Fast on the heels of another highly successful year, the American craft beer industry is gearing up for another profitable year and the challenges that accompany success. As the segment continues its development from a tiny niche to a legitimate force in the beverage alcohol marketplace, craft brewers are increasingly coming to grips with the changing realities of their improved prospects. With the big brewers showing a renewed interest in the category and the recently announced merger of Redhook Ale Brewery and Widmer Brothers Brewing, 2008 is shaping up to be the year when craft brewers, both large and small, solidly enter adulthood.

Anheuser-Busch ‘Crafts’ A Better Beer

In the months of December and January, football fans across the country were introduced to a familiar face, but with a new shtick. The television advertisements showed various Anheuser-Busch employees touting the quality of Michelob and its grand history, tradition, and reputation for quality. The ad’s focus then surprisingly shifted from the standard Michelob lager to the brewery’s less familiar ‘family’ of Michelob brands. The ad featured the Michelob Porter, Pale Ale, and Hefeweizen and again heralded their quality. The ad ends with the campaign’s new tagline, ‘crafting a better beer.’

My initial reaction was admittedly one of mild shock. While I had read the standard industry announcements that routinely precede such television releases, the audacity of this particular ad is something to behold and signals an odd note of acceptance by America’s largest brewer. The television ad, part of Anheuser-Busch’s $30 million campaign to rejuvenate the ailing Michelob brand, was a low key, exploitation free promotion of the flavor and heritage of the Michelob brand. The ad is also the brewery’s latest attempt at fighting back against the gains of brewers in the better beer segment.

Beyond the unmitigated gall that it takes to co-opt the hard fought name and message of the craft brewing movement, the television spot also closely mimics the successful ads released in 2007 by the Boston Beer Company. Those ads, which often feature founder Jim Koch and his team of brewers talking passionately about their beers and smelling baskets of fresh hops, helped the Samuel Adams brand gain tremendous strength last year, which in turn drove greater growth amongst all craft brewers. In Anheuser-Busch’s knock-off spot, a brewer smells the malt and talks about Michelob’s traditions and dedication to brewing flavorful beers. The campaign goes far beyond merely releasing beer after new beer and hoping one sticks. It is a celebration of flavor, quality, and better beer. To stop and think about the ad’s tagline, ‘crafting a better beer,’ leads football fans and other viewing consumers to necessarily inquire, ‘Better than what?’ The only answers a viewer can be left with are Budweiser and Bud Light.

One member of the Michelob brand family that does not appear in the ad is Michelob Ultra, the company’s former low carbohydrate sales golden boy. In response to the news of the new campaign, one company executive told Advertising Age that the disassociation was a conscious decision. “You’re going to see us reduce the reliance on the name Michelob with Ultra, maybe even to the point of taking it off the packaging down the road,” the executive said. Regardless of whether the campaign, which again finds Anheuser-Busch trying to promote Michelob as a connoisseur’s brand, actually increases Michelob’s sales, the overall message is clear. Craft brewers have succeeded in changing the nature of the game and they need to be ready for the effects of greater corporate interest in their profitable category.

A Fight Of A Different Kind

After months of speculation, the Bell’s Brewing Company of Kalamazoo, Michigan, recently confirmed that it intended to return to the Chicago area market with two ‘new’ brands in early December. As part of a small, initial test run, the brewery shipped its ‘new’ Kalamazoo Amber Ale to six bars in the Chicago area. Now I use ‘new’ because Bell’s is using this limited release to test the waters of Illinois distribution and franchising law with these brands. Formerly doing business as the Kalamazoo Brewing Company, the brewery stopped shipping beer to Illinois one year ago because of a dispute with National Wine & Spirits, the company that has the rights to distribute Bell’s Beer in Illinois. The brewery’s brands, long a fixture in Chicago’s better beer taverns, disappeared from the market after owner Larry Bell decided to end his relationship with NWS, which acquired the rights to the brand after Bell’s former distributor was purchased.

Bell founded his brewery as a home-brewing supply shop in 1983, with the first pint going across the bar in 1985. He has grown his brewery from a tiny, one-man operation with a production of 135 barrels in 1986 to more than 90,000 barrels in 2007. After a substantial recent expansion, which now covers 60,000 square feet of space in Comstock, Michigan, the brewery now boasts 140,000 barrels of brewing production.

The case is consequential because it raises several important legal questions about the legitimacy of state franchise laws which appear to restrict a brewery’s rights to switch distributors. Some in Illinois argue that the laws should be interpreted to allow for a brand to return after a year’s absence from the market, while others interpret the dense code to prohibit the transfer of brands to another wholesaler without the agreement of both parties.

With his return, Bell is trying a backdoor approach. He says that he has released three new beers specifically for the Chicago market that are not subject to the prior distribution agreement. The new beers, offered under the Bell’s Brewery name, will include the Kalamazoo Porter, the Kalamazoo IPA, and the Kalamazoo Royal Amber Ale. The labels read, “Brewed especially for the people of the great state of Illinois.” To some, including the distributor’s lawyers, it may appear that these new releases look similar to the Bell’s Porter, IPA (or Two Hearted IPA), and Amber, all products that were once popular in the Chicago market. Whether the new beers and their flavors bear any similarity to the old beers will likely be subject to many glass clinking debates.

The Stakes Are Not Always So High

The husband and wife owners of one of Maine’s oldest microbreweries, the Bar Harbor Brewing Company, recently announced their plans to sell their business to a Florida-based advertising executive. The sale of the brewery, which produces the award-winning Cadillac Mountain Stout and Thunder Hole Ale beers, is expected to close in early 2008. The new owner, Evan Contorakes, is the Chief Executive Officer of the Ronin Advertising Group of Miami, Florida, and also owns the Parkside Restaurant in Bar Harbor. Tod and Suzi Foster, present owners of the brewery, will retain a consulting role for one year following the sale in order to aid in the transition of the brewery.

The Fosters founded Bar Harbor Brewing in 1990 from the basement of their area home. While living in California, the couple sat front row center for the early days of the microbrewing movement. Tod took up homebrewing while a student at UC-Santa Barbara and the Fosters traveled throughout the state visiting new breweries as they opened. After moving to Suzi’s hometown of Bar Harbor, the couple would talk about Tod’s idea for opening his own brewery. He knew Bar Harbor had a huge tourist industry and that anything with the town’s name stenciled on it sold quickly as souvenirs. He discussed the idea with his wife so often that one day Suzi just looked at him and asked him whether he was actually going to do anything about it.

From the beginning, Tod knew that he wanted to run a very small operation, called a cottage brewery, where he would handle the brewing and Suzi would run the business. On a return trip to California, the Fosters met with several brewery and pub owners to get a sense of what they’d need to accomplish their goal. The couple almost decided against opening their own place after repeatedly being told they would need nearly $400,000 of startup capital to succeed. After securing a small two-barrel Pierre Rajotte brewing system, Tod created the first batches of his flagship Thunder Hole Ale. When the beer proved popular, the Fosters eventually moved from their cramped, 150-square foot basement a new house on two and a half acres a few miles outside of town. The new owner plans to move the brewery, which presently covers 850-square feet of the Foster’s basement, to a store front in downtown Bar Harbor. The new space will include the brewing facilities and a tasting room for tourists.

Comments by Contorakes to the local newspapers show that he has great plans for the little brewery. While the Fosters had trouble maintaining the brewery’s 325 barrel production, Contorakes plans to catch up with local demand and then expand the brand “up and down the East Coast,” as he told the Mount Desert Islander. Contorakes’s bold plans also include taking the small, little known brand to a national audience. “I guarantee there’s a national pipeline we could put this into,” he told the local newspaper. “People around the country are always looking for these microbrews.” To achieve these goals, Contorakes says that he will likely contract with a larger brewer for off-site production of Bar Harbor Brewing’s brands.

The Rise, Fall, and Possible Rebirth of Another Local Brewery

In its short existence, the Concord Brewery has seen some very tough times, bouncing between four different names, a succession of new owners, and a handful of homes.
The brewery’s accountant, David Asadoorian, purchased the brewery in 2003 from the former brewer, renamed it the Concord Brewery, and relocated operations to the old Brewery Exchange complex in Lowell. Despite the change in environs, the brewery struggled under Asadoorian’s ownership. The brewery’s once-popular Concord and Rapscallion brands never grew beyond their local following in Lowell and the quality of the beer, in the marketplace and at the adjacent pub, also suffered.

A new chapter in Concord’s complicated history is presently being written and it looks pretty similar to previous pages, with new owners, a name change, and a change in location. The brewery has been sold to Peter and Cedric Daniel, who plan to change Concord’s name to Rapscallion. The new owners plan to decamp to Milford, New Hampshire, where the company’s brands will be brewed under contract by the Pennichuck Brewing Company.

Developed as a personal artisanal project by former brewer Dann Paquette, the Rapscallion line has perhaps been the brewery’s most visible project and was a pioneering brand that pushed the definitional boundaries of ‘beer.’ Born in the spirit of beers that are intentionally different from batch to batch, the Rapscallion line of beers defied the notion that consistency in flavor profile is the brewer’s only goal. The three early Rapscallion brands, named Blessing, Creation, and Premier, varied in consistency and flavor from batch-to-batch, but were widely lauded by beer enthusiasts.

The new brewery’s first release will be the Concord Extra Pale Honey Ale, rebranded as the Rapscallion Honey Ale. The new owners expect to resurrect other beers from both the Concord and Rapscallion lines.

The brewery’s troubles show that a rising tide in the craft brewing segment does not necessarily translate to an increase in sales. The company’s shift from a local brewery with a solid native customer base to a brewery in Lowell with no ties to the community has wreaked havoc on the brand’s growth prospects. On the rebranded brewery’s website, the new owners joked about the company’s troubled history. “Maybe you never understood why a beer brewed in Lowell, MA went by the name of Concord. Well, we didn’t either.”

In light of the segment’s continued growth and the increased profitability of better beer (craft beer now accounts for more than five-percent of total beer sales in the United States), smaller brewers should expect that their once unnoticed industry will continue to meet with new challenges and the renewed interest of deep-pocketed competitors.

–Article appeared in April 2008 issue of Beverage Business Magazine

Second only to its love of David Hasselhoff, the German affinity for its Reinheitsgebot boggles the minds of foreign visitors. Born as a cross between a taxation law and a means for protecting bakers’ ingredients, the Reinheitsgebot (literally translated as ‘purity regulation’ or ‘requirement’) has long been a dominating influence on the German beer scene. German brewers and drinkers alike proudly point to the regulation as de facto proof that their beer is the best in the world. The history, meaning, and practical effect of the historic regulation, however, are not so clear. In reality, the Reinheitsgebot is a confounding, convoluted, and even antiquated concept, the complexities of which the local German brewers don’t even appear to quite understand.

The earliest version of the Reinheitsgebot first appeared in the city of Munich in 1447 when the city council issued an ordinance asking all brewers to use only barley, hops, and water in brewing. Forty years later, Bavarian Duke Albrecht IV compelled local brewers to pledge support for the ‘purity’ ordinance. By 1516, the Reinheitsgebot had been extended to all of the then-defined state of Bavaria and it (with the addition of the newly discovered ingredient of yeast) would later be extended throughout the nation. The purity law dominated the German brewing scene until 1987, when the European Court of Justice struck down the provisions of the law which barred foreign brewers from marketing their non-compliant offerings as ‘beer’ in Germany.

While the landmark decision allowed foreign brewers to freely move their beers inside of Germany, the case was not the last word for German brewers. When you ask whether the purity regulation still governs their actions, German brewers tend to give mixed responses. Almost all brewers claim that the Reinheitsgebot remains the governing law, with some even suggesting that there are criminal penalties for violating it. While a handful of the republic’s more than 1200 brewers might privately tell you that the purity law no longer governs their businesses, none would dare speak such blasphemy in public.

A debate over the Reinheitsgebot can raise the ire of ardent German beer enthusiasts. Supporters point to the glory of a zesty German-style pilsner or the grandeur of a luscious maibock as proof of the value of the purity law. To these dedicated souls, anything that suggests tampering with these brewing treasures and their traditions is heresy. And there is no denying that the country’s reputation for excellent beers and its revered brewing traditions have in part been preserved by the country’s identification with and dedication to the purity regulation.

Despite its ties to tradition, the purity law has also served to stifle German creativity and provided harbor for some unfortunate misconceptions about beer. The uniform party line approach of German brewers has led both locals and foreign drinkers to propagate the myth that the Reinheitsgebot is what makes German beer ‘good’ and that any beers not made in accordance with its rigid rules are somehow inferior. Brewing in accordance with the Reinheitsgebot, however, is no guarantee of quality and as any imbibing traveler in Germany can attest, the country has its fair share of flawed beer. German brewers are not immune from the temptation to cut corners on maturation times or ingredient qualities, all while staying within the four corners of the purity law.

At its core, the purity law is built upon a faulty premise, namely that quality beer can only consist of three to four standardized ingredients. Strict adherence to this errant brewing ideology has caused German brewers, known for their technical savvy and innovative dexterity, to largely miss the craft brewing revolution. The explosion of brewing creativity spreading in countries, including Japan, Denmark, and Italy, which are unencumbered by such restrictive and outmoded regulations, has near completely bypassed the historically handcuffed German brewers.

In all fairness, the Reinheitsgebot is not the only obstacle to a revolution of new flavors in Germany. The nation’s beer drinkers are notoriously parochial in their selections and their reluctance to try new styles is legend among German brewers. A pass by a café during the lunch hour or a beer hall after work leaves you with the distinct impression that the German people like their just as it is. While German brewers could certainly produce a tongue blistering IPA safely within the confines of the Reinheitsgebot, they resolutely believe that their customers wouldn’t drink the stuff.

It is impossible, however, to ignore the irony of the Reinheitsgebot’s role in shaping the brewing nation’s hardened views. In the days before the spread of the purity law, the less politically powerful brewers of Northern Germany are said to have created dozens of once popular but no extinct beer styles, including spiced and fruit-flavored offerings. While paying homage to German brewing history is an honorable pursuit, expanding the brewing flavor palette beyond mere hops and barley would actually bring German brewers closer to their roots.

–Article appeared in Volume II, Issue I of BeerAdvocate Magazine