PORTSMOUTH — When Peter Egelston founded Smuttynose Brewing Company in 1994, distributors told him the craft beer thing was a passing fad.

And for awhile, it looked like that might be true. As craft brewers began selling more beer, they expanded well beyond their means, and many collapsed.

But not Egelston.

Smuttynose's growth has been incremental, and during the difficult years was largely funded from Egelston's pocket.

But the craft beer industry was not a passing fad, and in 2011 accounted for 6 percent of the national market share, according to the Brewers Association, a national trade group that represents independent craft breweries.

Now on Heritage Avenue in Portsmouth, brewery workers at Smuttynose struggle to keep up with demand in limited space.

But soon that problem will be solved.

On Thursday, the company held an official groundbreaking at its 14-acre future home at Towle Farm in Hampton, a facility designed by McHenry Architecture of Portsmouth and being built by Harvey Construction Corp. of Bedford, the business behind the redevelopment of Hampton Beach State Park. Construction has been underway for months.

Egelston said when they came across the Towle Farm property in Hampton, they knew they had found a place with the kind of character and romance that suited Smuttynose.

When Smuttynose opens the new brewery in fall 2013, it will feature a slightly expanded brewery and a 95-seat restaurant, which should lead to more job creation. Right now, Smuttynose employs 41 people.

The Portsmouth-brewed beers are distributed in 19 states and the District of Columbia. Egelston said he does not want to expand too far out of those markets, but instead look at deeper penetration in Smuttynose's current markets, rather than trying to straddle both coasts.

Craft beer expansion

In 2003, Smuttynose came into its own when it began distributing its India pale ale out of state.

"It was the first sort of widely produced hoppy-style IPA bottled in New England," said JT Thompson, "minister of propaganda" for Smuttynose. It is bottled year-round and accounts for about 40 percent of Smuttynose's sales.

Smuttynose has three other product lines, including seasonals, the "big beer series" and batch series. The company is currently brewing 88 batches of pumpkin ale for fall.

Thompson said the movement towards craft beer is in line with the movement around the world of people wanting to consume food and drinks made with natural ingredients.

"Craft beer in general right now is incredibly popular," he said.

The Brewers Association said that last month there were more active breweries in the United States than there had been since the 1890s. As of 2011, there were 2,075 craft breweries in the country, with Smuttynose ranking 47th in sales.

In the first half of this year, dollar sales for craft brewers were up 14 percent, and volume of craft beers sold jumped 12 percent.

Smuttynose has expanded over the years incrementally based on demand and what it can afford, Egelston said.

$18 million project

Despite the company's success, it costs a lot of money to grow. In order to make the new project a reality, financing came from a variety of places, including a $500,000 loan through Community Development Block Grant funds recently approved by the state Executive Council.

The entire project is expected to cost about $18 million, with about one-third coming out of pocket and the rest coming from a combination of private bank loans and Small Business Administration loans through the SBA 504 program.

Gap funding also includes a $250,000 loan to the town of Hampton from the federal Economic Develpoment Administration to offset the cost of connecting the property to the municipal water system; two $500,000 loans from the Business Finance Authority and a $500,000 loan through the Coastal Development Finance Authority from Housing and Urban Development funds.

Egelston said another reason he has opted for incremental growth is experience.

"There were lots of successful craft breweries in the mid- to late-1990s that expanded beyond what they should have," Egelston said. "We've taken a very conservative approach. We are building a facility that will allow us to be able to grow at a reasonable rate if we choose to."

Egelston said he would like to keep the company relatively small, with employees able to wear many hats.

"I hope we never lose that part of our culture, where we are always capable of rolling up our sleeves and doing different things," he said.

For now, employees will do just that as Smuttynose continues to expand and prepares to move next year.

"It has been a really long journey for us to get to a place where I think we were meant to be all along," Egelston said.

The 40,000-square-foot facility will feature a restaurant in the old Towle farmhouse, as well as a state-of-the-art brew house and a visitor's center.

The new brewery will be a purpose-built facility, with a high level of efficiency, Egelston said. The company is pursuing Leadership in Energy and Environmental Design, or LEED, Gold certification.

Thompson said he is excited to have a place where more people can visit. "The new place is going to be a destination."

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Gretyl Macalaster may be reached at gmacalaster@newstote.com.