San Diego City Council recently granted $300,000 in development fee reimbursements for expansions underway at Ballast Point Brewing & Sprits and AleSmith Brewing Co., and experts say other communities could eventually deploy similar strategies to attract operators in the fast-growing craft beer industry.
Ballast Point and AleSmith were each granted about $150,000 in gradual reimbursements of city development fees related to their previously announced San Diego expansion projects. The reimbursements, to play out over about three years, are contingent on the brewers generating increased sales and other taxes for the city as a result of their increased capacity.
“By the end of the year, I would expect that other communities will be coming up with programs similar to this,” said Vince Vasquez, senior policy analyst with the locally based National University System Institute for Policy Research.
While local cities are competing to attract brewers and encourage them to expand, San Diego County as a whole is competing with other regions for that business, Vasquez said. Some local brewers, for instance, have announced that they are scouting East Coast sites for future expansions of their operations.
While eastward expansion won’t necessarily cut into local frontline employment by brewers, there is always the chance that a company might decide to spread administrative and other decision-making personnel among several U.S. sites.
“It’s in the interest of local communities to keep those operations centralized in San Diego County,” Vasquez said.
Incentives like development fee rebates are a low-risk strategy for cities, he said, since they are conditioned on the recipients delivering on expectations for new tax revenues and related economic benefits.
Vasquez authored a recent report noting that San Diego County’s craft beer brewers saw sales grow from $680.9 million in 2011 to $781.5 million in 2013, a rise of nearly 15 percent. Brewing companies employ nearly 2,300 and have an overall regional economic impact of about $300 million annually.
Expansion to Create New Jobs
Ballast Point and AleSmith announced extensive expansion plans earlier this year, as they move to larger sites in Miramar to accommodate fast-growing operations.
Ballast Point is renovating a newly leased 107,000-square-foot building on Carroll Way that will be its fourth and largest facility in San Diego. In addition to brewing operations, that location in coming months will have 18,000 square feet of retail, including a tasting room and restaurant, with another 18,000 square feet of mezzanine-level offices.
Ballast Point last year grew to become the second-largest craft brewer in San Diego County, after Stone Brewing Co. of Escondido, and it now ranks 29th nationally based on production volume, according to the Brewers Association, a Colorado-based industry group.
AleSmith, the first brewer to set up shop in Miramar in 1995, is planning a January 2015 opening for a 105,600-square-foot facility that is set to include a new state-of-the-art manufacturing system along with a retail store and tasting room, in a newly leased space that AleSmith is renovating on Empire Street.
According to a San Diego City Council staff report, Ballast Point’s local expansion will bring the city about $50,000 annually in net new sales and other tax revenues. That’s well ahead of the $15,000 in annual property tax revenue, with no sales or other taxes, that it received at the same Miramar building before it was leased by Ballast Point.
The city projects that the Ballast Point expansion will create about 100 new jobs directly and, allowing for economic multiplier effects, an additional 470 jobs in other industries and at other establishments.
South, East County Getting into Act
The city now has 19 brewpubs and 22 breweries, with three more breweries under construction, making San Diego’s brewery count the largest of any California city. Several are large-scale industrial facilities with bottling and canning capabilities, allowing them to sell beer at wholesale in dozens of states and countries.
There are now more than 80 brewing companies based in San Diego County, with more on the way. The city of San Diego competes with several North County cities for brewing business — particularly Vista, San Marcos and Escondido, which have been boosting efforts to bring breweries and related facilities into their office and industrial parks.
South County and East County communities are also looking to raise their profile in the growing industry.
Gonzalo Quintero is a marketing professor in the Business of Craft Beer professional certificate program at San Diego State University’s College of Extended Studies. The National City native said he has informally advised civic leaders and business operators in that city in recent months regarding how they can bolster retail and restaurant offerings to better serve rising local demand for craft beer.
Quintero said South County in the long run should also be able to bring in new brewing and brewpub-related operations, and government incentives could play a role. South County also has an opportunity to capitalize on rising craft beer tourism in the border region, especially as Tijuana continues to gain momentum as Mexico’s craft beer capital.
Vasquez and Quintero are among several founding partners in a newly formed independent think tank, called the Craft Beer Association of San Diego. It aims to increase local education, business and civic efforts toward raising the local craft beer industry’s national and international profile.
“Craft beer is not just a passing trend now,” Quintero said. “It’s here to stay.”