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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.