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Thursday, June 30, 2016

No, Craft Beer's Sky is Not Falling

Is craft beer in a funk? It is if you believe the reports that have been surfacing in 2016. The first reports came in industry publications, which spoke of slowing growth early on. More recently, the mainstream media has picked up the story.

The world has far more serious problems, but humor me for a few minutes. What's happening is that craft beer's robust growth seems to be slowing. Dollar volume growth that averaged nearly 20 percent over the last two years has slipped to something like 6 percent for 2016.

"Of course I’m troubled by it," one of my industry friends said of the numbers. "If our market has matured, it’s going to be increasingly difficult to grow. We think there's still plenty of untapped market out there, but it won't be as much of a slam dunk as it has been in recent times."

It's important to understand these slowdown numbers are coming from IRI data, which track scans mostly in chain grocery and convenience stores. Those numbers show significant declines for 15 of the top 30 craft brands in 2016. Six of the top 15 are seeing double-digit declines. Shocking, eh?

Another part of the emerging puzzle is that we now have more than 4,300 craft breweries in the United States. And there are more opening virtually every day. This certainly plays into the notion that craft beer has reached a sort of saturation point.

Other factors could be connected to what appears to be happening. Rising prices could contribute to declining demand. And they are rising. Promiscuous millennials, who will drink almost anything, may be shifting their attention to flavored hard sodas, a segment showing big growth.

As well, it may simply be the case that the craft beer industry has reached the size where 15-20 percent growth isn't sustainable any longer. That's what Bart Watson, chief economist for the Brewers Association, said during the recent Craft Brewers Conference in Philly. Even the reduced growth numbers, he correctly says, would be well-received in many industries.

I've said for a long time that craft beer will eventually hit a saturation point. The rapidly expanding brewery count means we will someday reach the point where there is a glut and not enough people to drink it all. But I do not think we've reached that point.

What's likely happening is that the growing number of breweries means beer fans no longer have to depend on the major brands sold in stores. Instead, they can buy local beer directly from a brewery, bottleshop, beer bar, growler fill station, etc. The market is moving rapidly away from national brands and chain stores. Not a bad thing.

Part of bringing craft beer's picture back into focus is changing the way the market data is collected. Bart Watson has alluded to that reality several times. IRI is great at what it does. But it is blind to things sold in the places where craft beer is almost certainly seeing its strongest growth.

So, yeah, the market is changing, evolving. The idea of local beer is something a lot of places had never experienced until recently. And it's being embraced. Which means we'll have to change how we evaluate industry trends if we want to know what's actually happening on the ground.

Monday, June 27, 2016

About that Frozen Glassware You're Using

As a youngster in rural eastern Washington, one of our favorite treats during the hot summers was a trip to A&W for an ice cold mug of root beer. I cannot say if the glasses were stored in a freezer prior to being filled and delivered by car hop to thirsty patrons. But it appeared so.

I somehow have a number of friends who apply similar serving values to craft beer. They store half a dozen mugs in their deep freeze, right next to chunks of meat stored for winter. Or maybe the mugs have a spot in the inner door.

Drinking from a frozen mug is almost certainly a carryover from the heyday of macro lager. You wanted to drink that stuff as cold and fast as possible. Drinking a warm macro beer is risky. That's when you start to pick up on aromas and flavors you'd probably rather not think about.

My athletic club, bless its pointed little head, still serves beer in frozen pitchers and glasses. That's likely because they've been doing so for 30-plus years, and because they had mostly macro beer until recent times. They carry on with the frozen approach because they aren't serving a knowledgeable clientele and don't care.

Beer geeks and educated beertenders know you don't want to drink craft beer from a frozen glass. That's why you almost never see it happening at geek tastings or in respectable beer bars. A lightly chilled glass, maybe. A frozen one, not a chance. It's a topic that's been covered in a variety of places over the years. I'm just piling on.

What's wrong with drinking good beer out of a frozen glass? It messes with the flavors, kids. The beer hits the glass, mixes with ice crystals and a portion of it freezes. There's additional foaming you don't want, as well, but the main problem is the beer gets too cold and some of the flavors are lost, muted or altered.

As Julia Hertz says in this Brewers Association video, frozen glassware is not preferred in craft beer. For all my friends and acquaintances who continue to amaze me by continuing to drink good beer from frozen glassware, fine. But you aren't tasting the beer as the brewer intended. Your move.

Thursday, June 23, 2016

Thinking Back to a Time Before Craft Beer

Reading an interview with Keith Richards, he asks his young interviewer when he was born. "1968," the writer says. "I can't imagine that," Keith says. "What's it like to live in a world where the Rolling Stones were always there?"

Similar logic applies to craft beer. If you were born after 1970, you likely do not recall a time without craft beer. I'm fudging the dates a little. We had craft in this country prior to 1980. There was New Albion and Anchor. There was Henry's Private Reserve, Oregon's original craft beer. But craft as a mainstream beverage was rare before the 1990s.

If you were born prior to 1970, you likely have no trouble recalling the dark ages. You entered a tavern, bar, restaurant or store and were confronted by a barrage of apparent choices. But those macro lagers had everything in common and didn't distinguish themselves in any meaningful way. They were light and tasteless.

Yet people had lengthy arguments about which was the best of the macros. And how much different they were. It's hard to believe, looking back. Some had a thing for Budweiser. If you lived where you could get it, maybe you liked Coors. Or maybe you preferred a regional brand like Oly, Rainier or Lucky Lager. It really didn't matter because the beers weren't much different.

Given that reality, advertising was the key to differentiating product. The pre-craft era might fairly be described as the golden age of beer advertising. Every brewery, usually via its ad agency, had a story to sell. Consumers identified with a brand based on how it was positioned in print, TV and radio ads. This is how it was done in the decades following World War II.

That scenario worked to the distinct advantage of big beer, which had the money to launch national and regional ad campaigns. Smaller, regional breweries, including Portland's Blitz-Weinhard, had an increasingly difficult time competing with large national brands, even in their home markets. That helped push more and more consolidation.

Of course, it would all come tumbling down. The era of huge advertising budgets and massive brewery consolidations eventually imploded. Craft beer didn't cause that to happen. But smaller, more agile craft brands, far less dependent on ad campaigns and size, have contributed mightily to the discomfort and decline of big beer since the turn of the century or so.

So three cheers for the golden days of yesteryear, when a beer was a beer was a beer. And choices were often based on things unrelated to the actual beer. May those days never return.

Friday, June 17, 2016

No Sane Person Has a Clue What's Coming

Back when I was working on my book, Portland Beer, I interviewed a lot of well-connected folks. One was Gary Fish, founder of Deschutes Brewing in Bend. He provided several interesting comments, which got even better when I read Jon Abernathy's book on Bend's history.

Keep in mind that Fish is a guy who stuck out the early days in Bend, a time when the pub was vacant many evenings. Success wasn't assured. One of the last questions I asked was if he had in any way anticipated what craft beer has become. "No sane person would have," he retorted.

I bring it up because we are nearing the end of Portland Beer Week, possibly the craziest 11 days on the city's annual calendar. The event, actually it's a nearly endless series of events, has been around for several years. Like the rest of the industry, it keeps growing and growing.

This year's rendition included release parties, tastings, festivals, dinners, seminars and more. The seminars aren't new, to my knowledge, but there were more of them this year, I suppose because there's intense interest in how beer is produced, marketed and so forth.

For the past two weeks at least, my email box and social media feed have been packed with event invitations and reminders. I attended only a couple of events intentionally, then walked in on one unintentionally. That's how nuts it is.

So forget Gary Fish's comment for a moment. He was certainly right. Ask yourself, instead, where this industry will be in a year? Or in five years? Better yet, what will it look like in a decade? The answers are far from certain.

There's a great column in the June issue of BeerAdvocate Magazine by Andy Crouch. In it, he talks about his experience at the recent Craft Brewers Conference in Philly. The conference has grown by leaps and bounds in just the last 10 years. I attended last year in Portland. Bonkers.

Crouch, who's been writing about craft beer for quite a while, talks about walking around the hall and not seeing many familiar breweries. There was a time when there weren't that many brewers. Or writers, for that matter. People knew each other. It was quaint. Those days are over.

You look at CBC and at PDX Beer Week and you see hordes of craft beer fans. There's a certain freneticism surrounding the industry, with more people and more money flowing in and countless new breweries and related businesses opening all over the place.

We can look back and see where craft beer came from. If you know the story, you know the revolution got off to a sluggish start 30-plus years ago. But it's ramped up considerably in the last 10 years. The pace of growth and change is so rapid now that it's almost impossible to keep up.

Many years from now, someone in today's industry is going to be asked if they anticipated changes that happened on their watch. And their response will almost certainly mirror Gary Fish's: "No sane person would have."

Friday, June 10, 2016

Revised Severance Policy Suggests Imminent CBA Sale

For a while now, I've wondered about the future of the Craft Brew Alliance. There are a number of reasons, which I'll get to. My working assumption for a year or two is that they would sell, mostly likely to Anheuser-Busch. Recent developments suggest a deal may be imminent, although maybe not the deal I envisioned.

Let me back up for just a moment. The principal players in the CBA, you will recall, are Widmer, Redhook and Kona. No need to review the history of the organization here. But do keep in mind that Anheuser-Busch owns roughly a third interest in the CBA. That's been the case for a number of years.

Over the course of the last few of weeks, CBA stock gained 36 percent. It jumped 8.1 percent this past Tuesday. Why the increase? Some think it's linked to the announcement of an updated severance policy for executives in the event company ownership changes.

The new policy, unveiled on May 24, calls for executives to receive 18 months of their base salary, plus their annual target bonus and health benefits, if the company is acquired and they're out of a job. Execs who leave prior to a takeover would receive less favorable severance.

Some will say it's just a coincidence, that the severance policy has nothing to do with anything. But one of the things you don't want when positioning yourself for a sale is the appearance of instability. You cannot have executives jumping ship. So you make it worth their while to stick around.

By the way, CBA stock isn't going up specifically due of the severance plan. That's not how these things work. What's happening is investors have sniffed out the fact that the CBA is likely to be sold and there's an opportunity to make some money, one way or another.

Inquiring minds may fairly wonder why the CBA might want to sell. Several reasons:

Struggling Brands
In case you aren't aware, the growth of craft is slowing nationally. That's having a particularly dramatic affect on older, established brands. They face steep challenges staying relevant in a sea of newcomers. Widmer and Redhook are perfect examples of that theme. In certain quarters, there's a perception that both brands, among hundreds of others, are tired and past their prime.

Anheuser-Busch's incentive programs, which have been widely reported in a variety of places, work against the interests of the CBA, despite the partial ownership arrangement. That's because distributors are incentivized to sell AB-owned brands. Since the CBA isn't fully owned, its beers don't get the attention that AB's High End brands get. It's a pickle for the CBA, which has derived significant benefits through its relationship with Anheuser-Busch dating to 1997.

Some in the industry believe the key to surviving in an increasingly crowded, competitive and complex marketplace is to partner with big beer. Breweries that do so give up, at a minimum, the perception of autonomy. What they get in return is the security of a partner with deep pockets, a massive supply chain and an extensive distribution network.

Despite its declining brands, the CBA possesses a gem in Kona, which has built a strong national following mostly because it's marketed like Corona. People somehow visualize the beach when drinking Kona. It hardly matters that Kona consumed on the mainland is also brewed here, not in Hawaii. Anyway, Kona is a big fat target for the likes of AB, which desperately wants to take a bite out of Corona/Constellation.

It's hard to know how much influence Kurt Widmer had at the CBA in recent years. He was definitely the visionary behind the origins of Widmer Brewing. Did his retirement at the end of last year open the door to acquisition? There's no way to know and no one talking. My guess is he retained a fair amount of power over the direction of things until he retired. Not so much now.

Returning to my original assumption, I now believe they will likely do one of two things: Either they will sell to Anheuser-Busch or they will somehow buy their independence and focus on rebuilding their brands via new partnerships. Continuing along as they have been is problematic, given what's happening in the industry and what their friends in St Louis are up to with acquisitions and incentives.

It turns out there's another possibility I hadn't considered until an industry friend mentioned it. In that scenario, only Kona would be sold to Anheuser-Busch. That makes some sense. Kona, as noted, is the crown jewel the CBA portfolio. Its seismic growth potential makes it a high value asset and provides plenty of incentive to any potential suitor.

One of the things AB would likely do with Kona is open Hawaiian-themed, Kona brewpubs around the country. We've seen a tiny bit of that with 10 Barrel (pubs in several cities), but Kona is an emerging national brand oozing with pub and shelf appeal. None of the other CBA brands are in the same league and, honestly, there's nothing with the upside of Kona out there.

What would happen to the remaining CBA brands? Here's where it gets crazy. In the scenario described to me, those brands would be sold to Pabst. Interesting. Pabst, you may recall, is currently leasing (with an option to buy) the antiquated CBA brewery in Woodinville, Wash. Could a deal like this happen? It sounds pretty far-fetched, but stranger things have happened.

If you're wondering about a timeline, time is of the essence. The slowdown in overall craft has the industry on edge. There will undoubtedly be deals this year. The various pressures and incentives suggest the CBA is ripe to be part of that. But we shall see.

Monday, June 6, 2016

Fruit Beer Fest Moves Onward and Upward

This week's marquee event is the Portland Fruit Beer Festival, returning for its sixth year. As you may know if you're reading along, this event has been its own worst enemy due to overwhelming popularity. The space next to Burnside Brewing hasn't been adequate in recent times.

Which is why organizers are pleased to announce the festival is moving to the larger, shadier North Park Blocks this year. The expanded venue will provide space for additional beer and cider offerings, more food options, more music and more places for attendees to just chill.

The festival happens this weekend, June 10-12. It's worth mentioning that, along with the larger more user-friendly venue, event hours are also expanding. In previous years, Friday hours were short or non-existent. But they're open three full days this year. Spreading out the anticipated crowds is a good thing.

General Admission packages start at $25 ($27.40 online) and include a branded festival cup and 12 drink tickets. Advanced ticket holders or those who arrive early Friday will receive an extra 3 drink tickets. Tastes of beers and ciders go for 1-3 tickets. Additional tickets cost $1.

Another new feature this year is the Burnside Can Garden, which will be located inside the festival. Want to escape the crowds and drink something other than fruit beer? Enter the Can Garden, where they'll be serving Burnside Couch Lager and IPA in cans. Hey, not a bad idea.

The primary reason this event has generated such enthusiasm in recent years is the beers. They are typically unique interpretations of what you can do with fruit and beer. I missed the media preview the other night due to another commitment. But the list is impressive, as always.

Obviously, the elephant in the living room is the new venue. The Burnside folks had been thinking about moving to a larger venue for several years. It didn't happen because they were comfortable using their own space, which they expanded and made about as user-friendly as possible.

But all things must pass and it was time to move onward and upward. Understand, the move is not without risk. The new space is more costly and the logistics are tougher. The event must grow to justify it. If the weather doesn't cooperate or if fans don't show, organizers could find themselves upside down. It's unlikely, but that's how these things work.

As always, there's a lot more information on the event website here. I'm not sure if it's still the case, but they were looking for more volunteer servers the other day. Extra tickets were part of the deal. That may no longer be the case. Visit the website for info.

Friday, June 3, 2016

The Unfortunate Rise of Beer Geekery

My friend (I use the term loosely) Jeff Alworth just posted a piece that explores why he doesn't feel he's a beer geek. It's a fairly nuanced review of the differences between a beer geek and a beer nerd, and how those beasts, if you will, behave out on the open beer range.

In fact, Jeff isn't a beer geek. He's not particularly interested in chasing down new beers or trends. You want to experience a new brewery with Jeff? It's not tough because the list of relatively new places he hasn't been to is long. Invite him to meet somewhere. Anywhere. Please.

By his own admission, Jeff is a beer nerd. He writes books about beer, beer styles and (often) antiquated brewing techniques. He's interested in the types of things that bore your typical beer geek to death. As John Foyston and I decided several years ago, Jeff enjoys, "thinking about beer."

While Jeff was thinking, a crowd of craft beer super fans reached legal drinking age. And it continues to grow. These are the folks you see waiting in line to buy special event tickets or taste rare beers. They're the ones you see drinking trendy beers and yacking relentlessly about all the new breweries they've been to. They know everything there is to know.

Except how to enjoy a beer. Because the simple act of enjoying a beer is largely lost on this crowd. If I had to compare it to something in my own experience, I'd say it resembles what I saw with music when I was in college. Everyone wanted a fancy stereo with lots of sexy lights and switches. The stereo itself became the center of conversation and attention. The music was secondary.

 Jeff adds some useful perspective on our present situation in his post:
I could give up beer, the beverage, more easily than I could coffee. By far. But what I'd find very hard to give up is the simple pleasure of sitting with people in a pub and enjoying a pint. In that context, I like a good beer, but it isn't the central feature of the outing. This view is far more prevalent in pub-going countries, where people regularly drink a lot of beer over the course of a year. But the term "beer geek" just doesn't fit. They're beer drinkers, and surely beer lovers. But not beer geeks.
As I've said in previous posts here, I believe beer geeks are driving a lot of the growth in craft beer. Particularly when you look at dollar volume growth and the growing importance of high end product. Most of that stuff is being bought by beer geeks. Cost is no object with these folks.

Not that long ago, you could walk into a brewery or pub, choose your beer from a short list and enjoy it. You might even order a pitcher to share with friends. Choosing the beer wasn't complicated. You made a judgement call and lived with it. The beer wasn't the central feature of the outing.

That's changed...or is changing. Many can't order just any beer today. They crave something new or special, something that can be showed off and discussed at length. The days of beer being a secondary, casual part of the experience are in decline, possibly rapid decline, for many.

Good beer has certainly changed how we think about beer. And mostly for the better. But beer geekery may be one of the more unfortunate developments of the craft era.