Monthly Archives: September 2015

Craft Beer Sales Are At An All Time High-and why this could be scary

And now, the things that concern me about the future….

OK, so the easy and obvious route would be to discuss how consolidation and craft brewer buyouts by large brewers are a huge concern. And they are. Almost everyone in the business is concerned about how this will impact pricing and distribution availability. We’ve seen pioneer breweries fail in the wake of consolidation, and we’re seeing the beers from purchased breweries at a much cheaper price than most craft brewed beers. I don’t know what the future holds here, but most people expect the buyouts and consolidations will continue for a while. And this could create some serious pricing and availability gaps that could put some craft brewers out of business and slow the growth of others.

But here are some other things I also find a bit disheartening:

1. Craft brewers for years have operated under the guise “A rising tide lifts all boats”. In other words, breweries helping other breweries succeed will facilitate everyone’s own success in the long run, because each brewery that succeeds helps grow the overall craft beer industry. There are some unwritten rules that craft brewers have followed since the beginning, all of which helped us “stick it to the man” (“the man” in this case being the large industrial brewers). For example, most brewers never badmouthed another craft brewer, at least by name, regardless of their own personal opinion about that brewer’s beer or practices. And for sales, targeting other craft brewing tap handles or shelf spots to try and replace with your own craft brand was sort of taboo. But now the game is changing. There are some verbal wars being seen amongst craft brewers, which is damaging some of the good relations the brewers have with each other. There are brewers that “poach” trained brewers from other breweries, thereby letting the poached brewery incur all the significant costs of training and education that goes into teaching someone to be a brewer, and reaping none of the benefits of someone well trained and skilled on their team. There is price gouging and undercutting, and there is vicious competition for tap handle space. Many brewing companies are stooping to illegal “pay to play” tactics for a competitive edge. It kind of sucks, and I see it getting worse before it gets better.
2. There aren’t enough trained brewers to go around. I’ve hit on this topic before in this blog, but right now there are a lot of larger craft breweries unsuccessfully searching for experienced, skilled brewmasters that understand the intense requirements of a production operation. There aren’t that many brewers out there that know how to run production on a larger scale, yet also get the creative and innovation aspects of what craft brewing is all about. More often than not, employers can find brewers that have strong skills in one area, but not the other. Some breweries are operating with unskilled and/or untrained brewers that are bestowed with the title “brewmaster”. Not to beat a dead horse here, because I’ve said this a lot, but making some good homebrew does not make one a brewmaster.
3. The big brewers are taking notice. For years, “microbrewers” barely made a blip on the radar of large industrial brewers, and from my own personal experience at Anheuser-Busch, the big brewers generally looked at craft beer as a bit of a joke. But after 10+years of declining sales in the face of the massive growth of craft, the big brewers now see this craft movement as serious competition. Now we are seeing the large brewing companies purchase craft brewers with increasing frequency and the large breweries are also purchasing wholesalers that (used to) sell craft beer. Add to this the addition of all the stealth craft brands, brewed by large brewers, and sold for a much lower cost than real craft beer, and you have a big problem. They have money and resources at their disposal, and aren’t afraid to squash the upstart breweries.

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What beer on these shelves doesn’t belong?

4. Is this craft beer thing a fad? I really don’t think so, but I’ve been making “adult beverages” for over 30 years now, and I’ve seen a lot of things come and go. White Zinfandel, wine coolers, spirits-based sweet carbonated beverages, dry beer, ice beer, amber beer, sweet fruit beer, etc. All of these made major waves and then dwindled to obscurity. I don’t necessarily see that happening with today’s craft beer, but it certainly could, especially if the big brewers start working harder to squash the category. And if craft beer really goes mainstream, is that a good thing? Depends on the circumstance I suppose. If mainstream means consolidation and homogenization, then that would be bad. Craft beer is all about having viable and meaningful choices.
5. The coming “Bubble burst”. It’s coming. Everyone believes that in the next few years there will be a wave of closings in the wake of the intensifying competition. To succeed these days, it isn’t enough to brew excellent beer, you also have to have a catchy marketing angle and a message that separates you from the other brewers. Brewers who don’t excel at both will be the ones threatened by this. There are well over 100 craft breweries operating in San Diego County right now. Is there room for all of them to succeed? It certainly is difficult when you rely on the distributors to move beer-with some distributors there are far too many brands in the portfolio to put adequate focus on all of them.
6. Long-term hop supply is a concern because craft brewers are using more and more hops on a per barrel basis than ever before. Combine that with the phenomenal 20% growth rate, and one will see that hop demand is starting to outpace supply. The competition for new hop varieties is getting pretty heavy. That said, because hop growers and craft brewers have now developed great relationships, everyone is working harder to get more of the high demand hops in the ground and available. But there’s not much to stop a giant brewer coming in and buying all the Cascade crop if they decide that’s the hop they want. It’s happened before.
7. The fickleness of the craft beer consumer is creating concerns for long time flagship brands. Think about it: if you are a craft beer drinker, when was the last time at a beer drinking session that you had the same beer more than once? It just doesn’t happen any more. There are too many really good beers out there, and people gravitate towards that shiny new object more often than not. Rapid and frequent innovation and understanding the life cycles of certain brands are becoming the focus of many brewers, who for years had been successful with just a handful of brands. Mixpacks/Variety packs are the biggest selling category in craft beer right now. This situation makes projecting sales and ingredient requirements an impossible task for brewers. Are the successful brewers of the future the ones that constantly innovate and come out with a lot of new beers and one-off beers all the time, and retire older brands at an increasing rate? Perhaps.
8. The death of Pale Ale and the IPA-ification of everything.  I love a good Pale Ale. But they are simply getting harder and harder to find. The incredible success of IPA in recent years has just about killed the Pale Ale category-you rarely see more than one or two in any multitap, at least here in California. There are some great things about the growing popularity of IPA, but when I hear “IPA will be the next American Lager” I wonder if that is a good thing for craft brewing. As much of an IPA fan that I am, I like drinking other beer styles too. Unfortunately, that might not be the case right now with the general beer drinking public.
9. Craft brewing has always separated itself from the big brewers by being much more beer and brewer focused. What does that mean? Well, as an example, when I was at Anheuser-Busch, the marketing team decided what new beers we would brew. Our job was to create the beer once we got our marching orders. Yes, we had some input, but the ultimate decision-making power was the marketing department. One of the things I’ve always enjoyed about craft beer is that it is more “brewer-driven”. At most craft breweries, the Brewmaster or Brewing Team comes up with the beer ideas, and then works with sales and marketing to figure out the best way to sell the beer (as a regular release, a one-time release, or seasonal). Unfortunately I see that changing, and little by little, some breweries’ marketing teams are getting more and more power, and are driving more of the brewing decisions. Not naming names here, but when you see established breweries veer off their tried and true path, or brew a beer that someone else has already made popular, that is most likely a marketing decision, not a brewer decision. Maybe I’m a bit naive, but the idealist in me finds this unsettling, and I don’t think it bodes well for the future.

All this being said, I am still quite bullish on craft brewing and will remain a lifelong fan of great beer. But I think there will be some rough roads ahead as the industry growth continues.

Craft Beer Sales Are At An All-Time High

“Craft Beer Sales are at an All Time High!!!!”
Dave Edgar, when he was with the Association of Brewers (now the Brewers Association) always included this shout out to the industry in his annual state of the industry address at the Craft Brewers Conference

. It’s been a true statement every year since I’ve been a brewer, and quite probably every year since craft brewing got its start.
As we experience yet another great year in craft brewing, with record growth and a record number of brewery openings, I see many good things happening and several things that concern me as a brewer and as a long time fan of craft beer. So here are my thoughts on what I like about where craft beer is heading, and next time, I’ll talk a bit about what concerns me.
The good things:
1. It’s becoming harder to find a bar or restaurant that doesn’t serve craft beer than a bar that does.
 This is a great development, as even mainstream chain restaurants now often offer at least one good (and often local) craft beer in their draft lineup. This transition has been a long time coming, and I love it. I no longer have to focus on beer selection as criteria for choosing a restaurant! Unfortunately there are still exceptions. Many ethnic restaurants, Mexican, Indian, Thai, Chinese restaurants still need to learn and recognize that hoppy craft beer pairs wonderfully with their food.
2. There are some really great innovations happening.
 A lot of this stems from craft brewing’s relationship with the culinary arts. Many brewers I know also are good chefs, and with that skill comes a willingness to experiment with exotic and non-traditional ingredients. In addition, hop breeding programs are really taking off and this is fueling the brewing of many new hoppy beers with exciting new hop varieties.
3. The hop industry is really starting to “get it”. Hop growers and hop suppliers are realizing that the future for their business will revolve heavily around craft brewing. Here’s a great example of why: Craft brewers are using an average of over 1 pound of hops per barrel brewed, almost 5 times what the large brewers use per barrel. If craft brewing continues its growth, and hits 20% of the beer market, craft brewing will be using more hops annually than large industrial brewers.

For many years craft brewers were left with the leftover hops, the “too intense” hop varieties that big brewers didn’t want. Big brewers funded most of the hop research and variety development programs, and because of that, most of the research was focused on low alpha, mildly aromatic hops to use in place of European noble varieties and varieties like Willamette. Over the past 10 years, I’ve seen an amazing change here. Craft brewers have jumped in with both feet. Craft brewers are now funding hop breeding programs and research. Craft brewers have hired ingredient experts who were laid off from Anheuser-Busch-Inbev, and that has accelerated the involvement. Membership in organizations like The Hop Research Council and The Hop Quality Group is growing, craft brewers have their own hop varietal research programs, are sponsoring experimental fields and doing other things to develop close relationships with hop growers. More brewers now travel to Yakima WA to do hop selection than ever before-to the point where you can’t get a hotel room unless you book several months in advance.
4. The scenes outside of the United States and Canada, particularly Australia, New Zealand, Italy and the UK, are exploding. The UK, despite having a somewhat stodgy beer scene, has some great craft brewers, and the larger English brewers (at least the Brewmasters that work for them) are excited by what’s happening in the United States. And many other countries are just about to get it too.
 On my last trip to Berlin, I had some delicious locally brewed craft beer, and I think that town is ready to explode. I am seeing craft beer in Poland, in France, and many other countries. The international market may be the future for American craft beer.
5. The taste room concept is working as a business model for many small breweries. This reduces the need to rely on distribution, and eliminates the food side of the business, which, unless you are a passionate restaurateur, is a pain in the ass. In the San Diego area, what I’m seeing is that the local breweries are becoming the town’s pubs, gathering spots for people who like to hang out together and enjoy beers. I know from my own standpoint, I really enjoy going out on a Saturday or Sunday afternoon and visiting a few of the great local breweries we have here in Temecula. And I always see people I know…pretty cool.
6. Brewers are still willing to help each other out, whether it be loaning hops or malt, yeast, hosting tours, sharing how they brew, how they analyze their beers, how the operate their equipment, or help in any other way. There still is a very good level of camaraderie in this business that is one of the things that make it so magical. I hope that never goes away.

Next time, the things that concern me about the future of craft beer……