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Monday, December 19, 2016

Bumps in the Road for Craft in 2016

As previously discussed here on more than one occasion, 2016 has been a tough year for craft beer. On the heels of several consecutive years of double-digit growth, there was a significant decline this year in the all-important retail channel.

Recent stats for grocery (in proprietary publications) show craft up just over 7 percent in dollars and 4 percent in volume for the year. The picture is worse for the 12 weeks through late November, which show dollar growth up less than 4 percent and volume under 2 percent.

There are reasons for everything, of course, and part of why craft is suffering in grocery is surely the brewery explosion. Local beer is more readily available to folks who didn't have easy access to it before. But that's only part of what's going on, I think.

Seasonal beers are another part of the story. Those beers are typically strong in retail and grocery stores between October and December. Not this year. Seasonals are down 8 percent for the year in multi channel retail, and down well over 9 percent in recent weeks.

The reality is that seasonals don't carry all that much weight these days. In our wacky craft beer world, "seasonal" is code for beer that is "old and tired." It's specialty beers consumers are chasing, beers that are rare and unique in some way. Tried and true seasonals are old hat.

Another pesky piece of the puzzle is imports, which have seen increased dollar and volume growth across all retail channels this year. That momentum accelerated throughout the year and reached double-digits in some retail channels over the last 90 days. Right where craft ought to be.

Could price differences be the reason for craft's decline and imports rise? Interesting idea. The average price per case (from a proprietary publication) of imports across a wide retail spectrum is about $30, compared to craft at about $36 per case.

I can't think of many mainstream imports I'd choose to buy instead of well-known crafts from places like Sierra Nevada and Deschutes. Even at a lower price point. I get that imports suggest more flavor and specialness than domestic macros. But most of the imports I see in grocery and convenience stores are seriously lacking.

If consumers really are turning to imports, maybe craft prices have gone too high. It's something I've wondered about since I saw six-pack prices at my local Fred Meyer pass through the $10 and $11 barriers. The notion of a $36 per case craft beer is pretty sketchy for non-sale beer. Seems low.

It's a pretty good bet that rising prices are a drag on craft growth. The gap between dollar and volume growth was fairly wide in recent years. Dollars stayed well ahead of volume because consumers accepted rising prices. But that's changing. The gap has narrowed, suggesting some (perhaps much) of current craft volume growth is fueled by discounting.

We face a lot of unknowns as we close out 2016 and move into the new year. That's as true of the beer industry as it is of the transition in Washington, D.C. Hang on.

Monday, December 12, 2016

The Trap of Large Scale Distribution

The Brewers Association recently announced that the US brewery count has surpassed 5,000. That's a new record, topping the previous high of around 4,100, set back in pre-Prohibition 1873. Most breweries were small in those days and we seem to be returning to that general theme.

Nonetheless, the bulk of the craft beer sold today is made by a few large breweries. No need to name names. These are mostly well-known brands that joined the craft movement long ago and have built strong followings via regional and national distribution.

If you've been reading along here, you know some of the larger craft breweries have been struggling of late. The stats are quite clear. It appears that, with a lot of breweries opening in places that never before had local beer, locals are buying local brands instead of national or regional ones. Go figure.

Improved access to local beer is actually a wonderful thing. And we aren't done, yet. Despite significant overcrowding in the retail sector, we haven't reached peak brewery count. There's still room for small breweries that target underserved local clientele. Seriously.

That applies even in Portland, which has (too) many breweries concentrated in and around the city core. My guess is some of those breweries will struggle in coming years. But there are still neighborhoods in the metro area that would proudly support a local brewery or brewpub.

What we don't have room for, I think, is breweries that enter the market with plans to extend their reach and profitability via large scale distribution. Stiff competition for limited retail shelf space and taphandles makes that an increasingly problematic strategy for most, though some have certainly succeeded.

That's why I find it odd that so many breweries, even relatively small ones, try to navigate the distribution angle. Sure, a bit of local distribution is good marketing. Being seen on store shelves can be good for business. But reaching beyond local distribution makes sense for only a few.

Industry sources tell me some Oregon breweries are reconsidering their commitment to extended distribution. These are breweries whose beers are distributed in Oregon and around the Northwest. They're starting to wonder if the strategy is worth the time, effort and investment.

It's a good question because distribution on that kind of scale is a different challenge than selling beer in your pub and in local retail channels. Once you cross the threshold into distribution outside your home market, you're walking into a brutal numbers game where the cost of entry is high and the margins are extremely low. Moving a lot of beer is just one piece of the puzzle.

Most who enter into serious distribution invest heavily in infrastructure. But that strategy also requires an ongoing investment in marketing and support. Besides good beer, you need a solid image and a viable marketing plan. And you need boots on the ground, folks who live in or travel to remote markets to create the buzz that generates brand recognition and sales.

I honestly don't understand why successful brewpubs, in particular, get caught up in the distribution gambit. It seems to me they would be well-advised to stay tightly focused on running their pubs well. That's where they get the greatest margin on their beer. Going deep locally typically offers a much better return than going wide regionally or nationally.

It's fair to wonder why, when faced with the reality of high entry costs, low margins and stiff competition, so many attempt to distribute beer outside their home markets. Possibly it's ego. Possibly owners and brewers experience success at home and assume they can and must duplicate it outside their area.

It often turns out to be a fool's errand and a trap. No offense to the mangled egos.

Monday, December 5, 2016

The End of an Error

Today marks the official anniversary of the end of Prohibition, the failed experiment that lasted far too long in the United States. We've made a lot of mistakes in our history and we continue to make them. But Prohibition was a disaster by almost every possible measure.

The end came on Dec. 5, 1933, when Utah (irony) became the thirty-sixth state to ratify the 21st Amendment, which repealed Prohibition. Recall that there were then 48 states and amending the Constitution required ratification by 36 of them.

People tend to forget that Oregon, which was the seventeenth state to ratify on Aug. 7, 1933, had been wallowing in Prohibition longer than many states. Statewide prohibition was approved by voters in the 1914 election and went into effect on Jan.1, 2016.

In fact, prohibition was largely a rural phenomenon. Portland and Multnomah County narrowly approved statewide prohibition in 1914. By the time Oregon voted on national Prohibition in November 2016, those same folks had seen enough and rejected it by nearly 10,000 votes. But rural Oregon went the other way and national Prohibition arrived on Jan. 16, 1920.

The stench of the Prohibition era rubbed off fully in Oregon. Most breweries closed. Those that remained converted to sodas, syrups and near beer. But beer was never the problem. The problem was liquor. During Prohibition times, that included local moonshine as well as whiskey brought in from Canada via speedboats up the Columbia River.

There was little interference with the movement of contraband. Portland became a hub for liquor distribution, supplying establishments that consumed vast amounts of alcohol, often with the knowledge of paid off local police. Some speakeasies were paying $100,000 a month for police protection. When they did conduct raids, police typically targeted small time operators who couldn't afford protection. Confiscated liquor often found its way into the hands of high ranking officers and city officials. As was the case in many cities, Portland never accepted Prohibition.

Most Americans knew by the late 1920s that the grand experiment was not working. Corruption was everywhere, infesting public and private institutions. Gangland killings were a regular occurrence. To many, prohibition laws appeared to be unenforceable. Still, the end didn't come as soon as many hoped and expected.

Anticipating repeal of the 18th Amendment, Portland's largest breweries, Henry Weinhard and Portland Brewing, merged in 1928. Arnold Blitz, owner of Portland Brewing, was named president of newly formed Blitz-Weinhard Brewing. The company had jumped the gun on the end of Prohibition by five years.

In the end, it was the Great Depression that finally tipped the balance in favor of repeal. In tough times, Americans decided the country needed the economic stimulus provided by legalizing the manufacture and sale of alcohol more than they needed to continue on with a failed law.

Franklin Roosevelt, running on a wet platform in 1932, won all but six states and beat Herbert Hoover 472-59 in the Electoral College. In Oregon, Roosevelt won by 75,000 votes out of 350,000 cast. Just as important, Oregonians voted to repeal state prohibition by 70,000 votes. Multnomah County accounted for 40,000 of those votes.

Although the end didn't officially come until Utah ratified the 21st Amendment, more immediate relief arrived in the from of the Cullen Bill, passed by Congress and signed by Roosevelt in late March 1933. The law legalized the production and sale of low alcohol (3.2% ABV) beer and wine and took effect on April 7, 1933...fondly referred to today as National Beer Day.

In Portland, brewers were woefully unprepared to meet the expected demand on Beer Day. Congress and Roosevelt had given them just two weeks to ramp up production and it wasn't enough. As a result, thirsty Portlanders consumed every available drop of beer. Blitz-Weinhard, tapped out completely, was unable to fill orders for two weeks.

Most of this story is lifted from Portland Beer. One thing I don't address in the book is why Prohibition failed. The main reason, I think, is that it's difficult to legislate and enforce morality. The other is Americans like to drink and most of them didn't stop drinking during Prohibition. They simply ignored the law, which led to a lot of arguably more serious problems.

Sunday, November 27, 2016

The Escalating Obsession with Rarity

With the passing of Thanksgiving, we have more or less officially entered the holiday season. It can be an awkward time of year. But we also know it's a time when many fine beverages will be consumed and shared. Something to look forward to.

What folks will be drinking and sharing is another matter. As Aaron Goldfarb's a recent article in Punch suggests, tastes are increasingly driven by rarity and extreme presentations. We have reached the point where a beer isn't likely to be considered great unless it's rare and racy.

This aligns with what we've seen in recent years, as rare, high-priced beers have established a strong presence in beer shops and many premium grocery stores. Total beer inventories have been rising, but a lot of old standards we used to know and love are gone, displaced by specialty beers.

That trend is a good reflection of the actual beer world. Fans chase rare and crazy stuff and want to be seen drinking it. They aren't going to show up at a bottleshare or similar gathering packing something that's readily available and moderately priced. Perish the thought.

In effect, we've achieved stratification in beer. That may not have been inevitable, but it was the logical result of the growing popularity of craft beer and the rise of super fans in recent years. While the brewery count was exploding, so was the demand for special beers. Examples include barrel-aged, fruit-infused, wild and even ultra hoppy beers.

Meanwhile, many of yesterday's best beers are forgotten. Even if they're still good and highly drinkable, they're too common and made in breweries that are far too big. As Goldfarb says, "There’s nothing 'cool' about [those beers] —no remote brewery to travel to, no can release to line up for, no rarely-seen, iconoclastic brewer to idolize."

Retailers have contributed to what's happening and it's hard to blame them. If you're a retailer, your prime directive is to maximize return per square foot. It's easier to do that with high priced specialty beers than it is if you're selling mainstream craft beer in any form. Breweries have jumped on the bandwagon, as well, offering specialty beers via spendy fan clubs.

Festivals have piled on, too. They strive to offer as many one-off, arguably rare and often extreme beers as they can. Organizers fully realize potential patrons are more likely to attend and pay premium admission prices if they think they're getting something unique, as opposed to tastes of broken down standards.

I tend to look for historic parallels in these trends and there's a feasible one here. As I was reminded while watching the Soundbreaking series on OPB, 45 rpm singles became highly unfashionable once LPs became the artistic standard in the late 1960s. I think we're seeing something similar to that in craft beer, as speciality beers push old, uncool standards into the background.

The trend is supported by a lot of the data we're seeing, data that generally shows many older, larger breweries losing momentum while many newer, smaller breweries gain share. Some of that is probably more closely related to the image new places are selling than the beer, but never mind. Rare and arguably innovative is the current cool.

Where does this lead? I have no idea and I don't think anyone else does, either. Some say beer is simply becoming more like wine. Maybe so. But there's also a chance this is an unsustainable, generational fad that won't last. We shall see.

Wednesday, November 16, 2016

Lompoc Rolls With Changes at 20

Lompoc Brewing is turning 20. In case you aren't aware, Lompoc was one of the second wave of craft breweries that launched here in the mid-1990s. While some are no longer around, Lompoc has rolled with the punches and continues to carve out a successful path.

Jerry Fechter and Bryan Keilty
They'll be celebrating two decades in December with Zwanzig Fest, a week-long lineup of special events at Lompoc’s five pubs (Zwanzig means 20 in German). Several local brewers and writers, including yours truly, helped brew their anniversary beer, Zwanzig, a bitter Märzen ale.

Purests know authentic Märzen is a lager, not an ale. Never mind. This particular beer is a tip of the hat to Lompoc's first beer, Erst Ale. It will be pale orange in color with a mildly malty body. Eight hop additions ought to give it plenty of aroma, flavor and bitterness.

If craft beer newbies aren't particularly familiar with Lompoc, there's a reason. Which is that, despite operating out of several locations, they have been somewhat obscured by Portland's brewery explosion. When owner Jerry Fechter opened New Old Lompoc in late 1996, there were only a handful of competing breweries.

The story is fairly well-known and is briefly retold in Portland Beer. Fechter had worked at Old Lompoc Brewing in Northwest Portland for several years. The beers were decent, but he felt the food should be better. The lease was always an issue. When the owners negotiated a three-year renewal, Fechter saw an opening and inquired about buying the business during a round of golf.

Soon enough, the owners came back with a number. It was a number Fechter thought he could manage. But as he looked at what needed to be done to move in the direction he wanted, it became apparent that an investor would be needed. Enter legendary publican, Don Younger.

"I had enjoyed beers with Don," Fechter recalls, "but I didn't really know him. A guy at Belmont Station, then next to the Horse Brass on Southeast Belmont, told me Don might be interested in my project. He spoke to Don. The next day, my phone rang. It was Younger."

The call led to a couple months of drinking and discussion, trying to figure out how a partnership might work. Eventually, they hammered out an agreement. Younger became a partner in the business, but stayed mostly in the background while Fechter managed day-to-day operations.

"We knew the food needed to be better," Fechter recalls. "That meant a hood and an improved kitchen. We also realized there was unutilized space in back where we could put a patio. So we built a nice patio, which was busy and a hidden gem in Northwest Portland for many years.

By the time Younger passed away in 2011, he and Fechter had opened additional locations...the Fifth Quadrant, Sidebar and Hedge House. Fechter had also partnered with publican Jim Parker on Oaks Bottom Public House. Today, Fechter operates those locations, as well as Lompoc Tavern, which replaced the original Lompoc pub on Northwest 23rd after it was demolished.

The pub and beer business is a more challenging enterprise these days. You can't get by with a few standard beers and an occasional seasonal. You need seasonals and specialty beers all the time to keep up with all the new places coming online. Head brewer Bryan Keilty is constantly working to develop unique recipes and approaches.

"We know relevance is a challenge with so many new breweries opening," Keilty says. "The attraction of new places isn't new and it doesn't bother us. It just means we need to stay on top of our menu and work to build and maintain a solid beer lineup. That's our focus."

Packaged product is another matter. Lompoc has a handful of bottled beers in distribution via Maletis Beverage. That was strictly 22 oz bombers until last summer, when they launched C-Note and Pampelmousse IPA in 12 oz six-packs. Cans of something may be on the way.

"The strategy with bottles is marketing, getting our name in front of consumers," Fechter says. "That's the main reason we do packaged product. When we saw bomber sales slowing, we launched six-packs. The next step might be cans, but distribution will never be a big part of what we do."

Fechter's thinking is well-informed. He knows the best margin on his beer is in his pubs. Why play the distribution game where the profit per bottle, gallon or keg is small? With retail space getting crowded, some regional and national craft brands are getting squeezed. Meanwhile, a lot of smaller breweries are doing fine. Small and local is a good place to be.

After 20 years in an increasingly competitive business, it's clear enough that Fechter and his team have figured out how to successfully navigate changing times. Congrats on the milestone, folks. See you at Zwanzig Fest.

Thursday, November 10, 2016

The Myth of Poor Craft Growth

As I mentioned in last week's piece, and as many who follow the industry know, it's not been a stellar year for beer. We've been seeing some pretty low growth numbers since before summer and there's no clear evidence that things have improved. But it's not all gloom and doom.

Oregon Barrel Volume Growth
A big part of what's happening in the overall industry is that light beer is imploding. Bud Light sales were down 4% for Q3 (July-September). Bud Light is just one of many premium and sub-premium brands losing steam. That lost volume is a huge drag on the industry as a whole. Thus, the funk.

The craft segment is also underperforming, with single digit growth on the year. That wouldn't cause alarm if growth in recent years hadn't been in high double digits. When you're accustomed to year-over-year growth numbers like that, slower growth causes concern and, in some quarters, panic.

Despite the sluggish growth year, things probably aren't as dire for craft beer as some of us have been led to believe. We may be approaching saturation in some areas, but the overall health of the industry is pretty good.

The above chart shows some Oregon breweries that are doing quite well here. As with the negative numbers chart below, these are August 2015 to August 2016 OLCC numbers, provided by a helpful assistant who does quarterly spreadsheets. My disclaimer, as always, is that OLCC numbers are hopelessly incomplete and useful only as a guide to trends.

The list is comprised mostly of newer breweries formed within the last 10 years. These are brands that have flourished in recent times. Their beers have won awards and fans. Even 10 Barrel, which has unfair advantages over independent craft brewers, has produced some notable beers and continues to attract a following despite its ownership situation.

Now look at the chart below. These are the breweries showing the largest negative numbers over the same period. Three of the five are older, established breweries. The developing trend in Oregon is that younger, vibrant brands are taking share from long-established ones. Why? Likely because consumers, when they have a choice, prefer beer made in newer, typically smaller breweries.

Oregon Barrel Volume Decline
The same trend appears to be gaining traction around the country. Small, local breweries are opening everywhere..the craft brewery count is now around 4,500. A lot of the new kids are taking share from established craft breweries, as well as from big beer. We are seeing this trend documented in IRI losses for older craft brands and big beer.

So why are craft growth numbers sluggish this year? Probably because small brewery volumes aren't being fully captured in IRI stats. Why? Because an increasing amount of beer is being sold in breweries or at growler fill stations, pubs, beer beers and others places outside IRI view. It will take improved data collection to see the full extent of what's happening.

For now, don't get too caught up in the notion that craft growth is faltering. A saturation point is coming. But we're not there, yet.

Thursday, November 3, 2016

Looking for Scapegoats in a Flat Growth Year

In a year when beer volumes are flat or declining across the board, everyone is looking for answers. But particularly Anheuser-Busch, which is spending millions on advertising and craft brewery buyouts in an effort to stem a rising tide of losses. Unsuccessfully.

AB, which today announced that it is acquiring Texas-based Karbach Brewing, earlier reported that Bud Light had the worst quarter of the year, with sales down nearly 4%. Overall AB shipments were down 2.5% for Q3. These are significant hits.

AB isn't alone. Many brands are taking a beating this year, including some craft brands. In Oregon, a year-to-year comparison of OLCC stats shows significant declines for several well-known breweries (see chart below). The Craft Brew Alliance, whose numbers strangely aren't part of OLCC stats, just reported that Widmer and Redhook are both down over 20 percent for the third quarter. Yikes!

But never mind what's happening in craft beer. The craft marketplace is getting increasingly crowded and complicated. That's a separate discussion. Anyway, what's happening to big beer is far more interesting and entertaining. Because, aside from buying up craft breweries, their game plan hasn't changed that much. And it isn't working.

One of AB's biggest bets this and every year is the NFL. The reality of our times, which features DVRs and plentiful viewing options, is that live sports programming is the last vestige of TV advertising. And the NFL has been the king of live sports for decades. Anheuser-Busch has been tapping that lifeline with ad dollars for years, and continues to do so.

This year, AB's "Official Beer Sponsor" arrangement allowed it to release team-themed Bud Light cans for 28 of the 32 teams. You've seen these things in stores, of course. Here in the Northwest, we're mostly seeing Seahawks cans. Elsewhere, cans are similarly market-appropriate.

OLCC Stats
August 2015-August 2016 (taxable barrels)
But the cans campaign isn't panning out. In fact, it's apparently working in reverse because Bud Light is in virtual free fall right now. That naturally conjures up questions about why. When you spend big bucks on sponsorships and marketing campaigns, you expect results.

It turns out NFL ratings, like Bud Light numbers, are in the tank. Overall NFL ratings are down 12 percent for the season.  Ratings for Monday Night Football, sporting a new play-by-play guy thanks to the exit of Mike Tirico, are down 24 percent. ESPN, which aires MNF, lost more than 600,000 subscribers in October, its worst month on record.

What's up with ratings? It depends on who you ask. Some suspects are poor play, crappy games, too many ads, player antics, election year noise, national anthem protests, etc. The most persuasive argument for me is that younger fans who play fantasy football track player stats on their smartphones don't get their NFL fix the traditional way...and don't show up in ratings.

Exactly how lower NFL ratings and beer consumption are related is unclear. If folks of beer drinking age aren't watching games on the tube, there may be some correlation between slumping ratings and the decline in Bud Light sales. But everyone needs to stop and recall that a number of established brands with no connection to the NFL are facing challenges this year.

In a flat year, it's tough to see what's driving things. AB's team can campaign may get better traction through the end of the year. It was just getting underway in Q3. Bud Light numbers and NFL ratings may also bounce back as we enter the holidays and the stretch run of the season.

So there's no need to look for scapegoats, yet. We'll get there.

Friday, October 28, 2016

Folks Celebrate Fifty Amazing Years Together

I held my one and only bar job 41 years ago. It was a summer gig at the Rathskeller Inn in Coeur d'Alene after my freshman year of college. I've written about that experience and some of the characters I worked with there here.
On their wedding day (middle)

It wasn't a job I sought. My mom got me the job. Actually, she got me two jobs that summer. The first was a part-time groundskeeper gig at a golf course. When it became clear that the golf course was a poor fit, she found me a second job at the Rathskeller. "Bartending isn't a bad skill to have in this economy," she told me. Still holds true, I think.

Let me back up. I did not grow up in Coeur d'Alene. I grew up 100 or so miles away in Clarkston, Wash. My parents divorced when I was in fourth grade and my mom moved to North Idaho. I visited Coeur d'Alene off and on as a kid, mostly during summers and other school breaks.

Possibly because it wasn't where I lived, my times in Coeur d'Alene were often a hoot. My mom had married, Lyle, a jovial gent who enjoyed good times in the great outdoors. In those early days, he took me on countless fishing trips and related adventures around the area.

One such adventure came at Fernan Lake, east of downtown Coeur d'Alene and rumored to be full of largemouth bass. We got not a single bite for an afternoon of fishing. As we were taking our little boat out of the water, Lyle handed me the small outboard motor. The rubber sleeve on the handle slipped off and the motor plunged into the lake. "Shit!" we yelled in unison. Momentarily, Lyle dove in and managed to retrieve the motor. Which had been borrowed. Fortunately, it apparently worked fine when the owner next used it.

Lyle and I became avid spear fishermen. We learned Scuba diving the summer after I graduated from high school. Later, on a trip to Kauai, we entered a dive shop and inquired about renting spearfishing gear. No dice. After Lyle became a triathlete, we sometimes cycled together. No ride was more exciting than the time we rounded a corner in a semi-remote area and witnessed some locals sighting in a tripod-mounted machine gun. It was nearly deer season in North Idaho, I guessed.

Somewhere along the way, the folks purchased Dry Rot, a World War II-era cabin cruiser (think SS Minnow) with a top speed of about 7 mph and whose main amenity appeared to be an on-board toilet. But never mind. We putted around the lake on summer evenings, drinking adult pops (I may have fudged the 19-year-old drinking age), listening to 8-Track tapes and enjoying the scenery. We once rescued some poor souls whose motor had conked out long after dark.

For many years, the folks operated Lyle's Salon and School of Hair Design in Coeur d'Alene. The place was a beehive. They worked long hours six days a week. While Lyle taught students in the school and worked in the salon, mom ran the business and managed the financials. Later, they opened several branch operations. I have no idea how they did it while also making time for their own two kids and countless other activities.

While Lyle stayed in the hair business and continues to work a light schedule to this day, mom moved to healthcare some 35 years ago. She had been working on a degree at Northwestern when she met my dad back in the day, and a good many of those credits transferred. After completing her training and certifications, she worked in Coeur d'Alene and Spokane hospitals until she retired a few years ago. Nothing she couldn't do.

The folks lived in a bunch of cool abodes. For a number of years, they occupied a spectacular home with a pool and numerous amenities near Fernan Lake. As things slowed down and they needed less space and upkeep, they downsized to a gated community condo a minute or two from Lyle's shop in Coeur d'Alene. More recently, they moved to a similar situation in nearby Liberty Lake, Wash., which is where they remain today.

Needless to say, there's been a lot of water under the bridge since my mom got me that first and only bar job back in 1975. My wife and I shared a number of vacations with the folks...Kauai, Whistler, Seattle, Sunriver, come instantly to mind. A lot of beer, wine and adult beverages were consumed on those junkets, trust me. Things have slowed down in recent years, mostly because we and they aren't quite as spry or mobile as we once were. But the memories live on.

This probably isn't the best place to mention any of this. But these folks who have meant so much to me for so many years celebrate 50 years of marriage this weekend. I'll be traveling to the 509 to honor that stupendous number and the adventures sandwiched within it.

Cheers to 50 fine years, folks! Amazing.

Sunday, October 23, 2016

Craft Beer's Big Squeeze

You look out on the craft beer landscape and you wonder where it's headed. The number of new breweries continues to rise, apparently unabated. We see big beer in the form of Anheuser-Busch, MillerCoors and others buying up or investing in craft breweries. What's the prognosis?

Seeing through the fog is be a tough assignment. To a great extent, the exorbitant amount of money flowing into the industry has helped create an aura of invincibility, the idea that the high growth of recent years is sustainable into the foreseeable future.

In actual fact, beer sales in the United States have been declining for years. Even as the population has grown, beer has lost ground. Overall beer sales dipped again last year, says the Brewers Association, even as craft brewers recorded double-digit gains.

Positive craft beer vibes have made it relatively easy to open new breweries. Unlike the old days, when breweries were seen as high risk investments, cash is plentiful today. In an industry where the average brewer often makes a skimpy living, opening your own brewery is an attractive and viable option. That's why we have more than 4,600 breweries, with another 2,200 planned.

Largely as a result of the escalating brewery count, more and more Americans have been exposed to good local beers. And enough folks like that beer that they've moved away from macro lagers, which aren't local and aren't very good if you want something with flavor and character.

Big beer watched this situation develop with a scowl. With macro sales in free fall and craft numbers exploding, they eventually shifted their focus to acquiring craft breweries. They might have chosen to make better beer, but that was outside their wheelhouse. Acquisitions are more their style.

Today, we are confronted by a situation in which established craft breweries are being squeezed from above and below. Smaller breweries are converting beer fans to local product, stealing share from big beer and from large craft breweries. Big beer is fighting back by buying craft breweries and using advantages in distribution and efficiency to take share mostly from large craft breweries.

We're seeing evidence of this in IRI reports showing significant share losses for established breweries, including Sierra Nevada and others. Then there was the announcement that Stone Brewing, one of craft's best-known brands, is laying off 5% of its employees. Even the layoffs at the CBA's Woodinville facility are related to pressures in the market.

There are those who think we've reached overcapacity...too many breweries producing too much beer for a shrinking market. There's probably some truth to that nationally, where giant craft breweries and those acquired by big beer are producing a glut of beer.

But overcapacity isn't much of an issue for small brewers in underserved areas, and there are still plenty of places like that. That's why new breweries continue to open and why more are planned, though maybe it's not such a good idea to open in saturated markets like Portland.

The pressure on established brewers is going to increase. Many who once bought Sierra Nevada, Deschutes and others are being converted to local brands. At the other end of the spectrum, big beer is implementing strategies designed to leach share from established, independent brands.

Where this leads, we don't quite know. But craft beer's big squeeze is on.

Wednesday, October 12, 2016

Consolidation 101 at Woodinville Brewery

If you follow happenings in and around the beer industry, you likely know the Craft Brew Alliance recently laid off about half of the production staff at its Woodinville brewery. It's an unfortunate development, but also related to the CBA's evolution.

Earlier this year, the CBA entered into a contract brewing arrangement with Pabst at the old Redhook brewery. Pabst, which planned to brew Rainier Pale Mountain Ale and some other brands in Woodinville, has an option to purchase the brewery within three years.

Back up a bit. The need to lease the brewery was activated for good reason. First, expansion (to 750,000 barrels/year) and modernization of the Portland facility means more CBA brands will be brewed there. Second, an expanded deal with Anheuser-Busch means some CBA beers, up to 300,000 barrels a year, will be brewed at AB factory breweries.

The plan was for Pabst to soak up production capacity as the CBA shifted its own production to Portland and elsewhere. The Woodinville brewery, somewhat antiquated with a capacity of about 250,000 barrels a year, continues to produce a few CBA brands, including all Redhook and Widmer 22 oz bombers. But those numbers are declining.

And Pabst has failed to fill the capacity vacated by departing CBA brands. Reports say the brewery was running at 30 percent of capacity. That's what forced the layoffs. This was obviously not a desired outcome for the CBA, which hoped Pabst would do well and eventually purchase the old brewery. It's stock price has dipped slightly in recent weeks in response.

Inquiring minds may wonder why Pabst, which owns a number of "heritage" brands, has failed to use more of the available production capacity in Woodinville. The answer is simple. Except for Mountain Ale and Not Your Daddy's Root Beer, most Pabst brands are brewed at MillerCoors plants. That's apparently something Pabst can't or won't change in the near term.

Mountain Ale, released last spring, is based on a pre-prohibition ale. It's darker than you might expect, but a serviceable beer that's roughly on par with lower end craft brands. If Mountain Ale isn't moving as Pabst hoped, perhaps they should consider the price...currently $11.99 (on sale) at my local Fred Meyer. That's for a six-pack of 16 oz bottles. Neither the 16 oz bottles nor the price make sense to me, but never mind.

For its part, the CBA brass, shareholders and Woodinville employees are hoping things turn around for Pabst. Because if Pabst doesn't morph into an eligible buyer, the CBA has limited options with a property whose size and efficiency are problematic. The most likely scenario if nothing changes is closure, in which case the jobs and investment there will simply be lost.

This chain of events was set in motion by consolidation. The CBA initiated the arrangement with Pabst in anticipation of an impending deal with Anheuser-Busch, as well as its own expansion. The big idea is consolidation of CBA production in larger, more efficient breweries. Once that happened, the Woodinville brewery was expendable and subject to closure or sale.

Give the CBA credit. They took a flyer on Pabst, hoping (perhaps praying) things would work out and that the brewery would eventually be purchased and the jobs there transitioned to Pabst. They almost certainly knew or should have known that the chances of that happening were sketchy. But there was at least a chance.

This is how consolidation works, folks. When brewers get so large that they move production to huge, largely automated factory breweries, jobs at smaller, less efficient facilities are lost. What's happening at Woodinville is Consolidation 101.

Tuesday, October 4, 2016

Hop Valley: Another Distribution Trainwreck

Brewery buyouts tend to create a splash of media attention when they happen. Most of that attention centers on how the acquired brands will boost market share and profitability. The point that's often missed is how messy these things can be on the distribution side.

One of the memorable trainwrecks in this regard was Anheuser-Busch's acquisition of 10 Barrel a couple of years back. The boys at AB wanted to align 10 Barrel with AB-owned Western in Portland. But the franchise rights here were owned by Maletis, an independent AB house.

Maletis was reluctant to offload the rights to 10 Barrel. And thanks to Oregon's stiff franchise laws, they were under no obligation to transfer the rights without appropriate compensation. That led to comical posturing on the part of Anheuser-Busch, which preferred sticks to carrots. The rights were eventually transferred, apparently via the transfer of brands, not cash.

Now we've got another trainwreck in the making, and Maletis is once again involved. This time, the conflict is with MillerCoors, which recently bought Hop Valley Brewing. The MC folks want to align Hop Valley with Columbia Distributing in the Portland area. Columbia, a MC house, distributes Hop Valley throughout Oregon and Washington. But not in Portland, where Maletis owns those rights.

As was the case with 10 Barrel, Maletis has been reluctant to discuss turning the Hop Valley rights over to Columbia. This is especially ironic given what happened when Seattle's Elysian was acquired by AB in early 2015. Columbia, which owned Elysian's rights, sold them to Maletis and AB-owned Western. Now Maletis balks with Hop Valley.

There are reasons for everything, of course. Maletis will eventually turn over the Hop Valley rights. But they'll have to be fairly compensated. The rub is that Hop Valley has been growing wildly since launching a production brewery about two years ago. It is currently the fourth ranked brewery in Oregon, according to admittedly sketchy OLCC stats.

It isn't hard to understand why Maletis is driving a hard bargain with Hop Valley. Elysian isn't part of OLCC stats. If they were, those stats would show that Elysian's numbers are well below Hop Valley's. In the case of Elysian, Columbia wasn't giving up something of huge monetary value, which is what Maletis will be doing when it transfers Hop Valley's rights.

One of my industry contacts says Columbia may have to write a check and trade a brand or brands to acquire Hop Valley's rights. I suspect he's right. But this trainwreck is yet another example of the issues that are coming into play more and more often as big beer lurches into craft space.

Thursday, September 29, 2016

The Unique Odyssey of Mt.Tabor Brewing

Every brewery has a story. Just like any business. Of course, some of the stories are more interesting than others. For Mt. Tabor Brewing, which just opened a production brewery and tasting room in Southeast Portland, it's been quite a ride.

The first edition of the brewery, launched by friends Eric Surface and Brian Maher, was located in Maher's garage. Subsequently, they moved to an industrial space in Montavilla in 2010. A year later, they lost that spot. That led to Version 3 in downtown Vancouver, opened in October 2011. Now there's Version 4 in Portland.

"When we moved to Vancouver, the brewery was really nothing more than a hobby that supported itself," Surface says "But we quickly outgrew the limited space there. My vision had always been that our production facility should be in Portland and we actually made that happen more quickly than I imagined when we moved to Vancouver."

In fact, plans for Portland were moving forward well before their lease in downtown Vancouver ended last May. Two years ago, Surface and several partners leased 6,000 sq ft of space in the Buckman neighborhood. Since then, they've been navigating the construction and permit process involved in getting the doors open, which happened a week ago.

Another twist in the road involves their head brewer. When the previous brewer left to pursue another opportunity, Surface needed a replacement. A lot of industry heads spun Exorcist-style when they learned Ben Dobler, a 20-year Widmer veteran, had opted to leave a good job in an established company to roll the dice with Mt. Tabor as head brewer.

"I saw things changing at the CBA," says Dobler, who worked in new product development for most of his last 10 years there. "They wanted me to create inexpensive beers that could be sold at a premium price. The stress was mental, not physical. But the uncertainty of what's happening with the CBA and whether I'd still have a job in a couple of years made me uncomfortable."

Dobler and Surface knew each other from their days at Mountain View High School in Vancouver, classes of '92 and '93, respectively. They had stayed in touch over the years through mutual friends and had occasionally spoken. Would Dobler leave a cush job at Widmer to join a startup working 60 grueling hours a week?

"I had no idea if he'd be interested," Surface says. But we have similar tastes in beer and similar interests outside brewing. He seemed like a natural fit for our program and the expansion I envisioned with the move back to Portland. I figured there was no harm in asking so I sent him a text message."

Dobler, somewhat bored at Widmer, saw potential at Mt. Tabor and thought it represented a stimulating opportunity. "I'm going to brew quality beer my way," he said. "The beer list will reflect my preference for balanced, drinkable, low ABV beers. I'm not a fan of alcohol bombs where patrons have to be carted out after more than a pint."

The Portland location features a 15 bbl brewhouse with three 20 bbl fermenters. They could brew up to 120 barrels a month with the current setup, and expect to produce around 500 barrels this year. The taproom, managed by veteran Nicole Kasten, will be open Friday and Saturday for the time being. Soon enough, Surface expects to add Sunday and Thursday.

Kasten, Surface, Dobler
Growth will happen primarily via draft distribution for now, Surface said. Mt. Tabor beers are distributed by Running Man in Portland and by Stein in Vancouver. They will consider packaging options once draft volume edges closer to capacity. Their space has considerable room for expansion, when the time is right.

The beers on the core list are solid and all are under 7% ABV. But there isn't a single niche or zinger on the list, which seems odd. Normally, you walk into a Portland brewery and see at least one standout, flagship beer. Not here. In the heart of the craziest craft beer market in the country, these guys expect to attract a following with quality and drinkability. We shall see.

Despite the heavy recent focus on Portland, Vancouver has not been entirely abandoned. Surface and partners have leased space in the Felida area and will open a brewpub and pizza joint there by the end of the year, if all goes well. That location, in an underserved residential area not far from Surface's house, should do especially well.

Mt. Tabor's strange, twisting journey continues.

Editor's Note: On October 15, two weeks after this story was published, Ben Dobler and Nicole Kasten announced they are leaving Mt. Tabor Brewing. No reasons were given to the public. Mt. Tabor's strange odyssey continues.

Thursday, September 22, 2016

Image is Everything for Michelob Ultra

Those who follow or attempt to follow craft beer tend to see it as a monolithic movement that will eventually envelop the country and the world. That mindset more or less assumes that light beer is irrelevant and dead. An arrogant mistake.

Because light beer is far from dead. It remains a dominant force in the industry and, it turns out, is home to one of the fastest growing brands in the business: Michelob Ultra.

Let me back up. Michelob Ultra is part of the super premium segment, which is dominated by Anheuser-Busch brands and includes garbage like Bud Light Lime, Bud Light Platinum, Landshark and others. Super Premiums did well in the late summer according to IRI scans, showing the second best dollar growth trends behind imports.

And Michelob Ultra is king of the super premiums, owning the greatest share, five times larger than second place Bud Light Lime. Through early September, Michelob Ultra was up nearly 25 percent in dollars for the year. Not bad for a brand that was written off by craft fans long ago.

You may recall that Michelob Ultra isn't new. Launched during the low-carb diet craze back in 2000, it appealed to folks trying to lose weight by cutting loose calories, of which beer is a fantastic source. Ultra didn't do badly in those bygone days. But it was seen mainly as a diet beer, a motif that has never worked well in beer. That's why "light beer" was invented.

Since 2011, Michelob Ultra has been growing steadily. This has nothing at all to do with the beer, which is, contrary to ads suggesting otherwise, a pretty tasteless drink. What's changed is how the beer is marketed, who is targeted and how much money is being spent. As we know, image counts for a lot if you have money spread the word.

It is undoubtedly true that the availability of reduced calorie foods and beverages has been increasing. That category reportedly accounted for 99 percent of the sales growth for the major food companies between 2007 and 2012. Michelob Ultra is a near perfect fit for the category, a fact not lost on the marketing kids at Anheuser-Busch.

What they noticed is that fans of lower calorie, healthier foods and drinks are spread throughout the various demographic groups. In that scenario, you don't want to limit your ad imagery to older or younger drinkers. The active, healthy lifestyle used to promote Michelob Ultra targets a wide swath of people who don't want to be slowed down by "heavy" food and drink.

They have backed up that thinking by spending more to promote the Ultra brand, though what they're spending pales next to what they spend on Budweiser and Bud Light, brands that are tanking badly. They've managed to create an image that appeals to active, educated, and perhaps more affluent and mature folks. In short, things many of us would like to be.

The Michelob Ultra growth train shows no sign of slowing, which proves you don't have to have a great product if you can devise and execute a smart and effective advertising campaign. More than anything else, that's what Anheuser-Busch has done with Ultra. Kudos to them. They aren't stupid, by any means.

In fact, Michelob Ultra is likely to gain traction as millennials get fat and begin to seek low calorie alternatives to their 7% IPA. Could craft brewers enter the fray? Certainly, they could produce light beers to compete with crap like Ultra. What they don't have is the money to support a national ad campaign, upon which the success of Ultra is largely based.

Sometimes image really is everything.

Thursday, September 15, 2016

Winesong Contrasts Beer and Wine Crowds

Last week was a blur. It included a drive to Mendocino and weekend adventures at a wine festival. There's plenty of beer to be had in California, and I did manage to visit North Coast Brewing in Fort Bragg. But the trip was all about wine. And eating too much.

The festival is Winesong, which has been in existence since 1984. It's a benefit for the Mendocino Coast Hospital Foundation, engaged in fundraising and community activities that help support vital equipment acquisition and services at Mendocino Coast District Hospital.

What was I doing at Winesong? Good question. I'm not normally a wine snob. But my wife prefers wine and her late father attended Winesong regularly for many years. She had been to the event once, 25 years ago, and wanted to try it on again. I was mostly along for the ride, although I do enjoy wine when not being a beer snot.

Winesong is essentially three separate events: a Pinot Noir tasting; a Grand Tasting and a Charity Auction. We attended the Pinot Noir tasting Friday afternoon and the Grand Tasting on Saturday. The Charity Auction, which happens right after the Grand Tasting, wasn't on our radar screen.

These wine people know their stuff. The Pinot event, attended by a few hundred fans of the style, featured some fantastic wines, as well as food. The Grand Tasting, attended by (in my estimation) several thousand fans of wine and food, featured a variety of wines and expansive food options. as well as music in an incredible botanical garden setting.

I didn't expect these wine events to mimic the style and form of the beer festivals I've come to know. And they didn't. Winesong tickets are far more expensive than what most of us pay for a typical beer event. Of course, they include all the wine you can drink (they will cut off the sloshed) and, in the case of the Grand Tasting, all the food you can stomach.

Beyond the differences in cost and offerings, there was more. I assumed the crowds would be different than a beer crowd, and they were. But there were differences I hadn't expected.

The folks attending the Pinot tasting arrived mostly in expensive European automobiles. It was a decidedly older crowd, way older than what you find at your average beer festival. A lot of these folks have been coming to this slice of Winesong for a while. They knew the ropes.

The Grand Tasting crowd was much more diverse and not as gentrified. Many of the folks from the Pinot tasting were there, but the crowd had a youthful twist. It was good to see young faces similar to the ones I see in beer indulging in wine. Gave me comfort.

As I was thinking about the crowd, comparing it to a beer festival, I realized the biggest difference was the demographic mix. There was a good mix of men and women of all ages at Winesong. Specifically, there were middle-aged women, a demographic that's virtually nonexistent at beer events. These women like their wine and food. Beer is not their thing.

As for styles, the wines being poured were straightforward. There was Chardonnay, Cabernet Sauvignon, Pinot Noir, sparkling wines, etc. Wine simply hasn't been taken over by the wildly imaginative approaches seen in brewing, as brewers driven by the eclectic tastes of young drinkers do all kinds of crazy stuff to create unique beers that routinely pummel style guidelines.

When I was interviewing Dick and Nancy Ponzi for my book, one of the significant questions I asked them was, given the phenomenal success of Bridgeport Brewing, why they decided to sell to Gambrinus in 1995. Of course, they're smart folks and didn't want to give a blunt answer. So they developed an explanation with supple edges.

Essentially, the Ponzi's sold Bridgeport because they tired of the beer business, where people were always asking for hats, shirts and other schwag. They realized they would have to invest substantially in marketing and education if they wanted to build the brand further. The decided they preferred the wine business, where they didn't have to do so much handholding.

After attending Winesong, I may finally have a more complete understanding of where the Ponzi's were coming from.

Tuesday, September 6, 2016

IPA Keeps Craft Beer Afloat in a Sluggish Year

One of the more annoying experiences for many a beer geek is walking into a brewpub or beer bar, looking at the board, and discovering the majority of available beers are IPAs. It's not that we don't like IPAs. It's that we'd like to see more choices.

Of course, there are reasons for everything. And the reason beer watering holes and retail stores stock so many IPAs is that's what a growing number of consumers are looking for. That's not the way most beer snobs would draw it up

But it turns out we're lucky to have IPAs around. In a sluggish growth year for craft beer, IPA is a bright spot. If you haven't seen the numbers, craft beer is seeing its lowest sales growth in grocery stores since 2004. Growth dipped below 10 percent through the first half of the year and has lost further momentum since.

The slowdown will evidently impact fall grocery sets. Large retailers are reportedly scrutinizing craft SKUs carefully, looking for losers. That's how these folks roll. They want stuff that turns quickly and generates dollars per square foot. If craft isn't performing, something else might, though finding replacement products won't be easy since craft beer remains the fastest growing segment in the alcoholic beverage category.

When you think about the overall trends, keep in mind that these are strictly food store-related. On-premise (bars, restaurants) sales aren't tracked in these numbers. Neither are convenience and multi-outlet (Walmart and such) stores, where craft trends are evidently slightly higher. Nonetheless, the numbers are fairly shocking when you're used to double-digit growth.

Peeking through the fog of disappointing numbers is IPA, which is keeping the craft boat afloat. Through early July, IPA is up 23 percent for the year in grocery stores and creeping up on a 30 percent dollar share nationally. IPA is literally kicking the crap out of everything else. And the national numbers only hint at what IPA is doing in the nation's premier craft markets.

In San Diego, IPA is approaching 50 percent of craft sales in grocery and is up nearly 5 percent this year. The San Francisco Bay Area and Portland are close to 38 percent, both with solid growth this year. Other markets where IPA is seeing spectacular growth include Seattle, Sacramento, Los Angeles, Philly, Miami, Baltimore/DC and Raleigh/Greensboro.

Again, keep in mind that grocery sales in well-developed markets, like Portland, which consume a lot of draft beer, dramatically underreport the dollar volume of IPA sales. Industry friends tell me we don't have a great way to track draft-only sales. If we could track retail and draft sales of IPAs in places like Portland and San Diego, they might approach 60 percent of total dollars. Shazam!

Not that long ago, people were predicting the coming demise of IPA. Now that it's the shining star of the craft segment, those predictions are laughed off as highly exaggerated. Some in the industry wonder how far IPA can take them. Can it pull the craft segment out of the doldrums and a be a growth leader into the future? Or does the industry have too many eggs in the IPA basket?

No one knows the answers. Anticipating trends can be tricky. All we know for sure is that beer fans are hooked on hops. And IPA is how they get their fix.

Monday, August 29, 2016

Liquid Aloha to the Craft Brew Alliance

Last week was a good one for the Craft Brew Alliance. The company's stock price reached an all-time high of over $20 per share on Friday. Two days earlier, the CBA released details of an agreement that puts in motion its sale to Anheuser-Busch. Those details are most certainly related.

Back in June, I wrote a piece predicting an imminent buyout. The deal announced this week isn't quite that; it isn't final and there are still details to be worked out. But the arrangement is the precursor to a completed deal, make no mistake.

The fact is, now is not a great moment for a buyout. In approving its merger with SABMiller, the Department of Justice nullified certain AB practices and told them future acquisitions would receive careful scrutiny. Now is a good time for Anheuser-Busch to keep a low profile.

Anyway, the CBA and Anheuser-Busch have been virtually joined at the hip for about 20 years. As one industry publication noted, "it seems AB and the CBA are engaged to be married, after having shacked up for a while." A buyout is imminent unless something strange happens, including the possibility that DOJ could block it.

"Collaborative independence" is the phrase both AB and the CBA are using to describe their relationship for now. In this scenario, there are three areas of commitment in place, all of which serve the interests of the CBA. It's quite bizarre, really.

Master Distributor Agreement
Anheuser-Busch will continue as the CBA's master distributor through 2028. Fees remain at 25 cents per case. That's good news for the CBA, which was bracing for a tripling of fees when the old deal expired in 2018. If volumes exceed today's 11 million cases, the CBA will save an estimated $6 million per year starting in 2019, escalating with growth over the contract term.

Contract Brewing
The CBA will have the opportunity to brew up to 300,000 barrels (more than a third of its 2015 output) within AB's network at a cost savings of $10 or more per barrel compared to their current cost. Transitioning those barrels to AB's factory breweries will take a couple of years, after which the cost benefits will gradually be realized.

You will recall that the CBA brewery in Woodinville, Wash. is currently leased to Pabst, which has an option to buy it within three years. The CBA brewery in Portsmouth, N.H., might meet a similar fate. Or the CBA could use it to build partnerships with smaller craft breweries, whose beer would be contract brewed in Portsmouth and distributed via the AB network. There are some significant financial windfalls here, regardless of which way things go.

International Distribution
The CBA awarded AB exclusive rights to distribute its beer in countries not covered by existing agreements. Starting in 2019, AB will pay a royalty of $30-$40 per barrel, pay production and material costs and reimburse the CBA for out of pocket shipping costs.

Until 2019, AB will make fixed international payments of $3 million in 2016, $5 million in 2017 and $6 million in 2018. As an incentive for "international volume development," AB will pay an additional $20 million in 2019. What's $20 million between friends, huh?

Stuck With Me
Of course, there's more. Anheuser-Busch is obligated to carry out all elements of the new agreement unless it makes a "qualifying offer" to purchase the CBA and the CBA rejects it. At that point, AB could reconsider any or all of the agreement. What's a qualifying offer? I'll get to that. Just remember AB's only way out is if the CBA turns down an offer or shifts control to someone else. Fat chance of that happening given the pork in this deal.

Okay, qualifying offer. It's an offer to acquire CBA for a minimum of $22 per share during the first year of the agreement. The minimum bumps up to $23.25 a share in the second year and to $24.50 a share in the third year. The stock price was hovering around $14 before the new deal was announced, but finished the week above $20. Wall Street loves this deal.

Timelines and Plotlines
It's clear AB and the CBA have established a framework for a delayed buyout. That scenario seems well-suited to both parties. What's the timeline? The way the agreement is structured and the way certain internal CBA details line up, the pressure to acquire the CBA increases in each of the next three years. A finalized deal is likely by 2019, if not sooner.

The elephant in the living room is this: Why did Anheuser-Busch agree to terms that are slanted so wildly in favor of the CBA? These are not reckless business people. They are accustomed to acquiring brands, squashing competition and winning. They like getting their way. Why so many concessions to the CBA?

The answer is Kona. AB wants it and the CBA has it. In fact, Kona is the only CBA brand with broad potential. It will be the biggest fish in AB's kettle of craft fish due to its national and international appeal. The big shots in St Louis and Brazil intend to market Kona against arch-rival Constellation's trio of Corona, Modelo and Ballast Point. For starters.

The rest of the CBA portfolio is junk, by comparison, likely to be sold piece-by-piece once a buyout is finalized. Redhook, relegated to discount status, likely ends up with Pabst. What happens to Widmer? That's an open question. It might be reformed as a boutique brand known for unique and innovative beers. That can't happen under the current regime of corporate profiteers, but it might happen if AB sells the brand to the right person or group.

What's the impact of the impending deal? Obviously, executives and big shareholders are going to rake in some serious cash. Past and present employees with stock or stock options will make some money. Some jobs will be lost after AB takes over and implements the cost-cutting initiatives it's famous for. But, then, you can't make an omelet without smashing a few eggs.

The official passing of the CBA torch to Anheuser-Busch will have no significant or lasting impact among consumers. The CBA may or may not cease to exist. It won't matter since most knew it only vaguely via the brands it represented, brands that will henceforth be owned by big beer.

Liquid aloha, folks.

Thursday, August 25, 2016

Belmont Station to Host Ballast Point's 20th

Sometimes you have to wonder about equity in the beer industry. Large, well-funded breweries have significant advantages over their smaller counterparts. Besides efficiencies in production and distribution, they have the means to launch big promotional events, for example.

Such is the case tonight, when Ballast Point celebrates 20 years with a tap takeover at Belmont Station. This is no ordinary tap takeover. The folks from San Diego will be occupying 15 of the Station's 23 taps. A normal tap takeover would typically consume 4-7 taps.

"You can't celebrate a milestone like this one with just a few beers," says Lisa Morrison, Belmont Station owner. "So we'll have 15 across a pretty good range of styles. There will be something for everyone."

You may know Ballast Point is one of fastest growing, most vibrant brands in the land. They've only been in Oregon for a few years, but their growth has been off the hook here and elsewhere. That growth trajectory leapt upward last year when the company was acquired by Constellation Brands for a cool billion bucks.

They've mostly gotten a pass from the same craft beer community that crucified 10 Barrel, Elysian and others that have sold out to big beer. Part of that is timing. Ballast Point sold in late 2015, a time when the craft beer community was feeling numb due to prior acquisitions. There's also the fact that Constellation, which owns and markets Corona, Pacifico and Modelo, doesn't own distributors, as is the case with Anheuser-Busch.

Whatever differences of opinion exist regarding Constellation and Ballast Point, they haven't mattered in the least. At a time when the overall growth in craft beer volume is slowing nationally, Ballast Point has been hitting it out of the park. Sculpin IPA is one of the hottest brands in industry growth stats and several others are also doing well.

Even in Oregon, Ballast Point has done well. It's hard to figure. They came late to one of the most competitive craft beer markets in the country with products that are, frankly, overpriced. Yep. In case you don't know, a six-pack of Sculpin will set you back $15. The other brands in their portfolio are similarly overpriced. But it hasn't mattered. The stuff sells. And sells.

Part of that is the beers. They're solid. And not just Sculpin, which is so popular it has spawned a brand family with different fruit twists. Ballast Point also has a strong brand identity, leaning on its connection to Southern California beaches and sunshine. Constellation paid big bucks for Ballast Point because it understands the value of place in a brand's identity. See Corona.

The list for tonight's party includes some of the better-known Ballast Point beers, as well as some that are rarely (or perhaps never) seen here. Take a look:
  • Sculpin IPA
  • California Amber
  • California Kolsch
  • Grunion Pale Ale
  • Pineapple Sculpin IPA
  • Mango Even Keel Session IPA
  • Watermelon Dorado DIPA
  • Grapefruit Sculpin IPA
  • Calm Before the Storm Cream Ale with Coffee & Vanilla
  • The Commodore Stout
  • R & D Coral Wheat Ale with Hibiscus, Pomegranate & Cherries
  • R & D La Premiere de Garde Bier de Garde Ale
  • R & D Schwarzbier
  • R & D Trident Belgian Tripel
  • R & D Double IPA
The party is the only one of it's kind in Oregon, Morrison says. "We were honored when they asked us to host because their beers have done well and we like them." The official celebration runs 5-7 p.m., but many of the beers are on now and some will be on after the event. Should be fun.

Thursday, August 18, 2016

Washington Beer Reinforces the Nature of Beer Industry

History is bunk. Admit it. That's why hardly anyone bothers reading up on the brewing histories of towns, cities and states. There are Pokemon to be caught and Twitter threads to be launched and followed. Who has time to read?

Nonetheless, chump that I am, I bought a copy of Michael Rizzo's book, Washington Beer: A Heady History of Evergreen State Brewing. The book was published earlier this year by The History Press, the same outfit that published Portland Beer in 2013.

For the record, I've never met Rizzo, who lives in the Seattle area. He and his wife, Michelle, host Northwest Beer Talk, a weekly podcast covering craft beer. According to the book, he's worked as an historian, lecturer, school bus driver, tour guide and network administrator.

Relax. I'm not here to review the book. That's not something I do here. I made an exception when Jon Abernathy's book on Bend was published a couple of years back. I did so because I know Jon and because Bend and Portland are invariably linked.

The Washington book is not like mine. Due to the sheer number of breweries Rizzo had to cover, a book similar to mine covering the state of Washington would have consumed 300 or 400 pages. And the publisher does not want books of that length and depth. Why? Because almost no one reads crap like that.

Because I was only dealing with Portland, and also because much of our history is dominated by Henry Weinhard (Blitz-Weinhard, if you prefer), I got to spend a lot of words addressing why things happened as they did. There's a lot of storytelling and historical perspective in my book.

Not so in Rizzo's case. With so many breweries past and present to talk about, he focuses mostly on when, where and who founded and operated the state's breweries. There are only occasional snippets providing perspective on why things happened the way they did.

I'm not a fan of this approach. I understand why it was necessary. But dates, names and places offer only a partial story. Perspective and background are needed. Limiting the scope of the book to Seattle or the Puget Sound area might have been a more reasonable approach, given the required word and page count parameters.

But never mind. The book is what it is and it's definitely worth a read if you're interested in Washington's brewing history and don't mind wading through a lot of facts that are often, though not always, disconnected. You might not mind.

What really jumps off the pages is the predatory nature of the industry. Washington's brewing history is dominated by consolidation in its various forms. Breweries and brands have been bought, sold and otherwise transferred routinely. Iconic brands like Rainier and Olympia are prime examples, but they are nothing more than examples.

This isn't shocking or surprising. A primary feature of the beer industry is that it's a giant pyramid scheme. Brewers are driven to dominate markets and expand into others. Sales growth and improved cost efficiencies lead to acquisition and consolidation. It's the nature of the beast.

Today, acquisitions are in the news. Anheuser-Busch and MillerCoors are buying craft breweries. Many are alarmed. But, really, what we're seeing today isn't new. It's been part of this industry for a more than a century. Washington's history illuminates and reinforces that reality nicely.

Wednesday, August 10, 2016

Merchandising and Modern Craft Beer

As we make our way through summer and (soon enough) into early fall, I see breweries prepping for fresh hop and pumpkin beers. The industry has become all too predictable as it swings from one season to the next, with no one wanting to be left behind in the rush for seasonal beers.

One thing I rarely hear people talking about is merchandising. Craft beer merchandising is exploding. People who drink craft beer (and some who don't) clamor to get their mitts on hats, shirts and a variety of other trinkets sold at breweries, taprooms and stores.

The merchandising concept stared me in the face on a recent trip to Sunriver. During an afternoon in Bend, I watched patrons spend more money on shirts, hats and trinkets than they spent on beer. These were mostly tourists, who have absolutely overrun Central Oregon. Still, I was astonished.

Look, I'm well aware that merchandising has been a part of the craft beer movement since the early days. I have ancient hats and shirts from the Lucky Lab, Bridgeport and the Oregon Brewers Festival, among others. Craft brewers didn't just recently discover they could make money on this junk. But they're tapping into the growing demand with gusto.

The reality is simple. Folks want to identify with their favorite craft brands in basically the same way they identify with bands and sports teams. That means buying logo gear in a variety of forms. And brewers are getting more and more creative about what they offer and how much they charge for the stuff. It's big business.

What this trend has done is put increasing importance on brand identity. If you're a brewer, you want your identity to be more than just unique; you want it to be appealing and trendy. You want something beer fans will want to wear around or show off in other ways. If you can get it into their hands early on when you're new and few are wearing it, so much the better.

Talking with a fellow writer and blogger friend about this, we laughed about the current reality. A lot of new breweries develop their branding well in advance and start selling shirts, hats and such before they even open. He suggested we might be able to create a cool logo and backstory for a fake brewery and make money selling logo items. Such is the insatiable demand for the stuff.

What does it mean? Maybe nothing. But probably it means craft beer has attained a cultural relevance nearly on par with sports and music. Having reached that place, we see a growing emphasis on being the first to wear schwag from breweries that are newer or yet to open. It's similar to being among to first to wear a shirt advertising a hot new band or sports team that's doing well.

This is all fine and dandy, right? Except that it works to the advantage of newer places that may not be all that great, aside from a spify logo, and to the distinct disadvantage of established places that may not be seen as cool, trendy or relevant at this point.

But all's fair in love and beer. And that's the state of modern craft beer. Take it or leave it.

Monday, August 8, 2016

News Register Publishing Acquires the Oregon Beer Growler

Gone for a week of Labrador chaperoning in Central Oregon, I managed to mostly stay away from beer destinations in the area. Not such a bad thing, honestly. Each day my email inbox filled with messages deserving comment. But I had no time. Until now.

You certainly know of the Oregon Beer Growler, the beer-centric publication founded in 2012 that covers our beer scene. Last week came news that the OBG has been acquired by News Register Publishing of McMinnville, a family-owned firm with roots in the area dating to 1866.

In a press release sent to "past and prospective clients and distribution points," president and publisher, Jeb Bladine, announced acquisition of the Beer Growler's name and publishing rights from founder Gail Oberst and owner Will Oberst (Gail's son).

I do not know the circumstances surrounding the sale of the Beer Growler. Was it sold because it was doing well or because it wasn't? Inquiring minds wonder, but that's not the sort of information you're apt to find in a press release happily announcing an acquisition. Particularly if the news is bad.

Bladine said they hope to retain the services of some of the OBG's "favorite contributors." Continuity is a good strategy, for sure, and it will be a neat trick to swing given the Growler hasn't been paying staff or freelance contributors in recent times. Perhaps things were not going so well.

I've discussed the reality of beer writing here in the past. My experience is that beer-centric publications are slow to pay. I've had national magazines fail to pay for articles for months after publication. I suspect there's such a large pool of competing writers that publishers aren't worried about timely payment. It's a good reason to avoid this type of work as a vocation.

You might say the Beer Growler took the slow pay thinking to a new level by not paying at all. They did so without notice. I know because I wrote an article for a recent issue. There typically aren't contracts with this kind of writing. You pitch an article and an editor accepts (or rejects) it at an agreed upon rate, which is pretty low in the case of the Growler. In this case, I later learned they weren't paying right now. Other contributors confirmed they were months behind.

Word is, the News Register folks are assuming no responsibility for the debt of the previous owners. Which means Mr. Oberst is stuck with past bills. Regular contributors and staff who continue on with the magazine will probably be compensated for past work. Others may well be out of luck, although there's been no formal announcement along those lines.

My own view is the Beer Growler has evolved and is better today than it was four years ago. Editor Andi Prewitt does a nice job procuring and managing good content. I know she's excited to work with the News Register folks, who have prior experience in this area, having produced the Oregon Wine Press for the past decade.

I'm not sure we need more beer publications here. Virtually every print outlet in the area has jumped on the craft beer bandwagon, often with less than stellar competence. But I hope things work out for the new Beer Growler, that they continue to evolve and improve. Paying contributors and staff in a timely manner would be a nice start.

Thursday, July 28, 2016

Odds and Ends: Report from the 29th OBF

The 29th Oregon Brewers Festival blasted off yesterday with the brunch, parade and ceremonial tapping of the first barrel, this one provided by host brewery, Laurelwood. There was a large, but mostly quiet crowd on hand to kick things off.

Wednesday might just as well be called "industry day" at OBF. Because there are countless industry-connected deadbeats hanging out drinking beer, networking and seeing the sights. That includes the so-called beer media, which is always well-represented. Trust me.

This is my 25th OBF, 24th in a row. I missed 1988 (not yet here), 1989-1990 (here but not yet paying attention) and 1992 (mysteriously out of town). A lot of things have changed over the years, The event has grown and evolved.

One of the things casual bystanders probably aren't aware of is the extent to which OBF is much more than just a beer festival. Countless private parties and sideshows litter OBF week. In effect, the festival is the central event in a sea of unconnected spin offs. Craft beer is big business and Portland is a central player in that business. Which means the money flows.

But never mind the details. You aren't interested in the politics of the Oregon Brewers Festival or the economics of the beer industry. You don't know how lucky you are. Below are some of the things you may want to know about the festival.

Tasting Packages
Unlike most modern festivals, the OBF does not require you to purchase a tasting package. So you won't have to shell out $25 for a shoddy package that includes a mug and 10 tokens. Instead, you can buy a mug for $7 and tokens for $1. Yes, you can buy a package. But you don't have to. I talked to several people who didn't know that.

It's always a good idea to stay as hydrated as possible while tasting/drinking beer. Watering stations are scattered around the park and you can buy outrageously priced bottled water from the various food vendors. A better idea is to bring your own. They have not always allowed it, but you can, in fact, bring in water. Do it.

Bike Parking
Unbeknown to me, the bike parking area moved. In recent years, it was located at the Northeast corner of the park. I expected to find it there yesterday. No luck. And no signage telling me where to find it. The gate staff could give me only a rough idea of where to find parking. Well, it's at the Southeast corner of the festival space, on the other side of the Morrison Bridge. FYI.

The Beers
I think they've upped their game this year. Between the 88 or so beers pouring in the main tents and the 25 or so pouring in the International Tent, organizers have done a nice job in terms of variety and quality. Also value. I didn't see a single multiple token beer. That doesn't mean none exist; it simply means the majority are one token beers. Nice.

It's a bit of a slippery slope recommending beers to folks who certainly have different likes and dislikes. Plus, I tasted only 30 or so beers, out of more than 100. It's fairly condescending for anyone who hasn't tasted all or most of the beers to recommend anything. Still, I can tell you what I did like.

A good place to start your tasting is with 54°40' Brewing's Ultra Pilsner, an easy-drinking, refreshing interpretation of the age-old German style. This beer's light enough (5.1% ABV) that you could easily drink a full mug. Best move on and return later.

For hopheads, I recommend High Desert Diesel by Sunriver Brewing. This is an Imperial IPA that clocks in at 8% ABV, so be careful. It leans on nine hop additions for aroma and flavor. I'd guess this is a bigger version of the popular Vicious Mosquito, a favorite of mine. Another IIPA, this one from Melvin Brewing, 2X4 DIPA (a whopping 10% ABV), is also a winner.

Some will say a summer beer festival is no place for stouts and similar dark beers. Not so. There are two stellar stouts pouring on the south side, Dragon's Milk Reserve (10% ABV) by New Holland Brewing and Serpent's Stout (11% ABV) by Lost Abbey Brewing. Both are excellent. I also ran into a nice Baltic Porter from Japan's Baird Beer in the International Tent.

With respect to sours, I tasted or shared tastes of maybe 10. Most lacked fruit character and were simply sour. If that's what you're looking for, great. I enjoyed Breakside's Pomegranate Gose (4.6% ABV), which is moderately tart and refreshing. I also liked Green Flash's Passion Fruit Kicker (5.5% ABV), an unfiltered wheat beer highlighted by notes of passion fruit and subtle white tea.

I don't like to dwell on beers that sucked or weren't quite right, but there are always a few. One of the more notable ones was Sagefight from Deschutes. It's supposed to combine citrusy hops with sage and juniper berries for flavor. But it somehow collapses into a murky, bitter mess. Surprisingly bad. I had to dump it. Best avoid.

With all that said, there are plenty of great beers to try. As always, the best times to attend will be Thursday, early Friday afternoon and Sunday. Things tend to be a bit crazy under the tents Friday evening and most of Saturday. There's a lot more info on the event site here. You knew that.