Ruskies get their Blue Ribbon

They have a few problems in Russia. The antics of Mr. Putin related to the Ukraine and Crimea have the entire world on edge. Perhaps things will improve now that they have acquired a Blue Ribbon. We can always hope.

Many Americans were aghast to learn that Russia-based Oasis Beverages last week purchased a majority stake in Pabst Brewing. After all, Pabst occupies a legendary place in US brewing dating back to 1844. And Pabst Blue Ribbon was recently a popular hipster brand. Talk about catastrophe.

The specifics of the sale were not released. However, industry analysts believe Pabst sold for around $750 million, three times what it sold for in 2010. Please note that Oasis purchased the entire Pabst portfolio, which includes Rainier, Olympia, Colt 45, Schlitz and 15 more.

Honestly, it's rather amusing to see such a lowly collection of brands sell for what seems like such a steep price. Imports and craft beer are the fastest growing segments in the industry. Domestic beers, including the sub-premium brands that infest the Pabst portfolio, are in decline.

Which makes you wonder what Oasis is up to. We're talking about the largest independent brewer in Russia, with an extensive collection of brands. The company has some solid experience with yellow beer and they evidently want to give the US market a try. Good luck to them.

The Pabst portfolio

I've seen comments here and there from people bemoaning the fact that iconic Northwest brands Olympia and Rainier, as well as nationally known PBR, are now owned by Ruskies. But concern over foreign entities owning American beer brands is a horse that left the barn a while ago. Last time I checked, Anheuser-Busch was owned by InBev, a Belgian company.

There are those who believe the Russian connection will cause sales of the Pabst brands to decline further, which may be somewhat inevitable. Remember, the people who buy these beers on a regular basis identify strongly with the brands. Never mind they are often thinking about what those brands represented 40 or more years ago. These connections can take a lifetime to sever.

For Portland folks, there is an historical footnote. It was Pabst that bought Blitz-Weinhard in 1979. At the time, Blitz was riding the success of Henry's Private Reserve. Pabst, on the other hand, was in bad shape with plummeting profits. Plans to release a follow-up to Private Reserve were squashed. It wound up being a short-lived, dysfunctional relationship that damaged Blitz' prospects considerably. Blitz would go through two more owners before being sold to Miller in 1999.

It may be instructive to note that Pabst never actually won a blue ribbon. The beer apparently won many awards at various competitions, and a silk blue ribbon was put around the neck of every bottle starting in 1882. But the claim that Pabst won a blue ribbon at the 1893 Chicago Exposition is false, as all beers that scored within a particular range received a certificate and medal. Pabst alone decided to name its beer America's Best and market it as Pabst Blue Ribbon.

But no one need tell the Ruskies about that.

Portland's Craft Beer Market Share Understated

Last week's piece that announced craft beer's emerging control of Portland's beer market drew a firestorm of traffic, a lot of it from reddit.com. I like that. It also drew quite a few 'Hoorahs!" from folks happy to see the news. Alas, the data from which the conclusions were drawn might be considered a crock.

Don't misunderstand. The numbers are accurate as far as they go. It's just that they're wildly incomplete in several ways...which I'll get to. They paint only a sketchy picture of what's actually going on. The blunt reality is that craft beer is almost certainly in a far more dominant position in Portland then last week's piece suggested.

The overriding reason for the disparity is under-sampling retail and complete blindness to draft sales. You will recall that IRI (Information Resources, Inc.) is the market research organization that buys scan data from grocery stores, convenience store chains, etc. Good stuff, as far as it goes.

Packaged beer
Let's first deal with under-sampling in packaged beer. Because the IRI buys data mostly from large grocery stores and chains, it leaves a huge amount of significant data on craft beer (and other stuff) on the table. How can that be?

The answer is that Portland (like a lot of cities) has a large number of independent (mostly small) grocery and convenience stores that aren't part of IRI data collection. Specialty stores like New Seasons and Whole Foods, which sell a lot of craft beer, also aren't included, sources tell me. Bottleshops are in the same boat...not part of the mix, either.

If you look at all the places craft beer is sold around the city in packaged form, you quickly realize the IRI data paints a partial picture at best. Instead of the 45 percent shown in last week's graphic, craft beer likely accounts for around 60 percent of dollars in packaged sales. Keep in mind that's for Portland. The number drops outside the city core, where yellow beer still has some appeal.

Draft beer
Some people commented on the absence of draft data in last week's post. Draft is far more difficult to track than packaged sales for some fairly obvious reasons, and it isn't part of what IRI collects. In fact, no one really knows how much draft beer is sold in Portland. We just know it's a huge number.

After talking to some industry folks, I came to understand the draft figure is much larger than I imagined. Portland's core consumes draft beer like there's no tomorrow. The national average for draft consumption in cities and towns is around 30 percent. A reliable industry source told me Portland's number is 50-60 percent by volume, over 60 percent in dollars. Another source said that number is probably accurate.

One thing I need to mention is that no one seems to know where growlers fit in. This is draft beer sold for consumption off-premise. Brewpubs and beer-centric establishments that fill growlers surely track those sales differently than beer sold for on-site consumption. But we have no exposure to the numbers.

Grocery stores are another matter. More and more stores fill growlers. Yet no one I talked to could tell me how those sales are tracked. I suspect Fred Meyer, which recently joined the growler craze, tracks growler fills alongside packaged beer sales, and passes that data on to IRI. It might be hard to extract growler fill data from packaged sales. So it's a blank page for now.

Reality check
If you look at where craft sales are underreported or not represented in IRI data, you quickly realize craft market share in Portland is significantly higher than the 45 percent shown last week. Craft may have only recently passed the combined packaged sales of Anheuser-Busch and MillerCoors in IRI stores, but it has surely dominated the overall picture for several years, at least.

Forming a statistical representation of the Portland beer market is a bit of a guessing game. That's because there's so much missing hard evidence. Nonetheless, looking at the likely scenarios for draft and packaged product, you have to conclude craft owns more than 60 percent of the PDX market in dollars.

So the IRI numbers used in last week's post aren't wrong and they aren't even a crock, really. But they are so woefully incomplete that they present a skewed picture of what's happening. You have to look deeper.

Given all that, we really ought to take another look at Seattle and San Francisco, the top craft markets in the country behind Portland. Both are probably craft-dominant at this point. If you could see data from all sales channels, both likely passed combined AB/MC dollar share a while ago.