At the 2015 Craft Brewers Conference, stainless steel was the order of the day for brewing tanks, bottling machines and tap systems that were on display at the trade expo. Exhibitors came from the United States, Germany, Canada, Chile, China, Italy, the Czech Republic, France, Belgium, the United Kingdom, Denmark and Spain. Photo by Patty Mamula
By Patty Mamula
For the Oregon Beer Growler
If the size of and attendance at the 32nd annual Craft Brewers Conference indicate the health of the industry, it’s thriving. The largest-ever event drew more than 11,000 brewing professionals and 600 exhibitors to Beervana in April for discussion, education, off-site events and tours.
Craft brewing continues its impressive surge. Benj Steinman, president of Beer Marketer’s INSIGHTS, said that 2014 was the fifth straight year of double-digit growth.
Craft breweries opened at a rate of 1.7 per day -- 615 for the year — with 2,051 breweries in planning stages, according to Bart Watson, chief economist for the Brewers Association. He and Paul Gatza, the association’s director, presented an optimistic outlook at the opening session.
Total sales of craft beer were at 22.2 million barrels last year. Growth of 18 percent from the previous year continues to build as does pricing, which increased 3 percent. In fact, last year was the first where case sales increased by more than $1.
To further segment the market, brewpubs are leading the growth at 20 percent with incredible diversity in the brewpub model.
Steinman in his seminar “Halfway Home? Craft Continues Climbing, but Ascent Gets Complicated” said the hottest trend in craft right now is hyper local.
As examples he mentioned GoodLife Brewing Company and Worthy Brewing Company in Bend.
There are marked regional differences across the country, with Portland being the most developed (craft is nearly half of the market here), San Diego being the hottest (craft gained five shares for a total of 30 market shares) and Florida coming in as the most underdeveloped.
The consumers’ love affair with IPA continues. Half of craft growth was IPA and 20 of the top 50 brands are IPAs.
Storm clouds are brewing. Steinman noted that the first big shifts in the craft industry happened last year with several deals and acquisitions. “Growth is still turning the industry upside down. Big brewers and big money see this,” he said.
He counted 12 deals in the past 15 months with Anheuser-Busch InBev buying up Seattle-based Elysian Brewing Company, Blue Point Brewing Company out of Patchogue, N.Y. and, of course, Oregon’s own 10 Barrel Brewing. Steinman projected himself inside the mind of A-B InBev, a $47 billion dollar company, and figured their logic was pretty simple — something along the lines of, “if you can’t beat ‘em, buy them” or even more transparent, “drop the price.”
Private equity groups accounted for six of the deals over the past year with several notable breweries selling part of their company -- Founders Brewing Co., Sweetwater Brewing Company, Oskar Blues Brewery and Southern Tier Brewing Company.
“Many crafts are starting to make real money. They can project future earning streams. They might potentially even go public. Craft is cool and investors see this and the prospect of outsized returns,” he said.
“Eventually, this could change the meaning of craft,” Steinman said.
He feels big brewers and big money are a disruptive force in the craft segment and wonders if the “soul of craft” is starting to erode.
Other concerns, said Watson, are overexpansion with the consequent issue of keeping beer in stock and distribution problems with more reports of wholesale difficulties. The U.S. Food and Drug Administration created a fuss over spent grain last year that fizzled out and mostly went away, but the big issue now is menu labeling, which is required for all chain restaurants with 20 or more outlets. The concern is that small breweries will be responsible for providing the required nutritional components of their beers.
Long-term environmental conditions, like climate change and water availability, are a concern for brewers and all food producers. “The movement of hop breeding from public to private” is another red flag, said Watson.
Although Gatza said craft brewers are the “belle of the ball” with state legislators, Steinman cautioned that craft brewers still don’t rule politics, especially not the feds, and he does not think the Small BREW Act, which seeks to reduce the federal excise tax rate on the first 60,000 barrels by 50 percent, is likely to pass.
Still, craft is well on its way to putting up another year of strong double-digit growth.
Steinman proposed a couple of things to watch. First, it’s possible that those who sell a share to private equity could, because of the infusion of cash, do even better. Second, there’s also a chance the small, independent craft brewer retains an image advantage.
Watson noted some promising trends, including an overall growth of off-premise sales at places like sporting events, growing production of sessionable beers, convenience stores starting to figure out craft and a prevailing emphasis on quality.
By Gail Oberst
Oregon has nearly 140 craft breweries. But Nov. 5, when officials from one of those breweries announced they are selling to international brewing giant Anheuser-Busch/InBev, Bend-based 10 Barrel Brewing Company set social and traditional media on fire. The sale will be final by the end of the year.
The announcement by owners and founders Chris and Jeremy Cox (twin brothers) and Garrett Wales was followed by “expert” opinions locally and nationally. Wall Street experts sought to advise investors on what A-B/InBev was up to. National statistic geeks tried to ferret out trends reflected in the sale. Fellow business owners suggested 10 Barrel’s owners were just being smart. Others felt betrayed.
The owners indicated 10 Barrel’s success since they began in 2006 exceeded their own expectations – and management abilities. In a video announcing the sale of 10 Barrel, Wales and the Cox brothers admit they are good at making and drinking beer. But they said they are not good at a lot of things that a growing brewery needs, some of which includes administrative functions from packaging and distribution to employee benefits and making quality videos.
Despite recent administrative struggles, 10 Barrel’s brewers continued to produce award-winning beers. Most recently, the brewery won three medals at the renowned Great American Beer Festival for its Cucumber Crush (gold) and bronze medals for both Amber Waves and P2P.
A-B/InBev officials have deferred to 10 Barrel’s former owners, who responded to questions about the impact of the purchase on brewery jobs in Oregon, on plans to expand to Portland, and on the quality of 10 Barrel beers that inspires passionate reaction from fans.
10 BARREL’S FUTURE
Portlanders have been anxiously watching construction of 10 Barrel Brewing’s new Portland brewery and pub in the Pearl District, but does the sale of the brewery put this on hold? Absolutely not, said Wales: “We're on track for a mid-winter opening for the Portland pub,” he said. The 6,229-square-foot space at 1411 N.W. Flanders St. will have seating for 150 people and will reportedly employ more than 80 people. Nov. 7, the brewery announced it was hiring Whitney Burnside to be the Portland location’s brewer. Burnside has been Pelican’s specialty brewer.
Jeremy Cox also said that there won’t be any personnel changes at the Bend or Boise facilities in the near future. “The team is staying the same,” he said.
Might there be an increase in production at any of the 10 Barrel facilities in the future? Jeremy Cox said that keeping up with current expansion plans is about all they can handle. "It's business as usual for us right now. We've been growing fast over the last few years and we're staying focused on continuing our growth while keeping our distribution focus here in the Pacific Northwest,” he said.
Meanwhile, the affiliation with the larger company will have its advantages for the brewers. "You tell Jimmy, Shawn and Tonya that they have access to unlimited hops and the best of the best malt and see their faces light up. We're really excited about the opportunities this partnership will provide for all our team,” said Garrett Wales.
Cox had a few words for those who fear that 10 Barrel will lose its Northwest quality and flavor. "We're still brewing our beer here in Bend, our families are here in Bend, our employees all live and work here in the community and we're not going anywhere. We definitely still consider ourselves a local Bend brewery,” he said.
A-B/InBev is a Belgian-Brazilian multinational brewing company headquartered in those two countries. Although it is most often affiliated with Budweiser products in the U.S., A-B/InBev’s international owners claim a brewing history back to 1366 through its Belgian merger with Artois, as in Stella Artois. A series of mergers created InBev, the world’s largest beer company in 2004. In 2008, InBev bought Anheuser-Busch, further expanding its holdings. Today, nearly half of all beer products sold in the U.S. are owned by A-B/InBev. Bud, Corona, Michelob and Beck’s are all part of the A-B/InBev family.
Despite the craft beer craze (which it has apparently joined), the company is doing well. According to New York Stock Exchange reports, as of mid-November, its stock was listed at $87 per share, up from $35 per share four years ago. For the quarter that ended in October this year, the company earned $12.24 billion – times that by four for an approximate annual income, and you’re talking real money.
Even with climbing profits, the company is not selling more beer, according to A-B/InBev’s October report to its shareholders. Volume had dropped last year throughout the company’s holdings by nearly 3 percent, and this quarter, volume sales were nearly flat worldwide. The biggest volume drops among company labels recently were in North America and Europe, where small craft brewery beer sales are climbing. But is a drop in volume a problem for the company that sells nearly a third of the world’s beer? Stock prices in November took a tiny dip, but in the long run, probably not.
Owners are reassuring, but fears abide that small breweries bought up by large corporations often disappear. Macro Trend Investor writer Charles Sizemore, a self-described proponent of these kinds of buyouts, suggested 10 Barrel’s brand could go the way of George Killian’s Irish Red and Shiner Bock, both bought out by large beer companies before they disappeared.
“Could BUD and the rest of Big Beer take a page out of Warren Buffett’s playbook, buy a craft beer brewery outright but leave its management in place and maintain a low profile? Maybe. But it’s hard to see regional microbrews having much of an impact on the bottom lines of companies with tens of billions in annual sales,” said Sizemore.
Paul Gatza, director of the Brewers Association, sees the purchase as a sign of the times. “With middle-of-the-country Goose Island, Long Island’s Blue Point and now Bend and Boise’s 10 Barrel part of the portfolio, it looks like A-B is developing its own version of a regional-brand footprint strategy,” he said in a blog post. “I am thinking about why these deals don’t happen more often,” he said.
Stories from the print edition of the Oregon Beer Growler.