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Wednesday, October 7, 2015

No Safety in Numbers: Understanding the Buyouts

The recent announcement that Golden Road Brewing is being acquired by Anheuser-Busch raised some eyebrows, but didn't produce the flood of negative responses that we saw with 10 Barrel and Elysian buyouts. Like mass shootings, we're getting used to these things.

There were a number of comments made by Golden Road co-founder, Meg Gill, who got a fairly soft grilling by the media. Reading through the quotes, I began to gain a new perspective on why these buyouts are happening...and why they will continue to happen.

This isn't a situation where Gill is cashing out. Even though Golden Road was built to sell, as one article suggested, she isn't going anywhere. It also wasn't a scenario where they needed an infusion of capital to expand production. Golden Road has access to private equity capital.

It's quite clear that she was looking for security. She sees big advantages in being part of the AB family, which she describes as the "winning team in craft beer." There are decent reasons for this. Being on the team gives Golden Road access to a supply chain that will reduce production and packaging costs. The extensive AB distribution network factors in, as well. Gill described AB craft CEO Andy Goeler as a "brilliant marketer." Seriously.

Not to get too far afield, but I'm not sure I would describe anyone at AB as brilliant when it comes to craft beer marketing. Building craft brands isn't and hasn't been their claim to fame. They're mostly good at cutting costs through economies of scale and leveraging advantages built since the end of Prohibition. But never mind. Be my guest if you think these guys are brand builders.

In fact, it appears Gill decision to partner with AB may have been driven by the escalating craft brewery count. She sees an increasingly crowded marketplace where competition is getting brutal. She came to doubt Golden Road's ability to stay relevant in that environment on its own. So she phoned Anheuser-Busch, the only entity she deemed capable of providing the needed help.

Many assumed AB would target a California brewery this year. The surprise with Golden Road is its size...projected around 45,000 barrels this year. Most thought AB would go bigger. There's also the price. Experts believe they paid $100 million ($2,000 per barrel), significantly more than they are thought to have paid for 10 Barrel or Elysian.

But there's a method to AB's madness. They wanted a presence in the LA market. With this buy, they will own breweries in the nation's three largest metro areas...New York (Blue Point), Chicago (Goose Island) and LA (Golden Road). Add the top two craft beer cities to that list with Portland (10 Barrel) and Seattle (Elysian) and you've got a nice little collection. With more to come.

It may not have been on Gill's mind, but AB is leveraging its position in ways that go well beyond standard marketing. As discussed here in the past, the company is actively working to enable vertical integration of markets similar to what existed prior to Prohibition. Demolition of the three-tier system is part of that effort.

For now, this is happening primarily in states where the laws are flimsy. The Golden Road deal, once finalized, means Anheuser-Busch will operate in all three tiers (owning brewers, distributors and retailers) in California, Oregon and Washington. Only California, via the DOJ and state attorney general, is looking into AB's activities. Oregon and Washington are, so far, mum.

You really can't fault Meg Gill for selling Golden Road. I've seen a number of reports suggesting Golden Road's beers aren't that great. If you want to improve a mediocre product and push it out to an increasingly competitive market, maybe leaning on AB's distribution network and supply chain efficiencies is exactly the right move.

Given the state of craft beer, where new breweries continue to open virtually by the day, I expect to see more established breweries looking for ways to insulate themselves from the brutality of the marketplace. Selling to AB is one way to do that so there's no telling how many of these folks will wind up in the hands of big beer. To be continued...

Friday, October 2, 2015

Bale Breaker Brewing: Supplemental

The October issue of BeerAdvocate magazine includes my profile of Bale Breaker Brewing, which is located on a hops farm in the Yakima Valley. As is always the case, the published version of the story leaves out a few details that may be of interest here.

Bale Breaker opened in 2013, the creation of three siblings who grew up on Loftus Ranches hops farm, and another partner who married into the family. The kids had gone off in their own directions after high school and returned to the farm when it occurred to them that a craft brewery might go over well there.

More than a few people thought they were nuts. Even though the Yakima area produces hops that fuel brewers all over the world, rural areas like eastern Washington have been slow to catch the craft beer wave. Enough people in the industry told them they would fail that it caused a bit of self-doubt.

Nonetheless, they forged ahead. The team of Patrick Smith, Kevin Smith, Meghann Quinn and Kevin Quinn (married to Meghann, the sibling of Patrick and Kevin Smith) put together a business plan that included some interesting details.

The brewery would share ownership with the hops farm, but be operated as a separate business. They did not want either business to be tied to the success or failure of the other. As well, they did not want other craft brewers to see Bale Breaker as competition.

As it turned out, they needn't have worried about competition. Craft brewers don't operate like that and never saw Bale Breaker as competition. Keeping the businesses separate was mostly designed to insulate the successful hops business from the brewery, which might well fail.

Due to their rural location, many assumed Bale Breaker would focus on building their brand in the lucrative Seattle market. They rejected that thinking. Instead, they were determined to build their brand in the local area and expand out from there.

A few industry friends recommended that path. Kevin Quinn had worked in the franchise business and got a firsthand look at the problems associated with being spread out and not having a core market. He was convinced that they should start local and build from there.

Cans vs Draft 
It's pretty common for new craft breweries to focus on draft sales. Bale Breaker had other ideas. Early on, they decided their flagship beers (two brands) would be packaged in cans and that packaged product would be their main focus.

Looking out on the bar landscape, the Bale Breaker kids saw rotating tap handles as a dead end. A keg blows and something else goes on, no matter how fast the beer sold. They came to see shelf space in stores as the new permanent tap handles. If your beer moves, you keep your spot. Thus, filling cans is their priority, even if that means not filling kegs.

The proof is always in the results. Bale Breaker has been embraced by the rural community. The distributed beers, Top Cutter IPA and Field 41 Pale Ale, sell so well that they are challenged to keep up with demand...despite expanded production capacity.

If you're wondering, Bale Breaker beers are now available in most of Washington. Portland residents can find Top Cutter and Field 41 in many Vancouver stores and pubs. An in-progress expansion project at the brewery may allow them to tap Oregon in the next year or two. Hopefully.

The full story is in the BeerAdvocate piece. There's no online version, though you can buy the issue on Google Play if you don't subscribe and don't want to. Cheapskates will seek copies in local pubs.

Tuesday, September 29, 2015

Rentsch Tasked with Lifting Portland Brewing/Pyramid

One of the big challenges in craft beer today is staying relevant in a hyper-competitive marketplace. That reality has driven some breweries into the arms of big beer, hoping to tap the benefits of economies of scale. Of course, that's not an option open to all.

As I've suggested in prior posts, the need to appear relevant falls heaviest on established breweries that don't have the sex appeal of new kids on the block. It's an ironic twist of fate, I think, and also a fine example of the ADD beer culture that values and pursues anything new.

Two established Oregon breweries that have done a decent job of staying relevant with the beer crowd are Widmer and Deschutes. Even though they sell an enormous amount of beer in mainstream stores, both produce specialty and experimental beers that keep them relevant in the beer geek community. It's smart business.

The flip-side of that story is Portland Brewing, a nice example of an established brewery that has not migrated with the times. It sells a decent line of beers in grocery stores and, in fact, I would argue these beers represent some of the best values in the marketplace. But Portland Brewing and its parent/partner Pyramid have almost no standing when it comes to experimental and specialty brews. They are effectively irrelevant within the beer geek community.

Some brief history. Portland Brewing was founded in 1986 by Art Larrance, Fred Bowman and Jim Goodwin. It was the last of Portland's four founding breweries to open. The pub on Northwest Flanders was too small virtually from the outset and the brewery eventually moved to its current location in industrial Northwest in 1993.

Portland Brewing experienced financial distress early on. The founders sold common stock to finance expansion. Around the time they moved to new digs, local legend and investor Mac MacTarnahan gained control of the company. Yes, their most popular beer, McTarnahan's (the original spelling) Amber Ale, was named for him.

By the early 2000s, Mac was in failing health and so was the company. The MacTarnahan family, tired of financing a losing proposition, sold to Pyramid in 2004. Portland Brewing was soon rebranded as MacTarnahan's Brewing. In 2008, Pyramid was acquired by Magic Hat, which was itself acquired by North American Breweries in 2010. Then Costa Rica-based Florida Ice and Farm bought North American Breweries in 2012. Sensing the error of the MacTarnahan's branding, the parent company changed the name back to Portland Brewing in 2013.

Needless to say, heads have been spinning at Portland Brewing for years. The lack of ownership continuity may help explain the failure to follow industry trends and develop a portfolio beyond the standard beers. OLCC stats suggest they've been doing just fine with their beers and the pubs certainly make money. It appears no one was paying serious attention to the big picture.

Hoping to enhance recognition of the two brands, North American Breweries recently hired Robert Rentsch as general manager of Portland Brewing/Pyramid, a newly created role. Rentsch has a solid brand building background, most recently at the Craft Brew Alliance, where he drove the national expansion of Kona and helped launch Omission.

We talked over a beer the other day at the Portland pub. Rentsch has been on the job only a few weeks and isn't quite sure how he'll attack the challenge he took on because, "It seemed like the right opportunity at the right time." It's not that he was unhappy at the CBA. He just wanted to take full ownership in something, which is what this gig offers.

The press release announcing Rentsch's hiring is pretty vague. It talks about creating a localized, community-based approach and building on the heritage of Portland Brewing and Pyramid. That's all real nice, but I had to ask, "Where's the beef?"

"At this point, there isn't much to tell," Rentsch said. "I'm still evaluating things and developing a plan. I can say North American Breweries is committed to supporting the program we put together. Nothing will happen overnight, but I'm confident in the team here and our ability to build on what we have with the two brands."

It will definitely take time. They will have to create an aggressive specialty program, among other things. Portland Brewing doesn't have the means or dexterity to do that quickly. A fresh hop rendition of MacTarnahan's Ale at the pub was pretty lame. Pyramid does have a small batch series, and I've tasted a least one terrific beer from it. But that program is small and they will have to do a whole lot more in this area. To say nothing of the guerrilla marketing campaigns they will have to launch in support of the beers.

Rentsch knows he faces a big challenge. He apparently liked that about this role. In a community where new breweries open regularly and instantly attract the interest of the beer crowd, long-established brands are, he realizes, up against significant obstacles.

Whatever happens with Portland Brewing will be a work in progress. It ought to be interesting. Good luck to Rentsch and the crew there. I'll be circling back at some point.

Thursday, September 24, 2015

Zoiglhaus Hopes to Reboot Lents Neighborhood

Portland brewery and pub openings have become so commonplace that they're hardly worth reporting. These things tend to run together after a while. But all brewery openings aren't created equal. Now and then, a new one stands out.

Zoiglhaus Brewing, which opened this week in the Lents neighborhood, is an interesting case. The folks who run Pints Brewing in Old Town put this place together. In actual fact, the brewery isn't even installed yet. It'll be along in a month or so and in-house beers are likely two months away. At least.

Everything Zoiglhaus has on tap will be brewed at Pints until the brewery is ready. That's not such a bad thing. Brewer Alan Taylor has classic European training and his beers are solid. It's worth wondering how they were able to brew enough beer on the small Pints system to supply the beers for both joints. Taylor told me they brewed around the clock for weeks.

The pub itself is spacious, with abundant seating, a kids play area and some comfy sofas away from the buzz. The bar lives beneath a large skylight that bathes the area in light during daylight hours, giving the place a roomy feel you won't find in many brewpubs. There are several TVs hanging out, but this isn't a sports bar by any means.

The beers are Pints beers renamed for the Lents neighborhood. They could have possibly had some fun with those names, given the connection to the Felony Flats crime motif. Probably just as well they kept it subtle. Oh, the menu is a mix of traditional pub fare and authentic German cuisine. You won't confuse Zoiglhaus with Stammtisch, but it's a decent effort.

What this place is in terms of beer, food and ambiance isn't the most interesting thing about it. Nope. What's particularly interesting is where it is and why. This isn't exactly a posh area. The New Copper Penny and a number of other dives dot the landscape. It's a downtrodden land of shootings, stabbings and related crime. Maybe not the best place to open a new business.

In fact, the bombed out nature of the neighborhood is precisely why Zoiglhaus is here. The project, on the drawing board for several years now, is a partnership between the Portland Development Commission, Taylor and real estate developer Chad Rennaker. Taylor and Rennaker operate Pints and a brewpub in Albuquerque, New Mexico. There's more on that here.

The PDC believes a brewpub will help lift the fortunes of the Lents area. They're betting a pile of money on the project. Yep. The PDC invested more than half a million bucks to renovate the building and prepare the space for Zoiglhaus. Zoiglhaus partners have made a large investment, as well. Rennaker will reportedly invest in affordable housing nearby.

If things go as planned, the brewpub will help attract additional investment to the area. Why would the partners think that? Well, it's happened before. Brewpubs often act as community hubs that make areas or neighborhoods more attractive to businesses and families. In the end, that's what they've hoping for with Zoiglhaus.

So beyond the beer and the food and the ambiance, it will interesting to see what happens with Zoiglhaus. Will it help Lents climb out of the abyss?  We can only hope.

Sunday, September 20, 2015

Foyston's Follies and the Imploding Oregonian

John Foyston has left the Oregonian. Rather, he was shown the door over what the paper describes as a breach of journalistic ethics. Hmmm. I'm actually surprised to learn the Big O knows anything about journalistic ethics, but I'll get to that issue in due time.
Foyston foto

In a story published on the Oregon Live website the other day, editor Mark Katches explains why the paper cut ties with Foyston. It's a simple business, really. Foyston lifted passages from press releases and brewery websites and included them in posts without attribution. Very shoddy.

Not to get too far afield, but let me just say that what John did is fairly common among beer bloggers. We get a lot of press releases. Many who blog simply regurgitate these releases on their sites verbatim or with minimal change and without attribution. That's not to say it's okay. It isn't. But it's common.

I've actually talked about the fact that many bloggers are nothing more than shills for the industry. You write friendly stuff and you get free beer. Viola! It gets better. Some hacks write about breweries and events in which they have a financial interest as if they're objective observes. That's the virtual black hole of beer writing. But never mind.

I make no excuses for Foyston, And neither does he. In a Facebook post, he took responsibility for errors in judgement. There was a mitigating circumstance in the case of the piece that got him axed, but nothing excuses the pattern of lapses described by Katches.

In case you're wondering, and you should be wondering, I've known John for five or so years and consider him a friend. He's your prototypical nice guy and also a renaissance man,..a painter, writer, musician, motorcycle mechanic and more.

More to the point, Foyston is easily the most read beer writer in Portland. He built a following over the years by updating readers on the local scene and storytelling. John knows everyone in the industry and is much beloved, partly because he doesn't write critical pieces.

The riff between John and the Oregonian is bizarre. Sure he violated the rules of journalism, apparently more than once. But why sever ties with the area's most renowned beer writer? Why not issue a firm reprimand and move on?

The answer is simple enough. The Big O has been in deep decline for many years. As Jeff Alworth suggests in his take on this mess, out-of-state owners mostly botched efforts to join the digital revolution. With print in free fall, they have been hemorrhaging cash hand over fist.

As a result, they've been dumping senior level talent as a way to stay afloat. If you wonder why the paper's content is wafer thin, look no further than the fact that they no longer have the people to investigate and report. Talk about a lapse in journalistic integrity.

Foyston spent 28 years with the paper. He suffered the indignity of being demoted from staffer to free lancer as the Oregonian began to circle the drain a while ago. He bit the bullet and carried on. That's the kind of guy he is.

It wasn't a match made in heaven, that's for sure. For that last few years, Foyston has been writing blog posts and occasionally for print, essentially loaning his name and following to the Oregonian in exchange for next to nothing.

You might say dumping Foyston says a lot more about the paper than it says about him. The big shots probably think they have or can easily find someone who will write flashier copy and better click bait for the website and social media. That's the way of the digital world these days.

But you really can't replace a guy like Foyston. No one has his connections or his depth of knowledge. As one of my media friends quipped, "John's replacement won't even know which press releases to copy and paste." Pretty funny, but sadly true.

Foyston was one of the few bright spots at the Big O. His columns drew traffic to the clunky Oregon Live website and kept some reading the decrepit print version. Getting rid of him was a dumb move. He can write for anyone now and his readers will follow.

It won't take long for the paper to realize it needed John more than he needed them. But fading media outlets are prone to dumb moves like this. Oh well. Time moves on.

Monday, September 14, 2015

Sellouts and the Transformation of Craft Beer

Last week's news that a couple more craft breweries have been acquired by big beer caused shock waves throughout the industry. You'd think folks would be getting used to this kind of thing, but no such luck, apparently.

Some of the sharpest attacks were reserved for Lagunitas founder Tony Magee, who sold a 50 percent share in his company to Heineken. Many were offended by Magee's long-winded remarks justifying the deal and what it means for Lagunitas. By comparison, MillerCoors purchase of San Diego-based Saint Archer produced a fairly subdued response.

My view of these arrangements is simple. The Lagunitas deal looks mostly like an opportunity for the company to expand internationally. It may well be a prequel to a full sale to Heineken, but that remains to be seen. MillerCoors hadn't bought a craft brewer since 1988 and they want a piece of the action. No surprise.

Admittedly, I would have hated these agreements had they involved Anheuser-Busch. As noted countless times, I dislike them because they leverage their position via ruthless cost-cutting and through vertical integration of markets where they own breweries, distributors and retailers. None of that is okay with me, so I beat them up whenever possible. Heineken and MillerCoors aren't in the same league.

In my mind, the people bashing Tony Magee are doing so because they don't like his verbosity or how he does business. Many referenced the case he brought against Sierra Nevada involving Lagunitas IPA. Some incorrectly said he was trying to patent "IPA." Not so, He merely wanted to patent the typeface used on Lagunitas IPA. As most know, he subsequently dropped the case when people beat him up on social media. But never mind.

With respect to buyouts and partnerships, there will be more of them. Many more. Mass market lager is imploding and there's a lot of money out there looking for a place to go. And the most logical place for it to go is craft beer, which continues to see dramatic growth. This is not rocket science.

There's more, of course, Craft beer has gone faddy on us. Once upon a time, music fans hankered to be the first to see a new artist live or purchase a new release by this or that artist. Exclusivity was a badge of cool. In today's world, beer fans hanker to be the first to taste or own bottles of specialty beer. That exclusivity has been a boon for brewers, distributors and retailers.

It gets more complicated. We've reached the point where new breweries easily attract press and clientele, while established breweries are often relegated to secondary status. "New and cool," is the theme. Staying relevant in a scenario where you have new breweries opening all around you is tough. So I have been told by owners of established breweries who struggle with this reality.

In this warped environment, no one should be surprised when a craft brewery sells full or partial ownership to big beer. As Jason Notte said in a column last week, it's time to discard any pretense of idealism or integrity in craft beer. It doesn't exist. The fact is, each and every brewery is for sale to whomever has the cash to buy it.

Craft beer is big business. Nothing more, nothing less. Sooner or later, money changes everything.

Tuesday, September 8, 2015

Berryessa Brewing, Winters on Growth Trajectory

Getting out of Portland for a few days can be a worthwhile endeavor. The endless number of things going on constantly in the city creates a sort of numbness. A week in the rural, ag-heavy California gives you an entirely different perspective.

I've been to Winters several times and written about it here. My take on the town and the area changes slightly with each visit. That includes the brewery here, Berryessa Brewing, which has changed considerably since my first visit in 2013.

Let's start with the area. There's a ton of agriculture here. They grow nuts, fruit, rice, olives, and there's a fair amount of ranching, too. Like much of California, the area has suffered though severe drought conditions in recent years.

It's far from a desert, but that's where the area is headed if the rains don't return.  There were large wildfires this summer and last. It's dry and water is an issue. With surface water in short supply, many farmers are using well water to stay afloat. A 2014 study found that groundwater levels have declined dramatically throughout the state since 2008. The area around Winters is no exception.

Everyone seems to realize the wells aren't forever. Once you pump the wells dry and other water sources mostly vanish, then what? It's a question that hasn't been seriously addressed anywhere in the arid west, perhaps because the only answers are tough ones. I digress.

In fact, Winters has worked hard to become a destination community. The city wants to stay small while reaping the economic benefits provided by visitors. It's a viable strategy. The historic downtown area is charming, with artisan shops. That's in stark contrast to the rat race in nearby Vacaville, which is saturated with big box businesses. Including an In-N-Out Burger.

Berryessa Brewing fits nicely into Winters' plan. Craft breweries have a way of attracting people. The place opened in 2011 and has seen steady growth. When I first visited two years ago, I found a quaint tasting room with a few outside tables. Since then, they've expanded the seating area considerably and added food cart fare to address the need for on-site food.

It's a little hard to fathom, but Berryessa's tasting room is only open Friday-Sunday. That likely ties in with the theme of Winters as a destination. There are far more people cruising around looking for things to do or drink on weekends than during the week. The folks at Berryessa are maximizing their take per open hour based on traffic.

Their success wouldn't be possible if not for the beers, which are solid. Co-founder and brewmaster Chris Miller has built a nice following for his beers. He's known for hoppy beers, but he isn't strictly a hophead. He actually brews a wide variety of stuff. A lot of patrons wonder why Berryessa doesn't expand production and reach for a wider audience. It's a fair question given the extent to which this area is underserved.

But overly rapid growth can bring problems. Miller and his wife, Lori, have taken a gradualist approach, preferring moderate and controlled growth to something that might spin out of control and damage what they've built.

Chris recently discussed the pitfalls of fast growth with the Sacramento Bee. He apparently obsesses over the quality of his beer, probably the most common concern among brewers. Miller worries that distributing it too widely in retail packaging is a risky proposition because you don't know how the beer will be handled. A valid concern.

Nonetheless, Berryessa is moving forward with an effort to distribute a few of its beers in 16 oz cans and 22 oz bottles. I found no evidence of that in any of the stores here, but they were selling pre-filled 32 oz crowlers of several styles in the taproom. These things were being gobbled up by patrons and the idea makes good sense to me.

I'll be interested to see what's changed on my next trip to Winters. They just demolished part of a city block to make way for a new hotel. That's going to help make the area more attractive as a destination because the lack of lodging has been an issue. As for Berryessa, I have a feeling the brewery will be a big part of transition that's happening here.