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In 2003, Kevin Szot settled in Chile with his Chilean wife and four children. After 18 years with U.S. financial group Citibank, he was looking to do something different when he remembered the microbreweries of his youth in California.

While Chilean wine had improved in leaps and bounds in the decade since he had last lived in the country, diversifying into a dazzling array of grape varieties, wineries and valleys, beer in Chile was confined to a handful of national brands with little to tell them apart.

“Beer was still basically industrial lagers like Cristal… and I thought Chile was at a moment where [opening a microbrewery] would be an interesting business.”

Microbreweries took off around 30 years ago in the U.S. and U.K. as ale fans began to produce, on a small scale, their own beers with more challenging and interesting flavors than the thin, fizzy lagers produced by the global brewing giants that have come to dominate the industry.

Brewing in Chile is dominated by Santiago-listed Compañía Cervecerías Unidas (CCU), which sold more than 80% of the 600 million liters of beer consumed here last year, through major brands such as Cristal, Escudo, Royal Guard and Heineken.

Beer consumption has grown rapidly in Chile over the last decade, part in thanks to heavy advertising by CCU, and today outsells pisco and wine as Chileans’ favorite tipple.

But consumption of 36 liters per capita in 2008 lies a long way behind that of other countries in the region including Venezuela, Brazil and Mexico or champion beer drinkers like the Czech Republic, Ireland and Germany whose inhabitants each put away more than 100 liters a year.

Having never brewed before, Szot set up a one-hundred liter set in his backyard to find how to make beer to his taste.

After getting the recipe down, the family purchased a second-hand Belgian-built brewing plant and began to produce the first bottles of Szot beer in late 2006.

He was not alone. The last five years have seen a boom in artisanal beer-making in Chile so that today Szot estimates there are anywhere between 50 and 90 microbreweries active in the country, ranging from backyard businesses to much larger operations like his own.

But not all of these are prospering.

Many encountered difficulties maintaining quality standards when they increased production volumes or found their beer did not last well on the shelf, causing headaches for supermarkets.

Comercial Peumo, the distribution arm of Chile’s largest winemaker Concha y Toro, originally signed up six of these new microbreweries, including Szot, but just a couple of years later, only three are still on its books.

Szot says the hardest part is not making beer you like but keeping the product the same while expanding the business.

“Most businesses are manageable whether you are making beer, bread or paint, the complexity comes as you grow,” he says.

A mistake in the recipe during expansion could cost a small brewery its reputation just as it has most of its money tied up in expensive new machinery.

“In this business, rapid growth can probably kill you quicker than no growth at all,” says Szot.

He has tried to learn lessons from the microbreweries he admires in the U.S., many of which now produce on a near-industrial scale with some automated processes.

Another difficulty facing Chile’s microbreweries has been finding room for their product in a market dominated by a couple of big distributors, a handful of supermarkets and one enormous brewing giant.

When Szot and wife Karin began marketing their beer, they found thousands of restaurants, bars and pubs had signed deals with major brands which meant that they could not sell beer produced by anyone else.

“When we started we tried to get our beers into [Santiago shopping mall] Parque Arauco – but everyone had signed exclusivity agreements,” he recalls.

Following a probe by competition authorities, the big breweries agreed to halt the practice opening the way for microbrewers to appear in thousands of establishments throughout the country.

Demand for the new generation of premium beers has grown almost as fast as the microbrewers can produce it, with producers relying on word-of-mouth and press coverage to attract new consumers rather than heavy spending on advertising.

Sales have been rising at the rate of around 60% a year – but market data suggests the industry still has a lot of growing to do.

Premium artisanal beers accounted for just 0.4% of all the beer sold in Chile last year while in the U.S., where the micro-brewing industry is into its fourth decade, the figure is closer to 6%.

After growing at 250%-300% a year, Szot is now planning to increase annual sales to around 400,000 liters of lagers, ales and stouts within the next 18 months from just over 150,000 liters currently.

Due to initial problems convincing bars and restaurants to take on its beer, the company sells around 70% of its product through supermarkets but is planning to produce draught beer, for sale in pubs, from 2011.

Szot has also begun to export beer, shipping several cases to Denmark last year.
“We did not seek it. They contacted us after reading an online review rating us as the best beer in South America,” said Szot.

More orders have followed from Brazil and Canada.

But given the difficulties in differentiating themselves in the mature beer markets of Europe and North America, the company’s focus remains on the domestic market.

“Our beers may stand out in Chile, but in the U.K. what’s another pale ale?”

One answer may be to try adding local ingredients, like Andean grains quinoa or amaranth to give unique flavors to their beers, just as South African brewers add sorghum to their lagers.

But Chilean beer laws, designed with industrial beer-making in mind, restrict brewers to using corn and rice as alternatives to barley in their beer.

Szot now hopes he can persuade the beer industry as a whole to push for a change in the legislation.

Although running a microbrewery is a world away from his job in a multinational, Szot says his career in banking provided him with skills that have helped him to succeed.

At Citibank he was used to running sales campaigns and managing products, the only difference now is that he’s pushing lagers rather than loans.

Banking also taught him to be financially conservative and keep his focus on when the money is coming: that’s crucial in a business where payment is often delayed by 30 days and sales taxes swallow up more than a third of revenue.

Things have only got harder with the slowdown in the global economy, since consumers and businesses are less willing to risk new products.

But for those microbreweries that were already doing well, Szot says the downturn has been a blessing.

“I think the recession has helped us: instead of buying an expensive wine, people prefer to buy a top quality beer, which costs them a lot less.”

Tom Azzopardi is a freelance journalist based in Santiago