I was finally able to make the trip to Blue Lab today during their normal business hours. It must have been good timing because I walked in the door and was immediately introduced to Tom Lovell, one of the two owners of the craft brewery. I op
ened the conversation with questions about their business model specifically asking who they sell to and how they distribute. Tom told me that Blue Lab is the quintessential craft brewery only selling beer by the keg, pint, or growler. There are 2-5 restaurants that carry Blue Lab, all of which are located in Rockbridge County. Since Virginia follows a three-tier system in alcohol sales with Blue Lab being the first tier, the distributor being the second tier, and the restaurant being the third tier, Blue Lab must go through a distributor to sell their beer in local restaurants. These restaurants must buy kegs of Blue Lab beer from Blue Lab’s distributor, Rock Beverage. Other than restaurants buying their beer from the distributor, all of Blue Lab’s sales come from within the Blue Lab brewery either by pint or growler. Therefore, Blue Lab’s business model heavily relies on the local community to visit and buy beer directly from the brewery. Tom mentioned that Blue Lab has an advantage over other craft breweries of similar size in that the owner is a W&L biology professor. In saying this, he is meticulous about the ingredients and temperature, but most of all he is extremely knowledgable about the process from a chemistry and biological standpoint. Enough so that Tom insured me that Blue Lab has never harvested a bad batch since their doors opened.
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It sounds like Blue Lab has a pretty cool operation going. I would love to see their financials to compare their revenue during the school year versus the summer. Does the local community provide most of the business or does an influx of students during the fall and winter semesters lead to a rise in sales?
Henry, I would imagine it is a little bit of both. Although it would seem obvious that their sales strengthen when school is in session, the fact that the brewery is locally owned and operated must help sales when school is not in session. With part of their distribution network also extending to local restaurants, I think it would be fair to say that these methods of distribution benefit more when school is in session because the restaurants are naturally busier.
I would love to learn more about the economics behind Virginia’s three-tier system. At first glance, it seems inefficient for Blue Lab to be legally obligated to sell to a second tier distributor vs selling to restaurants directly. Additionally, having to depend on the reputation of Rock Beverage to get restaurants to purchase Blue Ridge kegs seems unfair.
Hugh, any chance you learned more about the three-tier system? Or, from your talk with Tom, did he go into detail about why the system is the way it is?
I would assume their sales jump up quite a bit. Blue Lab runs a trivia night every Thursday during the falls, and having been before, the majority of patrons in the brewery are either W&L or VMI students. In fact, I would wager the reason they only run trivia in the fall is because they could not consistently attract enough people to have trivia without students in town. Those Thursdays alone must contribute significantly to blue labs sales.
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