Small Brewers Challenge Traditional Industry Powers

The Brewers Association just released it's annual stats on the industry for 2017. Anyone who stops by here on any kind of regular basis probably knows of the numbers. We now have more than 6,200 craft breweries and the craft sector grew at a 5 percent clip.

Of course, there are signs of growing pains. Nearly 1,000 brewpubs and breweries opened in 2017, similar to 2016. But there were 165 closures, certainly the most we've seen in the craft era. That's not shocking. The rising brewery count makes closings more or less inevitable.

The raging growth we've seen over the last decade is historic. It's been good for consumers and brewers. There are more choices out there than ever before thanks to imagination, innovation and smart marketing. Also more places to find and drink fresh local beer.

But not everyone is happy about the altered lay of the land. The emerging popularity of taprooms and direct-to-consumer sales is upsetting the longstanding structure of the beer industry. That story is nicely documented in this Brewbound article.

The enemies of the status quo are the taproom and the brewpub, places where breweries sell their beer directly to consumers. The growth of that strategy is flipping the three-tier apple cart on its head and causing significant distress among the players that previously owned the industry.

Regional breweries have taken a direct hit. They once had no problem selling their beer in stores and in draft form. Today, consumers are buying more and more beer in taprooms and pubs. Large regional brewers, like Deschutes and Sierra Nevada, are struggling. And they don't like it.

The problem for regional craft extends to restaurants, bars and taverns. Where they once had free access, they are now forced to compete with local brands for tap handles and sales. Consumers want fresh choices. Established regional brands, considered old and tired, have lousy traction.

Traditional on-premise retailers are getting smacked around, too. With craft fans flocking to taprooms and brewpubs, restaurants, bars and taverns see their market slimming. As the Brewbound piece documents, some retailers have taken punitive action against brewers. But the reality for these folks is simple: they can adjust to the new reality or suffer the consequences.

Distributors are not immune, either. All that beer being sold direct to consumers doesn't pass through distributor hands. Distributors still get their pound of flesh for most packaged product and some draft, but the move to local beer and direct sales is a thorn in their side.

Fair is fair, though. The niche small brewers are exploiting is their best possible response to what's going on in the industry. Big beer, led by Anheuser-Busch, is locking down grocery store sets and squeezing small brewers out. That situation will only get worse moving forward.

The best case scenario for craft breweries has always been selling their beer directly in a taproom or pub. Higher profit per ounce, glass, gallon or keg. The emerging reality in distribution has encouraged and forced craft brewers to actively develop that model. It's no accident.

And the success of that model is changing the beer world. But it's unclear how far this can go. The size of the US beer market is declining, not growing. Which means all breweries are, in a sense, chasing the same customers. Right now, local craft brewers are on a roll, transforming the industry.

There's undoubtedly a limit to how many small breweries the market can support. Are we approaching that number? Maybe. But, for now, the little guys are flourishing and the traditional power structure is on edge. Oddly satisfying.

Portland: Provincialism and Californication

When I was interviewing industry-connected folks for Portland Beer a few years back, one of the things I heard repeatedly was that provincialism was a big reason craft beer caught on here. Portlanders have been historically inclined to support products made here.

It's clear to me that our old school provincialism is waning. I'll get to why shortly. First, its roots. Provincialism, I believe, is rooted largely in Portland's blue collar past. The city was a hub for the extraction economy from its early days through much of the 20th century.

Commerce moving up and down the Columbia and Willamette Rivers made Portland the largest and most important city in the Northwest through the late 19th century. The arrival of the railroads transformed Seattle, with its superior port, to the center of trade in the Northwest.

It's possible that being pushed into obscurity by rapidly expanding Seattle gave blue collar Portlanders a go-it-alone, do-it-yourself attitude. Residents became suspicious of products from the outside and developed rigid preferences for local goods.

Those were the embedded attitudes Portland's founding craft brewers tapped into when they were starting out in the 1980s. They'd take their products out to bars and taverns; patrons, who weren't necessarily unhappy with the macro swill they were drinking, would gladly try it. Because it was local.

The willingness to try local beer wasn't necessarily unique to Portland, but it was apparently embraced more strongly here than in other places. Provincial attitudes were crucial to putting Portland on the craft beer map, where it remains at or near the top today.

When I arrived here in 1989, the city was still in the throes of a grubby provincialism. Most of what is now the Pearl District was home to abandoned or broken down warehouses. Streets were virtually impassable, unless you were driving a Jeep. That theme was prevalent around the city.

Over the course of the last 10 or 15 years, things have shifted dramatically. The influx of newcomers has transformed large swaths of the city. The busted up or abandoned warehouse is now an endangered species, thanks to the demand for housing and retail space.

The strong provincialism of yesteryear is being displaced by something different. One might argue that was inevitable due to the migration here from around the country. With so many newcomers, attitudes were going to shift. No way around it.

If you aren't aware, the majority of our migrants come from California. Yup. It's right next door, it's an expensive place to live and they've had some significant issues in recent years. People are giving up on California and coming to Oregon, Portland being the most popular destination..

The result is a sort of Californication of our city. Old Portland is being demolished and replaced by trendy new buildings and businesses straight out of the Bay Area and southern California playbook. And there are no signs of it slowing down.

In the beer world, the strong preference for local product is diminishing. On my travels, I routinely see beer from all over the country being warmly welcomed. California breweries, and there are a lot of them, make some great beer. A number of them are doing well here.

An instructive allegory for Portland's transition may well be what happened to The Commons. Locally-owned and well-supported in its initial, quaint location, The Commons moved to a larger space and failed to attract expected crowds. Cash flow problems cropped up. The brewery crashed.

Enter San Diego-based Modern Times, which leased the space and now plays to a packed house regularly. The pub is gaudy, just what you expect to find in California. But it's wildly popular. Inoculated by a flood of Californians, Portland is losing touch with its provincial past.

Whether that's a good or bad thing is, I suppose, a matter of opinion. But it is the reality.

Craft Beer and the Great Mirage

Predicting the future is a sketchy business. That's just as true of the beer industry as it is of sports gambling. We look at the scenery and think we know what's coming. Then everything flips and we're left holding the bag. Look at what happened to Virginia last night.

Over the past few years, craft beer growth rates were stupendous. Easy money fueled a breakneck expansion of brewing capacity across the country. The rationale was simple: double-digit growth suggested there would be a market for virtually unlimited beer.

By one publication's reckoning, the expansion of brewing capacity during the past five or so years is comparable to what happened at the end of Prohibition. If you don't recall, the brewing industry, wiped out almost completely, had to be built back up from nothing to meet demand.

Of course, we now know the growth many expected to continue unabated has guttered. Demand for beer is flattening. The double-digit growth of craft beer has slowed to perhaps half that. The result is a lot of unused brewing capacity, similar to what happened in the late 1990s.

The excess capacity scenario generally foreshadows declining prices. Brewers look to sell beer and keep their doors open by lowering prices. There's some evidence of that happening. After years of increases, the big brewers are, indeed, backing off on prices.

Craft is a little different. In the big picture, we're seeing smaller price increases than in recent years in the mainstream beers. There's an interesting caveat at the top, where specialty product pricing appears to be no object. Consumers don't care. Premium and Super Premium craft, which account for only a fifth of the business, are responsible for 75 percent of craft dollar growth. Crazy.

But not everyone plays in the Premium sandbox. Most craft breweries sell mainstream product to folks who aren't beer geeks. Their challenge, given the situation with unused capacity and downward pressure on price, is figuring out what to brew that will allow them to stay in business.

The continued implosion of domestic premiums looks like an opportunity for craft brewers to chase dollars with lighter, lower ABV products at attractive prices. Breweries like Firestone Walker, New Belgium and Founders, among others, are doing so.

By the way, that strategy fits in well with demographic realities. Millennials, who drove a lot of craft's growth in recent years, are moving out of their twenties and getting fat. They're starting to look for lighter options. We've seen this movie before with prior generations.

So the idea of targeting the domestic premium space seems valid. The problem, as industry analyst Bump Williams recently noted on the Brewers Association Power Hour, is that craft brewers cannot beat the big brewers on price. The big guys are too efficient. They will prevail.

Thus, thoughts of escaping the craft slowdown with lighter, cheaper product in the domestic premium space is largely a mirage. As soon as that market blooms, big beer will enter the fray with aggressive discounting and swallow up the business.

Yeah, just one more reason these are scary times for craft brewers.

Grains of Wrath: Testing a Theory in Camas

One of the great fascinations of our time is that all brewers want to own their own breweries. Well, almost all. Time and time again, we see successful (and unsuccessful) brewers taking the leap from employee to brewery owner and head brewer. It doesn't always end well.

Enter Mike Hunsaker, ex-head brewer at Fat Heads Portland, soon to be known as Von Ebert Brewing. In 2016, Hunsaker announced he would leave Fat Heads to co-found Grains of Wrath in Camas. There was great excitement.

Like a lot of brewery projects, Grains of Wrath took longer to open than anticipated. It also cost more than the partners expected...going significantly over budget, apparently. The place finally opened this week...to a warm welcome, fortunately.

I stopped in for lunch on Wednesday, which was opening day. The facility is impressive. Right away you note the massive outdoor patio, complete with fire pits and a beer garden. Inside, there's a large seating area that looks out north facing windows (garage doors) onto the patio.

The bar, a smaller area shoehorned between the brewery and kitchen, is fairly typical. It's slightly dank, thanks to low lighting and dark fixtures. There are high tables and chairs. Behind the bar, sports flicker on a couple of large TVs. The brewery is visible on two sides. No minors allowed in here.

They were pouring 10 beers on my visit, pretty good for a place that just opened. Hunsaker built a solid reputation with his hoppy beers at Fat Heads. But he's far from a one-trick pony. Luger, a German-style Pilsner, is excellent. I did not not taste the full list, but did prefer the EGA IPA to Overkill. Opinions will vary.

They have 26 taps to work with and all but a few will eventually be pouring house beers. That's exactly as it should be. Give Hunsaker and crew a few months and this beer list will be packed with interesting choices. Grains of Wrath will have good beer. Make no mistake.

My guess is food offerings will follow the same pattern. The lunch menu on my visit was not extensive. The dinner menu evidently has more choices. Fine. But I think the food menu will evolve just like the beer offerings. We've seen this before.

Grains of Wrath bills itself as a family oriented pub. That's a good strategy in Camas, which is effectively a suburb of Portland/Vancouver that somehow retains a small-town identity and feel. The median income is high in Camas. It hasn't been overrun by millennials like Portland. A lot of families do live out here.

But the family motif appears to me to be at odds with the edgy, punk rock, metal branding. On my visit, the sound system was blaring some unknown (to me) metal. It was too loud for comfort. The punk branding isn't completely in your face, but it's obvious enough. The package makes me think this isn't a place for families. Yet that's who they say they're targeting here. Fascinating.

Prices are another concern. Pints are $6 and $6.50. Add tax (10 percent of my bill) and you've got what some, perhaps many, will consider to be an overpriced pint. I usually drink half pours so I can sample a few beers without getting gooned. I asked for a half pour. "I can do that, but the price is the same," returned the barkeep. Again, fascinating.

A lot of thought and money went into this facility. It's an attractive space. The beers and food are going to be fine or better. The patio is going to attract hoards in warm weather. But there's a disconnect here: The branding and ambiance don't align with the stated target audience.

Maybe Grains of Wrath quietly hopes to be a destination for meandering Portland millennials. In that case, the branding makes some sense. But that strategy runs counter to current beer market logic, which suggests craft beer fans, even millennials, prefer to drink local and close to home.

There is, of course, the possibility that brand identity and ambiance don't matter, that you can succeed regardless of wonkiness on those fronts if you're good enough or unique enough. Grains of Wrath may be the perfect test case for that theory.

Oregon Beer Awards, Version 2018

The 2018 Oregon Beer Awards ceremony took place at Revolution Hall on Wednesday evening. It was a packed house of mostly industry-connected folks. There may have been some independents who attended because they thought it might fun...and they were rewarded.

Organizers have fixed a lot of the issues that made this event less than perfect in the past. Getting into the building was a problem in each of the last two years. I didn't see much of that this year, maybe because I was in the building early. Things seemed to have a better flow.

The two MCs did a good job keeping the awards on schedule. Presenters got onstage and mostly focused on the award they were handing out. There wasn't as much in-between fluff as what I recall from past years. Yet the ceremony still lasted nearly three hours.

This is the third year in which the award winning beers were selected by way of objective judging. I was part of that again. Judging (with the exception of the fresh hop beers) happened in late January at Maletis Distributing headquarters on Swan Island. Very nice facility there.

Judging was done over two days. We tasted a gazillion beers in 24 style categories. The Oregon Beer Awards are establishing themselves as our own version of the Great American Beer Festival, but the number of categories is a far cry from the 90+ judged in Denver. That's good and bad.

I was on the panel that selected winners in Classic UK Styles. That category included English-style IPAs, porters and the gold medal winner, a barleywine (Femur) from Boneyard. Having all these sub-styles in the same category was, like a friend of mine, a little awkward. My understanding from competition director, Ben Edmunds, is they hope to adjust for that next year. That would be good.

This year's actual judging was nicely arranged. The space at Maletis was an improvement on what we had in previous years. Then there were the countless behind-the-scenes people who volunteered their time to pour and schlep samples around. Big thanks to those folks. In contrast, those of us who judge are on easy street. Honest.

No need for me to dwell on the winners. Ezra posted a recap within hours of the event winding up. He's a co-founder of the competition and director of the awards ceremony. Unlike the rest of us schmucks, he surely had the results in hand prior to the time winners were announced on stage. Regardless, you can read his article here.

One of the complaints I've heard several times around town is that the OBA is the Breakside show. That's due to the fact that Breakside has been pretty dominant since judging began in 2016 and that Ben Edmunds, Breakside brewmaster, has somehow fixed the competition.

That's a pretty outrageous suggestion, right? And it's all the more outrageous if you know Ben, who is one of the most honest and genuine people you'll meet in this business. Breakside was tied with 10 Barrel for the most medals this year with five each. Maybe Edmunds was a little off his fixing game this year. Maybe.

Another part of the OBA schtick is an academy that votes on a bunch of things, like Best New Brewery, Best Brewpub Experience, etc. I plead guilty to being part of that academy and I voted for  the winners, for better or worse, in most categories (the results are part of Ezra's piece).

One area where my vote differed from the academy was the Hall of Fame choice. John Harris was inducted and he is certainly deserving of the honor. Harris started his career at McMenamin's and became an icon at Deschutes and Full Sail before launching Ecliptic several years ago. He's a great fit for the Hall of Fame.

My vote went to Art Larrance, one of the founding fathers here with Portland Brewing. Art has been director of the Oregon Brewers Festival since the beginning and, of course, founded Cascade Brewing in 1998. Along with the Widmers, the Ponzis and the McMenamins, Art was instrumental in getting the Brewpub Bill, passed in 1985. These folks should all be in the Hall of Fame ahead of brewers who benefited from their efforts. My opinions on this issue are informed mostly by history. Thus, I hope all of the founding brewers are inducted before they're gone.

As has been the case for the past several years, the Oregon Beer Awards coincided with release of Willamette Week's 2018 Beer Guide. I wrote some snippets and a short article for the Guide again this year. The 2018 focus is a little different, as we switched from covering breweries within 50 miles of Portland to covering the Top 100 Oregon breweries. That actually aligns with the OBA judging. Copies are available around town and there will be an online version soon.

There's no particular need to review the Guide here. It is what it is. One thing I do want to mention is the list of Top 10 beers. That's a highly subjective list, compiled by WW staffers and beer freelancers during a December bottleshare. The top beer listed is Upright's Pathways, a unanimous choice. Coincidentally, Pathways won a gold medal in objective judging. Hmmm.

So that's about it. As in past years, thanks to Willamette Week for sponsoring the competition and to Ben Edmunds for running it. Finally, special thanks to Martin Cizmar, WW arts and culture editor, who drove the editorial portion of the Beer Guide and invited me to participate several years ago. Martin is moving on to new digs at RawStory. Good luck, man.