By Anthony St. Clair
For the Oregon Beer Growler
Buyouts. Closures. Startups. The roller coaster of Oregon’s brewing industry has seen more twists and turns than ever lately. As we start 2018, it’s time to take a good hard look at what this year and the next few might look like for craft beer in this state. And there’s no better person to talk with than Patrick Emerson. The Oregon State University economist also produces and co-hosts the “Beervana” podcast with Jeff Alworth, and his research focuses on development, labor economics, industrial organization and applied microeconomics. He offered his thoughts on where the industry is going — and whether or not there’s cause for alarm.
What is your outlook for 2018 through 2020, especially for Oregon’s craft beer industry?
The future is still very bright, but markets are now maturing — particularly Oregon — and in these markets competition is increasing and the pressure that this creates is starting to result in exits from the market. I expect this dynamic to increase in the next few years. There are still a lot of new breweries opening up, but not all will be successful and some more established breweries will exit as well. A good example is The Commons Brewery in Portland, an established brewery with an excellent reputation recently called it quits.
Why are new Oregon craft breweries growing more than more established ones?
In most industries, smaller businesses tend to have faster growth than bigger, more established ones. In craft beer there is definitely a novelty effect where new breweries have a certain buzz, which helps propel sales and growth. What we are seeing more and more nationally is the larger legacy craft brewers like Sierra Nevada, Widmer and Boston Beer Company are finding it harder to sustain sales, let alone continue to grow as they face intense local competition from newer brewers. The old model of growing through the focus on a flagship beer is starting to fade as the industry becomes more and more fad-driven.
What is driving craft beer’s current growth?
Innovation and novelty is a big part, but the artisanal nature of craft beer plays a big role, too. Consumers want some kind of personal connection to the beer. They want to know about who makes it, are proud of local beer and are interested in new and unique experiences. Macro brewers cannot offer any of that.
What does the merger-and-acquisition trend of the past few years portend?
The hurricane has subsided as the overall growth has slowed a little and as the macro brewers have grown fairly large portfolios of regional craft breweries. There is less of an incentive for venture capital and less of a need for companies like AB InBev to find more breweries to acquire.
How much do people care about who owns a brewery?
It has less to do with ownership and more to do with beer. Yes, there is a small percentage of consumers who really care a lot (and know enough about the industry to know who owns whom), but I don’t think this is very significant. More significant is great beer at a good price. If breweries with large corporate owners can maintain quality while leveraging the scale and distribution that corporate ownership can provide to keep prices low, I think the consumers will be there.
Are we reaching a point where there will be a brewery shakeout? What factors do you think will cause craft breweries to close up shop in the next couple of years?
I would not characterize it as a shakeout, but there will be a lot more breweries going out of business simply due to the maturation of the market. The breweries that are more likely to close are those with inconsistent quality, poor business acumen, are overly leveraged and/or fail to gain traction with their brand. All pretty standard factors, but the window for really gaining traction with a brand is becoming smaller and smaller as so many brands proliferate. It is going to become more and more important that brewers do the job of telling their stories and helping consumers connect with their brands.
How is increased shelf space competition forcing breweries to rethink distribution?
When there is a distributor in the middle, many breweries are relying on these folks to tell their stories and try to get shelf space and tap handles. But distributors represent many brands now. Breweries are really going to need to do more personal outreach to retailers and pubs. Distribution is tricky, but many breweries are doing self-distribution for this reason.
Should Oregon expect to see more growth in urban markets, such as Portland or Eugene/Springfield, or are we going to see more breweries opening in rural areas and small towns?
We will see both. Smaller towns have relatively untapped markets (pun intended). Bigger cities have established markets and are exciting places for brewers to be — not to mention all of the brewers currently getting on-the-job training whose dream is to have their own brewery someday.
How much attention will Oregon craft breweries give international markets?
This will continue to be a very minor market for most craft brewers, especially as transport costs are high and local craft beer is growing in those markets as well.
Is the industry healthy, and how should breweries steer the ship?
People should not view brewery closings as a sign of a market in trouble, but the sign that the market has matured. This is good for consumers: it will result in higher average quality and consistency and lower prices. For breweries, however, the market is going to demand a high degree of discipline: good and consistent beer, good brand management, good business acumen and tighter margins.
By Pete Dunlop
For the Oregon Beer Growler
There will be another "new" brewery in Portland early next year. Fat Head’s Brewery, launched in 2014, is slated to close in January. Look for it to be replaced sometime in the first quarter of 2018 by Von Ebert Brewing, which will be operated by current Fat Head’s franchisee, Tom Cook.
News of Fat Head’s closure initially caused a stir in beer circles and on social media. A lot of fans wondered why the apparently successful brewpub would close. In fact, the closure has nothing at all to do with the wellbeing of the business here.
What's actually at work is that corporate Fat Head’s, based in Ohio, has a lot going on in its home market. Rather than continue to focus on the remote Portland outpost, the company and Cook mutually decided to end the franchise arrangement.
“We were unable to agree on a vision for the future,” said Fat Head’s founder Glenn Benigni, “As a result, we’ve mutually decided to close the Fat Head’s location in Portland, pouring our last beer in early 2018. We’d like to say thanks to the beautiful city of Portland and all of the customers who joined us there over the years. It has been a pleasure serving you.”
Cook offered similar thoughts.
“I know it sounds like spin," he said via email. "But this is exactly what happened. They wanted to focus their energies on the Midwest, where they have a lot going on with a new production brewery and the new Canton brewpub. I wanted to focus on Portland. We decided it's probably best for them to pursue their plans in the Midwest and for me to do my own thing out there."
He admits it wasn't an easy decision. The franchise has been highly successful here. Indeed, the success of Fat Head’s surprised more than a few in the beer geek crowd. Many thought an out-of-state chain would quickly collapse in beer-wacky Beervana. It didn't happen.
"I think we succeeded here because we built a talented team and gave it the right tools," wrote Cook, who added current employees will have the opportunity to continue on. "There's no way I would be doing what I'm doing with Von Ebert if my team here wasn’t staying and fully behind me. This wasn’t an easy decision, but I think it's the right decision for everyone."
Von Ebert, when it opens, will specialize in hoppy brews from head brewer, Eric Van Tassel. Sean Burke, formerly of The Commons, is also part of the Von Ebert Brewing team. Burke's talent for making uniquely interesting beers is well known. Cook expects the team to release 100 or so unique beers a year, including American, German, Belgian and barrel-aged varieties.
"Von Ebert Brewing is a new concept, where Northwest family traditions meet innovative ideas in craft brewing,” said Cook in a press release. "We’re excited to unveil a completely new experience for customers, blending our brewing expertise with the adventurous flavors Portland has come to love."
The pub will feature what he refers to as "elevated American pub food." That includes items like traditional German pretzels with beer cheese, stone oven-baked pizzas, cheeseburgers stacked high with locally sourced meats, decadent sandwiches and smoked wings.
"True to our character, our menu will combine classic pub fares with the kind of top-tier quality local ingredients you can only find in Portland," Cook said.
Many in and around the craft beer industry are aware that Cook had quietly planned to open a brewpub in the vacated RingSide Grill space adjacent to Glendoveer Golf Course in Northeast Portland. Evidently, those plans will be more or less on hold until he clears some regulatory hurdles.
"There's more to come on this," he wrote. "I don’t want to comment or give a timeline until I finish with the City of Portland. I would hate to promise something and then learn we can’t do it."
Many wonder about the Von Ebert name and logo. It’s obviously a strong departure from Fat Heads and has no apparent connection to Portland. What’s it all about?
"My great grandmother came to the United States from Germany and her last name was Ebert," Cook wrote. "She gave up quite a bit in Germany to bring my family here, so I wanted to pay some respect to my immigrant family. ‘Eber’ in German means boar, thus the boar in the logo."
Von Ebert Brewing will open sometime in early 2018. Watch for updates on social media or check the company website at vonebertbrewing.com.
Stories from the print edition of the Oregon Beer Growler.