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Saturday, January 13, 2018

The Rising Tide of Craft Cans

The rapid rise of beer in packaged form began in earnest after World War II. Beer had been available in bottles for many years and in cans for about a decade. But draft was king. That began to change following Prohibition, largely the result of consumers preferring to drink beer somewhere other than a bar or tavern.

Advancements in packaging, refrigeration and transportation made during the war eventually helped make packaged beer more popular than draft. Growing up through the sixties and seventies, I clearly remember an abundance of macro beer choices in bottles and cans.

Most people considered cans to be inferior in those days. They were easier to handle, but there was the constant scourge of tasting the can, whether it was steel or aluminum. Bottles were preferred by most self-respecting beer drinkers and mainstream consumers.

When craft beer came along, canning was impractical. Not that anyone would have bothered with it. The supposition was that bottles were superior if you wanted to protect the integrity of your product. So packaged craft beer came mostly in 12 oz bottles or 22 oz  bombers. Cans were rare.

Today, those assumptions and practices are under siege. A lot of consumers have decided they like the flexibility of cans, which are lighter, less breakable and easier to take on excursions than awkward bottles. They've also decided that beer from a can tastes just fine, that maybe the reason cans had a bad rep in the past was the beer that came in them.

Walk into your local bottleshop and you'll see the result: cans everywhere. In fact, you're more likely to see that trend on display in a bottleshop than you are in a grocery story, according to intel in a recent article by Brewers Association economist Bart Watson. Cans are winning big with a particular segment of the market, which I'll get to shortly.

In the big picture, bottles remain the top dog in packaged craft beer, Watson says. Bottles accounted for about 72 percent of packaged craft production in 2016. Cans came in at just over 28 percent. But can growth is spiraling upward. Watson reckons cans will account for about 31 percent of packaged craft in 2017, once the numbers are in.

The most intriguing part of this for me is where the most spectacular growth is occurring. You might assume brewers across the board are switching to cans. But that isn't the case at all. In fact, only a small percentage of breweries are switching from bottles to cans, according to Watson. Regional craft breweries are largely sticking with glass.

That's why you aren't going to be blown away by craft cans in grocery. Regional and national craft continue to dominate shelves in that channel. Which means a lot of bottles. So shopping the beer aisle in grocery isn't going to be much of an indicator, in terms of can growth. But your local bottleshop probably is.

The reason is wrapped around who's using cans and who's growing. Watson demonstrates this with a table which shows that smaller (likely newer) breweries are far more heavily invested in cans than older, larger breweries. It also turns out smaller breweries are responsible for the greatest craft segment growth, by percentage. And this beer is far easier to find in bottleshops than grocery.

Breweries producing less than 10,000 barrels were responsible for 58 percent of craft segment growth last year; those producing between 10,000 and 100,000 barrels were responsible for 17 percent of segment growth. Between them, these folks accounted for more than 85 percent of craft can share in 2016 and they grew that share by more than 20 percent last year.

The trend to cans is an emerging tsunami. In a few years, they will surely account for more than 50 percent of packaged beer. Cans have gained traction with young fans who flock to smaller, newer breweries. It hardly matters that those breweries tend to produce trendy brews to attract that audience. The appeal of those beers is driving wider acceptance of cans by the day.

Larger, established brewers are being forced to take note. Most have been slow to accept and adopt cans, but attitudes are changing. Hey, even if you don't want to brew and release trendy new styles, putting your beer in cans with updated label art is smart marketing.

Wednesday, January 3, 2018

Novelty and (Brief) Ecstasy

When Art Larrance opened the Raccoon Lodge in 1998, his top priority was finding what he now refers to as a "magic elixir." In short, he and his minions, principally Ron Gansberg and Preston Weesner, wanted to invent a unique beer that would define them.

You know the story. After messing with barrels as part of an IPA aging experiment, they more or less stumbled on sour beer. The concept didn't catch on right away, but they had their "magic elixir." Cascade Brewing, Larrance's corporate name since day one, has ridden sour beer to great fame and fortune.

Keep in mind that Larrance was one of Portland's founding brewers at Portland Brewing. He was quick to understand that standard, everyday beers weren't going be enough to keep a brewery viable. He figured he had to have something special to rise and stay above the crowd.

That philosophy was not generally embraced by craft brewers prior to the spike in brewery count that started to happen about 10 years ago. Breweries went about their business with standard lineups and the occasional seasonal, in draft and occasionally packaged form.

As Jeff Alworth pointed out in a recent post, the accelerating brewery count has altered strategies dramatically. Since 2007, the number of breweries in this country has quadrupled. We now have more than 6,000 operating breweries. You need to do something to attract attention in that environment.

The consequence of this reality is that virtually all craft breweries are rapidly pushing out experimental beers hoping to land on something that will attract the momentary interest of consumers who have very short attention spans. Even the beers tend to come and go quickly.

I don't use Untappd or any other app that might help me track my beer consumption. But I'm guessing I drank or sampled nearly 1,000 beers last year. Most of those beers I drank once. Many of them I saw once, as they vanished from sight after a brief period. But never mind.

Let's face it. The push for novelty has resulted in a lot of sketchy beer. We're currently stuck in a hazy rut. Breweries are nervously throwing everything but the kitchen sink at hazy beers, hoping to create something that produces ecstasy in the minds and mouths of consumers, if only briefly.

You must have a hazy, preferably several, to be relevant in today's marketplace. Within the last 24 hours, I've received several press releases and seen numerous social media posts announcing the release of hazy beers in cans and on draft. It makes my head spin.

Frankly speaking, it is no longer possible to keep track of all the new and soon-to-be expired brands. The notion that a beer isn't relevant unless it's new and trendy is creating a high level of insanity and insecurity in craft beer. The mass urge to discover new and unique beers got us here.

I have no idea how we get out.

Friday, December 22, 2017

Trends and Bends in the Year that Was

As is the case every year, we're beginning to see the usual end-of-year reports summarizing what happened. It was another interesting year in beer. There were some positive and problematic developments. Below are some of the most significant ones in my view.

Craft Cans
I first mentioned the benefits of cans here several years ago. At the time, cans represented a fraction of what was showing up on store shelves. Six-packs of 12 oz bottles and 22 oz bombers dominated the retail market. That's changing.

What started as a trickle became a tsunami in 2017, as more and more craft brewers adopted aluminum cans. Bombers, once the chosen packaging of small craft brewers, are the biggest losers in this transition. Their shelf presence is in decline. Even 12 oz bottles are taking a hit.

While it was once difficult and costly to can beer, mobile canning systems and generic cans that can be labeled on site are making canned beer economically attractive. Brewers see that cans are less expensive to ship, less susceptible to breakage and better at protecting beer than glass.

Of course, what's good for brewers isn't always accepted by consumers. Cans, once the dominion of crap macro beer, for decades carried a negative stigma. That's changed, in large part because cans are now filled with quality product. It's also true that the cans themselves are better, not to mention lighter, less bulky and easier to transport than bottles. Consumers are seeing the light.

The growing popularity of cans will likely continue, arguably a good thing. That doesn't mean bottles are going away entirely. I suspect 12 oz bottles will be around for quite some time and some beer styles are a better fit for large format bottles due to conditioning and cellaring considerations.

Local Beer
The Brewers Association just reported that there are now more than 6,000 breweries in the United States, some 98 percent of them small and independent. More consumers have access to locally made beer than at any time in our history. Period.

While that's been good for consumers and small breweries, it has not been good news for large craft brewers. National and regional stats through the year suggest that many, though certainly not all, large craft breweries lost sales volume in 2017.

Here in Oregon, we see that in dramatic losses by Deschutes, Portland Brewing and Bridgeport (see Jeff Alworth's recent post on this subject). If we could see the numbers for Widmer, they would depict a similar story of significant decline with no end in sight.

Why are large craft brewers having a tough time? It's quite simple, I think. Not that long ago, beer consumers bought the bulk of their beer in grocery stores. We just didn't have great access to quality, local beer. It wasn't widely sold in stores and there weren't that many breweries.

Things have flipped. With so many more breweries, local beer is far more accessible. That's not just draft beer. Thanks to better packaging options, like cans, local beer is now available in more places, even stores. Given the choice, consumers seem to prefer buying local. That has hurt many large craft brewers.

This trend is likely to continue for the time being. But big beer is working to push all independent craft beer out of mainstream retail channels. If that happens, consumers who want local beer will be forced to buy it directly from breweries or at taprooms and specialty shops.

Price Escalation
Every year I see reports suggesting that craft beer prices have been relatively stable. Every year my personal travels tell me prices are rising, virtually across the board. I suspect this has a lot to do with consumers being willing to pay more for perceived quality. But there's clearly more involved.

The other night, I saw an $18 four-pack (16 oz cans) for the first time. This was a hazy IPA. Nearby, single cans of similar beers were available for more than $7 each. Various barrel-aged and mixed fermentation beers are regularly priced at $25 and above. The $12 six-pack is a regular thing.

Part of me wonders if the escalation, particularly with cans, is somehow connected to the raging fad that is hazy IPA. Since they started showing up en masse, hazies have been expensive. But seeing an $18 four-pack was shocking. Can a $20 four-pack be far behind? Shhhh!

Anyway, there's clearly an escalation happening. Consumers are dumb enough to pay crazy money for beer; breweries and retailers are more than happy to take advantage. The higher profit per piece shelved and sold is nice for everyone...except dumb consumers.

Will this trend continue? Craft beer has achieved cult of personality status in recent years. It occupies cultural space once owned by music and film. That won't last forever. Eventually, consumers are going to reject exorbitant prices. Eventually, the haze craze will moderate or go away. Eventually.

Event Madness 
Back in the dark ages, about five years ago, a few of us were talking about event fatigue. Beer centric events were happening at a rate of one or two a week and it was getting hard to keep up. Little did we know what was coming.

Driven largely by social media, the pace of events has turned into a tsunami. Release parties, tap takeovers, festivals and mini-festivals litter the calendar. Breweries and pubs are constantly looking for ways to promote their beers and brands. Someone stub their toe in the brewery? Organize a party to celebrate their return to action. Festival hype is off the charts.

You can't fault breweries, pubs and festival organizers for using social media. Traditional print and electronic media are virtually worthless as a means of promoting beer brands and events at the local level. Social media can reach a targeted audience in minutes.

My problem with this arrangement is that these events often aren't events at all. In many cases, they're a joke. Yet you have event whores who organize their schedules around scurrying from place to place fixated on what's next. Attention spans and conversational drinking take a beating.

The event crush and social media circus will certainly continue into 2018 and beyond. In fact, they're likely to intensify. Sad to say, this is the nature of craft beer until a new way of promotion comes along. When will that be? Sorry, I don't have a crystal ball.

Happy Holidays!

Tuesday, December 12, 2017

Portland's Plot to Steal the Old Town Stag

The ongoing battle between Old Town Brewing and the city of Portland continues. Officially, the city says it's working to resolve the dispute amicably. Behind the scenes, it's scheming to bully Old Town into eventually giving up the fight to preserve its legally granted trademark,

As pissed off as folks in and around the brewing community are, everyone needs to understand that this is mostly a matter of negligence and stupidity on the part of the city. Yeah, there's a hefty bit of greed mixed in, but this is mostly about stupidity and negligence.

Let your mind wander back to 2010, when the city of Portland bumbled into acquiring the White Stag sign in Old Town. Had it not acquired the sign and agreed to pay for annual maintenance and such, the old sign would have apparently wound up at the dump.

Once the city gained ownership, it took a rather sloppy approach to protecting what it had. Instead of registering the sign and the stag with the U.S. Patent and Trademark Office, the city obtained rights to use the image on a variety of products, including clothing and footwear, but not beer products, from the state. That was in 2011.

A year later, in 2012, Old Town Brewing registered the stag image with the U.S. Patent Office, securing the sole right to use the logo on beer-related products. That mark became "incontestable" recently, having been active for five years. Keep in mind that a U.S. trademark carries significantly more weight than state protection.

The city eventually did get around to registering the stag image with the U.S. Patent Office in 2015, allowing use on clothing, tote bags, cycling jerseys, etc.. However, it failed to obtain a trademark that would allow it to use the stag on beer products, or to license the image to beer companies.

Perhaps recognizing its negligence, the city made three attempts (2015, 2016, 2017) to acquire a federal trademark that would allow it to use or license the image for beer. The Patent Office refused the city's application each time. Actually, the city's request was initially approved in 2016, then revoked after Old Town filed a letter of protest.

Today, city officials whine that the stag is part of the city's identity. "It's our Space Needle, our Golden Gate Bridge, an iconic representation of Portland," so they say. They argue the city owns the sign and, as such, must have the right to use or license it any way it wishes.

Strange, though. If the stag and the sign were such an important part of Portlandia culture, you wonder why the city wasn't more proactive in 2010 or 2011. That's when it could have filed for and surely secured a federal trademark allowing it to use the stag as it pleased. Bunch of bunglers.

Having failed to make a broad trademark application in a timely fashion, the city is now attempting to bully Old Town into surrendering its trademark by forcing it to spend thousands of dollars on attorney fees and related legal expenses.

Make no mistake. This is all about squeezing a local business that has limited resources. Were this Nike or Intel, the city would be treading lightly, knowing full well those companies have fleets of attorneys and ample budgets to defend trademark infringement. Not so with Old Town.

You may wonder why the city would do such a thing. Old Town is, after all, a local business in good standing. Officially, the city wishes Old Town well...all the while sneaking around in the background and plotting to undermine it.

The answer is that the city plans to license the stag image to our old friends Anheuser-Busch for a king's ransom. It hardly matters who they have to run over in the process. City officials want the money and know AB will pay plenty for the right to connect its shoddy products to Portland.

You almost feel bad for the stooges at city hall. Almost. Had they not been negligent in protecting the iconic stag, their greed wouldn't be out in the open. The city would have a federal trademark and be free to do as it pleases. But officials blundered and the mistake is now obvious.

Maybe city officials should get a grip on reality. They blew it. Time to move on.

Wednesday, December 6, 2017

Fat Heads PDX will Transition to Von Ebert Brewing

There will be another "new" brewery in Portland early next year. Fat Heads Brewing, launched in 2014, will close in January. It will be replaced sometime in the first quarter of the year by Von Ebert Brewing, which will be operated by current Fat Heads franchisee, Tom Cook.

When news of Fat Heads closure hit beer media email boxes and social media Tuesday evening, a lot of people wondered why the apparently successful brewpub would close. In fact, the closure has nothing at all to do with the business here.

What's actually at work is that corporate Fat Heads, based in Ohio, has a lot going on in its home market. Rather than continue to focus on its remote Portland outpost, the company and Cook mutually decided to end the franchise arrangement.

"I know it sounds like spin," Cook said via email. "But that's exactly what happened. They wanted to focus on the Midwest, where they have a lot going on with a new production brewery and the new Canton brewpub. I wanted to focus on Portland. We decided it's probably best for them to continue in the Midwest and for me to do my own thing out there."

He admits it wasn't an easy decision. The franchise has been highly successful here. Indeed, the success of Fat Heads surprised more than a few in the beer geek crowd. Many thought an out-of-state chain would quickly collapse in beer wacky Beervana. Didn't happen.

"I think we succeeded here because we built a great team and gave it the right tools," wrote Cook. "There's no way I would be doing what I'm doing with Von Ebert if my team here wasn’t staying and fully behind me. This wasn’t an easy decision, but I think it's the right decision for everyone."

Von Ebert, when it opens, will specialize in hoppy brews from Head Brewer, Eric Van Tassel. Sean Burke, formerly of The Commons, is also part of the Von Ebert Brewing team. Burke's talent for brewing uniquely interesting beers is well-known. Cook expects they will release 100 or so unique beers per year, including American, German, Belgian and barrel-aged beers.

"Von Ebert Brewing is a new concept, where northwest family traditions meet bold new ideas in craft brewing,” said Cook in a press release. "We’re excited to unveil a completely new experience for customers, blending our brewing expertise with the adventurous flavors Portland has come to love."

The pub will feature what he refers to as "elevated American pub food." Items will include traditional German pretzels with beer cheese, stone-oven-baked pizzas, cheeseburgers stacked high with locally sourced meats, decadent sandwiches and smoked wings.

"True to our character, our menu will combine classic pub fares with the kind of top-tier quality, local ingredients you can only find in Portland," Cook said.

Those in the know are aware that Cook had quietly planned to open a brewpub in the vacated Ringside Steakhouse space adjacent to Glendoveer Golf Course in east Portland. Evidently, those plans will be more or less on hold until he clears some regulatory hurdles.

"There's more to come on this," he wrote. "I don’t want to comment or give a timeline until I finish with the City of Portland. I would hate to promise something and then learn we can’t do it."

If you're like me, you wonder about the Von Ebert name and logo. There was nothing about its origins in the press release announcing the plan. So I had to ask.

"My great grandmother came to the United States from Germany and her last name was Ebert," Cook wrote. "She gave up quite a bit in Germany to bring my family here, so I wanted to pay some respect to my immigrant family. "Eber" in German means boar, thus the boar in the logo."

Good answer.

Tuesday, November 28, 2017

Orchestra Taps into Craft Beer Biz Blind Spots

It's no secret that the rapid growth spiral of the past 10 years has created new challenges in the world of craft beer. Once upon a time, it was relatively easy to enter this industry. You didn't have to be great to succeed because there wasn't much competition. Not rocket science.

Brad Windecker
Today, the equation has flipped. The rising brewery count means craft breweries are often competing with each other in a variety of ways. The incursion of big beer, discussed here on many occasions, is squeezing independent craft brewers out of revenue streams that were once robust.

The result of that evolution is that breweries and brewpubs need to be better organized and managed. Places that wing it and hope for the best are going to experience tough sledding. The current scenario demands reliable systems that can help manage all aspects of the enterprise.

Enter Orchestra Software, a Beaverton company that develops software designed for the needs of the craft beer and craft distilling industries. Orchestra, the brainchild of CEO Brad Windecker, was established in 2008 and has more than 300 clients, including many in Oregon. The company has 50-plus employees and is growing rapidly.

Along with a short list of local beer media, I recently attended a portion of Orchestrate 2017, the company's annual user conference. Some 500 attendees descended on Portland to learn more about Orchestra's software and to get a peek at what they have in the development pipeline.

Orchestra's principal driving theme, shared by Windecker in a conversation with beer media, is that breweries are businesses. Seriously. It's hard to believe, but the concept is often lost on brewers. Indeed, I can think of more than a few breweries that operate without any apparent semblance of a business clue.

"The reality is that we've been through a period in which it was very easy to enter the industry and succeed," Windecker says. "Not everyone who did so had good business sense. With growth rates flattening and competition stiffer, it's getting tougher. If you don't have systems to help run your business efficiently, you're at a big disadvantage."

He's right, of course. High growth has created instability. Windecker reckons that perhaps 25 percent of U.S. craft breweries are not professionally managed. With the market tightening, there figures to be a shakeout and a lot of used equipment on the market in coming years as poorly run breweries fall by the wayside. Not a great scenario.

To help, Orchestra has solutions for large and small brewing entities. It's core customer is a growing craft brewery or distillery in the US that is best practice and technology driven. No surprise. Because integrating management software into your business requires some level of interest in best practices and technology.

"We have customers who aren’t growing," says Windecker. "We also have customers in Scotland and elsewhere in the world. And some of our customers aren’t best practice or particularly tech driven. Those folks typically use fewer of our tools than clients who are more fully immersed in technology and best practices."

What Orchestra provides is an all-in-one management solution that helps breweries make the most out of their profit center, which is typically their pub. The majority of their clients are small. Besides running their breweries efficiently, they need support for a broad range of traditional and non-traditional activities (see graphic).

"We’re always asking customers what problems they have that we aren’t solving," Windecker says. "Once we get past the basics, the first thing we hear is retail. The generic systems out there haven't been very good. We’ve been working on addressing that challenge for several years. We're also looking at ways to build social media and related marketing functions into our platform."

A related part of the challenge is meeting the needs of customers who typically have little or no experience with bulky, complex software. Historically, that meant onsite implementation and ongoing training and support. But that's not where the company is headed.

"We have to innovate to work with a generation of brewers and brewery owners who are familiar with mobile apps," says Windecker.  "Many of these people have never seen software like ours. We have to make our platform more user-friendly, and we're doing that by moving to apps that can be run on phones, tablets or computers. We'll do a lot less training in the future."

Up until now, there's been very little out there on how to run the business of a brewery. When Windecker speaks at a PSU accounting course for craft beer, he sees a room full of students yearning to learn more about the business aspects of the industry.

"It's funny," he says."Outside that classroom, it’s hard to learn about the business. There’s a lot of information on the science of making beer and almost nothing on how to actually run a beer-related business. Orchestra is working to provide technology-based solutions that help these folks run their businesses effectively."

If you think about the trajectory of craft beer, Orchestra makes perfect sense. We once had an industry comprised of a relatively small number of boutique businesses loosely competing for customers. Today, we have thousands of breweries competing with one another on many levels. Being good at business is going to be a key to survival in this scenario.

Which means the potential upside for Orchestra Software is huge.

Monday, November 20, 2017

The Fate of Hedge House and More

Yesterday's news that Lompoc's Hedge House in Southeast Portland is closing comes on the heels of last week's featured stories regarding the overnight closure of Widmer's Gasthaus and the final day of operation at The Commons. The last day at the Hedge House will be Nov. 28.

The announcement was met with shock. Maybe it shouldn't have been. We've been cruising along in unlimited craft beer growth mode, watching countless places open and assuming there was room for everyone. Market saturation is today's reality. And there is a price.

During last week's media preview of Lompoc's holiday beers, with the Widmer news fresh, I asked owner Jerry Fechter about the challenges presented by growing competition and saturation in the restaurant and pub business.

The reality, he said, is that all the Lompoc pubs have been affected by the seemingly endless number of similar businesses that have opened around the city. There's no longer any limit on how many places can open in a given area. He made no mention of impending closures, but confided that the situation had him frustrated and worried about the future.

As we were reminded in the press release announcing its closure, the Hedge House resided in a quaint and underdeveloped location for many years after it opened in 2003. It wasn't fancy and it was beloved by many precisely because it was a simple place where you could relax with your friends, your family or your dog.

In fact, the Hedge House surely benefited by being in a sort of rundown area where rents were cheap. That was a common theme in Portland craft beer for several decades. Southeast Portland and what is now the Pearl District were once littered with vacant warehouses and busted up storefronts perfect for breweries and related businesses. It's flipped now, of course.

As the area around the Hedge House was flooded by a virtual tsunami of trendy bars, restaurants and related establishments, sales slowed and its prospects dimmed. Even if it had been idyllic in terms of service, food and beer, the Hedge House was an old school place ill-prepared to compete with the barrage of fresh new choices.

The situation we face is odd. After several years of double-digit growth, craft beer will likely see low single digit growth for 2017. Yet new breweries, pubs and taprooms continue to open. There isn't room for everyone. Established places like the Hedge House appear to be at greater risk than shiny new joints that are more marketable to the young crowd that spins craft beer's disco ball.

There's no way to change course. The market will sort out which places will survive and which ones won't. I think older, established spots are most vulnerable, though poorly run newbies aren't immune to market forces by any means.

Monday, November 13, 2017

An Ugly Week for Craft Beer

It's been a rough week for Portland-area craft beer fans. We learned a few days ago that Amnesia Brewing will close in a few weeks. On Saturday, The Commons greeted patrons for the last time on Southeast Belmont. Today, Widmer announced big changes at its Gasthaus Pub.

These are local signs that the industry is slowing down, which has been widely reported in numerous places this year. Double-digit growth that gave breweries the confidence to invest in new locations and expanded brewing capacities is flattening. Alarms are going off.

I first visited Amnesia years ago when it was on Mississippi Avenue. This was pre-trendy Mississippi and Amnesia was a destination. The pub was grubby and the food list dank, but the beer and maybe the patio was good enough to draw regular crowds.

For reasons of their own, Amnesia's owners decided to let go of the space on Mississippi and move to Washougal in 2014.. My recollection is they wanted a larger production space so they could make more beer, much of it to be sold in packaged form. They also wanted out of rent increases.

It didn't pan out. The Washougal pub was a work in progress. I visited a couple of times and found the food and service sketchy. In theory, the pub should have been able to attract a following in that underserved area. That apparently never happened.

If they truly hoped to make a living selling packaged beer in Vancouver and across the river in Portland, they were delusional. Amnesia's beers were decent enough. But they were lost in the flood of packaged beer that found its way onto area shelves in recent years. The market for their beer collapsed.

Earlier this year, The New School reported that Amnesia was for sale and looking for contract brewing partners. They had unused capacity. Many were shocked. Amnesia's owners and others denied the story. But the evidence was clear. They were just hoping to buy some time.

It's tough to know all that went into this failure. Amnesia, even when it was on this side of the river, was not a particularly well-run operation. As it struggled in Washougal, Stormbreaker moved into the former Amnesia space on Mississippi and built a solid following of its own. Sometimes, a prime location is the most important thing a business, any business, can have.

The Commons
A flock of local fans descended on The Commons as it's final day approached. Looking at social media posts, it appears the place was packed for much of the afternoon and evening on Saturday. Then, all the laughter and fun came to an end, at least for now.

The story has a lot in common with what happened at Amnesia. Except that The Commons always made excellent, interesting beers. They developed a strong following with those beers, but it was never a mainstream following. The beers appealed to a niche audience.

Nonetheless, they reached the point where they could not keep up with the demand for their beer from their leased space on Southeast Stephens. Owner Mike Wright concluded that a larger production brewery and pub space were the keys to continued growth.

He subsequently bought a building on Southeast Belmont and spent a boatload of money installing a larger production system. A significantly bigger pub space was part of the bargain and patrons initially reveled in the openness of the new place.

Of course, it didn't work out. Demand for The Commons' niche beers in distribution flattened. The new pub space, not as warm or intimate as the place on Stephens, failed to bring in the additional business that would have justified the investment. Construction in the area around in the area around the pub almost certainly contributed to that.

Wright has said the demise of The Commons was the result of cash flow problems. Indeed. Like many in the industry, he believed wild growth would continue. It was a mirage. He incurred a pile of debt to buy and renovate a building. The debt led to cash flow problems and collapse of the business.

Modern Times is leasing the vacated space. That's good news for Wright, who will now collect rent. The Modern Times approach will be substantially different on several counts. For his part, Wright will likely restart The Commons on a smaller scale down the road. We shall see.

The announcement that Widmer is closing its restaurant and transitioning that space to a tasting room with light snacks hit like a ton of bricks. Heads were spinning. The impact likely would have been greater if the announcement hadn't been made on dead news cycle Sunday.

The plan is to turn the former pub space into a place where Widmer can show off it's innovation brewing program. Strange, eh? As they've pursued massive national distribution of the CBA brands via the Anheuser-Busch network, they've been troubled by their inability to attract attention to the speciality beers they make. Very frustrating.

There's more, of course. For a while now, the Widmer and Redhook brands have been in decline pretty much everywhere. As discussed here many times, Kona is the only CBA brand that's growing, reaching near-double digit growth in the US according to the company's Q3 earnings report.

That report also includes news that overall net sales were up just 3 percent; but gross profits were up 14 percent. How so? Well, you either cut the cost of making your beer or you sell it at a higher price. Care to guess which is true in this case?

The answer is that the CBA has expanded its brewing footprint at AB factory breweries, thus reducing cost per barrel and increasing profit per barrel. It's an ingenious business move, though one that might not sit particularly well with dedicated beer fans if they knew or cared about it.

Also embedded in the Q3 report is news that increases in net sales and gross profits were partly offset by decreases in brewpub sales and lower pub gross margin. In fact, the Gasthaus pub had been an awkward drag on profitability for quite some time. But not any more.

Closing the pub and re-purposing the space will cost roughly 65 jobs. Clearing those salaries and benefit packages from the CBA balance sheet will warm corporate profitability. The idea that they're going to reinvent the Widmer brand by showcasing a few specialty beers is largely a ruse. The geeky crowd that chases specialty beers declared Widmer irrelevant long ago. But that hardly matters. The CBA is profitable and wants to be more so. The pub was an obstacle and had to go.

You may fairly wonder why the CBA, which saw its gross margin expand to nearly 35 percent in Q3 (per report), needed to boost profits further. This is a company that, despite some challenges, expects to deliver in the neighborhood of 5 percent revenue growth this year. What's the deal?

The answer may lie in the contractual agreement the CBA has with Anheuser-Busch. The CBA brass wants to sell to AB at the optimum share price. Between now and next August, the minimum offer price is $23.25. The CBA's stock price closed at nearly $20 per share last Friday, well short of the required offer price. The brass wants (needs) to get closer to the minimum offer price as quickly as possible because they know $24.50, the minimum offer price after August 2018, is unrealistic given unstable market conditions. That's why they unloaded the pub now.

So the people whose jobs went away in the downsizing of the pub were sacrificed so the CBA can sell at a higher price, which will benefit shareholders and line the pockets of folks in high level positions within the company. Nothing personal, if you lost your job. Just business.

Big Picture
As bad as this news is, we're probably going to get more of it in coming weeks and months. The crazy growth of the last few years has resulted in a saturated market that is increasingly unstable. There's just too much beer out there.

The failures we see with Amnesia and The Commons are directly related to the situation we have with debt, unused capacity and flattening sales volumes. What happened at Widmer is a little different because it's largely related to cutting costs and increasing profits quickly.

In the overall scheme of things, the news points to the fact that craft beer has become a big, heartless and volatile business. Fasten your seat belts. Craft's bubble is bursting and things are going to get worse before they get better.

Friday, November 3, 2017

OBF Grapples with Attendance Drop, Uncertainty

One of the bigger surprises on last week's beer news radar screen was news that attendance at the Oregon Brewers Festival declined dramatically in 2017. I guess a lot of us probably assumed attendance was declining for the last few years. But the actual number shocked me.

For many years, OBF organizers have been saying the event attracts 80,000 fans to Waterfront Park. That claim was repeated in the promotional materials for this year's event. Then we learned that 2017 attendance was 49,000, an astonishing number.

That information came to light at a Tuesday night briefing at Cascade Barrel House. Jeff Dense, professor of political science and craft beer studies at Eastern Oregon University, gave his annual talk on the OBF's economic impact and other findings.

In case you're wondering and unaware, Dense has been studying the economic impact of OBF since 2011. He and a team of students completed more than 900 on-site interviews this year. As in past years, he used that information, along with data provided by event organizers, to build conclusions.

Some of the findings are intriguing. Nearly half of attendees were from out-of-town this year. Almost the same percentage were attending for the first time. Women accounted for 44 percent of festival attendance. But the drop in attendance is a sore spot, in part because it contributed to an 18 percent decline in economic impact, according to Dense.

Art Larrance, co-founder and director of OBF, stepped forward and said hot weather may have hurt attendance. He also said the sheer number of summer festivals is creating serious competition for the event that launched the festival concept in Oregon 30 years ago. When it started, OBF was the only show in town. Now, beer festivals are an everyday thing, he said.

In response to declining attendance, Larrance said they will eliminate the Wednesday session and reduce the total number of beers to about 80. They also expect to fold up the Specialty Tent, occasionally known as the Buzz Tent or International Tent, and go to a smaller 12 oz mug (four tokens) and 3 oz taster (one token). Oh, and they'll offer cider and wine for the first time ever.

There's a lot going on here, so let me dive into the detail. I spoke to Larrance by phone to get additional perspective on some of these issues.

Attendance is a complicated issue, Larrance said. Even he doesn't fully understand the 49,000 estimate. It's a bit of a mess, actually. The 80,000 attendees organizers have been touting was based on wristbands. But one wristband isn't the same as one attendee because some people visit the festival multiple times. They handed out 70,000 wristbands this year. The 49,000 is an estimate of "unique visitors" based on information collected in the surveys and an equation.

In fact, the attendance numbers aren't as shocking as they first appear. Look at the graphic below, provided by OBF. Of the three years shown, only 2016 exceeded the standard estimate. This year was definitely the low ebb, but it isn't as if they're in multi-year freefall if we go by wristbands. And that's what we have to look at if we want to make a fair comparison.

Hot weather and beer event saturation. Sure it was hot. But we've had heat at this event many times and never heard about draconian attendance declines. Event saturation is certainly an issue. There are beer events happening year-round in this city. The pace intensifies during the summer. I suspect the combination of heat and event fatigue probably kept some locals away. Still, the dropoff isn't a disaster if you look at year-to-year wristbands.

It's something no one wants to talk about in detail, but declining revenue, not attendance, is the true reason behind the panic and push for change. They're selling fewer tokens and less beer, while expenses are staying the same or rising. Larrance talked about the need to cut expenses, which are substantial when you factor in park rental, security, police, etc.

Some of the revenue loss is their own fault. The 2017 glass had a 4 oz taste line, reportedly a mistake. It had been a 3 oz line in recent years. A 2017 taste, for one token, was a great deal for attendees and probably discouraged folks from laying out five tokens on a full mug, 14 ounces this year. In recent years, when tastes were smaller, there was more incentive for folks to fill their 12 oz mugs for four tokens, a boon for organizers. As noted, they'll go back to the smaller glass and taster size next year, thus encouraging more people to pony up four tokens for full glasses of beer. Shazam!

Kicking Wednesday to the curb is an odd idea. Look at the graphic again. Wednesday attendance, which funnels out of the brunch, has been pretty steady. Sunday, on the other hand, is a consistent loser. It looks like Sunday is the day that needs to go. There must be more at work. Perhaps Wednesday, which is heavy on industry and media attendance, is a money pit. Of course.

The Specialty Tent is an easy out. It's mainly an attraction for geeks and it occupied a shady area that might be better-used for seating in hot weather. Since it was comfortable, Larrance said traffic was static and people who hung out there didn't buy all that much beer. Which means it was part of the revenue hit. Losing it isn't a huge deal, except to the geek crowd.

They've offered more than 90 beers under the big tents in recent years. Cutting it to 80 sounds worse than it likely is. Contrary to some claims, OBF organizers actually spend considerable time curating the list of what pours. They actually turn a lot of applications down. If there's a flaw in that process, it may be that they're too loyal to longstanding friends and supporters.

Larrance told me they get frequent requests for gluten-free items. Since there's a lot of good cider and wine in Oregon, he thinks it's reasonable to provide some options outside beer. Bringing in wine and cider will make a few people happy. Will those folks outnumber those who are unhappy about losing the Specialty Tent and Wednesday session? Seems unlikely.

As we talked, Larrance offered up that maybe the OBF has seen its best days. "All events run their course," he said. "With so many choices out there, we can't blame folks who choose to attend other events around town. We're trying to come up with ways to evolve with the times to make this a viable event going forward. It isn't easy."

Indeed, it isn't. The entire face of craft beer has changed since the first OBF in 1988. As I've discussed here before, events and event marketing are driving a lot of what happens in today's industry. I believe an increasing number of modern craft beer fans are looking for a more intimate and personal experience than the OBF provides.

This is much less about the beer than the experience. People enjoy going to smaller events where they can mingle with brewers, brewery owners and others connected to the industry. Check your social media feed for upcoming release parties and tap takeovers. Look how many of those events feature the opportunity to talk with folks who have something to do with the beer.

By comparison, the OBF is impersonal and not at all intimate. The volunteers pouring beer typically know nothing about it and there's rarely anyone around who does. The OBF can and should commit to offering the best possible beer list. But that won't remove the stigma of it being a huge, impersonal drunkfest at a time when more and more folks are looking for something more.

Larrance is thinking outside the box in response to the challenges. He's toying with the idea of bringing in a group of brewers from outside the US and essentially building a mini-fest around them. That's something he tried with brewers from the Netherlands and Japan in recent years, but it sounds like this will be a more serious effort, if it happens. Give him credit for creativity.

I honestly wonder if we're not entering a difficult period for larger, older beer festivals. When I was at GABF in early October, it became clear to me that some of the best action was outside the Convention Center at smaller events. Maybe that's going to happen with OBF. Maybe it will morph into a cluster of smaller events at parks, breweries and pubs around the city.

Craft beer's future is full of intriguing possibilities.

Tuesday, October 24, 2017

Hipster Apocalypse Now

Perhaps you've heard of Mason's Brewing Company. They're a small Maine brewery that produces around 2,500 barrels a year. If you keep up with the beer news, you likely know they're currently a target of Anheuser-Busch and its ill-tempered offspring, 10 Barrel.

Mason's recently received a letter demanding they stop using the name, "Hipster Apocalypse" on their flagship IPA. 10 Barrel claims Mason's would be "capitalizing on the goodwill created by Apocalypse IPA," which has been brewed since 2009.

Owner Chris Morley was in the process of filing for a trademark on Hipster Apocalypse when 10 Barrel cried wolf. He says he plans to challenge the demand and is willing to spend a boatload of money if that's what it takes.

Sad to say, that's likely exactly what will be required. Because Morley isn't fighting 10 Barrel. That company ceased to exist when it was consumed by Anheuser-Busch in 2014. Today, 10 Barrel exists only as a captive brand of a behemoth that doesn't mind throwing its weight around the beer industry.

Morley rightfully notes that this is another great example of a thuggish corporation pushing a little guy around. For sure. A quick Untapped search revealed that “Apocalypse” isn’t an uncommon name in the beer world. Morley evidently pulled up more than 10 other beers across the country with “Apocalypse” in the name. Go figure.

The thing is, squabbles over beer names are becoming pretty common in this industry. It's a symptom of the fact that the brewery count keeps rising and creative beer names keep bumping into one another. Larger breweries typically send out cease and desist letters when they feel the need to bully smaller breweries that don't have the cash to lawyer up.

In this case, the suits at Anheuser-Busch hope to bully Mason's into using another name for their IPA. Mason's has only a small distribution footprint in Maine and Massachusetts, according to industry reports, but AB plans to dominate that area (and more) with Apocalypse IPA and prefers not to endure competition from any brand of a similar name.

Seriously, though, if anyone is going to be damaged here, it's Mason's. Because Hipster Apocalypse is produced in relatively small batches in a small brewery. And the packaging features cool, vibrant branding. Meanwhile, 10 Barrel Apocalypse IPA is produced in giant factory breweries and has bland, generic branding.

I don't know how much money Morley is willing to spend to defend Hipster Apocalypse. It probably won't be enough because Anheuser-Busch can spend whatever it wants and drag the case out forever if it goes to court. That's when the financial risk becomes too great for a small operation.

The sad thing is, bullies win too often in business. But maybe not this time.

Wednesday, October 18, 2017

Second Profession Brewing: Portland's Newest Brewery

There's a new brewery in Portland. Big surprise, eh? Second Profession Brewing is now open on Northeast Sandy Boulevard, taking over the space formerly occupied by BTU Brasserie. Owner Charlie Goman, a homebrewer with Wisconsin roots, hopes to build a following on the German/Northwest gastropub model.

Charlie Goman
The pub recently reopened under the Second Profession (I'll get to the name) banner and is operating on a limited beer and food menu for the next couple of weeks. They'll hold a grand opening bash Oct. 27-29. In the meantime, they're in soft launch mode, open Wednesday through Sunday, 4:00 to 10:00 p.m.

You may recall the defunct BTU, which operated for a couple of years as a brewpub with Chinese-style food. The food was better than the beer, but the owners were never quite able to successfully meld the business' two identities and the place floundered. Awkward.

Goman had been interested in starting a brewery for several years when he stumbled on the mothballed BTU space. He was bored with his career in copier sales and IT-related work. A whiteboard wish session suggested a future in brewing. A sign on the BTU door said, "Closed for Spring Cleaning," but the place was closed permanently and up for sale.

Goman jumped in, seeing a potentially great location with a brewery already installed. It's no small thing for a brewer to find an arrangement like this. It's similar to what happened with Charles Porter, who was able to access a turnkey brewery for Little Beast Brewing in Beaverton, relieving him of the expense of building a brewery from scratch.

For his part, Goman "loves beer" and "hopes to provide a unique experience" at Second Profession. If you haven't heard something like that a gazillion or so times, you probably haven't been around Portland's craft beer scene very long. Standard schtick. But it might just work out for him.

The revised pub layout is pretty much as it was in the BTU era. It's a bit brighter now, with white walls and modern-themed, German folk artwork. The brewery, a 7 -bbl system, has been cleaned up and tuned up with the assistance of brewery consultant, Marc Martin. It's ready to roll.

Three beers poured at a recent media preview included a Rye-IPA, a Pale and a Farmhouse Ale. All seemed decent enough. More styles are in the works,, including lagers, which were part of BTU's failed plan. The brewery's horizontal lager tanks are designed to make them and lagers will be a nice fit for gastropub fare.

Nonetheless, the future of Second Profession will likely be determined by food, not beer. Why? Because the clientele in this area is more likely to be driven here by food than by beer, regardless of how good the beer may be. Goman intends to offer what I see as stripped down German comfort food. We're talking brats, warm potato salad, garlic fries and a variety of greens. Simple stuff.

This clearly isn't going to be as upscale as Stammtisch or Prost, which is fine for the area and this space. Keep in mind there is no more Gustav's or Rhinelander down the street. That building was demolished months ago. Choices are somewhat limited in this corridor. A place that offers a simplified comfort food menu alongside decent beer has an opportunity to do well.

A potential obstacle is the oddly shaped and visually awkward space. I suspect it was a problem BTU struggled with. The place just looks odd when you walk in, with the bar jutting out into the seating area. To me, the layout is better-suited to a casual pub than a more formal restaurant. So it could work out here. If patrons come, the relatively small size of the space may become an issue. That's a problem Goman would like to have, but we'll have to see how it goes.

The name has been the subject of a social media thread and blog post. It is not particularly well-imagined in my mind. Goman's description of how he came up with it makes good sense...he sees the place as his second career or profession. It's personal. But Second Profession has little pizzazz. It's not a name that conjures up much excitement. Nope.

Of course, it could be worse. As someone on social media commented, the place might have been called Oldest Profession Brewing. That's going to happen one of these days, as the industry gets edgier and edgier. You heard it here first.