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Sunday, May 14, 2017

Portland Beer Week Features Events Blitzkrieg

Portland Beer Week returns for 2017, its seventh year, with a veritable blitzkrieg of events, as well as some new twists. The 11-day fest runs June 8-18. It's coming up faster than you think.

This year’s official beer is Hop Berry IPA, brewed with marionberries by Culmination Brewing. It will be available on draft and in limited edition bottles at Whole Foods Markets and other beer-centric retailers in the Portland area.

Although beer is its main focus, Portland Beer Week extends that theme. It features numerous activities that happen alongside opportunities to enjoy great beer. The event is effectively a celebration of Portland’s beer, food and arts culture rolled into one.

“Our goal is to showcase the world of beer in the greatest beer city on earth,” event founder and czar, Ezra Johnson-Greenough, told me. “We do that through brewer’s dinners, tastings, educational seminars, festivals, games and more.”

One of the big additions (actually an expansion, since there was a kickoff event last year) this year is the Kickoff Party on June 8th. There will be breweries, along with food and merchandise vendors. The party is being held in the Exchange Ballroom and on the Cascade Rooftop (top of the Exchange Building), which features spectacular views of the city.

“I’m really excited that folks like the Oregon Cheese Guild are joining us and our collaborative beer and food project vendors like Salt & Straw Ice Cream and Blue Star Donuts,” Johnson-Greenough said. “Kickoff attendees can sample spirits, chocolate, jerky, hop candy we’ll have beer schwag, too.”
 
Another addition this year is the Dinner Series, which features a handful of collaborations between top local breweries and chefs. Organizers have built the schedule so they don’t have dinners piling up on the same date.

“I’m looking forward to Firestone Walker at Hair of the Dog, Culmination Brewing at The Woodsman, Block 15 & Ruse at an Imperial Session pop-up dinner and Modern Times at Pizza Jerk,” Johnson-Greenough said.

Returning this year is the Seminar Series, presented by Oregon State University and the HR Group. Several seminars will explore subjects like beer industry branding, starting and building a brewery from Nano to production, sustainability in brewing, barrel-aging beers and sour and wild ales.

The beer event schedule jumps into action shortly after the Kickoff Party with the Fruit Beer Festival at Burnside Brewing, June 9-11. Billed as a premiere showcase for fruit beers, the event also features local vendors, food, DJ's and non-alcoholic drinks. It's the marquee event of Portland Beer Week.

“We’re back to Burnside after last year’s experiment in the Park Blocks,” Johnson-Greenough said. “We’re spreading the beer stations out and the venue will have more shade and seating than in previous years at Burnside. We’ll also have more help at check-in to speed entry.”

The Fruit Beer Fest and fruit beers, generally, have gained favor in recent times. It's a little perplexing because  fruit beers run counter to tradition in this country, tradition being infested mainly with light beers made with malted grains. 

Local writer/blogger/author Jeff Alworth (Beervana, The Beer Bible) gave me this quote regarding the historical relationship between fruit and beer:
Fruit has been used since the Sumerians and Egyptians. As far as I know, every culture on earth has used fruit. Beer was, until fairly recently, a product of the farm, and farmers dumped whatever they had in it, including fruit. Medieval accounts list things like tree bark, hen bane, eggs, beans, honey, chimney soot and ashes as ingredients. Except for lager-brewers in Bavaria, basically no one in the history of civilization ever thought using just grain was somehow "proper."
So what's happening in American craft beer is that we are expanding our tastes to include ingredients that have been used for centuries. The Fruit Beer Festival has helped with that. And, of course, the official Portland Beer Week beer, mentioned earlier, is made with fruit. Symmetry.


The next big event of Portland Beer Week is Masters of IPA, an invitational showcasing America's best brewers of IPA's and hoppy beers. It moves to a larger venue with a curated selection, glassware and meet the brewers’ sessions on Friday, June 16th at Ecliptic Brewing.

The annual Rye Beer Fest, in its sixth year, returns with a new date and venue, moving to the Happy Valley Station indoor/outdoor food cart pod and taproom on Saturday June 17th. The all-age fest will pour more than 20 rye beers and have 18 food carts.

Portland Beer Week’s official finale, Snackdown, returns for a second year on Sunday, June 18th, noon to 4 p.m. Presented by Gigantic Brewing and taking place in The Evergreen ballroom above Loyal Legion, it features more brewer and chef pairings.

“I expect another great year,” Johnson-Greenough said. “We’re reaching out to tourists and casual beer fans in our marketing efforts and it seems like we’re getting more of those folks. Attendance has been increasing every year and I’m confident it will again.”

Stalk Portland Beer Week’s social media channels on Twitter, Facebook and Instagram for updated news and information. Advance tickets for most events are available online.

Monday, May 8, 2017

Shock and Awe in Craft Beer

Last week was not a great one for craft beer industry news. Despite all the good stuff going on, it does occasionally seem like the industry is under siege. Things figure to get more complicated and convoluted as we move forward. We aren't in Kansas anymore, Toto.

Wicked Weed
The first bad news was the sale of North Carolina-based Wicked Weed to Anheuser-Busch. Some, (I include myself), assumed the big boys would stay fairly quiet on the acquisition front after MegaBrew was finalized and given apparent volatility in the industry. Not so.

Wicked Weed is evidently a bit of an odd duck. They've grown fast since opening in 2012 and expect to produce 40,000 barrels this year. They package 85 or so beers annually and their flagship is an IPA (Pernicious), But sours make up 40 percent of their dollar sales. Yup.

Wicked does something like 35 percent of its sales in North Carolina, and also distributes to a handful of other states, including Georgia, Massachusetts, Colorado and parts of Texas. They will certainly expand that footprint as they extend capacity and gradually get immersed in the AB network.

There's a bit of an alignment smash-up coming, say industry sources. It turns out most of Wicked Weed's distribution network, including in North Carolina, is non-AB. That has the makings of a nice little disaster as AB works to align Wicked with its network. Good stuff.

Heineken and Lagunitas
The announcement that Heineken has fully acquired Lagunitas wasn't a huge surprise. Things have evidently gone pretty well since Heineken became 50 percent owner in the company back in 2015. This is the consummation of that momentum.

When considering the deal, it pays to ignore anything Lagunitas founder Tony Magee says or has said. When the original deal was announced two years ago, Magee said he would never sell the whole company to Heineken. So much for that. And Magee's credibility.

The new arrangement is mainly an international play. According to industry sources, Lagunitas will continue to operate as a separate business entity in the US. Magee will stay on as head of the company and will serve in an advisory role on Heineken's global team.

What's going to happen is Heineken will ramp up the expansion of Lagunitas into new markets around the world. That business has grown dramatically during the past year and has huge untapped potential. That's what motivated Heineken to pull the trigger on full acquisition.

Some craft beer geeks won't look at Lagunitas quite the same going forward. But the reality is, Heineken isn't in the same league as Anheuser-Busch, particularly in the US. It doesn't operate a vast distribution network here or have a collection of craft breweries. No comparison, really.

Craft Brew Alliance
Our friends at the Portland-based Craft Brew Alliance announced their Q1 results late last week. There was good and bad news.

The good news is that Kona was up 14 percent for the quarter, and continues to drag the company forward. CEO Andy Thomas also said Widmer is growing again in its home market, though overall shipments of both Widmer and Redhook were down.

The biggest bombshell was news that the agreement with Pabst to contract brew and eventually purchase the Woodinville brewery has been terminated. That means the brewery will close and be put up for sale within a couple of months.

Realistically, there wasn't much of a chance the purchase was ever going to happen. It's an antiquated brewery and was/is overvalued on the CBA balance sheet. Selling it will be a chore because the buyer, assuming one steps up, will also have to invest in making the place usable.

Of course, Pabst's position has become tenuous. It brewed mostly Rainier Mountain Ale in Woodinville. But the launch of that brand was botched out of the gate and expected volumes never materialized. Brewing capacity wasn't being used. Then Pabst got itself ensnared in lawsuits over distributor terminations (covered here last week) in Washington. A nice little mess.

The Woodinville closure means more CBA employees will be laid off or re-purposed within the company. Reports put the number at about a dozen. That's on top of the 15-20 who were laid off last year due to lower than expected Pabst volumes and declining production of CBA brands there.

In fact, most of the CBA's Woodinville production moved to the more efficient brewery in Portland. That rush to efficiency and greater profits is a slipper slope. The CBA will soon move some production to AB's Fort Collins plant to improve efficiency. That will mainly affect City Brewing in Memphis, but a reliable source tells me layoffs in Portland are imminent. We shall see.

On the heels of the CBA's Q1 report and the sale of Wicked Weed, there was renewed speculation on the possibility of AB completing a full purchase of the CBA. As noted above, the Wicked Weed sale has some people thinking more deals are in the wind. And maybe they are. Or not.

As discussed here numerous times, Anheuser-Busch covets Kona, but has no interest in Widmer or Redhook. It's hard to imagine a scenario in which the CBA strips Kona from its portfolio and sells it to AB separately. So it looks to me like the CBA will at some point be purchased and become a subsidiary of Anheuser-Busch, with Kona as the crown jewel.

Motivating Factors
For those who want a better understanding of craft brewery acquisitions, there was a fine article exploring that topic last week. Author Chris Herron suggests the primary motivation has more to do with preserving macro brand equity than with wanting to be in craft beer. That's vaguely at odds with what most of us have generally assumed.

Herron's article is terrific stuff and required reading. Trust me.


Tuesday, May 2, 2017

Turnover and Turmoil at Pabst

There's a whole lot of crazy in the beer industry. Then you look at Pabst, which is setting new standards for crazy in the Eugene Kaspher era. Someone ought to throw together a script and turn this wacky story into a reality TV hit.

Last week, we learned that nine top level folks were shown the door. They included chief growth officer, Rich Pascucci, with the company since 2011, and chief sales officer, Bruce Muenter, there since 2010. These moves come on the heels of significant restructuring last September.

The thing is, the pattern of turnover and turmoil at Pabst is legendary, established even before Kaspher took over in 2014. Between 2009 and 2014, there was a virtual revolving door of CEOs coming and going. Great way to build confidence in your brands.

Some of the more recent moves are the result of ups and downs in the business. Since taking over, Kaspher has rolled with the punches, adding people during the rapid rise of Not Your Father's Root Beer, laying them off when the brand tanked. Shit happens.

The moves they made last week are evidently part of an effort to streamline and build the organization according to the visions of Kaspher and new CEO, Simon Thorpe. They want to eliminate redundant management responsibilities and make themselves agile.

In fact, Pabst's fortunes aren't looking so bad. After some lousy years, trends for 2017 are moving in the right direction. Overall sales are up 1.7 percent. PBR shipments were up nearly 6 percent in Q1 and regional brands Lone Star, Old Style, Stroh and Olympia all showed growth.

The Pabst portfolio, in case you're wondering, includes a boatload of legacy brands. Besides those listed above, Pabst owns Colt 45, Old Milwaukee, Old Tankard Ale, Rainier, Schlitz, Blatz, Schmidt's, St Ides and others. Fine stuff, ya know.

Anyway, things were evidently looking so good for Pabst that leaders decided to incite more turmoil. They did so by abruptly terminating three Washington wholesalers in February and transferring their brands to Columbia Distributing statewide.

The terminated distributors are Odom Corporation, Stein Distributing and Marine View Beverage. They were each sent letters terminating distribution rights without cause and directing them to transfer existing inventory to Columbia. You can't make this stuff up.

It's an unusual situation. Suppliers rarely terminate distributors without cause. Why? Because that kind of move tends to lead to lawsuits that cause messy, expensive court battles and massive payouts. You're generally wise to avoid such scenarios.

But not Pabst. The terminations are apparently part of its realignment strategy. They want to have their beer distributed exclusively by Columbia in the state. It makes sense, right? Working with a single wholesaler fits with their agenda of simplification and efficiency. Terrific.

The problem is, they're now entangled in lawsuits. The terminated distributors quickly sued Pabst in federal court seeking damages. They, the distributors, fully believe the law favors them and that they are entitled to significant financial damages.

Soon thereafter, Pabst filed a motion to dismiss. It claims Washington law allows termination without cause and, in such cases, that terminated distributors' sole financial remedy is from the successor distributor, in this case Columbia.

For its part, Columbia is playing along. It has connected with and made financial offers to the terminated distributors. It says it is willing to arbitrate with the individual distributors if acceptable terms can't be reached via negotiation.

But no settlements are imminent. Not until the court makes a ruling on the law. Is Pabst right? Are the terminated distributors right? For now, the parties are immersed in a rolling dispute over the law, with motions filed and words flying.

My guess is Pabst has stepped into a quagmire. Its pattern of impulsive behavior is simply being acted out on another stage. The legal argument Pabst is making is a supple one. Chances are, they aren't going to win, which means they'll be forced pay the terminated distributors.

Lawyers and judges will figure this out. However things turn out, the saga makes for entertaining theater. Thanks a lot, Pabst.


Sunday, April 23, 2017

Little Beast Sets Up Shop in Beaverton

One of the most anticipated brewery openings in recent times became official Saturday evening. Little Beast Brewing, the creative child of Charles Porter and his wife and partner, Brenda Crow, held a launch party at OP Wurst in Southeast Portland. A fine time was had by all.

I'll get to the Little Beast details shortly. This was a significant event because Porter has a rich brewing background. He co-founded Logsdon Farmhouse Ales with David Logsdon in 2009, then abruptly departed a couple of years back. It took some time to get Little Beast off the ground. Porter lives in my neighborhood and I got vague updates on the project from time to time.

Breweries open every day. You know this. Little Beast is special because Porter doesn't make typical beers and his beers have won awards in significant competitions. His particular talent is producing mixed culture brews that lean on local produce and micro-flora. Barrel-aging and bottle conditioning are part of that, obviously.

In fact, the Little Beast name itself is nicely conceptualized. How so? Because it's the "little beasts" in micro-flora that ferment the farmhouse and wild ales Porter is known for. A degree in biology provides him with an understanding of yeast and bacteria, handy stuff to know if you're going to monkey around with wild and sour beers.

There's a significant and growing interest in these beers. Cascade Brewing has built an empire on its sour beers. DeGarde in Tillamonk has done well with its wild ales, as has Wolves and People out in Newberg. There's also Yachats Brewing, where Charlie Van Meter, who worked with Porter at Logsdon, is producing some uniquely unconventional beers.

Little Beast will for now operate out of the former Brannon's Pub & Brewery in Beaverton. They're occupying the brewing space there while Westgate Bourbon Bar and Taphouse operates the pub portion of the space. This is a relatively inexpensive way to get the brewery up and running and to build a following. A taproom somewhere in Portland is in the future.


Samples of Bes, a tart wheat ale, and Fera, a brett-fermented Saison, were poured at OP Wurst. Porter also shared a few bottled beers around. Everything was pretty tasty. I preferred the Bes to the Fera, but that was a tough call. Many liked the Fera.

Little Beast will offer year-around flagship and seasonal beers in draft and bottled form. Limited, exclusive stuff will evidently be sold direct via some sort of membership. I'm guessing the standards will show up intermittently in area beer bars and bottleshops. There's a tentative list of shops and bars coming and I'll update this post when/if I receive it.

I expect Little Beast to do well. They have a premium product that's somewhat unconventional and Porter is no stranger to brand building. But these are strange times in craft beer. It's getting crowded out there. Nothing comes easy. Porter and Crow know this.


Monday, April 17, 2017

Craft Beer's Frenetic, Trendy New Culture

Last week's Craft Beer Conference spewed a lot of data relating to the state of the industry. Craft segment growth slowed last year. You knew that. And the part of the segment that accounted for the bulk of the growth that occurred is the one that connects most directly with its patrons.

The facts are these: Breweries that produce less than 15,000 bbls accounted for 75 percent of the segment's growth, about 1.4 million bbls. Taprooms did nicely. Brewpubs experienced a great year, up nearly 15 percent to 1.35 million total bbls.

On the other side of the ledger, regional brewers were up just 150,000 bbls or 10 percent of segment growth. Keep in mind that regional brewers account for roughly 75 of total craft volume. In effect, these guys are having their lunch eaten largely by smaller, local breweries.

This theme has been gathering momentum for a while, related to the fact that craft breweries have been opening all over the place. Given a choice, consumers are often choosing local beer over beer produced elsewhere, at least when it comes to craft beer. Remember, craft is still only a small share of overall beer.

This isn't strictly about the quality of the beer. Nope. There's a game being played that involves brand connection. The folks who chase craft beer are driven to connect with brands. Smaller, local brands are much better-positioned to make those connections than stodgy, older breweries.

Who are the beer chasers? Mostly, though not entirely, millennials. Yep. Somewhere along the line, a swath of the millennial generation got hooked on craft beer. Their (21-35) age group is historically the largest beer consumer. But millennials have migrated to craft in droves. Don't ask me why. Maybe because it's one of the few things they can get excited about. We know their trophy cases are full. (I kid.)

The effort to reach this crowd has strategic layers. Breweries strive to project an identity that resonates with the youthful fan crowd. Identities are conceptualized accordingly. The outdoor motif seems in vogue currently. The need to stand out in an increasingly crowded market has led to packaging that carries wild graphics, bright colors and clever names. All that glitters might not be gold, but shiny things can and do attract attention.

Of course, the beer itself is also caught up in what's happening. New interpretations of existing styles, as well as newly imagined styles, are the order of the day. That's more or less how we arrived at the point where hazy IPAs and eclectic fruit and barrel beers have become the rage. Something else will come along soon enough. Trust me.

Don't forget the role of social media in pushing the envelope forward. Smartphone-addicted millennials depend on social media for news and information. That's where brand identities are amplified by some exponential factor, creating chatter that fuels the fan crowd and ignites feeding frenzies for new beers, events, brewery schwag, etc.

What this arrangement has produced is a frenetic, stifling trendiness. Brand churn is accelerating. Beers come and go relentlessly in bottleshops, taprooms and pubs. Brands we saw regularly in past years are nowhere to be found these days, replaced by brands that will themselves be gone in a proverbial flash. Change is a speeding bullet.

Some years ago, a few of us talked about event fatigue. The events calendar was exploding and it was becoming impossible to keep up. That's ancient history now. Today we have widespread industry fatigue. Even people inside the industry have a hard time keeping pace. The gimmicks and gambits used to attract interest in beers are crazy and getting crazier.

Where does this end? Good question. I'm old enough to have seen frenetic trends come and go more than a few times. I suspect the current craft craze will collapse or significantly moderate at some point. That may involve a generational shift in tastes. Or not. But it will happen.

Monday, April 10, 2017

Brothers Cascadia Brewing Puts Bloom on Hazel Dell

As referenced in past posts here, these are wild times for craft beer. The crazy growth of recent years is slowing. Part of that is reality. You can't easily grow 15 or 20 percent a year once you reach a certain size. Brewery count is another reason. Access to local beer has dimmed retail sales.

We're going to hear a lot about the state of the industry from this week's Craft Brewers Conference in Washington, D.C. The Brewers Association brass are going to talk about the good and the bad. It'll be a giant drunk fest in between press conferences and presentations. This much I know.

But not everyone connected to the industry is spending a drunken week in Trumpland. Some folks are at home working in their breweries or busy opening up new ones.

Monday afternoon I stopped in on the private soft opening of Brothers Cascadia Brewing in Hazel Dell. This place has been in planning for a while and they opened the doors to a nice crowd of friends and family. Pretty cool.

How did I get invited? Fair question. Because I rarely get invited to anything. Never mind why. It turns out the general manager there is Micah Loiselle. For years, Micah worked behind the bar at Laurelwood's Sandy pub, a place I frequented almost nightly. If you've visited Laurelwood on any kind of regular basis in recent years, you know Micah. He's the guilty party who invited me.

When I walked in just after the 3 p.m. start time, the place was already busy. You hate to take too much stock in a situation where it's almost all friends and family, but I suspect the crowd is a good omen. This place has the potential to do nicely. 


As I've said once or twice in past columns, there's still plenty of room for smaller, neighborhood breweries that intend to serve a mostly local clientele. That's particularly true in places where that clientele is underserved from a craft beer standpoint. Hazel Dell is that kind of place. 

Once upon a time, Hazel Dell was a thriving area. Today, the area around Brothers Cascadia Brewing on 99th St and Highway 99 could use some investment and help. In some ways, it reminds me of the Lents area in Southeast Portland, where a revitalization project is underway. 

Three partners, Sherman Gore, Jason Bos and Richard Tiffany, installed a 10 bbl brewery in an old, bombed out auto body shop building. They intend to focus on mainstream styles like IPA, Kolsch and Pilsner. But they are also developing an interesting barrel program. They aren't selling food in the pub, but there's a food cart-ish scenario out front.

The pub itself is just quaint and charming enough to meet the needs of thirsty beer fans. High ceilings and a clean grubbiness are a reminder of what most craft breweries looked like back in the day, before gobs of money flowed into the industry and places got spiffy and flashy. None of that here, thank the Dog. 


I sampled two beers: Hellcat Imperial Stout is a barrel-aged monster (9.5 percent) brewed with raspberries, then aged in red wine barrels. Interesting beer. I think a bourbon barrel treatment would have added more character, but Hellcat is pretty tasty as is; Saison de La Mancha is fermented with French Saison yeast and lacto, aged in red wine barrels and dry-hopped with Mandarina Bavaria hops. Mildly tart, nicely refreshing. My guess is the beers will be fine here. If you can make boutique styles like these well, your standards should be fine. 

I'm not exactly sure about regular hours. They will evidently have a soft opening for the public on Wednesday, the 12th, from 3:00-10:00 p.m. After that, they're off and running. There's no functioning website at the moment, which leaves the Facebook page if you need information. Hopefully, it will be updated in coming days.  

Brothers Cascadia is a nice example of the breweries that continue to pop up around the country. They identified an underserved area and opened there. As long as they run the business well and don't have visions of grandeur fueled by dreams of regional distribution, they'll be fine. Staying true to local fans will pave their way to success.

Things are looking up in Hazel Dell. Trust me.

Update: As of today, Brothers Cascadia will be open 3:00 p.m. to 10:00 p.m., Wednesday through Monday. They will be closed Tuesdays. 

Tuesday, April 4, 2017

California's Great Train Robbery

My friend (I use the term loosely) Jeff Alworth yesterday posted an article exploring the success of Michelob Ultra. It's a zany story, frankly. Ultra has been knocking it out of the park, showing huge growth over the last few years, though it tastes like carbonated water with a twist of light beer.

Go read Jeff's article if you haven't. He's basically saying the success of Ultra, alongside the continued growth of craft, suggests the old paradigm of craft beer vs light lager has collapsed and that consumers now think only of beer. Some chase flavor, some don't.

In fact, the success of Michelob Ultra reminds me of the success of Kona, which is a big winner for the Craft Brew Alliance in the same way Michelob Ultra is a winner for Anheuser-Busch. It's also true that neither can do enough to overcome the losses of their parents.

A case in point is California, the biggest market in the country. Despite the growth of Ultra, AB lost 10 percent of its volume in California over the past two years. Sales were down 446,000 bbls in 2016 and 386,000 bbls in 2015. AB, which once owned nearly half the California beer market, now controls less than a third of it.

MillerCoors is also taking a shellacking in the Golden State. It lost 10 percent of its volume over the past two years...500,000 bbls. Once a formidable player in California, MC now controls less than 20 percent of the market. And indicators don't look good.

Who's stealing market share? Constellation brands is a big winner, gaining more than 700,000 bbls over the last two years to 4.3 million total bbls. Constellation, which includes Ballast Point, Corona, Modelo and Pacifico, reached 18 percent of market share in California at the end of 2016. It will likely pass MillerCoors this year.

The other big winner in California is other (mostly local and regional) craft, basically anything but Constellation-owned Ballast Point. Other craft was up 20 percent (813,000 bbls) over the last two years and now has a 21.5 share of the market, second only to Anheuser-Busch.

Consider the magnitude of the "great train robbery" that has transpired in California in recent years. Anheuser-Busch and MillerCoors have lost 1.35 million bbls between them while Constellation and other craft gained 1.5 million bbls. These are shocking stats. And there's more.

AB's best selling beer, Bud Light, declined nearly 9 percent to $140 million in IRI last year. Meanwhile, Constellation-owned Modelo Especial grew 20 percent to nearly $138 million. Sometime this year, Modelo Especial will surpass Bud Light as the top selling brand in California.

What we're seeing in California, which accounts for some 15 percent of nationwide IRI, is Constellation gulping up market share with a mix of light and craft beer while craft brewers grow with their unique product. Michelob Ultra fits into a growth niche somehow.

These parallel universes will continue to exist. Craft beer will never conquer the world. Light lager will always have a place because many consumers don't and never will care about flavor profiles or who makes their beer. Some choose light lager because craft beer makes them fat. Indeed, a large segment of consumers will always be content with light beer, though at the moment a lot of folks are moving away from long-established, mainstream brands.

The ongoing implosion in California and elsewhere has Anheuser-Busch and MillerCoors on edge. Huge losses have a way of creating panic. Buying craft brands in hopes of reversing the negative momentum is part of their strategy, and it's working to some extent. But they simply can't replace what they're losing fast enough.

Interesting times. And train robberies.

Saturday, March 25, 2017

Messy Times for the Craft Brew Alliance

Not so long ago, the folks at the Craft Brew Alliance were all smiles. That was back in August, right after they signed an agreement with Anheuser-Busch expanding the relationship and establishing the framework of a sale. The CBA's stock price spiked to over $21 a share. High times.

Fast forward to last week. The smugness is gone. So is the hefty stock price. After a three week delay, the CBA released fourth quarter and full year earnings. The numbers aren't pretty, though there is continued good news for what has become the company's flagship brand, Kona.

Despite that fact that Kona was up bigly for the year, the full CBA portfolio was down 6 percent, declining by nearly 39K bbls. The fourth quarter was particularly unkind, as the brand family was down 13 percent. That sad number occurred partly due to the fact that wholesaler inventories were built out late last year in anticipation of the Portland brewery's temporary closure. And constricted in late 2016 due to slowing craft category growth. Still. Not good.

Kona is essentially dragging the CBA forward. It gained 13 percent (up more than 45K bbls) and reached nearly 400K total bbls in 2016. Based on those numbers, Kona is a top 10 craft brewer, according to one industry publication. It is easily the CBA's largest brand family, more than double the volume of flagging Widmer.

Indeed, the rest of the CBA portfolio appears to be in free fall. Redhook tanked, declining nearly 32 percent to 127K bbls last year, Widmer shipments dropped 15.7 percent to 148K bbls. Over the course of the past two years, Widmer and Redhook have lost 136K bbls. Omission, the CBA's (throwaway) gluten-reduced brand, dropped nearly 17 percent.

Given the stifling collapse of once proud Widmer and Redhook, the CBA doesn't have a lot of options going forward. It will certainly ride Kona's momentum for as long as it can. Part of that strategy relies on its arrangement with Anheuser-Busch, whose distribution network has helped turn Kona into a national and emerging international player.

In a press release, CEO Andy Thomas acknowledged the poor 2016 performance, but emphasized the importance of the agreements with AB and the acceleration of Kona. “Looking forward, we are excited to build on the strength of Kona, which continues to distinguish itself in an increasingly competitive category,” he wrote.

The CBA may not be in as much distress as last year's numbers suggest. Even if you take away Kona, the deal with Anheuser-Busch is going to reap significant benefits on the cost and profit sides of the ledger in coming years. The partnership may actually help insulate the CBA from imminent challenges that will be faced by many if not most large craft breweries.

Nonetheless, the distressing numbers make you wonder about the road ahead. Will the CBA be absorbed by Anheuser-Busch or remain more or less independent? Last summer's agreement, which heavily favors the CBA, makes it financially advantageous for AB to pull the trigger on full purchase sooner than later. (AB currently has about a 33 percent stake in the CBA.)

When I wrote about the situation last summer, I thought a buyout was imminent. At the time, MegaBrew was still being evaluated by the Department of Justice and AB was laying somewhat low. I figured, particularly in light of the escalating costs to AB if they didn't move soon, a buyout would happen sometime in 2017. It might still happen.

I'm guessing the collapse of Redhook and Widmer isn't a huge concern for AB. Those are tired regional brands that don't have the kind of marketing traction AB wants. Kona is the darling. It suggests a lifestyle and a place consumers want to connect with. The national and international growth of the Kona family proves that.

Kona's growing popularity adds a complicated twist to the possibility of a buyout. Anheuser-Busch has little or no interest in the CBA's declining brands. It only truly wants Kona. But the CBA can't reasonably sell Kona by itself because Kona is the only growth engine it has. Without Kona, the CBA may as well not exist.

If I had a crystal ball, I'd know which way this is going to go. I don't. But it's hard to imagine a scenario in which the CBA sells Kona separately. If a sale happens, I think AB buys the CBA as a block entity, then spins off Widmer, Redhook and the other junk brands. The other possibility is there's no sale and the CBA carries on as it is, sucking up to its mentor, Anheuser-Busch.

These are uncertain, messy times in craft beer. You do what you have to.


Friday, March 17, 2017

Belmont Station Preps for 20th Birthday Bash

Portland’s original bottleshop and beer bar is hitting the ripe old age of 20. Nearly drinking age. They’re celebrating with a 20/20 theme…20 days of events for 20 years, April 1-20.

The fun gets started on Saturday, April 1, at the Horse Brass, where Belmont Station got its start in 1997. The Brass will have a collection of special beers on tap when it opens at 11 a.m. Some of those beers will have been made with help from Belmont Station staff. Fancy that.

Guests ought to have a decent buzz going by 1 p.m., when they will march up 45th Street to the current location. There will be several bottle releases and more special beers on tap. The parade will include noisemakers, bubbles, signage and typical parade fare, though no floats.

“Twenty years is a nice milestone,” majority owner Lisa Morrison told me. “Besides being a celebration for patrons, we’re honoring the contributions of people who made and continue to make Belmont Station what it is today. People like Joy Campbell, Don Younger and Carl Singmaster, not to mention our awesome staff, past and present.”

Another featured event, mini-Puckerfest, is set for April 7-9. They’ll be pouring at least eight sour beers at all times during the weekend. A number of special beers from well-known breweries will be released, including one from de Garde called, “The Station.”

“As part of mini-Puckerfest, we’ll be doing another Battle of the Blends competition,” Morrison said. “Two teams made up of Belmont staff produced blends with Cascade Brewing. Patrons will vote on their favorite for the insufferable bragging rights.”

The weekend of April 14-16 is mini-Bigger Badder Blacker fest, featuring a Deschutes night with an Abyss variant, Black Butte 25-28 and a vintage bottle sale, plus other offerings through the weekend from Ninkasi, Fort George and more.

Next up is the annual Samuel Smith's Salute on Tuesday, April 18. Tom Bowers of Merchant du Vin will showcase the iconic brewery and its place in modern craft beer culture. There will be bottles pouring at the bar and Tom will lead the annual Samuel Smith salute during the course of the evening.

The party finishes up on April 20, with Lagunitas tapping Waldo Special Ale at 4:19 p.m. (so it can be in your glass at 4:20). Sixpoint will contribute their Puff to the party (including Puff rolling papers) and Laurelwood will have a special 4/20-themed IPA.

Old-timers will recall that Belmont Station was the only place of its kind when it opened next to the Horse Brass. Campbell and Younger launched the small store largely because Horse Brass patrons kept asking to purchase imported beers and other specialty items. They caved.

“We were just slightly more than an afterthought next to the Horse Brass,” says Chris Ormand, who spent a decade at the Station before joining General Distributing last year. “We sold novelties, specialty food and off-beat videos, most of it imported from the UK. And beer.”

They stocked some 400 bottles in those days. It’s hard to fathom given present circumstances, but each bottle was displayed with a price tag. The actual beer was stored in large walk-in coolers. Customers would jot down a list of what they wanted and give it to the clerk, who would round up the beers.

The beer selection has exploded, obviously. Modern Belmont Station carries some 1,500 beers, ciders and meads in bottles and cans, and also features 23 rotating taps pouring some of the best beer in the city. It’s a Cheers bar for many locals (myself included), as well as a destination for tourists.

“There truly was nothing like Belmont Station when Joy and Don launched it 20 years ago,” Morrison says. “It was a big deal when my business partner, Carl Singmaster, joined as co-owner, moved it to the current location and added the beer bar.”

Belmont Station is generally regarded as the best bottleshop and beer bar in Portland. They were again recognized at the Oregon Beer Awards as our Best Beer Bar and Bottleshop. But Morrison takes the high road.

“I guess we are looked at as setting the standard for what a bottle shop and beer bar should be,” she said. “That’s something we strive for. I like to think we’re respected for our knowledgeable service, our friendly and cozy atmosphere and the fact that we've been consistent through the years.”

Keep in mind that many of the events happening during the 20/20 festival are still being finalized. Check the Belmont Station website for updated details as the celebration gets closer.


Saturday, March 11, 2017

Squeamish Market Breaks Buyout Momentum

Here we are nearly three months into 2017 and not a single notable US craft brewery has been bought by big beer. That's not the scenario many predicted. After several years of intense activity, many expected to see more buyouts this year. Nope. What the hell?

A good part of what's going on can be traced to the dramatic craft slowdown that occurred in mainstream outlets during 2016 and is continuing into 2017. The other day I talked about why the slowdown isn't as serious as the data suggests. That logic still holds.

Indeed, it's clear that craft growth is happening in smaller outlets that aren't tracked by IRI or Nielsen. Beer bars, breweries, taprooms, growler stations and related outlets have multiplied like rabbits in recent years and are stealing a lot of volume from mainstream stores.

And collapsing sales in mainstream grocery and convenience stores are a serious issue for potential craft suitors. Missed sales projections by large and small brands and an imploding category have deal makers like Anheuser-Busch and MillerCoors on edge. They're afraid to pull the trigger.

Fear of a sagging market isn't the only reason checkbooks aren't opening. The big box slowdown means it's now a buyer's market out there. Deals that were being negotiated or contemplated are dead or being reevaluated. Paying too much for something that tanks is a risky career move.

The uncertainty extends to other buyers. Private equity is in the same boat as AB and MC. They see a soft market that looks increasingly risky. Reports suggest some of the more recent private equity acquisitions haven't panned out very well. Craft is no longer an investment darling.

Another bad hombre is debt. The industry is swimming in it. Anheuser-Busch and MillerCoors both have it, thanks largely to MegaBrew. They'd like to pay it down before they take on any more. Brewers have debt problems, too. Many borrowed to finance expansion when things were booming. Now they're stuck. They can't afford to sell at the prices suitors are offering or might offer. Debt is a double-edged sword in a sketchy market.

Consider the case of Speakeasy Brewing, which just closed. They've been around 20 years. They took on debt to expand. But the growth they expected failed to materialize. They were badly over-leveraged and sought capital to keep going. Lenders wouldn't play ball in this market and they were forced to close. This may be a common theme until things stabilize.

As far as the big boys go, they're moving from acquisition to consolidation, focused on the craft brands they have. The High End is putting a lot of effort into getting its beers in grocery sets around the country. That's going to be the status quo for awhile and it's going to impact small brewer access to shelves in large stores and national chains.

The flip-side of that effort is a place like the recently opened Breakside brewpub in Slabtown. Breakside has built a solid reputation with great beers. It distributes fairly widely. But the Dekum pub is tiny and the Milwaukie facility is for production. Breakside wanted a stronger presence in the local market. So it invested a lot on a marquee location that will achieve just that.

My newest (anonymous) industry friend predicts we're moving toward a system that is both hyper-local and hyper-national. He sees the High End and related MC brands eventually dominating national chains, while smaller breweries, like Breakside, dominate local pubs and such. He may be onto something. We shall see.

As for buyouts, don't expect to see many for awhile. The indicators are too negative. Breweries that took on debt expecting high growth or a big buyout are in deep trouble.

Monday, March 6, 2017

About Craft Beer's 'Big Funk'

Craft beer is in a bit of a funk. That subject has been discussed widely, of late, including here. The numbers are quite shocking, honestly. But there may be an explanation that doesn't spell imminent doom for the industry.

It's no secret that 2016 was a shitty year for craft beer. For the first time in a long time, growth lagged badly. That was the theme carried forth by Dan Wandel of IRI in his year-in-review presentation for the Brewers Association. Craft beer growth "slowed suddenly and substantially," Wandel said.

Below are a few gory details from his presentation:
  • Off-premise craft growth, double-digit 2004 to 2015 in supermarkets, dropped to 6.3 percent in 2016. That was better than the beer category as a whole (up about 3 percent), but a fairly alarming decline from recent years.
  • Though every region saw double digit growth in 2015, not one region performed as well in 2016, although the Southeast was close at 9 percent.
  • More than half of the country's top craft brewers lost share in 2016.
  • Seasonals, the second largest craft sub-category after IPA, were down 6.3 percent. They lost 2.3 share points (16.7 percent share of the craft category). Yikes!
  • New brands, which consumers are turning to, helped offset seasonal losses. But if new brands were removed from the numbers, craft would be in modest decline for the year.
  • Things aren't improving in early 2017. Craft velocity in supermarkets is the slowest its been since 2014, the worst slowdown in the history of craft tracking.
There's a lot of speculation as to why we're seeing this apparent collapse. Everyone has an opinion, obviously, and there are bad guys, trolls and whipping boys lurking. I'll get to what I think it is a reasonable explanation momentarily. For now...

Bad hombre #: Marijuana, which is is growing like crazy where it's legal and, some believe, stealing share from beer. Wandel mentioned a survey that suggests legalized marijuana is leading to decreased alcohol consumption and, eventually, a 7 percent decline in beer industry revenue.

Bad hombre #2: Canned wine. Yep. There are now more than 30 varieties of wine available in cans and, per Wandel, they're selling like mad in supermarkets. Millennials apparently love the stuff. The wine hucksters even had the gall to advertise during the Super Bowl.

Bad hombre #3: Turbulence in the industry. Something like half of the top 25 craft breweries have experienced leadership changes over the course of the last two years. Hard to know the specifics of why that's happened, but some think it has destabilized the industry to some degree.

Bad hombre #4: Unsustainable numbers. When craft growth was consistently in the teens, it was up, up and away. But many people figured that kind of growth couldn't last forever. For one, it's tough to keep putting up such numbers once you reach a certain size. It becomes impossible.

As I said, everyone has an opinion. Many in the industry are grasping for answers, desperately wondering why craft beer is in a funk. This is big business, after all, with a lot of money involved. It's easy to understand why everyone demands answers.

I have a hard time buying most of the suggested answers. Marijuana is legal in a handful of states. It's sucking significant share from craft beer? Doubtful. Canned wine? Fine. It's selling. So are spirits. There's competition. Nothing new. Leadership upheaval? Exactly how is that causing sales to bomb? The unsustainable numbers argument is the only one that makes sense.

In fact, craft beer probably isn't in as much trouble as IRI (or Nielsen) stats suggest. Independent craft brewers will face serious challenges in grocery as AB expands its High End brands into new markets and pushes smaller brands out. But that project will take some time.

What's going on is that craft growth is happening outside the view of IRI, which mainly tracks sales in large national chains. More and more beer is being sold directly to consumers in breweries, pubs and taprooms. For the most part, IRI isn't getting a whiff of those numbers.

This altered model is a result of new breweries opening around the country. Local craft beer is more readily available than ever. Consumers who once bought craft beer in supermarkets now have other options. That change is causing an apparent drag on growth due to the way IRI data is collected.

How many more breweries can we support? Who knows? It isn't infinite. I think there's still room for smaller breweries targeting mostly local clientele. Distribution in grocery isn't going to be a viable option for most small breweries due to the power and reach of big beer.

For now, don't get too excited about stories announcing doomsday scenarios for craft beer. Most of those stories are based on data that's hopelessly obsolete. The industry faces challenges, for sure, but those challenges probably aren't quite what they appear to be.