold steep something overnight. So we had to choose recipes that fit the contracting model. A lot of that creative force had to lie dormant for a while. Then we finally had our own brewery set up and it took a little time to get comfortable with just reproducing the beers that we had. It isn’t until now that we are finally going back and tapping deep into that creative force that got us started in the first place because now everything is a possibility.

In today’s market, we need to be more on our toes. The days of a permanent tap handle are gone. Beer buyers at the better bars, or maybe even at any bar, see new things every day. And so while you might have a handle there, you’re going to have to put new things on it all the time to keep it. The creativity in Chicago from the smaller breweries has created that push. 

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You mentioned that nanos don’t seem afraid to do new things. Thinking back to when you were going to make the leap yourself into craft brewing, what did you feel confident about, and what were you afraid of?

 

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I was terrified of everything! I was confident about my abilities and my vision, but it was a new country, my first time as an entrepreneur, a new industry. And just as we were moving, Mila told me she was pregnant with our second child. Big surprise for both us! Just picture us in an empty apartment in Mexico City, knowing we would soon be heading to Chicago with a two-and-a-half year-old, no more insurance, no permanent place to live, it was absolutely terrifying. There were a lot of things up in the air at that point. We just had an idea we believed in and the willingness to risk everything to give it a shot

 

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So here you are now, you have a physical brewery, a packaging line, two daughters and a happy family. A lot of those things have settled out one way or another. But going back to the beginning, you also had a partner in the brewery. Did bringing on a partner, Isaac Showaki, help you pull the trigger on starting the brewery? Did it help you get over that fear?

 

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Oh yes, definitely. I was in a very comfortable position in Mexico. My job was good, our house was great, we had amazing friends.  But I had this dream to open a brewery at some point. I had shared the idea with Isaac who was an analyst on a brewery consulting project with me. I told him about this concept of making beer on a smaller scale. But really it was nothing more than a dream. At some point Isaac was between jobs and became a driving force behind pushing me to pursue this dream. He and Mila were both trying to convince me the brewery was a good idea. And I just realized that if I didn’t do it then, I’d probably never do it. I didn’t want to look back ten years later and regret at least not trying. 

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How did you think that would play out? What was the picture in your head of what that risk really looked like?

 

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I thought it’d be a really quick year of make-it-or-break-it. And if we didn’t make it, I could just come back and continue with consulting. But everything ends up being less clear-cut. There’s a lot of hard work. It takes awhile to get things going. 

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But things can also change on a dime! The market, your model, and internal plans. 

 

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Oh, yes, in a second. It took me about two months to change my mind on contract brewing. The plan was to contract for three years, but I knew it wasn’t working. We needed to build the brewery right away. 

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What wasn’t working about contract brewing?

 

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We were handing over the most strategic aspect of our business to someone else. Craft beer is not marketing. It was really hard for us to be the brewers we wanted to be by contracting. I felt we were giving away too much power. Contract brewing is a fine model, many times a means to an end, but you make tradeoffs, like with anything else, when you contract brew. For example, you usually have to use the contract brewer’s house yeast — maybe they have two if you’re lucky! They probably have a specific base malt they use. Your beer will always be second priority. They’ll make their beer and put yours on hold if they have to or push your beer along quicker than optimal if they need the tank space. You need to assume that they are never going to put as much care into your beer as you do. Also, you can’t do one-offs. I don’t  know, maybe that exists now, but at the time it did not seem like a possibility. It was hard enough just to work with the 5 Rabbit golden ale recipe. I just had this terrible feeling — how could we call ourselves a brewery when there were trade-offs we were making on our beer? So I wanted to change the plan and build the brewery right away. It took us about a year to build our brewery. I don’t think we would have survived contracting for three years. I mean, we’d still be doing that

 


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The beginning of the end of a partnership

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How did the dynamic between you and Isaac play out after that decision?

 

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His gut feeling was the opposite of mine. He wanted to have more of a track record before we raised the funds for a brewery. Building it right away would dilute our stake in it. And I thought of it in a completely different way.  I felt if we were going to make it at all, then we needed to do it right and take back control of making that beer.

 

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So, it’s no secret to anyone that knows 5 Rabbit that there continued to be tensions between you two after that. Was that something you knew going in would be the case? Because to change your mind two months in and ditch the contracting plan was a pretty bold move. Did you always intend to have that level of control and nimbleness? Or were you surprised by the need to have to persuade your partner to make big decisions like that happen. 

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When you start a business, it’s very assuring to have a partner. You need to get a sense of security or validation — that you are not going at it alone. It’s an easy emotion to fall into, having someone with you. But it all stems from fear. Fear of the unknown, or fear of your own abilities. It’s human. So you tend to forget the costs of a partnership. Partnerships are difficult. Look at marriages — marriages are difficult. Partnerships even more-so. You’re going into a space where a lot of decisions are yes-and-no. And when you reach those points, you have to solve it somehow, by somehow reaching consensus. But there will always be decisions where you can’t accomplish that. And sometimes neither option is better, just different. And if the board is a two-man board, you can be deadlocked on everything. 

 

 

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And the board was also just the two of you?

 

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Right. It was just us. When we were drafting paperwork, we always intended to appoint a third person, maybe up to five, to the board and it was just something we never did. You do a lot of these thing with wishful thinking, assuming everything’s going to be fine. You prepare a lot of these documents that I call “peacetime documents” — you make peacetime documents when you’re happy. We were excited, everything seemed great! But when you’re actually going to need all that paperwork, then shit, yes, these are kind of worthless because they’re peacetime documents. You really have to make those assuming or expecting the worst. 

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Besides all that, was taking on a partner in the beginning still worth it?

 

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He was a catalyst for sure in the very beginning. People are often hesitant to take the leap by themselves. But I sit here now and I think “it wasn’t that scary.” I could have done it myself. But hindsight is 20/20.

 

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How do you think about your stakeholders?

 

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There were people we called up and told that we wanted to go make beer in Chicago. And with something like that, they’re not giving you money because of your “great” idea — they’re giving you money because of you. Or like Randy for example, where they’re giving you their creative input, their ideas, and staking their reputation on it. That’s a serious gift. They’re not a piece of paper, and that’s something I’ve always been very careful with. I will protect the brewery, not only because it’s my baby, but because I have people counting on me who have trusted me.

 

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In those “peace time documents” you did make one “war time” provision that ultimately ended the partnership between you and Isaac. And that provision sets into action a forced buyout mechanism if there was ever an issue that could threaten the ability of the brewery to operate. At some point, you guys activated that mechanism. 

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Yes. If the company was to ever reach a deadlock and was not able to function as it should because the people in power could not agree on something, then the only way to eliminate that deadlock was a kind of legal shoot-out. One person had to name the desired share price to buy the other out, and the other partner had to decide to either take the offer, or reverse it and buy the other partner out at that price. There’s no price negotiation. It’s a 1-2 decision and it’s final. In a world of unlimited resources, it’s a very fair solution. But in a world of limited resources, like for brewery owners, it’s not that fair because the first person sets the price, regardless of reality. In this case, Isaac set the price and I decided to buy him, even though I thought the price was way too high and really bore no relation to the market value of the shares.

 

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How do you maintain focus during all that?

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I just think back to how my dad taught me. He went to West Point and although he was very caring when we were growing up, he was also very strict with my brothers and me. He always said that “a cadet never lies, cheats, or steals, and does not tolerate those who do”. That’s how I was brought up. Everyone fucks up and makes mistakes, just as long as it is done clean, morally and ethically. If you give something your best shot and your intentions come from a good place, then it’s ok. So, it’s really hard to see your name tied to things that are not that way. It’s very draining. It gets old.

 

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That must have been a really hard moment though. This guy who had encouraged you to pursue your dream — a catalyst for getting you to pull the trigger — who moved to Chicago with you and your family and helped you start-up — and here you were trying to decide who was going to buyout who. What did that feel like? That must have been a shock. 

 

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Yes and no. That’s another thing that I’ve learned, there are always tell-tale signs, always. There were red flags as to our abilities to work together. But in the moment you try to make things less than they are — you rationalize them. 

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Do you blame yourself for letting those early signs pass?

 

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I blame myself completely. And it’s not about right and wrong, there’s just different ways of doing business. Different ways of managing. We were just not compatible in many important ways. We could both tell really early on, but you just keep dismissing it because there are so many exciting things happening. A lot of good things. And if we were selling 50,000 barrels in our first year we would have all been happy, I’m sure. But it’s a lot of work — there are hard times. And with hard times, comes tension. And if you’re not seeing eye-to-eye, then it just becomes more evident that there are issues with the way you both want to do business.

 


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Getting back to the vision

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Now that ownership has been settled, even if some of the smaller legal battles continue for awhile, does it finally feel like the project you signed up for?

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Yes! More and more each day. Just being able to go back to the original vision. The other day Mila and I were looking through some old notebooks with ideas we had, and it felt great. I remember those early discussions we had with passion and excitement. We’re doing a lot more of that again. Thinking about ingredients, beers, collaborations, experiences we want to create. It’s now easier for me to follow my heart and not have to talk about compromising the vision. 

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It sounds like you’ve got some headspace back. 

 

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Ha, it’s true. I mean, like I said, one of the reasons we chose the US was because we just wanted to focus on the beer and the vision, not legal battles with the macro brewers. But it feels like we fell straight into that for a year or so anyhow. It felt like 80% of my day my head was focused on our legal problems. 

 

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Was it all worth it?

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I’ve grown so much in these last two years. I’ve learned a lot not only about myself, but about those I have around me, the people I care about, society in general. When push comes to shove, are you going to put yourself in front and defend? As a person, I’ve grown a lot, and I don’t regret that at all.  

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I feel like the impression that people have of you is that you’re shy, that you hide from the public, and especially the press. But how much of that was being buried by this struggle for the past couple years?

 

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Oh, I feel like I’m coming back to life. The brewery, and the energy is so very, very different. When you’re dealing with a lot of negative energy it’s hard to switch and focus on positive things. Yes, I’m not much of a talker generally, but there’s a lot of things from this struggle that I didn’t feel like deserved the time of day. Also, I don’t think it’s fair for the customers — why should they care? This was a falling out between partners. It had nothing to do with the brewers and the beer. People drinking a beer shouldn’t need to be exposed to any of that. 

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I certainly agree in terms of the legal and business issues. But there something important in what you were saying about the energy. That negative energy can certainly translate to the product. Or at least, the lack of positive energy can hurt a business regardless of where it comes from. It’ll influence decisions you make everyday, or how often you’re willing to be out in front of people at events. I think it’s especially true for a brewery, a business that’s so connected to culture and the social fabric of a city.

 

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Right, that’s true. I agree. And that’s always been Randy’s take on all this. He’s always tried to put it behind us and focus on the positive things we’re doing. And now I have a lot more mindshare to devote to that too. As time goes by, it’s getting better, and I can go back and find that original path, and most importantly do it through the beer!

 

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Looking back do you have any advice for would-be entrepreneurs, especially those starting a brewery or contemplating partnerships?

 

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The biggest thing is to believe in yourself. Do it yourself. Don’t look for that support from someone else to do it with you. It might be scary, but just go ahead — you’ll be glad you did. If you need to share some burdens, there are lots of ways to do that other than partnering. You can involve people in many different ways. It’s just not good for anyone — you, the business, the other partner, and definitely not for the friendship. And on the business end, just be true to your vision. Be unafraid.  

Michael Kiser