The Pandemic and Beyond

The past two weeks have been catastrophic for the American economy. Millions of jobs have been lost, at least for the duration of the coronavirus pandemic. We don't yet know when the economy will reopen. But there's a good chance it will never be quite the same.

Craft beer has, of course, been hard hit by social distancing and shelter in place directives. The closure of bars and pubs has sent owners and employees scrambling. I'm not sure how many people have been laid off in the Oregon beer industry. It's a big number.

Many of those people had jobs in pubs, bars, taprooms, etc. Deschutes laid off 300; McMenamin's 3,500. Anyone who follows the industry knows someone who was laid off or had their hours and/or pay reduced. Or maybe they weren't paid on schedule for work already done, as in the case of Brandon Easley and laid off McMenamin's employees. The money simply isn't flowing as it was a few weeks ago.

I've seen people whining about the layoff numbers. What were these companies supposed to do? If the United States had job saving programs like some European countries, people might have stayed in jobs, albeit with not much to do. Instead, they're collecting unemployment benefits. At least being laid off allowed for that.

I suspect the layoffs aren't over. On-premise sales are flat, something we haven't seen since Prohibition. Many breweries are holding onto production staff to keep packaged beer flowing into distribution channels, or to sell on a to-go or delivery basis. But these are stopgap measures designed to keep places afloat, not a shift in how they hope to generate profits going forward.

As much as everyone is hoping for a fast recovery, it seems unlikely with the economy at large or craft beer. It's become obvious as we've stumbled through the pandemic that American small businesses are leveraged and lack the reserves to weather economic jolts as severe as this one. They need a steady flow of inbound cash to stay viable and it isn't there.

Craft beer has its own problems. There are too many breweries and markets are saturated in many areas. A colleague told me he believes 20 percent of American craft breweries will fail as a result of the pandemic...roughly 1,600 breweries. I think that estimate is low. The pandemic is going to accentuate overcrowding and saturation issues, accelerating the failure rate.

We don't know when the social distancing and shelter in place directives will end. That's probably a month or two away. When they do end, everyone will start to dig out. As breweries ramp up production, they won't be doing so for a full complement of patrons. Why? Because people aren't going to immediately have disposable cash. This epidemic is an economic calamity.

Habits and attitudes are also going to be altered, just as they were by 9/11 and the Great Recession. How long will it take for confidence to return? When will people feel comfortable in group gatherings? Even when they can afford to do so, when will they flock back to bars, pubs and taprooms? My guess is that's going to take some time.

In fact, it's difficult to imagine what the post-pandemic economy looks like. We won't truly begin to assess the event's downstream impact until we reach the other side. But it's going to be a tough slog for everyone when restrictions end. And craft beer is far from immune to that reality.

All anyone can do is make the best of things and hope for better days.

Craft Beer: The Year Behind and Ahead

We're creeping toward the end of the year, which means everyone is putting out a list of the best beer or beers of the year. I'm not really a fan of lists. But let me look back on the year that was and provide some thoughts on the craft beer year ahead.

Cans
When I wrote this column a year ago, I suggested the popularity of cans would continue to grow and we'd see even more canned beer hitting shelves. That was a bit obvious, thinking back. It wasn't very hard to see the tsunami of cans forming; it had been doing so for several years.

What's most interesting about the emergence of cans in craft beer is how it happened. It wasn't a top-down movement. Established craft brewers, for the most part, were slow to embrace cans. To a significant extent, they were forced to adopt cans to compete with the smaller breweries who launched and articulated the movement. Some established places have even attempted to make their cans look like they came from a small, local brewery.

Anyway, you see more canned craft beer on store shelves than you did a few years ago. A lot more. There are many Oregon breweries that had no beers in cans until this year. Now they're pushing out a growling number of brands in cans.

I've mentioned the benefits of aluminum cans before. They're less prone to breakage, less costly to ship, protect beer from light, are easier to carry on outings than glass and easy to recycle. But that's not why they're gaining traction. They're being adopted far and wide because cans possess a cool factor that bottles don't.

I'm sure we'll continue to see more canned craft beer in 2019. Smaller and mid-sized breweries will transition most of their beers to cans, whether 12 or 16 ounce. Larger breweries will continue to package in 12 oz bottles, while also transitioning their mainstream stuff to cans. Increasingly, bottles are yesterday's news.

Local Beer and the Big Squeeze
Around this time last year, we had 6,000 or so breweries, mostly smaller and independent, operating in the United States. That was a shocking number, given where we were only 10 years earlier. Within the last couple of months, we passed through 7,000, with a huge number in planning.

As I said a year ago, the explosion in smaller breweries has been a terrific boon for consumers, who now have easy access to local beer. But it has also been a disaster for larger craft breweries, caught between the retail and distribution power of the Anheuser-Busch High End and the artisan creativity of small local breweries and losing market share in dramatic fashion.

The brewery count will almost certainly continue to rise. Why? Because there are still plenty of fools determined to open a brewery regardless of market conditions. Closures ramped up in 2018 (see Ezra's article on local closures here) and that will certainly be a common theme in 2019. There's nowhere to hide in a saturated market.

The reality is simple: production of craft beer has grown faster than the size of the consumer market. That wasn't all that hard to predict a few years ago. Even when craft beer was growing double digits, many knew it wasn't sustainable, that we'd hit the wall at some point. That's essentially what's happened.

For several years, I've tried to imagine what kind of fallout we'd see in a saturated market. Part of the answer is that poorly operated or otherwise compromised places are forced out. We're seeing that now. What about prices? Craft beer prices have risen slowly in recent years. Could we see a price war in which brewers cut prices to capture sales in a flat market? Hmmm.

This is an area in which independent breweries are vulnerable. Anheuser-Busch, which has already created significant turmoil with its High End, could use steep discounting to destabilize things further. They can manufacture those brands cheaply and have a strong enough presence in the retail channel to deal independent brewers a serious blow. Could it happen? We shall see.

Best and Worst
I'm seeing a lot of Beer of the Year lists. To me, there's no such thing. I tasted or drank a number of great beers in 2018. It's hard to pick a favorite or favorites because my taste varies from week to week and month to month. I tend to like lighter beers during the warm days of summer and darker, bigger beers when the weather turns cooler. But I can't identify a favorite.

On that subject, generally, I had hoped the haze craze would moderate or die in 2018. It's not that I hate the style...I'm just tired of the frenzy surrounding it and the $8 cans with ridiculous names and artwork. Of course, the haze lives on. But I sense the frenzy around it has slowed down a bit. I suppose that question will come into clearer focus as we move through the new year.

Brut IPA, some thought, would be a replacement for the hazy. Beer geeks were ready for something new, that's for sure. But the Brut movement bogged down when a lot of the beers turned out to be nothing more than hop-flavored LaCroix. I actually tasted a couple of Brut IPAs I liked. Most, however, were middling or bad. Some fine tuning is needed, I guess.

The event madness that started many years ago showed no signs of slowing down in 2018. In fact, the event circuit seems to have captivated an increasing number of wannabes and nerds who chase special releases, collabos, etc. Their dedication is cult-like. Yeah, I understand why breweries, pubs and taprooms do events. But the cult-like fascination is mystifying.

Somehow related to the trendy and frenetic aspects of the industry is the new approach to craft beer promotion on social media. Selling with sex or the suggestion of sex has been around for centuries. Now it's part of craft beer thanks to (for example) Instagram feeds that feature beer-themed soft porn. I'm not sure where this is headed, but I'm pretty sure it's not a good thing.

There's more I could talk about, but that's enough. It's a decent bet that 2019 will be just as interesting and crazy as 2018. Craft beer and the beer industry in general are an ongoing adventure.

Happy New Year!

Big and Old Craft Brewers Grapple With Sour Times

You've heard the bad news. Craft growth is slowing. Heads are spinning trying to figure out how to jumpstart an apparently sagging industry. Places are closing their doors or begging to be graciously bought out by big beer. Gloom and doom.

Except maybe things aren't quite what we've been led to think they are. It's true that overall craft growth is slowing, down to something like 5.5 percent year to date. Also more failures. What many don't realize is that big craft is dragging the rest of the industry down. Yup.

If you exclude the imploding sales of brands like Blue Moon, Sam Adams and Sierra Nevada from the picture, you discover craft dollar sales are up more than 11 percent on the year. Including those players puts growth at the already noted 5.5 percent.

Those are national numbers, but the picture in Oregon isn't much different. Deschutes, our top brewery by volume, experienced an 18 percent decline in sales June 2016 to June 2017. Full Sail, Rogue, Portland Brewing and Bridgeport are all down. Widmer, if it's production showed up in OLCC stats, would certainly show the same trajectory.

In actual fact, the trend goes beyond a turn away from big craft. We see it in industry stats due to its impact on big craft, but it is affecting established craft breweries widely. Once respected local brands are seeing declining numbers as consumer tastes shift to what's new and shiny.

That's not something you can verify with national stats. But there's plenty of evidence in Oregon stats. For the same June to June period mentioned above, a number of older local breweries, including Lompoc (-12 percent) Laurelwood (-15 percent), Double Mountain (-8 percent) and Alameda (-20 percent), are losing ground.

Over that same period, you see significant growth for relative newbies Pfriem (+55 percent), Crux (+127 percent), Ecliptic (+81 percent), Block 15 (+63 percent), Sunriver (+54 percent), Buoy (+38 percent) and Breakside ((+22 percent). Several established breweries, including Pelican and Silver Moon, show solid growth, clearly outliers among the older set.

"Younger drinkers increasingly view legacy brands as stodgy or uncool," says Andy Crouch in this month's BeerAdvocate magazine. "A new disruptive wave of young brewers, keen on brewing to their own tune, entered the marketplace with little care or respect or concern for their elders."

The result is that older craft brands large and small are being displaced. Craft beer has become a part of pop culture among the younger generation, which views established brands like Deschutes, Sierra Nevada, New Belgium and Sam Adams as ancient and irrelevant. It's similar to disrespecting the music of a prior generation because it's old. You know the drill.

One could easily argue that small, local brands have more flexibility in addressing the current trend than big craft. After all, it's easier to alter the course of a small boat than that of an ocean liner. In beer terms, changing course means embracing trendy styles like hazy IPA and refreshing a antiquated brand identity with local consumers. It's not easy, but not impossible.

Big craft is in a more awkward position. We're talking in about beer portfolios that are well-known across countless markets and in many cases hopelessly outdated. It's not that easy to erase embedded brand identities and rebuild cool with the young audience that's driving craft beer's growth.

There's desperation out there, as outlined in Crouch's column. New Belgium released a disastrous line of fruit flavored IPAs and plans to extend the Fat Tire line with a Belgian-style white ale. Yummy. Sam Adams is hawking a line of alcoholic seltzers. Embarrassing.

Price is one area where big craft might attack. They're big enough that they could reduce retail prices in an effort to win back business. But reducing prices is more likely to further damage already imploding brands. And you aren't going to win over millennials who regard you as out of touch with discounting. Is there a Plan B?

For a while I've wondered if big craft will follow the example of big beer and start buying up smaller breweries. There's been some of that already. Green Flash bought Alpine a while back. New Belgium recently bought San Francisco's Magnolia Brewing. Should we expect to see more deals like that down the road? I haven't a clue.

The only thing I do know is these are tough times to be a legacy craft brewer.

The Trap of Large Scale Distribution

The Brewers Association recently announced that the US brewery count has surpassed 5,000. That's a new record, topping the previous high of around 4,100, set back in pre-Prohibition 1873. Most breweries were small in those days and we seem to be returning to that general theme.

Nonetheless, the bulk of the craft beer sold today is made by a few large breweries. No need to name names. These are mostly well-known brands that joined the craft movement long ago and have built strong followings via regional and national distribution.

If you've been reading along here, you know some of the larger craft breweries have been struggling of late. The stats are quite clear. It appears that, with a lot of breweries opening in places that never before had local beer, locals are buying local brands instead of national or regional ones. Go figure.

Improved access to local beer is actually a wonderful thing. And we aren't done, yet. Despite significant overcrowding in the retail sector, we haven't reached peak brewery count. There's still room for small breweries that target underserved local clientele. Seriously.

That applies even in Portland, which has (too) many breweries concentrated in and around the city core. My guess is some of those breweries will struggle in coming years. But there are still neighborhoods in the metro area that would proudly support a local brewery or brewpub.

What we don't have room for, I think, is breweries that enter the market with plans to extend their reach and profitability via large scale distribution. Stiff competition for limited retail shelf space and taphandles makes that an increasingly problematic strategy for most, though some have certainly succeeded.

That's why I find it odd that so many breweries, even relatively small ones, try to navigate the distribution angle. Sure, a bit of local distribution is good marketing. Being seen on store shelves can be good for business. But reaching beyond local distribution makes sense for only a few.

Industry sources tell me some Oregon breweries are reconsidering their commitment to extended distribution. These are breweries whose beers are distributed in Oregon and around the Northwest. They're starting to wonder if the strategy is worth the time, effort and investment.

It's a good question because distribution on that kind of scale is a different challenge than selling beer in your pub and in local retail channels. Once you cross the threshold into distribution outside your home market, you're walking into a brutal numbers game where the cost of entry is high and the margins are extremely low. Moving a lot of beer is just one piece of the puzzle.

Most who enter into serious distribution invest heavily in infrastructure. But that strategy also requires an ongoing investment in marketing and support. Besides good beer, you need a solid image and a viable marketing plan. And you need boots on the ground, folks who live in or travel to remote markets to create the buzz that generates brand recognition and sales.

I honestly don't understand why successful brewpubs, in particular, get caught up in the distribution gambit. It seems to me they would be well-advised to stay tightly focused on running their pubs well. That's where they get the greatest margin on their beer. Going deep locally typically offers a much better return than going wide regionally or nationally.

It's fair to wonder why, when faced with the reality of high entry costs, low margins and stiff competition, so many attempt to distribute beer outside their home markets. Possibly it's ego. Possibly owners and brewers experience success at home and assume they can and must duplicate it outside their area.

It often turns out to be a fool's errand and a trap. No offense to the mangled egos.