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Friday, January 30, 2015

After the Buyout: Getting a Grip on the Elysian Deal

In the aftermath of last week's news regarding Elysian Brewing and Anheuser-Busch, the uproar has subsided. Maybe the distraction of the Super Bowl in the Northwest had something to do with that. But there have also been some thoughtful, insightful articles that have helped put the sale into perspective.

Probably the most well-reasoned article appeared on Brewbound, which conducted a candid interview with Elysian co-founders, Dick Cantwell, Joe Bisacca and David Buhler. Good stuff. And there's been some interesting stuff in the various industry newsletters, which I sometimes read via the pirate channel.

Some of the more juicy tidbits:

Red Zone
Now that they own Elysian, AB will push to integrate it at AB-owned, "red" branches wherever possible. That can be a messy business. Elysian is currently in 11 states outside Washington, distributed in many places by MillerCoors and indie craft outfits. Getting Elysian into red branches will be an interesting process to watch. Here in Portland, Elysian is distributed by Columbia. It will surely wind up at AB-owned Western (formerly Morgan) fairly soon. There will likely be a brand swap or cash payout involved in that. Should be fun to watch this play out.

Elysian had been a counter-culture icon in the Seattle market for 20 years. No one knows what will happen to the brand's rep in the city going forward. Seattle is the second-ranked craft market in the country. People are serious about their beer and fiercely independent in the Emerald City. Some retail outlets are dumping their Elysian inventory. Will the discord last? Will the damage be long-lasting? Stay tuned.

Money For Nothing
One of the things that came out in the Brewbound article is that Elysian's co-founders had some options as they looked to expand and solidify their business. They are anticipating 50 percent growth in 2015 and that was going to require a significant investment within a year or two. They could have chosen a private equity partner. But there was concern that private investors would be looking for a quick profit. In the end, they (Cantwell dissented) decided Anheuser-Busch provided more of what they wanted and needed, though other offers were (they say) higher.

Shelter from the Storm
Beyond the need to partner with someone who would be in the game for the long haul, Elysian wanted to insulate itself from what Bisacca describes in the Brewbound piece as, the coming "bloodbath" in craft beer. He thinks grocery and related stores have expanded their beer sets about as far as they can and that there will soon be a price war for shelf space. The idea of a shakeout is seldom discussed publicly in the industry, though it ought to be. Anyway, Elysian eventually decided that partnering with Anheuser-Busch is the best way to shield itself from the prospect of a coming storm. And maybe they're right.

Big Business
Calvin Coolidge famously said, "The business of America is business." Along those lines, there will be more buyouts like the one that just happened. Anheuser-Busch hopes to acquire a collection of craft brands which it will use to bolster its slipping position. It will do this in many areas by operating in two of the three regulatory tiers. That approach is only marginally legal and it isn't going to benefit craft beer as a whole. Only AB and the acquired breweries are likely beneficiaries.

I honestly wonder how many buyouts it will take for people to start thinking about craft brewers in the same way we think about other entrepreneurs. The goal of any business is to build a following and attain financial stability and success. It isn't a crime. In craft beer, the values used to build brands include small, locally owned, independent, artisan, etc. And craft breweries aggressively embrace those values...right up until the day they sell to Anheuser-Busch.

There are certainly brewers who are more committed to craft's spoken values than others. But the reality is that craft beer is a business, increasingly a mainstream, big business.  Maybe it's time for everyone to come to grips with that and move on.

Friday, January 23, 2015

Elysian is (Space) Dust in the Wind

Friday morning I was working on a piece based on the fact that recent industry newsletters seem to be crammed with stories involving litigation and legislation. That suggests craft beer is a maturing industry. Otherwise there wouldn't be a pool of money large enough to attract money grubbing attorneys and politicians. Then came news of the Elysian sale to Anheuser-Busch. Speak of the money-grubbing devil.

There's been a nice uproar. The buyout of 10 Barrel Brewing a while back and now Elysian underlines the point that craft beer has gone mainstream. Big beer isn't going to stand still while its market share plummets. They are going to throw money at the problem in the form of more acquisitions.

Of course, Anheuser-Busch could have decided to make decent beer a long time ago. But that's not what they're about. These people are ruthless cost cutters whose expertise lies mainly in vertical integration and bullying competitors with fancy marketing schemes and predatory pricing. Anyone who thinks the Elysian acquisition is part of some sort of goodwill effort to help the brewery meet its goals is delusional.

You have to take a step back to see what's going on. Anheuser-Busch has now acquired a controlling interest in several craft breweries...Goose Island, Blue Point, 10 Barrel, Elysian. They have a non-controlling interest in the Craft Brew Alliance, brewers of Widmer, Kona and Redhook. Although the most recent sellouts are in the Northwest, where craft is eating big beer's lunch, I think we'll see California and Colorado breweries in the AB mix soon.

The brewery buyouts are only part of the story. Anheuser-Busch is also buying up distributors wherever the law allows it. They bought Portland's Morgan Distributing a year ago, which then became affiliated with AB-owned Western of Eugene. They also own a distributor in Seattle, two in Kentucky and likely own or will soon own some in other states.

Owning breweries and distributors is an effort to vertically integrate the business. It is a clear violation of the three-tier laws implemented after Prohibition, but never mind. The loophole in the law that has allowed these predators to own brewers and distributors is self-distribution, which many states set up as a means of helping small breweries grow. How ironic.

We've already gotten a glimpse of how AB intends to use their ownership of craft breweries and distributors. They will offer respected brands at huge discounts to get tap handles and shelf space. We've already seen this in Oregon with Goose Island and AB's crafty Shock Top brand. The other day I heard they recently launched a similar program in Massachusetts.

The good news, if there is any, is there are legal and legislative efforts underway to stop these thugs. In Idaho, they passed a law allowing a brewery to hold a retail, wholesale or brewpub license only if it brews less than 30,000 barrels annually. This was March 2014. The intent of the bill was to prevent Anheuser-Busch from acquiring distributorships in the state. A court will soon decide if that law has any teeth.

Something similar is happening in Kentucky, where a proposed bill would close a loophole in the law that allows large brewers to operate distributors. As in Idaho, the intent of the bill is to prevent Anheuser-Busch from owning additional distributors in the state...it has operated one in Louisville for a number of years and recently acquired another in Owensboro.

Passage of the Kentucky bill is in jeopardy. Why? Because Teamsters believe AB provides better paying jobs than independents. It's difficult to comment on the merits of that claim without knowing all the facts. However, Teamsters in Kentucky and elsewhere ought to be wary of building any alliance with Anheuser-Busch, a cutthroat organization if ever there was one.

I'm hearing there's a movement afoot in Oregon to do something like what they did in Idaho and are attempting to do in Kentucky. What they will apparently attempt to do here is add a production cap to the qualification for a brewery license. There is no production cap under the current law, which has allowed Anheuser-Busch to buy and operate distributors here.

It's hard to know how these efforts will turn out. You can be sure Anheuser-Busch has hired an army of well-funded operatives to challenge any bill or court case that might stand in their way. But the acquisition of Elysian and the certainty of acquisitions to come underline the importance of doing something to slow these sharks down.

Tuesday, January 20, 2015

Hollywood Hot Lips Leans on Craft Beer

The evolving facade of Portland's craft beer scene got another face lift with the opening of Hot Lips Pizza in the Hollywood district. It's the sixth Hot Lips location and, for the record, they are getting more than a little serious about good beer. More about that shortly.

The Hollywood location opened just over a week ago in the space previously occupied (since 1937) by Pal's Shanty. Most locals know an arson fire gutted Pal's in late 2013. Although they had hoped to reopen, plans fell through and the space became available to Hot Lips.

For the unknowing, Hot Lips is a family-owned business that has been making and selling gourmet pizza since 1984. For most of that history, they have focused on molding a sustainable business model, with an emphasis on locally-sourced ingredients and production.

Many are familiar with Hot Lips sodas, which are sold at Hot Lips and at many grocery stores in the area. These beverages are made using locally grown fruit and they are terrific. One of the very real challenges for Hot Lips is making enough to meet the demand. That's how popular the stuff is.

Part of the reason the sodas were developed is that co-owner David Yudkin wanted to offer something more than just pizza. The sodas, made as they are from local fruits and related ingredients, were a nice fit for the sustainable model. Plus, they provide something tasty that appeals to patrons, always an important factor.

Similar logic is in play with the expanded beer selection at the Hollywood location. Hot Lips stores have always offered beer in recent times. But the new Hollywood store blown the standard approach up with 22 taps, almost all of which will pour craft beer. That's a significant sea change.

"What we've done in Hollywood is part of an evolution," Yudkin told me. "There's a huge and growing demand craft beer here and it makes good sense for us to cater to that demand. Beer and pizza are a legendary pairing, like peanut butter and jelly or sausage and mustard. Hollywood gave is the opportunity to build a wall of taps right into the restaurant. We went for it."

Of the 22 taps, only six or seven were pouring beer when I visited on their first day. It was a decent selection, but I suspect they have a full complement of beers by now. The lines run a CO2/nitro blend with regulators for each set of four taps (two of the 22 are strictly nitro). In addition to the draft stuff, they carry a selection of bottles and cans. Growler fills are available.

If the beer choices follow the overall Hot Lips theme, expect to see mostly Oregon beers on tap and in bottles here. Yudkin mentioned the possibility of bringing in some beers from outside the area, and maybe he will. But his intense focus on carbon footprints and sustainability almost surely mean the beer focus will be mostly local.

Keep in mind that Hot Lips operates a delivery service via its fleet of fuel efficient cars and that they will deliver beer with your pizza. That's a user-friendly arrangement. As well, the Hollywood beer model may well be applied elsewhere in Hot Lips family.

"Considering our goal of supporting our fellow local businesses, I think offering a broader variety of local craft beers at all of our locations is a logical next step," Yudkin said.

That makes perfect sense to me. Bring it on.

Thursday, January 15, 2015

Ninkasi Tells Anheuser-Busch to Take a Hike

Yesterday's news out of Eugene can't be sugarcoated. And I'm not talking about Marcus Mariota's decision to enter the NFL draft. Nope, I'm talking about Ninkasi announcing that it is severing ties with a pair of Anheuser-Busch branch distributors in Oregon and Washington.

In a statement, Ninkasi said it has signed on with independents Bigfoot Beverage of Eugene and Odom Corporation of Bellevue. Bigfoot will handle distribution of Ninkasi product throughout Downstate Oregon and Odom will handle Western Washington. That's a lot of beer. 

If you're wondering, Ninkasi will continue on with Maletis Beverage in the Portland area. Maletis is an independent AB distributor with a strong craft portfolio...a good place for Ninkasi to be, for sure.

The reasons for the change are easy enough to understand if you follow the industry. Ninkasi co-founder Nikos Ridge said the company is "committed to being an independent and locally-owned craft brewery, and we feel we will be better aligned long term with independent and locally-owned wholesalers."

That's actually a monumental understatement. Ninkasi will certainly be better off working through independent distributors. Their relationship with Anheuser-Busch had soured in recent times. Part of that is related to AB's acquisition of 10 Barrel Brewing a few months ago, and the knowledge that AB branch distributors focus most of their effort on brands they have equity in. Independents are like step-children and rented mules in the AB family.

But that's not all. I'm also hearing that AB brass quietly told Ninkasi they wanted a stake in the brewery if they were going to continue to distribute their product. This is all part of AB's ongoing effort to vertically integrate two of the three tiers in the beer business via ownership of distributors and breweries. It shouldn't be legal, but it is how they intend to recoup market share lost to independent craft brewers.

To their credit, Ninkasi told Anheuser-Busch to take a flying leap. Yesterday's statement merely served as their formal response to what's been going on. It must have felt really good to announce that Ninkasi won't be a pawn in what the AB mafia is doing. Locally-owned and independent is where Ninkasi wants to be, although it will soon launch in Utah via an AB house.

The timing of the announcement was not the best. Due to the widely publicized mash-up between Sierra Nevada and Lagunitas over a branding issue, Ninkasi's announcement received less coverage than it might have. But this was a big deal, make no mistake.  We can only hope it encourages other like-minded breweries to bail on AB branches.

Monday, January 12, 2015

The Irony of Jim Koch's Craft Beer Rant

I have to admit getting a kick out of seeing establishment types complaining about their lack of current success. Particularly when their lack of current success is fueled largely by their own refusal to accept the changing nature of their business.

Enter Jim Koch, founder of the Boston Beer Company. Koch helped launch the craft beer revolution when he founded the BBC in 1985. He's made more than a billion bucks on that enterprise, but he's frustrated by the changing nature of the industry today. Very frustrated.

Andy Crouch's story in the January issue of Boston Magazine describes Koch's reaction to the current craft beer scene. Upon entering a one of Boston's top-rated beer bars, Koch found not a single tap handle pouring Sam Adams. No bottles, ether. Not a drop of his beer in the bar.

Koch was incensed. He berated the owner and bar manager. According to Crouch, Koch's complaints were so intense that one employee was reduced to tears. The list, by the way, consisted mostly of specialty beers from around the country...the type of list you expect to find at respected beer bars everywhere, including here in Portland.

The basis of Koch's rage is the fact that young drinkers have turned away from Boston Beer in favor of beers with intense flavor profiles...hoppy, barrel-aged, sour, etc. Sam Adams beer, having attained mainstream status, is widely available in stores, but MIA in better beer bars. It just doesn't have traction with typically younger beer geeks who flock to those venues.

Clearly, the brands that started the craft revolution 30 years ago have been overrun by more aggressive styles and interpretations. In the same way that popular music, fashion and almost everything else has evolved (or devolved) over the years, so has craft beer. Out with the old, in with the new is a fact of life.

Don't get me wrong. Many of the early craft beers deserve recognition and respect. I have enjoyed revisiting some of Widmer's past beers, available as part of their 30 Beers for 30 Years series. Tasting these beers again is informative...suggesting where we once were and how far we've come. Times have obviously changed.

Koch's story reeks of irony. Here's a guy who capitalized on changing consumer tastes by offering an alternative to mass market lagers. He got rich along the way and Boston Beer remains America's top craft brewery. Yet here he is bitching about the fact that his beers have zero standing with today's beer fans who are looking for something new and exciting. Highly ironic.

There's more. To fill the hole caused by stagnating demand for its beers, Boston Beer has moved into other areas, quietly marketing the highly successful Angry Orchard cider and Twist Tea malt beverage. They have even entered the IPA fold, producing tepid beers that are no match for the aggressive and wildly popular West Coast styles of the moment.

Of course, it need not be this way. Koch, who owns all the voting shares in publicly held Boston Beer, could have pushed his company to evolve with the changing times by brewing IPAs and related styles that would compete with what smaller brewers are doing. But he didn't want to. Why? Because he personally doesn't like those beers. Seriously.

As Dirty Harry once quipped, "A man has got to know his limitations."

Wednesday, January 7, 2015

Fun and Games on Tap at Hawthorne Hophouse IPA Tasting

A lot of beer geek types traipse around town on beer tasting missions. You eventually get to the point where you identify with beer based on things that sometimes don't have all that much to do with how they taste. There's a comfort zone knowing what a beer is.

If you want to shake things up a bit, head on over to the Hawthorne Hophouse this month and participate in the blind IPA tasting they've got going on. You'll get to pick your choice as the top beer from among 12 on the tasting platter, all brewed in Oregon. The top overall choice will earn a place on their tap list for all of 2015.

This isn't the first time they've run this event. What's different this year is they aren't telling you which beer is which on the tray. In the past, patrons would pick their favorite from a tray in which they knew which beers were which. That's not the best way to do it if you want objective opinions because, as noted, voters can be swayed by names and labels.

The beers on the tray are some good ones, including the past two GABF gold medal winners in the American IPA category:
  • Barley Brown's Pallet Jack
  • Boneyard RPM
  • Breakside IPA
  • Crux Outcast
  • Double Mountain Hop Lava
  • Fort George Vortex
  • Gigantic IPA
  • Goodlife Descender
  • Hop Valley Alphadelic
  • Laurelwood Workhorse
  • Migration Luscious Lupulin
  • Ninkasi Total Domination
As I chewed through the tray of beers ($12 for the set), I was searching for familiar aromas and flavors. They weren't easy to find. The tiny taster glasses are not very good at spreading aroma. And the beers when initially delivered were too cold to provide full flavor. The key is to let the beers warm up and open up for a few minutes. Then you start to get a better bead on the flavors. Aroma remains a problem with these glasses.

I won't say which beer I chose. That's something I don't think they would normally share, but the barkeep told me which I had chosen and which ones I marked as being short on this or that. I was actually somewhat shocked by my pick (and what I didn't pick) because it's a beer I haven't had much faith in of late. Oh well. It's nothing to lose sleep over.

Check this little contest out for the rest of the month. When it's over they'll send you an email with the winning beer and, I assume, the list of beers by number so you'll know which one you chose. Good luck and good times.

Update: Please be advised that these folks are also running this tasting competition at their 15th Avenue location. That was not clear to me when I wrote the piece.

Monday, January 5, 2015

De Garde Sees Wild Success in Cowtown by the Sea

The January issue of BeerAdvocate is finally hitting mailboxes, as well as shelves in pubs and breweries. It contains a piece I wrote on de Garde Brewing of Tillamook, based on an early October visit. Things don't exactly move at the speed of light in the print publishing business.

When you think of Tillamook, you tend to think of a quiet coastal town that has a lot of cows and smells like it. Of course, there's more, including the Tillamook Cheese Factory, a popular destination for visitors. But the face of the town is changing and de Garde is part of that.

Linsey Hamacher and Trevor Rogers launched de Garde in 2013. Their wild ales attracted a following almost instantly. In the article, I discuss why they chose Tillamook, why their beers have been in short supply and why it was struggle to get the business off the ground..

Trevor and his coolship
As this issue of BeerAdvocate was going to press, I started seeing bottles of de Garde beer in local bottleshops. Belmont Station had quite a few cases by early December and still has some of that beer. That's good news for fans and a big change. Because de Garde beers were extremely hard to find for most of 2014.

The thing is, Trevor and Linsey tried their hand at limited distribution early on, That's what helped rev up interest in Portland and around the Northwest. But they had to pull back because they could barely make enough beer to meet the demand in their tasting room. When people drive to Tillamook hoping to buy your beer, you don't want to hang them out to dry.

Barrels occupy most of the space
Quick success can be hard to manage and you might say that's what happened with de Garde. Although Trevor and Linsey were sure there was unmet demand for barrel-aged wild beers, they had no idea their little brewery would be such a huge success so quickly. The big challenge was and is the time it takes for wild beer to reach maturity, a couple of years in some cases.

These guys surely would have been well-advised to produce time-intensive wild beers alongside a standard lineup, as they do at Russian River and other places. Funding would have been easier and profits would have come sooner. But the focus at de Garde, outside some forays into standard styles early on, has been wild beer.

The de Garde crew
Part of what has recently mended the gap between demand and production is time. Some of their stock is maturing. To address the demand for their beer going forward, they have added a couple of employees and increased their production capacity and space. But they intend to stay fairly small and have no plans to expand on a grand scale.

The elephant in the living room (not addressed in the article) is the future of wild beer. These beers have become wildly (haha) popular over a relatively short period of time. Some believe part of their appeal is that they are rare and expensive. Could it all come tumbling down? Time will tell. For now, joints that make decent wild beers are selling all they can produce.

There's a whole lot more about de Garde in the BeerAdvocate article, which you'll have to search out if you don't subscribe. I'm told the magazine's content will soon be available in some sort of online format, but that hasn't yet happened and I'm not sure when it will.

Update (4/16): The online version of the article is here, at last.