BS arguments about BS arguments

No one reads this right? Just checking because I’m almost certain beer geeks everywhere will automatically disagree with me if they did so once again I am just using this as a semi-public way to vent. Today I read a lengthy piece about why breweries that sell out to large conglomerates like AB Inbev (well actually solely AB Inbev from what I read) are “capable of devastating the craft brewing industry”.  (https://www.pastemagazine.com/articles/2017/05/the-straw-man-arguments-of-craft-beer-sell-outs.html). Like a lot of people that appreciate beer I really don’t like it when subjectively “good” regional breweries sell out and most of the time I avoid their products out of principal. However some of the arguments cited in the article really don’t hold water. Specifically I still believe an owners decision to sell THEIR company is a fundamental right. In fact if the business has investors there might be a fiduciary duty to consider all offers regardless of who the potential buyer is. If the brewery is independently controlled and operated and the owners want to take what is perceived as a moral high ground then that is their prerogative and I applaud those businesses that have have shunned takeovers by giant conglomerates. As a business owner in a completely unrelated field it took twenty years and an initial 75% pay cut to get to where I am now and I would be incensed at the idea of people with no vested interest beyond that of a consumer trying to dictate when I can exit or to whom I can sell. Throughout the article the author focused on ABInbev and suggested there are other ways for owners to cash out. But are there? Is anyone but a giant company like InBev going to pay $1 Bln to get Ballast Point? I doubt it, why would they? He brings up other “alternative routes” that companies like Oskar Blues and Victory have taken and those types of consolidations are great if they make sense and are even available. It’s easy to assume there will be a lot more circling the wagon type joint ventures or less than a majority equity sales in order to remain competitive, but to make it sound like they are easy alternatives to a large sell out is very simplistic.

I also think the author failed to really address “illegal practices”.  This should be front and center with regard to reforms nationwide and the efforts of lobbying groups to change local alcohol codes. Stiffer penalties would ideally include expulsion from the marketplace. If bars can be shutdown for a week when caught serving a minor then why cant similar penalties be imposed on purveyors of alcoholic beverages. If an ABInbev distributor is caught trying to force out shelf space in a store chain in Harris County all of that brand is barred from being sold  for a week. Strip the shelves of Bud and see if the distributor ever tries that tactic again. Every state has exponentially more breweries than they had and the coffers of every brewers guild should be at record highs enabling them to make strategic contributions to lobbying efforts aimed at eliminating these practices and changing the rules.  The US over 5,000 breweries now and there is no excuse for not having a war chest. I don’t like ABInbev but they cannot and will not buy every brewery out there. The pace of their acquisitions is lowing as are the prices they are willing to pay. And as for those sports bars that the writer refers to carrying nothing but ABInbev brands, ten years ago those places would have only carried light lagers made by the same giant companies a decade ago. I didn’t frequent them back then and I don’t today.

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11 Stream of Thought Beery Predictions for 2017

My apologies the one or two of you that might occasionally tune in. It has been some time since I’ve literally regurgitated but I suddenly felt the urge so here are my 11 beery predictions for 2017 in no particular order. Take them with a grain of salt, arsenic or whatever makes you thirsty. Why 11? Because I go to 11…

  1. Craft beer markets in the US will finally reach a saturation point as supply exceeds demand – duh, some of us have been saying this would happen for years. Now other pundits are finally chiming in when they can see the flaming 747 heading towards them. Only, we know it won’t be a clear cut apocalypse. Just as we suggested using more mature beer markets such as Portland, Denver and San Diego as examples as to how saturation develops, the level of saturation will vary greatly by geographic region. A short trip across the US Southeast late last year reminded me of how disparate each market really is. Aside from a few standouts, major metropolitan areas in places like Alabama, Mississippi, Tennessee and Kentucky are all at a stage of development similar to most of those in Texas one or two years ago (or for that matter where Portland was ten years ago J).  So in other words if you are in places like California, Oregon, Washington, Colorado or Texas and you make beer to sell off site things are probably already getting difficult – there are just too many brands competing for a finite number of taps. In less developed states like Alabama watch for a large distribution oriented push and less relative competition in the near term (although your time is coming).
  2. In desperation many distribution oriented micros experiment with different styles and serving techniques. We’ve already seen large companies like Sam Adam who’s sales stalled a couple years ago delve into a nitro can line and more will follow in an attempt to be different and capture niche market share.
  3. Breweries looking at expansion decide to call off their plans to do so. It happens all of the time in the manufacturing sector when the economic landscape changes and while some breweries don’t seem to pay much attention to forecasting others might take a more conservative approach.
  4. Breweries with excess capacity will solicit contract brewing opportunities. Again, something we predicted and has already started in earnest among many breweries that just aren’t selling enough of their own product to keep their expensive brewery busy. TGI Friday brand Pale Ale? Why not, you’ve seen Landshark right?
  5. Brewpubs that ventured into distribution will pull back resources to focus on their taprooms. IN Colorado Twisted Pine already did it. In Texas the smart people at Jester King realized long ago it was better to make less, charge more and sell it out the door (sounds like a rhyming mantra everyone should memorize). When selling kegs through a distributor or even direct to a bar becomes highly competitive in terms of price and effort companies will realize their chances at survival improve when focused on selling beer on site.
  6. Both domestic and international breweries will extend into distribution channels that seemingly make little sense because there are few new avenues for growth. Will New Glarus move outside of Wisconsin? I will put money on it. Will Russian River Pliny end up on the shelves in places like Texas – again, I have no doubt. Will we see more Cantillon? Now that’s a tough one…
  7. Beer bars will also suffer as their pool of patrons fails to grow as fast as the number of similar beer oriented bars opening up. Also keep in mind a lot of hole in the wall dives that once had little interesting to serve beyond ice cold cans of PBR now offer local craft beer – so if you can go to an interesting bar AND have great beer…
  8. Beer industry personnel will flood the market. A lot of people are enticed into making their living in the beer industry because it seems like a lot of fun. In reality it’s often underpaid work involving long hours and being around beer when beer is the last thing you want to be around. I’ve met a lot of people in the industry and they are some of the best people know, but I am equally sure some would be making a better living applying their skills doing something completely different. Unfortunately if the markets within which they work reach a saturation point many will have to transition by necessity.
  9. It might come as a mixed blessing to beer snobs but it is less likely gigantic conglomerates like AB Inbev and MillerCoors are still interested in your regional brewery. There might still be a few acquisitions in the making but to be honest the big guys employ very smart people that realize they don’t need that many bands to dominate a given market once a saturation point is reached. They will however remain more profitable due to their economy of scale and relative buying power so it is conceivable some smaller independent craft breweries could decide to combine in an attempt to improve their relative economics with regard to raw material buying power or even distribution costs (by brewing each other’s brands in different parts of the country etc). We’ve already seen some of this.
  10. In addition to quality product, post saturation brewpubs and taprooms will need a healthy repeat walk in business focused on location. If you can walk to a place with beer just as good as one down the road why wouldn’t you (all other things being equal)
  11. Post saturation brewpubs will benefit from a niche. The trend lately seems to be a build out focusing on modern interiors with industrial fixtures, exposed brick or wood, open seating and eclectic art with perhaps some old neon thrown in. Once you have been to three or four they start to lose their own identity. I’m not saying we need to go back in time and resurrect Superhero themed restaurants with wait staff dressed as Batman and Wonder Woman, but when so many people hire the same designers to fashion a brewpub it gets monotonous. Those that are creative and think outside the box will probably fare better by comparison. At least they will stand out among the multitude of industrial boxes.

 

Anyway, those are my hastily scribbled stream of consciousness predictions for 2017. Enjoy, the one or two of you reading this.

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GABF – How will it die?

GABFIn an hour we will take a very responsible bus ride to the Denver convention center in order to attend the Thursday session of the 2016 Great American Beer Festival, an event billed as the largest of its kind. But what does that really mean? In the last few years the number of breweries has exploded making it increasingly difficult to attain a slot at GABF. Many well known and recognized breweries like Hill Farmstead, Prairie Artisan Ales, and Crooked Stave don’t seem to feel a need to participate in part because the event is so incredibly huge its hard to really quantify any measurable benefit to serving there. From a consumer standpoint ticket prices are higher and to be honest the quality of beers among many professional breweries these days is severely lacking. This year at the GABF 7,227 beers were judged by 264 judges, of these over 3,800 beers will be available on the GABF floor.  When will they admit this is overkill? Several years ago I suggested the Brewers Association should create regional competitions like they do on the homebrewers side of their business – let the best of the best make it to the final competition and festival. What we have now is a smorgasbord of great, mediocre and quite honestly some of the worst beer I’ve ever tasted (counting both commercial and home brewed concoction). People that work with the BA contend it would simply be too difficult to create regional competitions, but I suspect it has more to do with a general lack of will. After all the BA along with brewers guilds across the country are more focused on how much money they are raking in from of new dues to care about the consumer. I truly wonder where this will end? Will the GABF continue to expand every year moving forward to encompass another 1,000 booths? There are over 4,000 breweries in the US now and we are in uncharted record territory.  Since 2011 the number of breweries doubled…will it double to 8,000+ in another five years? If the BA doesn’t want to create regional competitions that feed into the GABF making it more meaningful and manageable then I hope it considers at least vetting prospective breweries and their offerings, otherwise its future as a well respected world class event could be in jeopardy. Like many acquaintances that no longer go to GABF I too might decide targeted events like What the Funk and the Denver Rare Beer Tasting are more worthwhile. Perhaps all sessions of GABF will devolve into the scene normally encountered on Saturday nights as more discerning drinkers make way for a crowd of obnoxious drunks that care more about getting trashed than they do trying innovative or well made beer.  At that point I think we can toll the bell, for GABF as we once knew it will truly die.

 

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The End is Nigh!

animal-housePerhaps I am being a little over dramatic, but for the last several months signs of the great US craft beer apocalypse keep reappearing.  Today I will go out on a limb and say that in several states the crest of the latest cycle has been reached and market saturation will start to impact growth in a very real way. If you are a student of economics then you know paradigm shifts don’t happen overnight, but there are always signs that a market will correct. As I mentioned in the past market dynamics will impact some breweries more than others.  Those relying on distribution for a majority of their net income might find the next few years difficult, especially if they are less competitive due to inadequacies with regard to marketing, distribution or product. Destination breweries and brewpubs are insulated to a large degree, but breweries seeking to sell most of their volume off premises will find the market competitive. in places like Texas there might be more opting to transition to a brewpub status. In places like New Mexico a microbrewery can distribute to as many as three offsite “tap rooms” which also makes them somewhat insulated and essentially provides them with access to a self contained market within a particular geography (something I hope guilds in places like Texas are working on). So here are some current signs of the coming beer apocalypse in my very subjective and jaded opinion:

  • There are now more breweries operating in the US than at any time in history and the number continues to grow into uncharted territory (PS don’t listen to the cheerleaders that claim all is well – they are the Kevin Bacon character in Animal House that gets trampled at the end).  How many people do you know working on opening their own brewery?
  • Imports are also growing as new craft brewers startup overseas and established brands start to export to the US – where will all of these new brands go?
  • Tap space is finite – go to any bar and ask if they are adding taps to accommodate all of the new breweries popping up…they aren’t
  • Craft breweries in some regions are discounting kegs to remain competitive and keep their beers on at some accounts – beer at some level IS a commodity and this dynamic in particular is very telling
  • Sales among establish craft breweries is slowing – look at Sam Adams which grew 3.6% last year (in part due to Angry Orchard and Twisted Tea products) after growing 17% from 2013 to 2014. Net sales for Craft Brew Alliance also grew about 4% last year with sales in Q4 reportedly flat as compared to growth of about 10.5% in 2014
  • Breweries starting new brands or buying existing brands as a means to grow
  • Breweries building new plants in other geographical areas as a means to grow – like Lagunitas, Sierra Nevada, Oskar Blues, New Belgium, BrewDog, Stone…
  • Regional breweries are entering into out of state distribution deals – why give way margin if you can sell it locally? Remember stories like this – http://beerpulse.com/2011/04/avery-brewing-exits-eight-states-seven-partial-markets/? Now we have companies like Avery (with bigger plants) not only back in markets they once exited but eager to find new markets even if that means giving away more due to freight costs.

 

There are more signs foreshadowing the great US beer apocalypse, but it’s not all doom and gloom. Consumers should rejoice as the fallout should (in theory) weed out producers of subjectively “bad” beer, the only caveat to that being sometimes those with the most marketing dollars are the ones inexplicably left standing. Let’s make sure that doesn’t happen however by introducing your friends to good beer and teaching them about off-flavors – the future is in your hands.

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GABF Medal Winners – A Couple Graphs

I had the time so why not graph top medal winners by state (those that won 10 or more). Not making that cut this year was PA which had a great 2012. The big surprise (at least for me) was California. Enjoy:

GABF1

 

gabf2
gabf3

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GABF 2015 – A personal recap

gabfAfter roughly a decade of attending GABF the event continues to change, so I thought I would jot down a few of my thoughts before they begin to fade.

First, despite expanding into a side hall GABF continues to burst at the seams, and with an increased ticket limit there was a bigger crowd.  Maybe the idea looks good on paper, but when a huge percentage (now larger) wants to stand in lines for Dogfish or Wicked Weed, or frequent popular areas like the region hosting Southern California, then the masses become harder to navigate.

There were some incredible new breweries at the festival, but the concept of allowing any brewery that gets their opportunity to enter and serve is woefully outdated. In the last few years as the number of booths increased so has the number of objectively bad beers being served. This was the second year in a row a brewery served a sour heavy with butyric acid (imagine soiled baby diaper). Walking around was a lesson in off-flavors at times. I believe I poured out more samples this year than I drank to be honest.  I am still not sure why the Brewers Association doesn’t consider hosting small regional qualifying competitions across the US that then feed into the GABF making it a showcase for the best beers in America? It seems they would make more money and retain a legitimate way to keep the numbers under control.

OK enough with the negative vibes, here is a list of my highlights:

*Seeing our beloved pet’s name on a beer being served

*Escorting a beautiful girl around the festival floor

*Ryan Lotter of Boulder Colorado winning a bronze in the ProAm Competition

*Bootstrap Brewing of Niwot Colorado winning their first GABF medal

*ABGB of Austin Texas winning gold for their delicious American pilsner

*512 in Austin Texas winning gold for their sour

*Black Star Coop in Austin Texas winning gold for their porter

*The success of 1400 Miles and the whole crew including Courtney and Tony as they spread the word and raise money to combat prostate cancer

*Hearing about Mufasa leaving BJs to market hops

*Learning our friend Brady formerly of Il Vicino will open Quarter Celtic in ABQ

*Discovering Scratch Brewing’s Wood themed beers

*Talking to Pete Schlosberg

*Mingling with a large number of really nice people from the beer industry

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Another Microbrewery Bought by Big Beer! …So What?

core_Wolfamongweeds-sAfter one full official day of GABF 2015 I already feel a little worn around the edges.  Being somewhat impatient and mildly agoraphobic doesn’t lend itself well to attending festivals full of drunk people, but what’s a little discomfort when it comes to trying beer from diverse parts of the US you might not otherwise visit?

Although I will probably try to condense my GABF experiences into a summary of some sort at a later date, today I am thinking more about some of the trends I see among the growing craft beer crazed people now caught up in the “scene”. One recurring topic making the rounds in social media and even legitimate publishing circles involves the specter of corporate takeover. From Goose Island several years ago to Elysian, 10 Barrel, Firestone Walker and now Golden Road, there are huge segments of the beer community running scared. How can the owners of these breweries “sell-out”? What will happen to “craft beer” when the big guys buy up all of these smaller companies?  All of the lamenting strikes a bit of a nerve to be honest because any objective outsider not wrapped up in sentimental idealism knows the very simple precept that answers all of the questions surrounding these deals – breweries are businesses.  What do we call people that own breweries that aren’t profit motivated? Homebrewers! You might have an emotional attachment to a commercial brewery and so might the owners, but anyone that starts a business wants to make a profit and whether they think about it early or sometime down the road, every business owner eventually comes up with an exit strategy, a scenario in which they get out of the business or relinquish a part of it to enjoy the fruits of their labor. In some cases their new partnerships also allows their brand to expand well beyond their original target region which probably has its own appeal.  Breweries are manufacturers, often making the same products over and over and over again. The huge number of people whining on Facebook about corporate takeovers indicates there are a lot of “craft enthusiasts” out there that know little about owning a business much less a manufacturing enterprise.  Don’t be surprised when established regional breweries do something unexpected, that’s how business works. When St Arnold says they will never sell outside of Texas and then do so several years later as their capacity grows, or when New Glarus says the same thing about staying only in Wisconsin and then inks a deal to move into Illinois…it’s not personal, it’s business and growth often requires making changes.   At the moment the BA says new breweries in the US have topped the 4,000 mark and only a small fraction are now corporate owned.  The current rate of brewery growth is unprecedented, so there is no need to worry about InBev gobbling up a few established regional brands. I still believe we are on the cusp of saturation in some markets which will limit the growth of distribution oriented breweries, although there will always be exceptions among those with a niche or an established presence in some markets. Otherwise I think the next decade will usher in the rise of the brewpubs which subsist mainly on the business from local patrons. If Portland and Denver are rough guides, this is the way we are heading in my humble opinion. Cheers from GABF!

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More musings about the coming craft beer apocalypse

DON'T PANIC!

DON’T PANIC!

Please excuse my long absence, but to be honest at times I get a little weary of it all. I once enjoyed pontificating about beer but these days the beer world is generating so much attention from those seeking to make a name for themselves in this ever expanding universe it genuinely makes me want to crawl in a dark hole. However, every now and then I come across something that prompts me to put pen to paper once again. Whenever I see stories about established breweries entering into out of state distribution deals it always gives me reason to pause and reflect upon what I see as the inevitable reckoning awaiting US “craft” breweries. It’s difficult being the pessimist sometimes, but we have enough cheerleaders to drown out the lamentations of those like me that predict another paradigm shift is on the horizon.  This isn’t the first time we have focused on the inevitable saturation of the US craft beer market.  As distribution channels open across the country and “craft” breweries undertake massive expansions the signs are there regardless of the rosy predictions from the Brewers Association. You see it when Upslope sends beer to Texas or St Arnold sends beer to Colorado.  It’s the uneasy feeling you get when New Glarus declares it will sell into Illinois after years of using the “Wisconsin Only” tag as a marketing hallmark. From massive planned expansions at old stalwarts like Anchor to unprecedented growth at regional breweries like Ballast Point and Great Divide or Breckenridge, as breweries expand to secure an increasingly finite piece of the consumer pie they find themselves needing to look beyond their traditional markets in order to maintain their economy of scale and justify production. Simply look at how many have entered into out of state distribution arrangements or the growth of contract brewing operations. All of this came to mind when we visited Breckenridge recently and I read a local paper that contained an article about Backcountry in Frisco, a packaging brewpub opened in 1996. According to the article owner Charlie Eazor recently entered into a deal to begin distributing in Texas starting with Dallas and Forth Worth through Full Jacket Distribution.  He was quoted as saying “In Colorado we’re another Colorado beer fighting for shelf space with 200 other Colorado beers. In Texas we’re a Colorado beer fighting for shelf space with the unique fact that we’re a Colorado beer”. Apparently they will start with placement in Whole Foods, Specs, Trader Joes and Krogers.  Was this a sincere effort based on sound market research? Certainly the first part of his quote indicates their growth prospects within Colorado are limited. A quick search at www.specsonline.com and you find over 200 12oz examples of just Texas craft beer and about 350 “craft” bottles. I like Backcountry’s beers but I for one am not so certain being a “Colorado beer” is something unique enough to set it apart in Texas…but what do I know.

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