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Friday, May 31, 2019

Craft Beer's Ultra-Competitive, Jelly Bean Reality

Before I launched this blog in 2011, I had observed the trajectory of craft beer dating to the 1990s. Those were quaint times, thinking back. There weren't that many breweries and, to a large extent, you mostly knew who they were and what they were good at.

That began to change after the financial crisis of 2008. It was around that time that the brewery count started to tick upward wildly. One of the stats I included in Portland Beer was that Portland's brewery count had increased 40 percent between 2009 and 2012. It continued to rise from there.

The national numbers are similar. Between 2009 and 2012, the total craft brewery count rose from 1,698 to 2,420, according to the Brewers Association. Between 2012 and 2015, the count nearly doubled, ending at 4,628. Between 2015 and 2018, another 2,718 opened. Total craft breweries at the end of 2018: 7,346.

Those stats, unless you look at the detail, obscure something significant about the structure of the current market. Between 2009 and 2018, microbrewery growth was off the hook....more than 4,000 opened during that period. Framed differently, for every microbrewery that existed in 2009, there were roughly eight by the end of 2018.

Brewpubs, which had formed the backbone of the industry for several decades, saw subdued growth by comparison. Between 2009 and 2018, around 1,500 brewpubs opened, an increase of about 150 percent. Regional brewery growth was miniscule, an increase of less than 200.

In effect, the craft beer landscape was transformed. Today's industry is dominated by small breweries that focus almost exclusively on beer. Brewers Association stats have shown that those breweries are creating the bulk of industry growth. What they share is that they rely on beer sales to stay in business.

That scenario has made differentiation the name of the game. You have to make yourself known somehow. That's one reason we're seeing packaging with wildly colorful labels and creative designs. If your packaging is dull and unengaging, consumers are less apt to notice you next to other shiny stuff on shelves.

There's also the beer itself. Differentiation means playing around with experimental ingredients and names. Where it once meant using different hops or malts, it now means almost anything. Have you tried Fudgesicle Ale? How about Fruit Loops IPA? What about Donut Lager? You simply must.

The result is that shelves in beer stores have turned into jelly bean showcases featuring wild packaging, experimental ingredients and crazy beer names. The fact is, a lot of consumers are simply looking for what's trendy and new. Anything to capture their interest.

What's hot today probably won't be hot tomorrow. Brand churn is in overdrive. If you're a brewer, you best be thinking about the next wacko beer you plan to produce and market. It better have unusual ingredients and a fancy name. The packaging better be eye-catching.

The result of the new reality is that craft beer is increasingly fad-driven and trendy. Social media has helped with that, for sure, by facilitating the spread of images and banter. The question is, do these themes add up to this being a healthy or unhealthy market? Asking for a friend.

The answer depends on your point of view, I suppose. To me, it looks like an increasingly saturated market in which many (perhaps most) of the players are desperately vying for the same customers by tossing all kinds of ideas out there and hoping something sticks, if for only a minute..

How's that going to work out? We shall see.

Friday, May 24, 2019

And Now, Here They Are...The Beatles

Although I was a bit young to be much of a fan when they first appeared on the scene in the United States, I became a serious fan of the Beatles by the time I was 12 or 13. I have a ridiculous collection of singles, LPs, EPs and CDs to prove the point.

So I wanted to visit the Oregon Historical Society, where they have a Beatles exhibit showing through Nov. 12. It's an impressive exhibit, given the amount of floor space involved. They've curated a number of fascinating items from the Beatlemania period.

I should note that there's also an Oregon Beer history exhibit showing through June 9. That exhibit is packed with enticing artifacts from 200 years of Oregon beer, though I discovered errors in some of the displays and found the exhibit as a whole to be light on substance. Could be I know too much.

Staging a Beatles exhibit alongside one that delves into Oregon's craft beer revolution is instructive, intentional or not. Why? Because Beatlemania and contemporary craft beer represent cultural shifts. The demographics might not line up exactly, but the fan bases share a certain freneticism. I'll have something to say about freneticism, cultural shifts and craft beer in a future post.

I was the oldest sibling in my family, yet not old enough to understand what was happening when the Beatles appeared on the Ed Sullivan Show in early 1964. But I vividly remember the merchandise. Kids I knew had Beatles-branded lunch boxes, pins, jewelry, games, cards, etc. Everyone wanted a piece of the Beatles, even if they knew little or nothing of the music. The lunch box is an especially strong memory, bringing back visions and smells of my grade school cafeteria.

My eastern Washington hometown and age meant there was very little chance I could have seen the Beatles live. Seattle and Portland had shows, but I was too young and too unaware to have been interested. Anyway, Seattle and Portland might as well have been the surface of the moon...entirely too far away and a little scary for a young country bumpkin.

My wife, a couple of years older than me, lived in the Bay Area and was lucky enough to see the Beatles at the Cow Palace in August 1964. It was the first stop on that tour. She went with five girlfriends and remembers it was very hard to hear the music over the shrill screaming of pre-adolescent girls, a signature feature at Beatles' shows.

The Beatles passed through the Northwest several times during the three years they toured North America. They played several shows in Seattle, but played Portland only once, two shows on August 22, 1965 at Memorial Coliseum. The OHS exhibit does a nice job of documenting that visit. For instance, they've got a show ticket and a copy of the show contract on display. The Beatles weren't all that demanding, particularly compared to what rock bands would demand down the road.

However, one of the clauses in the contract required that the audience not be segregated, a response to situations they had run into in the South. Tickets were priced at $4, $5 and $6. That top dollar ticket computes to around $50 in 2019 dollars. There were apparently a number of free pink tickets issued for the upper level nosebleed seats. About 20,000 saw the two shows.

The set list is disputed. Twist and Shout opened most shows on that tour and is listed as the opening song on a handwritten list recently published in the local press. But John Lennon was having voice problems and apparently didn't sing Twist and Shout at the afternoon show. Folks who were there remember the band doing their standard abbreviated version of the song to open the evening show.

Following the Portland show, the Beatles flew to Los Angeles and enjoyed a few days off in a rented home off Mulholland Drive. They then played two shows at the Hollywood Bowl, which were considered to be some of their best. The primitive tapes from those shows became the basis of the 1977 album, The Beatles at the Hollywood Bowl. More recently, music from those performances was sonically enhanced and used in Ron Howard's documentary, Eight Days a Week.

The Beatles returned to the United States in 1966. By then, they had grown weary of touring and fans who screamed their way through shows. The shows had become increasingly dangerous for the boys, as crowds were huge and unmanageable. Anyway, the group wanted to further develop their writing and recording and opted to stop touring.

As most know, the final live performance happened at San Francisco's Candlestick Park in late August 1966. The Beatles, who were by all accounts an incredible live band (listen to Eight Days a Week if you don't believe it) went on to create their most popular and critically acclaimed music in the studio. They never appeared in front of a paid live audience again.

The OHS Beatles exhibit is well worth seeing. Keep in mind that Multnomah County residents have access to all exhibits free of charge. What was known as Beatlemania quieted down after The Beatles stopped touring, but it lives on in exhibits like this one.

Thursday, May 16, 2019

AB Purchase of CBA Imminent

The Craft Brew Alliance held its annual shareholder meeting Tuesday at the shuttered Widmer pub. Shareholders got to hear about the state of the company and pick up their free beer. Yeah, if you own stock, you get a free case of beer each year. You don't have to drink it.

I've been watching the CBA story for several years. If you've been following along, you probably know we're approaching the contractual deadline by which time Anheuser-Busch must make a qualifying offer to purchase the CBA. The date is August 23.

That timeline is based on a contract (actually several) signed in 2016. The details are fairly well-known. For the unaware, the agreement(s) covered contract brewing, domestic and international distribution. It also set deadlines for outright purchase at a set minimum price per share in successive years, the last of which comes in August at a minimum offer price of $24.50.

When the agreement was announced, many viewed it as a framework for a slow moving buyout. Craft beer was growing steadily. People who owned CBA stock figured to cash in. Investors on the outside, if they were paying attention, saw the chance to make some easy money.

Yet the stock price languished, staying well below the required buyout price. Yesterday, CBA stock closed at $15.33. Simple math. That's $10 less than the required 2019 offer price, which suggests the investment community isn't confident a deal will happen by August. If there was confidence, the stock price would be north of $20.

Why the lack of confidence. For one, the craft beer landscape looks a little sketchy. Established brands are suffering as a sea of newcomers sucks up market share. In the case of the CBA, its former flagship brands, Widmer and Redhook, are in dramatic decline and a drag on profitability. No need to delve into the details. Craft beer doesn't look like a great investment right now.

The CBA remains a buyout target only because of Kona, which continues strong growth in a fragmenting industry. Kona has been carrying the CBA for several years. It's a unicorn brand, seemingly impervious to volatility in the market. Kona lost a bit of momentum in Q1, but appears poised to rebound strongly heading into the busy summer beer season.

Virtually everything the CBA leadership has done in recent times was done to make the company a juicier buyout target for AB. The shuttering of unprofitable pubs looked awkward, but removed overhead and costly benefit packages from the ledger. Closing the Widmer tasting room, where they briefly showcased experimental beers, saved barely any money, but signaled that they were abandoning any effort to rebuild local brand status. And so on.

Those who own CBA stock have been patient. Current and former employees who hold stock quietly hope for a payday. However, those who invested because they perceived that the 2016 agreement set the stage for easy money are getting restless.

Fast forward to yesterday. That's when Boston-based Midwood Capital Management sent a public letter to CBA leadership effectively demanding that they complete a sale to Anheuser-Busch or, failing that, to an unspecified third party investor or company.

This is great stuff. It turns out Midwood Capital loaded up on CBA stock in early 2017 and today sits on about 2 percent of the outstanding shares. Needless to say, they were counting on a financial windfall and aren't happy with the downward trajectory of the stock price. They want action.

What these folks correctly realize is that CBA stock is undervalued on the public market. That's largely due to its grubby appearance. When Wall Street looks at the CBA, it sees the complete package and the complete package doesn't look all that appealing thanks to the dying brands and other drags on profitability.

What Midwood Capital also realizes, correctly it seems, is there is no way shareholder value will be maximized if the CBA stays independent (AB owns just 31 percent). They see the value of Kona, but believe fulfilling that potential will require investment and strategic know-how an independent CBA can't deliver. Again, they're surely right.

With that in mind, Midwood urges the CBA board to accept the qualifying offer if it comes. Further, it wants the board to do whatever it can to encourage AB to make a qualifying offer. If no offer comes, they want quick action to stabilize the stock price and sell the company to another suitor.

Listen, CBA leadership is bent on selling. They can't force a deal, but they want one and have been scheming for several years to make one happen. The idea of staying independent, which they've floated, is a ruse. They know what Midwood knows...that they don't have the horsepower to fully realize Kona's potential. 

For its part, Anheuser-Busch can't afford to pass on this opportunity. Letting Kona fall into the hands of someone else would be a disaster. That's partly because Kona has terrific global potential. But mostly it's because AB would be stuck honoring some pretty unpalatable contractual obligations in a scenario where it didn't own CBA/Kona. Zero chance of that happening.

The clock is ticking, obviously. Buyout details are almost certainly being finalized and a deal will be announced shortly. Expect AB's offer price to exceed the required $24.50 by a dollar or two. They don't want to look cheap. There's no running out the clock on this.

Wednesday, May 8, 2019

When Print Was Fab

When I first started writing about beer-related topics nearly a decade ago, one of my goals was to eventually write for a nationally distributed publication. I wanted to be part of that brotherhood, if that's the appropriate descriptor.

That didn't prove to be quite as easy as I hoped and imagined. There was a lot of competition for that work and not all that many outlets. Some of my earliest pitches happened before I started this blog in 2011, and well before Portland Beer was published in 2013.

Having a book opens doors that might not otherwise open and I suppose Portland Beer helped with that for me. That's not to say getting beer writing assignments was ever easy. It most certainly was not.

I had subscribed to Beer Advocate for several years by the time I submitted my first pitch. Planning a trip to Kauai, I pitched an article on the Kauai Beer Company, a new brewery there. This was early 2014. I had been to KBC in late 2013 and expected to visit again in the spring.

Then-editor Courtney Cox was interested in the story. But she was transitioning to a different role and there was a new editor taking over. She asked me to pitch the idea again in a month or so, after he had settled in. I was skeptical.

When I pitched the article again, I got a quick reply from incoming editor, Ben Keene. He was interested. I believe he had been to or had knowledge of the Kauai Beer Company, which is located in what is best-described as a "beer desert." We essentially agreed that visitors looking for a decent beer might be interested in a story on this brewery.

That's how I got started writing for Beer Advocate. I would go on to work with Ben on a small collection of articles covering de Garde, Bale Breaker and Cascade. The Cascade article, which wound up being a cover story, appeared as Portland was hosting the Craft Brewers Conference in 2015. That was pretty cool.

In my work with Ben Keene, I found him to be a demanding editor. He wasn't about to accept copy that wasn't refined and efficient. Instead, he would offer suggestions for how to improve the content or flow of an article. I seem to recall a fair bit of back and forth in that first article, but we got it dialed in and it presented well when published.

It's easy to complain when you perceive an editor being overly picky. You're getting paid by the word and a lot of writers figure they're done when they submit an article. But I never felt that way with Ben. His suggestions were always on point. He wanted every piece of information to be clear and concise. You can't argue with that. He made me a better writer, for sure.

Anyway, most who stop by here know Beer Advocate has ceased publication. I'm not sure what will become of it. Although print is being eaten alive by digital and social media, Beer Advocate might have survived with better management. The brothers who ran it were sloppy. They relied on talents like Ben and Courtney to produce quality content, but they failed to effectively manage the financial end of the business. Well, that's my take.

I stopped pitching articles after it took six months to get paid for one. It was clear to me that they were struggling financially and that I might never be paid for future articles. Sure enough, I heard rumors of writers not being paid for work submitted long ago. Soon, BA went to quarterly publication; then they announced they were shutting things down. No surprise.

One of my writing friends suggested to me that craft beer fans in general are "post-literate." Not bad, right? Because the dramatic decline of print beer publications (Oregon Beer Growler, Celebrator News, etc.) makes sense if you believe the average fan doesn't read much...or at all.

I tend to think craft beer fans are younger, more dependent on social media and digital information streams than older craft fans, who are fading into the background as I write. The industry saw that trend and has increasingly looked to newer platforms to reach prospective customers. Fine.

The demise of Beer Advocate is especially disappointing due the people and the quality of their work. I'd like to believe there's a place for traditional beer publications. But I'm not at all sure what one looks like in an industry increasingly driven by social media and short attention spans.