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Tuesday, March 19, 2019

Plight of the Oregon Beer Growler

The recent demise of the Oregon Beer Growler wasn't a huge shock. It was the victim of a changing culture, a culture in which print publications are having an increasingly difficult time surviving. Attention spans are short. Smartphones are king.

A little background. I wrote a number of articles for the OBG during the past two or so years. Under Andi Prewitt's editorial leadership, the Growler made significant progress. The focus and content sharpened over what it had been prior to Andi's arrival. Well, that was my perspective.

Writing for the Growler was never a lucrative proposition. I wrote mainly because I liked working with Andi and thought the publication might evolve into something bigger and better than what it was. I thought it might turn into a publication that paid. Supporting it seemed reasonable.

When Andi left for Willamette Week last fall, I initially figured I would continue to write for the Growler. I had never met incoming editor, Matt Meador, but he had the background to carry on in Andi's sted. I figured to connect with him and continue to write occasional articles. Then I saw the new format, which they introduced just as Matt took over. Instead of the semi-tabloid newspaper, they squished the thing into what looked like some sort of pamphlet. It looked like a big step backward to me. I took a wait and see attitude, didn't pitch any story ideas.

The announcement that the Growler was closing up shop did not come as a surprise. Print is in trouble. Beer-centric publications may be more vulnerable than mainstream vehicles due to the nature of the beer culture, which is younger and fully immersed in the digital space. Many publications are moving to digital and scaling back or eliminating print production.

One of the problems for print is that people no longer read. We've become accustomed to consuming snippets of written and visual content, as opposed to detailed presentations. Social media didn't start that process, but it has made things worse. The Smartphone, of course, has made it possible to access information about breweries and beers and events from anywhere at any time. As a result, a lot of breweries have turned to social media as their primary means of advertising.

That reality definitely hurt the Growler. A popular storyline swirling around its demise is that the industry failed to support the publication by purchasing ads. That was a deal killer for the Growler, which relied almost completely on advertising revenue to pay its bills. Don't get caught up in the notion that being a subscription-based publication would have saved it. Ask the folks at BeerAdvocate how their subscription-based model is working out for them.

Keep in mind that the OBG was always mostly a promotional vehicle. It sold ads on the premise that it was promoting breweries, events and beers. There was never any attempt to offer controversial or critical content. That kind of thing doesn't sit well with the people paying the bills. So the Growler read like an industry PR rag, which is what happens when you don't want to offend anyone.

In the articles I wrote for the Growler, I never made disparaging comments about breweries, beers or whatever. If I repurposed story content here, which I did a few times, I generally added a prying question or comment to give the story some edge. Readers expect that here and I don't have to worry about advertisers getting bent out of shape.

Thinking about what happened with the Oregon Beer Growler, I considered the possibility that it lost readers because the content was too fluffy. But that's not what happened. Because the OBG never pretended to be anything more than a promotional publication, dependent on the industry's goodwill for survival. Edgy content was never part of the plan and readers didn't mind. What happened is that promotional content moved to different channels.

In effect, the industry deserted the Growler because the beer crowd that once read it moved on to social media and sites like UnTappd. Seeing that, the industry shifted its focus and the Beer Growler was a casualty. That's how these things work.

The people who published the OBG are apparently looking to sell it. But to whom? There's no viable path forward as a print publication. I suppose you could go digital only, but there are blogs, websites and social media channels that cover much of what a digital Growler would cover.

So this looks like a dead end. It's unfortunate because the OBG was really the only print piece that covered Oregon craft beer on a regular basis. There are no winners now that it's gone. None.

Sunday, March 10, 2019

CBA Positioned for Whatever Comes Next: 2018 Report

The Craft Brew Alliance issued its Q4 and overall 2018 financials the other day. There's good news and bad news if you absorb the full report. Mostly, though, the numbers paint a fairly positive picture of the CBA's position moving forward.

The bad news in the report, which I shall get to, apparently cooled investor interest in the CBA. Its stock price opened the week at over $17 and closed Friday just above $15. Investors may be missing the boat. Because there's a chance the CBA will be gobbled up in its entirety by Anheuser-Busch at $24.50 per share by next August.

Much of the CBA's good news relates to Kona, which grew 8 percent for the year, 11 percent during Q4. There's a bit of bad news associated with that growth, which is that Kona made up 63 percent of the CBA's total shipments. It's a little scary to be so dependent on one brand, although Kona is thus far proving itself to be immune from the fragmenting, flattening craft market.

The bad news involves the CBA's problem child brands, Widmer and Redhook. The former declined 20 percent, from 123,300 to 98,700 barrels. The latter lost 24 percent, from 94,200 to 71,200 barrels. Imploding sales of Widmer Hef and Redhook Longhammer IPA and ESB were identified as the primary reason for the decline. The two legacy brands, once strong growth engines, are losing the competitive battle in a market increasingly driven by smaller local breweries.

A few juicy tidbits from the report:
  • Despite the continued success of Kona, total CBA shipments, including beer produced under contract at its facilities, declined by 700 barrels, to 747,600 barrels in 2018 versus 2017. Nonetheless, net dollar sales increased 1.3 percent, to $182.2 million, the result of stronger pricing.
  • Total net sales were $206.2 million, a 1 percent decrease from 2017, primarily due to a $3.4 million shortfall in contract brewing fees received from Pabst in 2017 that did not recur in 2018. The decrease also reflects lower 2018 pub sales, mainly due to the absence of the Woodinville pub, which was closed at the end of 2017.
  • As part of its agreement with AB, the CBA can brew up to 300,000 barrels a year at AB's plant in Fort Collins, Colorado at a net savings of $10 per barrel. They evidently came closer to realizing the $3 million in annual savings that arrangement could have brought in 2018.
  • Partially as a result of production shifted to Fort Collins and other AB factories, capacity utilization at CBA facilities declined to 57 percent over the last two years. That's a lot of underutilized tank space and it happened despite the fact that Goose Island beer and Virtue Cider is being produced by the CBA in Portland and Portsmouth.
  • Like its parent-apparent, the CBA is fixated on cost cutting and improving gross margins.Through strong revenue and rabid management, it delivered a 2.6 percent increase in total revenue per barrel, which led to a 5.6 percent improvement in beer gross profit and record full-year beer gross margin of 36.8 percent.
  • Finally, shipments of the Omission, Square Mile Cider, Appalachian Mountain Brewing, Cisco Brewers, and Wynwood Brewing families grew by a combined 4,700 barrels to 93,200 barrels. That portion of the CBA’s portfolio now accounts for some 13 percent of total shipments.
What the CBA has effectively done by leveraging its arrangement with AB and aggressively tightening up underperforming aspects of its business is improve its position for the future, regardless of whether it becomes a fully-owned subsidiary of Anheuser-Busch. Investors, for the moment, appear to be too fixated on the bad news in the 2018 report to see that the prospects of a buyout at $24.50/share remain quite strong.

CEO Andy Thomas set an aggressive tone in comments made during the conference call, reminding shareholders that the CBA position is strong even if the possible takeover by AB doesn't happen. In the absence of a qualifying offer, he noted that the CBA will be entitled to a $20 million international incentive payment and AB could not terminate any part of the current agreement.

Further, Thomas went on, if AB fails to make a qualifying offer, CBA could continue to operate independently or come under the control of another entity. In either case, AB would be required to honor all agreements, including payment of the $20 million international incentive, continuation of the master distribution agreement at $0.25 a case, continuation of the international distribution agreement and fulfillment of the contract brewing agreement.

It's difficult to fathom the extent to which the current contract, signed in 2016, favors the CBA. What were the folks at AB smoking when they signed a deal that would allow the CBA to be taken over by another entity while Anheuser-Busch is forced to fulfill the terms of the agreement? The likely answer is the people who negotiated the agreement believed the CBA would be purchased during its term. There can be no other explanation.

Of course, the craft beer landscape has changed dramatically since the 2016. Competition is fierce and most large craft breweries are suffering. Yet Anheuser-Busch recently reported that the High End (craft line) is its top growth engine, accounting for 30 percent of the company’s worldwide revenue growth and 10 percent of its total revenue in 2018. Why would AB want or need the CBA?

The answer is Kona, which continues to thrive in a flat overall market. Keep in mind that Kona beers, unlike some of craft's more nuanced offerings, can be brewed virtually anywhere, even in a factory brewery. Acquiring Kona, of which AB already owns nearly a third, would cost around $300 million. That's pocket change for a brand that has apparently unlimited potential.

Flies in the ointment are the CBA's declining brands, Widmer and Redhook. Anheuser-Busch, should it make a qualifying offer, will have no interest in salvaging those brands. They might be killed or sold in a buyout. In fact, you have to wonder what would become of CBA properties in Portland and Portsmouth. Those breweries, not as big or efficient as AB's giant factories, might well be closed and sold in the wake of a buyout to recoup some of the investment in Kona.

Inquiring minds keep asking what's so special about Kona. In my mind, there's nothing particularly special about any of the Kona beers. But Kona is a lifestyle brand with a strong connection to a place consumers identify with. It hardly matters that Kona beers have been brewed in Portland and elsewhere on the mainland for years. The brand is Hawaiian.

Honestly, there's a lot not to like about the CBA, an organization whose leaders appear to be fixated on numbers. This company ceased being about craft beer long ago. By cutting costs and leveraging their agreement with Anheuser-Busch to the hilt, executives have positioned the CBA to be bought lock, stock and barrel. The chances of that happening look to be better than 50/50 from here.

Then the fun begins.

Thursday, February 28, 2019

Anheuser-Busch, Breakside Dominate Oregon Beer Awards

Tuesday evening's Oregon Beer Awards provided a nice lesson in what happens when big beer gets serious about making good beer. Anheuser-Busch, dba 10 Barrel, captured 10 of 75 medals awarded in 25 categories. Breakside Brewing was close behind with 9 medals. No one else was close.

I suspect those involved in jumpstarting what became craft beer in Oregon are either rolling over in their graves (Fred Eckhardt, Don Younger) or shaking their heads. Because Anheuser-Busch was possibly the most significant obstacle faced by early craft brewers. For decades, AB had been drowning American palates with tasteless swill thanks to tweaked manufacturing processes and a massive distribution network.

The big fellas started to mingle in craft beer during the 1990s. Deals with Redhook and Widmer helped them get their scruffy foot in the door. They couldn't figure out craft beer on their own. Attempts at making beer of substance flamed out. It worked out better to invest in craft breweries and learn from them while distributing their beer.

Indeed, the foray into craft beer was largely a "wait and see" proposition. Many at Anheuser-Busch thought the craft movement would run its course and collapse. The relatively small investments they made in the likes of Redhook and Widmer were seen as insurance policies against the worst case scenario, the one in which craft beer gained a significant, lasting foothold.

The worse case scenario eventually materialized, of course, which prompted AB to take the craft movement more seriously. It then began purchasing craft breweries, of which Goose Island was the first in 2011, a story nicely documented in Josh Noel's book, Barrel-Aged Stout and Selling Out. 10 Barrel joined AB's collection of craft breweries when it was purchased in 2014.

With Tuesday's medal take, Anheuser-Busch stepped to the forefront of craft beer in Oregon. It's a surreal development. Some may take exception to that characterization of the situation. But there is no 10 Barrel. It ceased to exist when it was bought by AB five years ago. What we have is Anheuser-Busch doing business as 10 Barrel in Oregon (and beyond). And winning medals.

I bear no ill will toward the folks who work at 10 Barrel. But I've always believed 10 Barrel and the other Baby Buds have advantages over independent breweries and that the playing field isn't exactly level. I'd be more comfortable with Tuesday evening's results if I thought Anheuser-Busch winning OBA medals was a good thing for independent brewers. I don't

Anyway, congrats to everyone who won medals or received related recognition. There were nearly 1,100 entries submitted in the 25 categories, which means the chances of winning were slim. A win is a big deal in that scenario. The overall results are posted in various places.

Breakside Beer Awards
As noted, Breakside won 9 medals this year, and also was named Large Brewery of the Year. Some have joked that the Oregon Beer Awards would be more aptly called the Breakside Beer Awards. I never suggested that. But it isn't just the medals that suggest it. Breakside brewmaster Ben Edmunds runs the OBA judging competition.

I've talked about this before. Everyone knows Ben. He's a good guy, has great integrity. But the optics are bad. The Oregon Beer Awards have evolved to the point where the director of competition should not also be the brewmaster at a competing brewery. It's the perception of possible impropriety that suggests the need for a change, not the existence of actual impropriety.

Hall of Fame
A month or so ago, members of the Oregon Beer Awards voting academy were asked to nominate people worthy of induction into the Oregon Beer Hall of Fame. The final list of nominees appeared a few weeks later. It included Art Larrance, Fred Bowman, Kurt and Rob Widmer, Brian and Mike McMenamin, Gary Fish, Karl Ockert and several others.

Around the time final votes were being collected, Jim Parker passed away following a stroke suffered in November. I knew Jim, but not well. He was a fountain of information, a character and a positive force in craft beer. I don't believe I've ever run into anyone who didn't like Jim. He touched a lot of lives in and out of craft beer.

So I'm fine with Jim being inducted into the Hall of Fame. He belongs. But I do question how it was done. The decision was evidently made by small group of people, perhaps one person. The voting academy wasn't surveyed or alerted. Keep in mind that Parker, for better or worse, wasn't on the final list of nominees. It seems like this could have been handled differently.

Speaking of the Hall of Fame, I continue to be shocked that virtually the entire generation of founding brewers has been passed over (John Harris is the exception). The academy vote for this year's HOF inductee hasn't been revealed, but the failure to induct our founding brewers in a timely manner is, in my view, disgraceful. I hope they don't have to die to get in.

Wednesday, February 13, 2019

Bridgeport Brewing: Anatomy of a Disaster

The idea to establish what became Bridgeport Brewing had its roots in the failure of the late Charles Coury's Cartwright Brewing. The ill-fated Cartwright, founded in 1980, was Oregon's first new brewery since Prohibition. It failed within two years due to sketchy, typically undrinkable beer.

Dick and Nancy Ponzi with Karl Ockert, 1984.
There's a chance Coury was simply 30 or so years ahead of his time. His infected beers might have gotten some traction in modern times, as sour beers gained a following. Or maybe not.

"Coury was his own worst enemy, the late Fred Eckhardt once said. "The last jolt was that his final batch was actually good beer, but it wasn't his fault. It was called Deliverance Ale and it had gotten infected just right so that it tasted like a Belgian ale, although he hadn't meant it to."

Nonetheless, a lot of people watched Cartwright, hoping it would succeed. The list included Dick Ponzi, a friend of Coury and a fellow winemaker. Ponzi knew a little bit about brewing and saw that Coury had the wrong equipment and used poor processes. He helped out with money and advice, but it was all for naught.

Ponzi believed there was a way to make good beer. He wasn't the only one. Portland's other founding brewers, including Kurt and Rob Widmer, Mike and Brian McMenamin and the threesome (Art Larrance, Fred Bowman and Jim Goodwin) that comprised the original Portland Brewing, saw possibility and were inspired to do better.

For Ponzi, the idea of starting a brewery surfaced in a serious way during the summer of 1983. He had just hired Karl Ockert, a recent graduate of the fermentation science program at Cal Davis, as an assistant winemaker. Ockert had conveniently taken the beer portion of the fermentation program on a whim, thinking it might help him stay employed...though there were few brewing jobs at the time.

From Ockert's first day on the job, Ponzi talked incessantly about starting a brewery. Ockert, ostensibly hired to help with winemaking, was amused, but also engaged and enthusiastic. Before long, the two had conjured up a plan to build a makeshift brewery.

Ockert (far left) and brewing staff (circa 1989).
Of course, no one was making small brewing systems in those days. Ponzi and Ockert, like Portland's other founding brewers, were stuck using old dairy equipment and whatever they could beg, borrow or steal. They had a small advantage coming from wine, where stainless steel tanks were in regular use. For them, building a brewery was largely a matter of plumbing and welding.

What was initially known as Columbia River Brewing opened in November 1984 on Northwest Marshall. The Ponzis (Dick and his wife, Nancy) arranged to lease about 6,000 square feet in the building for $600 a month. From an interview with the Ponzis conducted in 2013:
We approached [building owner] Roger Madden when we were looking to open a place. We wanted something with some character. We told Roger we just wanted a small space. He asked what we wanted to do. We said we were opening a brewery. He busted a gut laughing. He said, “How much space do you want?” So I laid out what we wanted and it wound up being $600 a month for something like 6,000 sq ft. The lease was written up and signed on the back of an envelope. Roger thought we were nuts.
Columbia River Brewing was a smash hit when it opened. The crowd that evening nearly drank the brewery dry. The first beer was Bridgeport Ale. Early beers included Bridgeport Stout, Blue Heron Pale Ale, Golden Ale, Pintail ESB, Coho Pacific Light Ale, Rose City Ale and Old Knucklehead Barleywine.

Prior to passage of the Brewpub Bill in June 1985, breweries could not sell beer directly to consumers. Instead, they had to go around to taverns, bars and restaurants and do tastings, hoping to win tap handles. Ockert tells great stories about brewing all day, then spending evenings doing tastings. That changed in a big way with passage of the Brewpub Bill.

Columbia River Brewing opened its pub in March 1986, the second brewpub in Oregon (McMenamin's Hillsdale pub was the first). It was not an instant success. They had no idea what to do for food. Cooking and prep facilities were limited in a space they really hadn't envisioned as a brewpub. Nancy Ponzi offered these comments in 2013:
We had some odd food choices…pickled eggs, pretzels, beer nuts, just crap. We had no kitchen so there wasn’t much we could do. We hired some people who helped develop the pizza recipe. We tried different things. We didn’t think we could make dough at first. Then we found a way to make dough that worked. And we perfected it…a three day process. It became legendary. We didn’t have a wood oven. We look back on that experience and realize the pizza was a stroke of genius. We used fresh, quality ingredients and it went over really well. There was almost no waste because we wrapped up everything that was left. No dishes because we used baskets and paper. We didn’t have to hire a bunch of help because we didn’t have table service
It was a combination of the beer, the pizza and the neo-grubby ambiance that established Bridgeport's pub as the standard against which others were measured. The area around the pub featured streets that were unpaved, pothole-riddled and virtually impassable in many vehicles. You'd park your car, open the door and step into a foot-deep crater. Charming.

When did they transition the name from Columbia River to Bridgeport Brewing? From the outset, all the beers had carried the Bridgeport name. When the pub opened, it was named the Bridgeport Brewpub. Soon thereafter, they moved away from the Columbia River name and it was eventually dropped. Today, few remember that it ever existed.

Landlord Roger Madden's likeness graced the label of
the first bottling of Old Knucklehead in 1989.
Anyone who experienced Bridgeport during its first decade can attest to the success story the Ponzis and Ockert created. It was a great place to go for consistent pizza and great beer and was often packed to the gills. As noted, the place became a sort of standard against which future brewpubs would be measured.

By 1995, the Ponzi's realized they needed to invest to modernize and expand the brewery if they were going to stay competitive in a market that was getting more competitive. But they had tired of the beer business for a variety of reasons, not the least of which was that they preferred the wine business. So they took the best of several offers and sold the business.

The sale to Texas-based Gambrinus, announced in October 1995, stunned Portland beer fans and others who knew and loved Bridgeport. Although it would take a while for the consequences of the sale to become clear, everyone needs to understand that Bridgeport, at that point, ceased to exist. All the decisions made subsequent to the sale were made in Texas, not Oregon.

This is where the current story picks up. At the direction of founder Carlos Alvarez, Gambrinus embarked on a strategy of making Bridgeport a national or semi-national brand. To attain that goal, Gambrinus thought it needed to strip away Bridgeport's Portland-centric identity. Doing so meant dropping some of the iconic beer names and making them more generic. Later, the pub underwent a dramatic remodel, rendering it significantly more trendy and upscale.

Some questioned the strategy. But Alvarez had experience in brand building. Gambrinus made its mark selling Grupo Modelo (Corona) to the eastern US and Texas beginning in 1986. A few years later, it acquired Spoetzl Brewing of Shiner, Texas and built Shiner Bock into a solid brand. Could Bridgeport be next? Inquiring minds wondered.

As some have noted, the disaster to come was obscured somewhat by the dramatic success of Bridgeport IPA, which appeared in 1996. Bridgeport brewers had been tinkering with an IPA recipe prior to the sale. On cue, Ockert returned from several years in exile (working for Anheuser-Busch and on other projects).

Ockert's contribution to the IPA was arguably crucial. He had experience running wort through dry hops at the end of the boil and suggested that approach with the IPA. It resulted in a beer that was low in bitterness, high in flavor and aroma. Bridgeport IPA eventually won several GABF medals and countless fans. Bridgeport didn't invent IPA, but it helped make it mainstream.

Of course, the IPA wasn't enough. The effort to mold Bridgeport into national brand flopped. The pub renovation, completed in 2006, shocked many Portlanders, who saw it as a monumental blunder. With much of its local identity stripped away and the beer portfolio in disrepair, Bridgeport's downward spiral ensued. This can be seen in the sales decline that began nearly a decade ago.

Faced with the failure of their national initiative, Alvarez invented a revisionist narrative based on what one might call "alternative facts." The basic contention, an appeal to the IPA craze, was that Bridgeport had always been about hops, always been focused on hoppy styles. It was a totally bogus claim that hit with a thud. The downward spiral accelerated.

The recent increase in the brewery count in Portland and beyond dealt Bridgeport another blow. Alvarez was slow to appreciate what the tsunami of small, local breweries meant. While beer fans were seeking innovative beers from small breweries, Bridgeport continued down the road of producing generic styles that sought broad appeal. Oops.

Finally seeing its mistake, Gambrinus launched an innovation program at Bridgeport. This happened within the last two years, very late in game. Reliable sources say the innovation program produces some great beers. I don't doubt it. But the effort was five years late. The beers had little effect because the brand had collapsed and the desired audience had given up on Bridgeport.

You simply cannot underestimate the impact of strategic bungling and detached management. Alvarez took a valuable brand and collapsed its value entirely. As announced the other day, the brewery has stopped production. Since no one has come forward to purchase any of the brands, they will soon vanish. The brewery will be sold. And when the pub closes on March 10, Bridgeport will be nothing more than a memory.

Let's be clear: This disaster is not the fault of the brewery workers who've been let go or the pub workers who soon will be. They were pawns, pushed and bullied around for years by people who supposedly knew what they were doing. The blame for this mess rests squarely on Carlos Alvarez and the bunglers at Gambrinus.

So long, Bridgeport. Happy trails. You were once loved by many.

Wednesday, February 6, 2019

Transcendent pFriem to Expand Footprint, Production

While much of the beer world is mired in flat or negative growth, there are a few big winners out there. Such is the case with pFriem Family Brewers, which just announced plans that will expand production capacity dramatically.

Details of the expansion were announced at several events this past weekend in Hood River. Since they opened in 2012, pFriem has been gradually increasing the size of its leased space in the Halyard Building on the waterfront in Hood River. Finally, they had to look elsewhere.

Increasing demand for pFriem beer is the reason for the expansion. That's a nice problem to have in this market, where more and more established breweries appear to be at risk. pFriem has actually been a glaring exception. Its annual Oregon production numbers show steady upward growth since it opened in 2012.

The brewery produced 486 barrels that first year, barely a blip in the stats. The projected number for 2018 (the OLCC report showing the full year won't be released until March) is around 13,000. Again, we're talking about barrels produced and sold in Oregon...where pFriem sells most of its beer. Total barrelage for 2018 was nearly 19,000, a company operative told me.

Over the course of the next two years, Pfriem will increase production capacity in Hood River to more than 60,000 barrels. All non-barrel aged beers will be produced and packaged there. Expansion will involve installing a second and significantly larger brewhouse, adding additional fermentation capacity and installing a canning line.


A new facility down the road in Cascade Locks will provide space for them to expand and refine their barrel aging program, which has produced some award winning results, and to also consolidate warehousing and cold storage. For the past few years, pFriem has leased space in Hood River for warehousing and storage. That will go away once the Cascade Locks facility opens.

"The goal has been to increase our offerings, continue to boost quality and innovation and to create opportunities for our employees to further their careers and personal lives in the special communities that we are lucky to be a part of," co-founder and brewmaster, Josh Pfriem said. "We feel that we are on an exciting path to accomplishing these goals through these two interconnected expansion projects.”

Many wonder what plans pFriem has for pub expansion. The Cascade Locks facility will not have a tasting room or pub. That space will be dedicated primarily to expanding the barrel program. The good news for pFriem fans is that they are apparently considering potential pub sites, but have no imminent plans. With pFriem, these things take time.

The recently activated coolship at rest.
As we were finishing up Saturday evening, I had a quick conversation with Josh about the growth trajectory of pFriem. My perspective, free to be challenged, is that pFriem has done what they've done via an intense focus on across-the-board quality. They have a growing list of specialty and core beers that are well-made. The pub in Hood River always provides an excellent experience.

These things do not happen by accident. A lot of people enter this industry every year. There isn't a single one of them that doesn't hope to create memorable beers and unique experiences. Only a handful succeed in doing that. Yet pFriem has done so with apparent ease. It's a fantastic, evolving success story and one that doesn't seem to involve a lot of luck.

Inquiring minds are surely evaluating pFriem's success and wondering how to emulate it elsewhere. The blueprint isn't complicated. It involves an almost fanatical dedication to quality in everything they do. If you can manage that, you can emulate pFriem. So simple.



Sunday, February 3, 2019

Flagship February Targets BADD

One of the themes circulating around craft beer these days is the fixation on new and special beers. Those beers easily capture the imagination of beer fans who want something different with each order. That situation has worked to the detriment of established beers. It's a cultural phenomenon.


The blame for this movement is generally placed on millennials, who are the ones driving the contemporary craft beer bus. But we're all to some extent responsible for Beer Attention Deficit Disorder (BADD) because we've all been programmed to seek and taste new stuff.

One might argue that the interest in new beers is the result of a maturing industry. There was a time when anything not macro lager represented a huge step forward. No more. Today, there are a ton of breweries that have to differentiate themselves with unique beers. We search them out to see what's new.

The Flagship February campaign is intended to reshift our attention, if only momentarily, to some of the standards that helped launch and shape the craft industry all those years ago. Most of those iconic beers have been substantially reduced in stature (or forgotten) in the BADD era.

During the month of February, a collection of beer bars will showcase flagship brands. It's billed as an international program, but it's unclear to me how extensive the list of participating bars is. Here in Portland, Belmont Station is participating. They were pouring Deschutes Mirror Pond the other night. Majority owner Lisa Morrison told me Bridgeport IPA and Widmer Hefeweizen will soon follow.

It's worth noting that flagship beers have shifted over time with consumer tastes. In the case of Bridgeport, the original flagship (draft only) was Bridgeport Ale. After they brewed Blue Heron for an Audubon Society fundraiser in 1987, it became the flagship and remained so for a number of years. When Bridgeport IPA came along, it more closely aligned with consumer tastes and eventually became the Bridgeport flagship, a status it retains today.

The situation at Deschutes is similar. I always thought Black Butte Porter was their flagship. Or maybe Bachelor Bitter. It wasn't until later that Mirror Pond stepped to the forefront. Their flagship brand today is apparently Fresh Squeezed IPA, which has a short history. Picking Mirror Pond as the beer to pour for Flagship February seems appropriate.

Another point is that some of the flagship beers have themselves changed. Tasting Mirror Pond the other night, it seemed to have less pop than I remember. Widmer Hefeweizen is a much softer beer today than it was during the early years. How do I know? Because they brewed a handful of Hefs from different years as part of their 30th anniversary celebration in 2014. Ben Dobler, then the head of the innovation program, walked me through a highly instructive tasting.

It hardly matters that some of the flagship beers have changed a bit over time. They symbolize a simpler time in craft beer, a time when breweries had a few core beers, a couple of seasonals and that was it. The hyper competitive market of today has completely swamped the old model. Modern beer fans want something different almost every time they order.

Regardless, I know I'll be ordering flagship beers when I see them this month. It would be cool if the campaign were a big success, though I have my doubts, given the current state of the beer culture.


Thursday, January 24, 2019

Craft Brew Alliance Fumbles Forward

Tuesday's news that the Craft Brew Alliance has closed its Widmer pub on Russell St. came as a surprise to many. It was less of a surprise to others, who have taken recent brewery and pub closures to heart and are braced for more. Certainly there will be more closures in 2019.

I heard about the Widmer closure on social media. If there was a release, I wouldn't have gotten it. I was deleted from the CBA media rolls long ago. Even their PR firm doesn't send updates. Thin skins are everywhere in this industry, but these guys are special.

The fact is, I've known several CBA brewers over the years. I've never acknowledged anything but respect for these folks. But my writing here hasn't been influenced by that. My goal is to be objective and that's not something CBA management is interested in. They prefer blind promotion. Oh well. No hard feelings.

The fortune hunters who currently run the CBA have spun their activities a variety of ways as they wait for an offer from Anheuser-Busch. As explained here and elsewhere, the contract renewal signed by the two parties in 2016 established a framework for a slow moving buyout. That's been reported in a number of places, not just here.

When they discontinued food service at the Russell St. pub in November 2017, they kept it open to showcase the specialty beers they're brewing in the innovation brewery. So they said. And that seemed reasonable. Rebuilding slipping local credibility would be a wise move, given the CBA portfolio, outside Kona, had been in negative growth mode for a while now.

But that was apparently a ruse. The decision to close the pub/taproom permanently a year later means they've effectively abandoned the local strategy. They say they'll continue to work the local angle with new canned product and by selling to beer bars and bottleshops. The tiny retail store on Russell will remain open to support that mission. Thank goodness.

The blunt reality is you cannot build local credibility on any kind of scale without a pub. Well, maybe you can if you're tiny and you produce nothing but stellar specialty beers. Upright comes to mind on that count and even Upright has a taproom. Building a following for Widmer's innovation beers (forget the dreadful PH stuff) without a pub will be impossible, out of the question.

Profitability, or lack thereof, was the reason given for closing the pub. Maybe they were losing money there. But this is a company that made millions last year. And the pub operated with a small staff and sold beer directly to patrons, where profit per pint is greatest. Even if the place was losing a bit of money, you keep it open to maintain a brand face in the community. Their commitment to the local strategy was evidently fleeting.

Only the fortune hunters upstairs on Russell St. know for sure. Don't give these bunglers too much credit, though. They've been swimming in Anheuser-Busch's wake for too long, and not for the better. If Widmer (and Redhook) hadn't stumbled onto Kona all those years ago, no one would be paying any attention to the CBA at this point. It would be roadkill.

But maybe, just maybe, closing the pub is a signal of something bigger. Perhaps the buyout CBA leadership has been praying for is in the works. Keep in mind that Anheuser-Busch must give DOJ 30 days notice of attempting to buy any craft brewery. Even though AB already owns roughly a third of the CBA, it would still have to give notice when submitting an offer.

If there is such an offer in place, closing the pub makes sense. Whatever the new ownership arrangement turns out to be, Anheuser-Busch won't be interested in rescuing the CBA's contracting brands. Kona is the darling. Redhook and Widmer will be cast adrift, probably sold. If someone wants to resurrect those brands, it won't be the clowns currently running the CBA.

Watch the CBA stock price for insight. When news of the pub closure hit the newscycle on Tuesday, the price was just under $16. It hasn't really moved, which means speculators haven't sniffed an impending buyout. If they do, the stock price will quickly rise to above $20. Why? Because AB is contractually obligated to offer at least $24.50/share between now and August.

There's irony here. When Widmer was born some 35 years ago, the focus was on beer. The boys had no thought of getting rich. But things have flipped. The people running things now covet money. And there's money to be made by selling the CBA to big beer.



Thursday, January 10, 2019

Dry January and the Potential of NA Beer

Since I started writing this blog and otherwise reporting on the beer industry, I've taken an alcohol sabbatical almost every January. I do it to shock my system, reset my metabolism and to dump some of the pounds I gain drinking too much beer the rest of the year.

As many who work in and around the industry know, it's tough staying away from beer for a month. I haven't been able to stay away entirely because of stuff I'm writing for the upcoming Oregon Beer Guide. But mostly I'm not drinking.

Sooner or later, my millennial friends will understand. They'll see that their metabolisms have slowed and won't keep up with their craft beer consumption. Craft beer is loaded with calories from carbs and alcohol. You can't burn all those calories with exercise, so you get fat. For most, it's that simple.

Alcohol is the big problem, obviously. When I had a personal trainer a few years ago, she routinely told me I needed to stop drinking if I wanted to get the full benefits of our workouts. I didn't consider my body to be a temple and I didn't care about an abdominal six-pack. So I ignored her.

She was right about alcohol, though. She had enough education to know the human body treats alcohol as a sort of poison, regardless of whether its from beer, wine or spirits. When you consume it, your body concentrates on turning it into fuel. Whatever it can't immediately use as fuel is stored as fat.

Staying off beer for a month apparently allows my body to catch up and burn some of the fat that's been stored. I've never completely stayed off beer. My initial approach was to substitute light beer for the good stuff. Beers like Michelob Ultra, Bud Select and other tasteless, low calorie garbage.

The light beer approach was always a lousy solution. Those beers typically have a fraction of the carbs you find in craft beer. They have less alcohol, too, but they still have alcohol. So I eventually started looking at non-alcohol beers. They have the advantage of having almost no alcohol and very low carbs. They have the disadvantage of not tasting very good.

In fact, there aren't that many non-alcohol beer choices in this country. Some of the most common options are O'Doul's, Coors NA, Becks NA, St. Pauli NA, Bitburger Drive. These are pretty crappy beers. I recently discovered, Clausthaler, which is a made in Germany and dry hopped to improve the flavor and aroma. It's the best one I've found to date.

It seems to me that we ought to have more and better choices. Non-alcohol beer has apparently gained a decent following in Europe, particularly Germany and Spain. One source describes it as "almost a mainstream option in those countries."

Of course, non-alcohol beers are an easier sell in Europe. Over there, people are accustomed to low ABV beers...that's what they drink. Going from 4 or 5 percent to .5 percent, the common ABV in NA beers, isn't such a big deal. But craft beer fans in America are addicted to 7 percent IPAs and tend to associate low ABV with poor value. Non-alcoholic beer is persona non grata here.

Nonetheless, more (and hopefully better) NA beers are coming to the US market. Mired in declining overall growth, the industry is taking a more serious look at the potential of non-alcoholic beer. When the sky is falling, you consider desperate options, I suppose. The non-alcoholic beer segment has grown steadily in Europe while the overall beer market slumped.

The NA beer segment is barely a blip in the US...just .3 percent of off-premise sales according to Brewbound. But the industry looks at the crazy success of a beer like Michelob Ultra, a lifestyle product, and sees potential dollars. With some millennials already beginning to look for healthier options, non-alcoholic beer could turn out to be a growth vehicle here.

It's ironic, right? The opposing forces of people seeking healthier lifestyles and the beer industry needing a spark may merge to bring us better non-alcoholic beer options. Dry Januaries may be easier to swallow at some point. Let's hope.


Sunday, December 30, 2018

Craft Beer: The Year Behind and Ahead

We're creeping toward the end of the year, which means everyone is putting out a list of the best beer or beers of the year. I'm not really a fan of lists. But let me look back on the year that was and provide some thoughts on the craft beer year ahead.

Cans
When I wrote this column a year ago, I suggested the popularity of cans would continue to grow and we'd see even more canned beer hitting shelves. That was a bit obvious, thinking back. It wasn't very hard to see the tsunami of cans forming; it had been doing so for several years.

What's most interesting about the emergence of cans in craft beer is how it happened. It wasn't a top-down movement. Established craft brewers, for the most part, were slow to embrace cans. To a significant extent, they were forced to adopt cans to compete with the smaller breweries who launched and articulated the movement. Some established places have even attempted to make their cans look like they came from a small, local brewery.

Anyway, you see more canned craft beer on store shelves than you did a few years ago. A lot more. There are many Oregon breweries that had no beers in cans until this year. Now they're pushing out a growling number of brands in cans.

I've mentioned the benefits of aluminum cans before. They're less prone to breakage, less costly to ship, protect beer from light, are easier to carry on outings than glass and easy to recycle. But that's not why they're gaining traction. They're being adopted far and wide because cans possess a cool factor that bottles don't.

I'm sure we'll continue to see more canned craft beer in 2019. Smaller and mid-sized breweries will transition most of their beers to cans, whether 12 or 16 ounce. Larger breweries will continue to package in 12 oz bottles, while also transitioning their mainstream stuff to cans. Increasingly, bottles are yesterday's news.

Local Beer and the Big Squeeze
Around this time last year, we had 6,000 or so breweries, mostly smaller and independent, operating in the United States. That was a shocking number, given where we were only 10 years earlier. Within the last couple of months, we passed through 7,000, with a huge number in planning.

As I said a year ago, the explosion in smaller breweries has been a terrific boon for consumers, who now have easy access to local beer. But it has also been a disaster for larger craft breweries, caught between the retail and distribution power of the Anheuser-Busch High End and the artisan creativity of small local breweries and losing market share in dramatic fashion.

The brewery count will almost certainly continue to rise. Why? Because there are still plenty of fools determined to open a brewery regardless of market conditions. Closures ramped up in 2018 (see Ezra's article on local closures here) and that will certainly be a common theme in 2019. There's nowhere to hide in a saturated market.

The reality is simple: production of craft beer has grown faster than the size of the consumer market. That wasn't all that hard to predict a few years ago. Even when craft beer was growing double digits, many knew it wasn't sustainable, that we'd hit the wall at some point. That's essentially what's happened.

For several years, I've tried to imagine what kind of fallout we'd see in a saturated market. Part of the answer is that poorly operated or otherwise compromised places are forced out. We're seeing that now. What about prices? Craft beer prices have risen slowly in recent years. Could we see a price war in which brewers cut prices to capture sales in a flat market? Hmmm.

This is an area in which independent breweries are vulnerable. Anheuser-Busch, which has already created significant turmoil with its High End, could use steep discounting to destabilize things further. They can manufacture those brands cheaply and have a strong enough presence in the retail channel to deal independent brewers a serious blow. Could it happen? We shall see.

Best and Worst
I'm seeing a lot of Beer of the Year lists. To me, there's no such thing. I tasted or drank a number of great beers in 2018. It's hard to pick a favorite or favorites because my taste varies from week to week and month to month. I tend to like lighter beers during the warm days of summer and darker, bigger beers when the weather turns cooler. But I can't identify a favorite.

On that subject, generally, I had hoped the haze craze would moderate or die in 2018. It's not that I hate the style...I'm just tired of the frenzy surrounding it and the $8 cans with ridiculous names and artwork. Of course, the haze lives on. But I sense the frenzy around it has slowed down a bit. I suppose that question will come into clearer focus as we move through the new year.

Brut IPA, some thought, would be a replacement for the hazy. Beer geeks were ready for something new, that's for sure. But the Brut movement bogged down when a lot of the beers turned out to be nothing more than hop-flavored LaCroix. I actually tasted a couple of Brut IPAs I liked. Most, however, were middling or bad. Some fine tuning is needed, I guess.

The event madness that started many years ago showed no signs of slowing down in 2018. In fact, the event circuit seems to have captivated an increasing number of wannabes and nerds who chase special releases, collabos, etc. Their dedication is cult-like. Yeah, I understand why breweries, pubs and taprooms do events. But the cult-like fascination is mystifying.

Somehow related to the trendy and frenetic aspects of the industry is the new approach to craft beer promotion on social media. Selling with sex or the suggestion of sex has been around for centuries. Now it's part of craft beer thanks to (for example) Instagram feeds that feature beer-themed soft porn. I'm not sure where this is headed, but I'm pretty sure it's not a good thing.

There's more I could talk about, but that's enough. It's a decent bet that 2019 will be just as interesting and crazy as 2018. Craft beer and the beer industry in general are an ongoing adventure.

Happy New Year!


Sunday, December 16, 2018

Researching the Obvious by Vertical

When you're thinking about cellaring beer for a later vertical tasting, the best choice probably isn't or shouldn't be a hoppy winter ale that's designed to be consumed fresh. But the world isn't a perfect place. Plus, some people are nerds.

Regardless of all that, you don't turn down a chance to partake in a vertical tasting of Sierra Nevada Celebration going back 30 years. Nope. The oldest bottle was from 1989, the year I packed up and moved to the Portland area. Some of my millennial beer friends were babies or not yet born. Yup.

We started off the tasting with the 2018 vintage. Starting fresh and working your way back through the years allows you to get a snootful of what the beer should taste like and how it declines down through time. In theory.

The problem with that approach is there are differences in packaging (several years of twist-on caps) and unknown variations in how the different years were stored and handled. As well, I'm guessing there were slight differences in Celebration over the years, for any number of reasons.

For the unaware, Celebration was first brewed in 1981. It arrived on the scene long before Americans imagined the concept of India Pale Ale and offered an example of what the style could be, might be. Celebration has always been seriously hop forward and focused on citrus and pine notes and tropical flavors. Its hop-centric character was/is offset by a thicker and darker backbone, a feature that has been almost completely abandoned by modern IPAs.

I first tasted Celebration a generation ago, as far as I can recall. This would have been in the days when Full Sail Amber was considered fairly bitter. At the time, Widmer Hefeweizen was also considerably more bitter than it is today, a factoid revealed to me in a private tasting with Ben Dobler during Widmer's 30th anniversary year. I don't remember being particularly fond of Celebration on that first taste, though the concept did eventually grow on me.

In fact, Celebration became a sort of role model for what aggressive winter beers would become. Imitation is the greatest form of flattery, they say, and Celebration set the standard for the craft breweries that followed Sierra Nevada. As IPAs took hold, those wanting to come up with a hoppy winter ale effectively reversed engineered Celebration.

Full Sail's Wreck the Halls is a good example of the style here in Oregon. Beers like Deschutes Jubelale and Full Sail's Wassail, among others, were nice winter ales. But they were malt-driven. Wreck the Halls, designed by then-Full Sail brewer John Harris, was aggressively hopped, a bold winter IPA and a direct descendant of Celebration. Countless others have followed to the point that most contemporary winter ales are excessively hopped.


As we started to churn through the vintages, the dropoff in hop aroma and flavor was not terrible for beers packaged within the last 8-9 years. There were some obvious ups and downs in those beers, perhaps revealing damage related to how they were stored or handled. Still, this group held up fairly well. Many tasters picked the 2018 as their favorite, but opinions were mixed.

Going back another decade, to beers packaged between 2000 and 2010, there was a steep dropoff in hop presence. No surprise. These beers, for the most part, had not disintegrated entirely, but were on the downhill slide. In most cases, it was like drinking an aged amber ale with mild hop essence. There were a few exceptions, beers that held up better than the group as a whole.

The final decade, beers from 1989-1999, revealed with brutal honesty what happens to these beers with age. Although a couple of them held up better than expected, most were lifeless. They presented as thin malt tea or, worse, soy sauce. Hop presence had faded almost completely in this set.

I should mention that there were a few gaps in the collection. Beers from 24 vintages were tasted, along with a shorter vertical of Bigfoot, which held up considerably better than Celebration. A fine time was had by everyone who attended, and it was instructive. Thanks to Nicole Kasten and Mike Perkins for generously hosting, and to everyone who provided beer.

What empirical lesson was learned? Only that cellaring hoppy beers for an eventual vertical tasting has some serious pitfalls and that these beers are best when fresh. So nothing we didn't already know. But proving the point once again was great fun.


Friday, December 7, 2018

The Uncertain Fate of the Craft Brew Alliance

I last discussed the Craft Brew Alliance roughly a year ago, just after they shut down the Gasthaus pub and turned it into a taproom for their small batch beers. That move was designed, at least partially, to make the CBA a juicier buyout target for Anheuser-Busch. But nothing has happened. What gives?

To understand why many assumed a buyout was imminent, you have to go back to the contract AB and the CBA signed in August 2016. That was a different time in craft beer, predating the market saturation and instability we see now. The document, which was a renewal and expansion of a prior contract, heavily favored the CBA and effectively established a framework for a slow moving buyout.

Giveaways in the contract involved domestic distribution costs, contract brewing opportunities, international distribution rights and more. They are covered thoroughly in the piece I wrote back in 2016. Rather than repeat those details, you can find them here if you're so inclined.

The reason many assumed a buyout was coming is the contract set escalating "qualifying offer" prices. By August 2017, a qualifying offer to buy the CBA had to be at least $22 per share. By August 2018, the number rose to $23.25 per share. By August 2019, a qualifying offer is set at $24.50 per share. There was incentive for AB to act sooner than later.

The allure of easy money attracted speculators. Soon after the new contract was announced in 2016, the CBA's stock price, which had been hovering around $14 per share, jumped to above $20. It hasn't yet worked out for the speculators that jumped aboard. The stock price has bounced around a bit, but shown life in July and August in each of the last two years, as speculators positioned themselves to cash in. It closed at $15.80 on Friday.

Given the structure of the contract, it's fair to wonder why the expected buyout hasn't happened. We all understand it's a different craft beer climate these days. Some of the big shots at AB have said they're comfortable with the High End portfolio as it is. They say they're focused on paying down debt acquired in the SABMiller merger/acquisition. Right.

The reality, though, is that Anheuser-Busch could not have gone through with a buyout in the wake of the SABMiller deal. It had to wait for the Department of Justice to complete its review. The "consent decree" was only recently issued, which means it's open season again, subject to certain limitations. One condition is that AB must give 30 days notice of any acquisition.

Opinions on whether a deal will happen on the 2019 timeline are mixed. Some believe the market is too unstable and that AB will stay focused on the craft assets it has and delay future acquisitions until the dust settles. That's not necessarily a bad argument.

However, there are sound reasons to believe a buyout may happen. Foremost is Kona, which continues strong growth despite the funk descending on the industry as a whole. Kona drove 64 percent of the CBA's total shipments during the first nine months of 2018 and its international potential is virtually untapped.

On the flip side, the CBA's legacy brands, Widmer and Redhook, are in decline and have no value to AB. They wouldn't be a stumbling block given the appeal of Kona, but they would likely be spun off in a buyout. It's ironic, for sure, given the history, but that's the way it is.

Should Anheuser-Busch fail to make a qualifying offer by August 2019, the contract stipulates that it pay the CBA a $20 million "international volume development incentive" fee. Those fees were $3 million in 2016 and $5 million in 2017. The $20 million balloon payment was put in the contract to leverage the imperative of a buyout.

It's entirely possible that AB moves forward in coming months. Since it already owns 31.4 percent of the CBA, it would spend only about $330 million (at $24.50 per share) to gain full ownership. That isn't a huge financial hit in a company so focused on reducing debt that it recently cut dividends to the tune of $4 billion a year. The spin for shareholders would be that the acquisition saves and makes the company money.

The fly in the ointment is the state of the industry. There are a lot of nervous folks out there. Some fear we are looking at a repeat of what happened in the late 1990s, which in our present context would mean dozens, if not hundreds, of brewery closures, and a depressed market for several years, at least. It's a serious and realistic concern.

On the other hand, there's Kona, seemingly impervious to market conditions. Even in a shrinking beer market and with overall craft sales flat or barely growing, Kona continues to surge. It's been dragging the CBA forward for several years and has the kind of brand appeal that a lot of companies covet. Kona may be one of the few gems left and AB already owns a piece. Why not own it all?

With all that in mind, I rate the chances of a buyout before the end of August 2019 at less than 50 percent. The incentives for AB to own Kona outright are significant. One thing that would certainly scuttle a deal is a sudden slowdown in Kona's growth trajectory, a scenario that would also cripple the CBA.

Anheuser-Busch may very well let the buyout timeline expire in 2019. When the contract was renewed in 2016, the parties didn't anticipate the slowdown we're seeing. They foresaw continued rapid growth in the craft segment. The qualifying offer minimums were set to protect both parties, but it turns out the numbers were set too high and are now an obstacle.

Should the August 2019 deadline pass without a deal, the CBA will receive the $20 million international development payment. It will also continue to benefit from all other aspects of the contract, including distribution, contract brewing, etc. The CBA would, of course, be open to offers from other suitors, though it's difficult to imagine who might be in the market.

The CBA's stock price will likely level off at around $14-$16 in that scenario, only slightly higher than it was before the contract renewal and buyout provisions artificially boosted it. If Kona falters, the stock price could take a significant hit, possibly into single digits.

It seems entirely plausible that AB plays a waiting game that extends beyond the 2019 deadline. Unless they want to be really generous with their CBA friends, they'll watch what happens with Kona and the overall market. If Kona continues to look strong, they'll likely proceed with a buyout for something less than the current $24.50/share price.

Crapshoot on.