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Sunday, February 26, 2017

Why Beer Won't Go the Way of Music

Forty years ago this month, I began what would end up being a seven year stint in the record business. I was in college when I started and it was the first long-term job I'd had. It was part-time for several years, then mostly full-time for the last three or so years.

Music was a commodity in those days. There was no iTunes or Amazon from which to buy music. There was no Spotify or Pandora. If you wanted a song or album, you went to the record store and bought it. Unless maybe you could borrow it from a friend to record.

In fact, record stores in those days were a lot like bottleshops. We catered to folks who enjoyed listening to music and had to buy a record or tape to do so. Today's bottleshops cater to folks who enjoy beer, which they have to physically buy and drink. Beer is very much an analog product.

I got that job at Budget Tapes & Records mainly because I spent too much time and money on records. The owner had stores in two cities and got used to seeing me in both. That's because I went to school in one city and lived in the other during summers and breaks. I never applied for a job. He asked me to work for him because he needed occasional part-time help in both stores.

The owner, Mike, was a crusty fellow. I came to like him, but a lot of store patrons didn't. Vinyl records in those days often had flaws that would cause skips. Mike loved to challenge and badger customers who felt they had purchased defective product. It wasn't a pretty sight. His nickname among local businesses was, "Bad." Not ideal.

On the other hand, Mike could be quite a character. He drove a fancy GMC van when I worked for him. One day he asked me what was different about his van. I couldn't say, didn't notice anything. It turned out he had gotten the GMC logo (in several places) changed to MCG, his initials. That to me was always funny.

He became a rabid basketball fan and developed a friendship with George Raveling, then the basketball coach at Washington State. Raveling would come into the store looking for rare stuff. We'd scurry to find it, which often meant special ordering it. We also curated the music played during pre-game warm-ups at home games.

Selling records and tapes was mostly a good gig. Ordering and inventory control was painful without computers, but selling was fun. If you've seen the documentary on Tower Records, you know how wild the business was during those years. The money, booze and drugs flowed.

Mike's life jumped the tracks at some point in the late seventies. He had opened a third store by that time. Soon he was divorced and candying up his nose. The pitfalls of rapid success, I guess. Several years later, he was arrested for running coke and wound up doing a stint in prison.

Around that time the record business was transitioning to digital. Compact Discs cost several times as much as vinyl in those days. Many small stores didn't have the money to play that game. Mike's stores eventually folded or were sold. Stores that survived the transition generally enjoyed good times through the nineties, as consumers converted collections to CD.

Of course, it would all come tumbling down. For all its promise, digital turned out to be box office poison for the record industry. Consumers, miffed for years by high prices, happily discovered CDs could be converted to compressed files and easily shared. The industry, long dependent on selling a commodity, collapsed.

A similar outcome isn't likely with beer, which can't be digitized. Beer will remain a commodity until someone figures out how to reduce it to a pill or computer file. That probably won't happen anytime soon, good news for the owners of beer bars and for people who like to drink beer.

Closing the loop on my story, I recently learned that my old friend and boss passed away several years ago. He had straightened up, evidently, and drove a bus for the local transit system for years. I can easily picture him driving a bus around and chatting with riders. He had the gift of gab.

We shared good times and plenty of shitty beers. Thanks for the indelible memories, Mr. Gaede.

Sunday, February 19, 2017

Beware the Coming High End Tsunami

Nikita Khrushchev infamously said, "We will bury you." That was 1956. While there is some question as to the accuracy of the translation, Khrushchev clearly intended it as a shot across the bow of the capitalist world. The Soviet Union was putting the world on record.

Our friends at Anheuser-Busch are more subtle than the blustery Khrushchev, who had a knack for making outrageous comments. AB is quietly implementing a plan designed to bury independent craft brewers. And they might just pull it off.

The so-called High End is leading the charge. As you know, Anheuser-Busch has been busy collecting craft brands over the last several years. There are 10 breweries in the High End collective at this point, with a few more likely to be assimilated.

You might not know it, but the High End kicked ass in 2016, a pretty lousy year for craft beer. The High End's growth rate hit 32 percent, easily trumping the craft segment's single digit growth. Bigly. Every High End brand grew and they're all showing continued growth into 2017.

Don't give the AB charlatans too much credit. Brand building isn't their specialty. But they've learned a thing or two about the craft world, probably by osmosis, as a result of acquisitions. And they have the supply chain, the production efficiencies and the distribution network to leverage their brands.

They aren't standing still for 2017. Instead, they plan to triple their current volume. That's a gigantic goal and probably not remotely attainable. But they aren't just pipe dreaming. They have a plan:
  • Goose Island, the only High End brand family with a national presence, grew 27 percent last year. They expect continued fast growth. Goose IPA, up nearly 80 percent. became the #3 IPA in the land. Much of that success came via aggressive keg discounting in on-premise accounts. AB wants Goose IPA to be #1, which likely means heavy discounting in grocery, where the brand does less well. Expect them to follow-through on that.
  • Seattle-based Elysian will be the High End's next national brand. Despite damage done by the buyout, Elysian has been a big winner in its home market. The flagship, Space Dust IPA, was up over 300 percent last year and will be taken national in March. AB believes Space Dust can be a strong player nationally. Quite possibly.
  • Other High End brands will expand into new markets. Golden Road's Wolf Pup Session IPA, a fast mover, will tap 30 new markets. 10 Barrel, our Oregon-based friends, will launch Joe IPA in 28 new markets.
  • To support growth and expansion, AB is putting field reps in all High End markets and boosting investment in the home markets of their craft breweries. Each brewery will have a regional sales manager to support expansion. Why? Because AB can afford it and they've figured out that these investments are crucial to supporting growth.
  • AB is still trying to figure out what to do with some High End brands. Four Peaks will apparently venture outside Arizona and Devil's Backbone will take baby steps outside Virginia. There's nothing much happening with Blue Point, though it will get a significant brewery expansion. Karbach is so new that marketing plans are pending.
A few years ago, I figured Anheuser-Busch's effort to invade and co-opt the craft beer industry was doomed. They just didn't seem to get it. No more. With small breweries continuing to open at breakneck pace in a largely saturated and flattening market, competition is getting intense. In that scenario, the High End looks well-positioned to assume a strong, perhaps dominant position.

There's a simple, but quintessential piece of intel driving this: Anheuser-Busch has come to realize that, as craft beer has moved into the mainstream, consumers have, too. Simply put, the beer geek consumer who is fixated on high quality, local beer is increasingly in the minority.

What we appear to have today is an emerging pool of consumers who care little about where a beer is made or who makes it. That has opened the door for good beer and good value, particularly in the grocery channel. Through that door Anheuser-Busch is driving a fleet of High End semis.

There's a tsunami coming. And it's not good news for independent craft brewers.

Wednesday, February 15, 2017

Beer Party PDX to Hold Inaugural Fundraiser

A few weeks ago, a group of beer industry operatives met to discuss ways to support civil rights and democratic values. I wasn't at that meeting. But these amazing folks just announced that their initial fundraising event will happen on President's Day, Feb. 20.

The group, Beer Party PDX, plans to hold an ongoing series of events focused on promoting values many in the beer community support. Monday's inaugural event will benefit the American Civil Liberties Union, which is currently leading court battles on numerous fronts.

Participating beer bars include Bailey's Taproom, Bazi Bierbrasserie, Beer Mongers, Belmont Station, The Imperial Bottleshop, Lombard House, Roscoe's, Saraveza, The Thirsty Sasquatch, The Upper Lip, Tin Bucket and Uptown Market. Virtually every corner of the city is covered.

The way it works is simple. Every time patrons buy a beer that's been donated by a long list of breweries and cideries, 100 percent of the proceeds will go to the ACLU. Yep. These folks aren't kidding around. They're all in.

Folks who have donated kegs: Baerlic, Base Camp, Bull Run Cider, Burnside, Cider Riot!, Coalition, The Commons, Crooked Fence, Culmination, Double Mountain, Heater Allen, Machine House, Matchless, Montavilla, New Belgium, Ninkasi, Pfriem, Ruse, Three Magnets, Uptown Market and Vertigo. Lots of good stuff!

A little more on Beer Party PDX. It is comprised of local bar and brewery owners, brewers, business consultants and writers. As a collective, they see the need to help defend attacks on freedom of speech, the environment, voting rights, etc., things under attack in the Trump era.

Group membership isn't limited to folks from the beer community. If you have complementary values and want to get involved, visit the group Facebook page or send them an email at beerpartypdx@gmail.com. 

I'll be supporting the launch party at my local pub on Monday. I hope the event will be well-attended across the city. Look for future events on the group Facebook page and in places like this.

Friday, February 10, 2017

Thoughts on Oregon's Brewery Invasion

This week's Portland launch of Michigan-based Founders Brewing highlights the fact that out of state breweries are targeting this market. Left Hand (Colorado) recently launched and Bell's (Michigan) has soft launched; Modern Times (San Diego) is on the way.

I get press releases announcing this stuff. They include quotes from brewers and distributors about how great it is to be working together. Then come the blog posts, regurgitated from the press releases. Nowhere do I find perspective on why breweries want to be here.

The reason I want some perspective is that Portland is the most developed and competitive craft market in the country. We're saturated with great beer, most of it made in Oregon. Why do interlopers from out of state think they can succeed here? What's their plan? Inquiring minds wonder.

Of course, those aren't things anyone wants to discuss publicly. Brewers and distributors spend plenty of time crunching numbers and evaluating the viability of a brand well before they decide to launch in any market. But you aren't going to hear about it.

My initial thought on Founders and Bell's was that they hope to tap into folks who have migrated to Portland from the Midwest. These transplants are starved for beer from their homeland and packaged product from these breweries sells quickly. Prices don't matter.

The problem is, you can't successfully tap a market long-term with migrants as your primary customer base. It's not sustainable. You've got to reach a wider audience, in Portland's case an audience accustomed to drinking mostly local or regional beer.

What's crazy about what's happening is it runs counter to the local focus that fueled the craft revolution. Portland got a great start because locals were willing to try early beers from Bridgeport, Widmer, Portland Brewing and McMenamins. Local has been a relevant factor ever since.

If interlopers from out of state are going to have increased success here, it may mean the local focus is diminishing somewhat. Or that, at the very least, we're becoming more open to drinking beer that isn't made here if it's good enough. That might not be such a bad thing.

Keep in mind that plenty of non-Oregon craft breweries have attempted to crack the Portland market. Few have succeeded on any kind of significant scale. Lagunitas has done well. Sierra Nevada has done well. Ballast Point is doing well. There are a few others.

Breweries want to prove they can compete here says author and longtime Portlander, Jeff Alworth. "We're the Big Apple of beer. If you can make it here, you can make it anywhere. Eventually, it seems like every ambitious brewery tries the Oregon market. Usually to their regret."

The thing about breweries like Founders and Bell's is they've been highly successful in their own markets and are in the process of expanding to other parts of the country. They make good beer and they've got GABF medals and dedicated fans to prove it. They want to succeed here.

As well, they're capitalized to make the investment required to succeed. "You need to have marketing boots on the ground to build a brand presence here," says one of my industry friends. "Breweries that aren't willing to do that or can't afford to do that have a tough time here."

In fact, more than a few Oregon breweries have cut corners on the marketing end. They expect to win fans because they're here. Some have even doubled down by pushing sketchy, inconsistent beer into the market. A few have gotten away with that approach.

Things may be changing. Well-funded interlopers with the appropriate pedigree are positioned for success here. Migration demographics could be part of that, but mainly Portland and Oregon may be coming around to the idea that good beer is good beer regardless of where it's from.

The result of that evolution is that sloppy, underfunded Oregon brands are going to be pushed out of the market by aggressive newcomers from outside. In fact, that displacement is already happening. Maybe that's good news for consumers.

Wednesday, February 1, 2017

New AB-funded Blog is Business as Usual

I have to admit events of the past week or so have been a serious distraction. It's a little difficult to think about beer when the country appears headed for a Constitutional crisis. The first two weeks of the Trump era have been a wild ride.

Scanning my inbox and social media for beer-related news, I discovered our old friends at Anheuser-Busch are up to no good. You won't want to miss their new ad, set to run during the Super Bowl, which uses a pile of alternative facts to depict the brand's early history. Bizarre waste of money.

Then I learned of AB's latest excursion into the craft beer world. This time, they've funded a blog covering beer and the beer industry. Actually, funding for the venture comes through a creative intermediary that is backed by Anheuser-Busch. That makes the connection a little less obvious.

Honestly, I haven't read through enough of the site's content to give it any kind of objective review. But you can find a pretty good (and funny) beatdown here. Some of my colleagues in the local beer writing community have commented, mostly not in a good way.

You see the problem, right? Any publication that is funded, directly or indirectly, by the world's largest beer company is going to have a perception problem. Keep in mind that in the wake of MegaBrew, Anheuser-Busch is far and away the most dominant player in the beer world.

And here they are financing a site that covers beer. Why would they want to do that? I'd say they want a place at the table. They're certainly aware that there are hundreds of more or less independent blogs, many of which don't provide very favorable coverage of AB initiatives and brands. This blog, for starters. They'd like to have a voice.

The challenge for the new site, which I mentioned to a gent involved in the venture on Facebook, is there will be the perception of potential conflict of interest regardless of what they cover. His response is they intend to make the AB connection clear (we shall see) and are focused strictly on good coverage. Fine. But the connection to Anheuser-Busch is a huge issue. At least for me.

The good news for AB and for the folks launching the new site is the average craft beer consumer, in contrast to well-informed beer geeks and writers, doesn't pay that much attention to who owns brands and finances websites with beer-related content.

In fact, the average craft beer consumer very often has no interest in these issues. There are plenty of people who are just fine ordering Goose Island in a bar or buying 10 Barrel in a grocery store. They don't want to be bothered with the details of why it might not be a great idea to give their money to the world's beer behemoth.

My guess is the new blog will benefit from that same mindset. A majority of people who read blogs aren't beer geeks. They're simply out there surfing for information. When they come upon the site, most won't know or care that there's a potential conflict of interest in the coverage.

Indeed, consumer ambivalence is exactly what Anheuser-Busch is counting on. They've been counting on it with their brewery acquisitions, with their fake craft brands and now with the new blog. This is strictly business as usual for them.