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Monday, December 5, 2016

The End of an Error

Today marks the official anniversary of the end of Prohibition, the failed experiment that lasted far too long in the United States. We've made a lot of mistakes in our history and we continue to make them. But Prohibition was a disaster by almost every possible measure.

The end came on Dec. 5, 1933, when Utah (irony) became the thirty-sixth state to ratify the 21st Amendment, which repealed Prohibition. Recall that there were then 48 states and amending the Constitution required ratification by 36 of them.

People tend to forget that Oregon, which was the seventeenth state to ratify on Aug. 7, 1933, had been wallowing in Prohibition longer than many states. Statewide prohibition was approved by voters in the 1914 election and went into effect on Jan.1, 2016.

In fact, prohibition was largely a rural phenomenon. Portland and Multnomah County narrowly approved statewide prohibition in 1914. By the time Oregon voted on national Prohibition in November 2016, those same folks had seen enough and rejected it by nearly 10,000 votes. But rural Oregon went the other way and national Prohibition arrived on Jan. 16, 1920.

The stench of the Prohibition era rubbed off fully in Oregon. Most breweries closed. Those that remained converted to sodas, syrups and near beer. But beer was never the problem. The problem was liquor. During Prohibition times, that included local moonshine as well as whiskey brought in from Canada via speedboats up the Columbia River.

There was little interference with the movement of contraband. Portland became a hub for liquor distribution, supplying establishments that consumed vast amounts of alcohol, often with the knowledge of paid off local police. Some speakeasies were paying $100,000 a month for police protection. When they did conduct raids, police typically targeted small time operators who couldn't afford protection. Confiscated liquor often found its way into the hands of high ranking officers and city officials. As was the case in many cities, Portland never accepted Prohibition.

Most Americans knew by the late 1920s that the grand experiment was not working. Corruption was everywhere, infesting public and private institutions. Gangland killings were a regular occurrence. To many, prohibition laws appeared to be unenforceable. Still, the end didn't come as soon as many hoped and expected.

Anticipating repeal of the 18th Amendment, Portland's largest breweries, Henry Weinhard and Portland Brewing, merged in 1928. Arnold Blitz, owner of Portland Brewing, was named president of newly formed Blitz-Weinhard Brewing. The company had jumped the gun on the end of Prohibition by five years.

In the end, it was the Great Depression that finally tipped the balance in favor of repeal. In tough times, Americans decided the country needed the economic stimulus provided by legalizing the manufacture and sale of alcohol more than they needed to continue on with a failed law.

Franklin Roosevelt, running on a wet platform in 1932, won all but six states and beat Herbert Hoover 472-59 in the Electoral College. In Oregon, Roosevelt won by 75,000 votes out of 350,000 cast. Just as important, Oregonians voted to repeal state prohibition by 70,000 votes. Multnomah County accounted for 40,000 of those votes.

Although the end didn't officially come until Utah ratified the 21st Amendment, more immediate relief arrived in the from of the Cullen Bill, passed by Congress and signed by Roosevelt in late March 1933. The law legalized the production and sale of low alcohol (3.2% ABV) beer and wine and took effect on April 7, 1933...fondly referred to today as National Beer Day.

In Portland, brewers were woefully unprepared to meet the expected demand on Beer Day. Congress and Roosevelt had given them just two weeks to ramp up production and it wasn't enough. As a result, thirsty Portlanders consumed every available drop of beer. Blitz-Weinhard, tapped out completely, was unable to fill orders for two weeks.

Most of this story is lifted from Portland Beer. One thing I don't address in the book is why Prohibition failed. The main reason, I think, is that it's difficult to legislate and enforce morality. The other is Americans like to drink and most of them didn't stop drinking during Prohibition. They simply ignored the law, which led to a lot of arguably more serious problems.

Sunday, November 27, 2016

The Escalating Obsession with Rarity

With the passing of Thanksgiving, we have more or less officially entered the holiday season. It can be an awkward time of year. But we also know it's a time when many fine beverages will be consumed and shared. Something to look forward to.

What folks will be drinking and sharing is another matter. As Aaron Goldfarb's a recent article in Punch suggests, tastes are increasingly driven by rarity and extreme presentations. We have reached the point where a beer isn't likely to be considered great unless it's rare and racy.

This aligns with what we've seen in recent years, as rare, high-priced beers have established a strong presence in beer shops and many premium grocery stores. Total beer inventories have been rising, but a lot of old standards we used to know and love are gone, displaced by specialty beers.

That trend is a good reflection of the actual beer world. Fans chase rare and crazy stuff and want to be seen drinking it. They aren't going to show up at a bottleshare or similar gathering packing something that's readily available and moderately priced. Perish the thought.

In effect, we've achieved stratification in beer. That may not have been inevitable, but it was the logical result of the growing popularity of craft beer and the rise of super fans in recent years. While the brewery count was exploding, so was the demand for special beers. Examples include barrel-aged, fruit-infused, wild and even ultra hoppy beers.

Meanwhile, many of yesterday's best beers are forgotten. Even if they're still good and highly drinkable, they're too common and made in breweries that are far too big. As Goldfarb says, "There’s nothing 'cool' about [those beers] —no remote brewery to travel to, no can release to line up for, no rarely-seen, iconoclastic brewer to idolize."

Retailers have contributed to what's happening and it's hard to blame them. If you're a retailer, your prime directive is to maximize return per square foot. It's easier to do that with high priced specialty beers than it is if you're selling mainstream craft beer in any form. Breweries have jumped on the bandwagon, as well, offering specialty beers via spendy fan clubs.

Festivals have piled on, too. They strive to offer as many one-off, arguably rare and often extreme beers as they can. Organizers fully realize potential patrons are more likely to attend and pay premium admission prices if they think they're getting something unique, as opposed to tastes of broken down standards.

I tend to look for historic parallels in these trends and there's a feasible one here. As I was reminded while watching the Soundbreaking series on OPB, 45 rpm singles became highly unfashionable once LPs became the artistic standard in the late 1960s. I think we're seeing something similar to that in craft beer, as speciality beers push old, uncool standards into the background.

The trend is supported by a lot of the data we're seeing, data that generally shows many older, larger breweries losing momentum while many newer, smaller breweries gain share. Some of that is probably more closely related to the image new places are selling than the beer, but never mind. Rare and arguably innovative is the current cool.

Where does this lead? I have no idea and I don't think anyone else does, either. Some say beer is simply becoming more like wine. Maybe so. But there's also a chance this is an unsustainable, generational fad that won't last. We shall see.

Wednesday, November 16, 2016

Lompoc Rolls With Changes at 20

Lompoc Brewing is turning 20. In case you aren't aware, Lompoc was one of the second wave of craft breweries that launched here in the mid-1990s. While some are no longer around, Lompoc has rolled with the punches and continues to carve out a successful path.

Jerry Fechter and Bryan Keilty
They'll be celebrating two decades in December with Zwanzig Fest, a week-long lineup of special events at Lompoc’s five pubs (Zwanzig means 20 in German). Several local brewers and writers, including yours truly, helped brew their anniversary beer, Zwanzig, a bitter Märzen ale.

Purests know authentic Märzen is a lager, not an ale. Never mind. This particular beer is a tip of the hat to Lompoc's first beer, Erst Ale. It will be pale orange in color with a mildly malty body. Eight hop additions ought to give it plenty of aroma, flavor and bitterness.

If craft beer newbies aren't particularly familiar with Lompoc, there's a reason. Which is that, despite operating out of several locations, they have been somewhat obscured by Portland's brewery explosion. When owner Jerry Fechter opened New Old Lompoc in late 1996, there were only a handful of competing breweries.

The story is fairly well-known and is briefly retold in Portland Beer. Fechter had worked at Old Lompoc Brewing in Northwest Portland for several years. The beers were decent, but he felt the food should be better. The lease was always an issue. When the owners negotiated three-year renewal, Fechter saw an opening and inquired about buying the business during a round of golf.

Soon enough, the owners came back with a number. It was a number Fechter thought he could manage. But as he looked at what needed to be done to move in the direction he wanted, it became apparent that an investor would be needed. Enter legendary publican, Don Younger.

"I had enjoyed beers with Don," Fechter recalls, "but I didn't really know him. A guy at Belmont Station, then next to the Horse Brass on Southeast Belmont, told me Don might be interested in my project. He spoke to Don. The next day, my phone rang. It was Younger."

The call led to a couple months of drinking and discussion, trying to figure out how a partnership might work. Eventually, they hammered out an agreement. Younger became a partner in the business, but stayed mostly in the background while Fechter managed day-to-day operations.

"We knew the food needed to be better," Fechter recalls. "That meant a hood and an improved kitchen. We also realized there was unutilized space in back where we could put a patio. So we built a nice patio, which was busy and a hidden gem in Northwest Portland for many years.

By the time Younger passed away in 2011, he and Fechter had opened additional locations...the Fifth Quadrant, Sidebar and Hedge House. Fechter had also partnered with publican Jim Parker on Oaks Bottom Public House. Today, Fechter operates those locations, as well as Lompoc Tavern, which replaced the original Lompoc pub on Northwest 23rd after it was demolished.

The pub and beer business is a more challenging enterprise these days. You can't get by with a few standard beers and an occasional seasonal. You need seasonals and specialty beers all the time to keep up with all the new places coming online. Head brewer Bryan Keilty is constantly working to develop unique recipes and approaches.

"We know relevance is a challenge with so many new breweries opening," Keilty says. "The attraction of new places isn't new and it doesn't bother us. It just means we need to stay on top of our menu and work to build and maintain a solid beer lineup. That's our focus."

Packaged product is another matter. Lompoc has a handful of bottled beers in distribution via Maletis Beverage. That was strictly 22 oz bombers until last summer, when they launched C-Note and Pampelmousse IPA in 12 oz six-packs. Cans of something may be on the way.

"The strategy with bottles is marketing, getting our name in front of consumers," Fechter says. "That's the main reason we do packaged product. When we saw bomber sales slowing, we launched six-packs. The next step might be cans, but distribution will never be a big part of what we do."

Fechter's thinking is well-informed. He knows the best margin on his beer is in his pubs. Why play the distribution game where the profit per bottle, gallon or keg is small? With retail space getting crowded, some regional and national craft brands are getting squeezed. Meanwhile, a lot of smaller breweries are doing fine. Small and local is a good place to be.

After 20 years in an increasingly competitive business, it's clear enough that Fechter and his team have figured out how to successfully navigate changing times. Congrats on the milestone, folks. See you at Zwanzig Fest.

Thursday, November 10, 2016

The Myth of Poor Craft Growth

As I mentioned in last week's piece, and as many who follow the industry know, it's not been a stellar year for beer. We've been seeing some pretty low growth numbers since before summer and there's no clear evidence that things have improved. But it's not all gloom and doom.

Oregon Barrel Volume Growth
A big part of what's happening in the overall industry is that light beer is imploding. Bud Light sales were down 4% for Q3 (July-September). Bud Light is just one of many premium and sub-premium brands losing steam. That lost volume is a huge drag on the industry as a whole. Thus, the funk.

The craft segment is also underperforming, with single digit growth on the year. That wouldn't cause alarm if growth in recent years hadn't been in high double digits. When you're accustomed to year-over-year growth numbers like that, slower growth causes concern and, in some quarters, panic.

Despite the sluggish growth year, things probably aren't as dire for craft beer as some of us have been led to believe. We may be approaching saturation in some areas, but the overall health of the industry is pretty good.

The above chart shows some Oregon breweries that are doing quite well here. As with the negative numbers chart below, these are August 2015 to August 2016 OLCC numbers, provided by a helpful assistant who does quarterly spreadsheets. My disclaimer, as always, is that OLCC numbers are hopelessly incomplete and useful only as a guide to trends.

The list is comprised mostly of newer breweries formed within the last 10 years. These are brands that have flourished in recent times. Their beers have won awards and fans. Even 10 Barrel, which has unfair advantages over independent craft brewers, has produced some notable beers and continues to attract a following despite its ownership situation.

Now look at the chart below. These are the breweries showing the largest negative numbers over the same period. Three of the five are older, established breweries. The developing trend in Oregon is that younger, vibrant brands are taking share from long-established ones. Why? Likely because consumers, when they have a choice, prefer beer made in newer, typically smaller breweries.

Oregon Barrel Volume Decline
The same trend appears to be gaining traction around the country. Small, local breweries are opening everywhere..the craft brewery count is now around 4,500. A lot of the new kids are taking share from established craft breweries, as well as from big beer. We are seeing this trend documented in IRI losses for older craft brands and big beer.

So why are craft growth numbers sluggish this year? Probably because small brewery volumes aren't being fully captured in IRI stats. Why? Because an increasing amount of beer is being sold in breweries or at growler fill stations, pubs, beer beers and others places outside IRI view. It will take improved data collection to see the full extent of what's happening.

For now, don't get too caught up in the notion that craft growth is faltering. A saturation point is coming. But we're not there, yet.

Thursday, November 3, 2016

Looking for Scapegoats in a Flat Growth Year

In a year when beer volumes are flat or declining across the board, everyone is looking for answers. But particularly Anheuser-Busch, which is spending millions on advertising and craft brewery buyouts in an effort to stem a rising tide of losses. Unsuccessfully.

AB, which today announced that it is acquiring Texas-based Karbach Brewing, earlier reported that Bud Light had the worst quarter of the year, with sales down nearly 4%. Overall AB shipments were down 2.5% for Q3. These are significant hits.

AB isn't alone. Many brands are taking a beating this year, including some craft brands. In Oregon, a year-to-year comparison of OLCC stats shows significant declines for several well-known breweries (see chart below). The Craft Brew Alliance, whose numbers strangely aren't part of OLCC stats, just reported that Widmer and Redhook are both down over 20 percent for the third quarter. Yikes!

But never mind what's happening in craft beer. The craft marketplace is getting increasingly crowded and complicated. That's a separate discussion. Anyway, what's happening to big beer is far more interesting and entertaining. Because, aside from buying up craft breweries, their game plan hasn't changed that much. And it isn't working.

One of AB's biggest bets this and every year is the NFL. The reality of our times, which features DVRs and plentiful viewing options, is that live sports programming is the last vestige of TV advertising. And the NFL has been the king of live sports for decades. Anheuser-Busch has been tapping that lifeline with ad dollars for years, and continues to do so.

This year, AB's "Official Beer Sponsor" arrangement allowed it to release team-themed Bud Light cans for 28 of the 32 teams. You've seen these things in stores, of course. Here in the Northwest, we're mostly seeing Seahawks cans. Elsewhere, cans are similarly market-appropriate.

OLCC Stats
August 2015-August 2016 (taxable barrels)
But the cans campaign isn't panning out. In fact, it's apparently working in reverse because Bud Light is in virtual free fall right now. That naturally conjures up questions about why. When you spend big bucks on sponsorships and marketing campaigns, you expect results.

It turns out NFL ratings, like Bud Light numbers, are in the tank. Overall NFL ratings are down 12 percent for the season.  Ratings for Monday Night Football, sporting a new play-by-play guy thanks to the exit of Mike Tirico, are down 24 percent. ESPN, which aires MNF, lost more than 600,000 subscribers in October, its worst month on record.

What's up with ratings? It depends on who you ask. Some suspects are poor play, crappy games, too many ads, player antics, election year noise, national anthem protests, etc. The most persuasive argument for me is that younger fans who play fantasy football track player stats on their smartphones don't get their NFL fix the traditional way...and don't show up in ratings.

Exactly how lower NFL ratings and beer consumption are related is unclear. If folks of beer drinking age aren't watching games on the tube, there may be some correlation between slumping ratings and the decline in Bud Light sales. But everyone needs to stop and recall that a number of established brands with no connection to the NFL are facing challenges this year.

In a flat year, it's tough to see what's driving things. AB's team can campaign may get better traction through the end of the year. It was just getting underway in Q3. Bud Light numbers and NFL ratings may also bounce back as we enter the holidays and the stretch run of the season.

So there's no need to look for scapegoats, yet. We'll get there.

Friday, October 28, 2016

Folks Celebrate Fifty Amazing Years Together

I held my one and only bar job 41 years ago. It was a summer gig at the Rathskeller Inn in Coeur d'Alene after my freshman year of college. I've written about that experience and some of the characters I worked with there here.
On their wedding day (middle)

It wasn't a job I sought. My mom got me the job. Actually, she got me two jobs that summer. The first was a part-time groundskeeper gig at a golf course. When it became clear that the golf course was a poor fit, she found me a second job at the Rathskeller. "Bartending isn't a bad skill to have in this economy," she told me. Still holds true, I think.

Let me back up. I did not grow up in Coeur d'Alene. I grew up 100 or so miles away in Clarkston, Wash. My parents divorced when I was in fourth grade and my mom moved to North Idaho. I visited Coeur d'Alene off and on as a kid, mostly during summers and other school breaks.

Possibly because it wasn't where I lived, my times in Coeur d'Alene were often a hoot. My mom had married, Lyle, a jovial gent who enjoyed good times in the great outdoors. In those early days, he took me on countless fishing trips and related adventures around the area.

One such adventure came at Fernan Lake, east of downtown Coeur d'Alene and rumored to be full of largemouth bass. We got not a single bite for an afternoon of fishing. As we were taking our little boat out of the water, Lyle handed me the small outboard motor. The rubber sleeve on the handle slipped off and the motor plunged into the lake. "Shit!" we yelled in unison. Momentarily, Lyle dove in and managed to retrieve the motor. Which had been borrowed. Fortunately, it apparently worked fine when the owner next used it.

Lyle and I became avid spear fishermen. We learned Scuba diving the summer after I graduated from high school. Later, on a trip to Kauai, we entered a dive shop and inquired about renting spearfishing gear. No dice. After Lyle became a triathlete, we sometimes cycled together. No ride was more exciting than the time we rounded a corner in a semi-remote area and witnessed some locals sighting in a tripod-mounted machine gun. It was nearly deer season in North Idaho, I guessed.

Somewhere along the way, the folks purchased Dry Rot, a World War II-era cabin cruiser (think SS Minnow) with a top speed of about 7 mph and whose main amenity appeared to be an on-board toilet. But never mind. We putted around the lake on summer evenings, drinking adult pops (I may have fudged the 19-year-old drinking age), listening to 8-Track tapes and enjoying the scenery. We once rescued some poor souls whose motor had conked out long after dark.

For many years, the folks operated Lyle's Salon and School of Hair Design in Coeur d'Alene. The place was a beehive. They worked long hours six days a week. While Lyle taught students in the school and worked in the salon, mom ran the business and managed the financials. Later, they opened several branch operations. I have no idea how they did it while also making time for their own two kids and countless other activities.

While Lyle stayed in the hair business and continues to work a light schedule to this day, mom moved to healthcare some 35 years ago. She had been working on a degree at Northwestern when she met my dad back in the day, and a good many of those credits transferred. After completing her training and certifications, she worked in Coeur d'Alene and Spokane hospitals until she retired a few years ago. Nothing she couldn't do.

The folks lived in a bunch of cool abodes. For a number of years, they occupied a spectacular home with a pool and numerous amenities near Fernan Lake. As things slowed down and they needed less space and upkeep, they downsized to a gated community condo a minute or two from Lyle's shop in Coeur d'Alene. More recently, they moved to a similar situation in nearby Liberty Lake, Wash., which is where they remain today.

Needless to say, there's been a lot of water under the bridge since my mom got me that first and only bar job back in 1975. My wife and I shared a number of vacations with the folks...Kauai, Whistler, Seattle, Sunriver, come instantly to mind. A lot of beer, wine and adult beverages were consumed on those junkets, trust me. Things have slowed down in recent years, mostly because we and they aren't quite as spry or mobile as we once were. But the memories live on.

This probably isn't the best place to mention any of this. But these folks who have meant so much to me for so many years celebrate 50 years of marriage this weekend. I'll be traveling to the 509 to honor that stupendous number and the adventures sandwiched within it.

Cheers to 50 fine years, folks! Amazing.

Sunday, October 23, 2016

Craft Beer's Big Squeeze

You look out on the craft beer landscape and you wonder where it's headed. The number of new breweries continues to rise, apparently unabated. We see big beer in the form of Anheuser-Busch, MillerCoors and others buying up or investing in craft breweries. What's the prognosis?

Seeing through the fog is be a tough assignment. To a great extent, the exorbitant amount of money flowing into the industry has helped create an aura of invincibility, the idea that the high growth of recent years is sustainable into the foreseeable future.

In actual fact, beer sales in the United States have been declining for years. Even as the population has grown, beer has lost ground. Overall beer sales dipped again last year, says the Brewers Association, even as craft brewers recorded double-digit gains.

Positive craft beer vibes have made it relatively easy to open new breweries. Unlike the old days, when breweries were seen as high risk investments, cash is plentiful today. In an industry where the average brewer often makes a skimpy living, opening your own brewery is an attractive and viable option. That's why we have more than 4,600 breweries, with another 2,200 planned.

Largely as a result of the escalating brewery count, more and more Americans have been exposed to good local beers. And enough folks like that beer that they've moved away from macro lagers, which aren't local and aren't very good if you want something with flavor and character.

Big beer watched this situation develop with a scowl. With macro sales in free fall and craft numbers exploding, they eventually shifted their focus to acquiring craft breweries. They might have chosen to make better beer, but that was outside their wheelhouse. Acquisitions are more their style.

Today, we are confronted by a situation in which established craft breweries are being squeezed from above and below. Smaller breweries are converting beer fans to local product, stealing share from big beer and from large craft breweries. Big beer is fighting back by buying craft breweries and using advantages in distribution and efficiency to take share mostly from large craft breweries.

We're seeing evidence of this in IRI reports showing significant share losses for established breweries, including Sierra Nevada and others. Then there was the announcement that Stone Brewing, one of craft's best-known brands, is laying off 5% of its employees. Even the layoffs at the CBA's Woodinville facility are related to pressures in the market.

There are those who think we've reached overcapacity...too many breweries producing too much beer for a shrinking market. There's probably some truth to that nationally, where giant craft breweries and those acquired by big beer are producing a glut of beer.

But overcapacity isn't much of an issue for small brewers in underserved areas, and there are still plenty of places like that. That's why new breweries continue to open and why more are planned, though maybe it's not such a good idea to open in saturated markets like Portland.

The pressure on established brewers is going to increase. Many who once bought Sierra Nevada, Deschutes and others are being converted to local brands. At the other end of the spectrum, big beer is implementing strategies designed to leach share from established, independent brands.

Where this leads, we don't quite know. But craft beer's big squeeze is on.