Category: Redhook

Death of the Flagship…

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There comes a time in the story of every generation when the end draws near and a new chapter begins. In the craft beer industry, it has taken nearly thirty years for that page to turn but a new story of is about to be written, one where many of the beloved main characters are going to be written out or relegated to background roles.

For the better part of thirty years a handful of big name craft beers, from pioneering brewers, led the way as the industry’s ultimate front line warriors. Beers such as Sierra Nevada Pale Ale and Samuel Adams Boston Lager were the twin drivers of craft beer’s narrative and growth. They fought a ground war in airport bars, chain restaurants, and convenience stores from coast to coast. They ran ad campaigns to bolster the public’s understanding of better beer and to teach consumers that taste, flavor, and character meant something. Their salesman built the tracks on which the craft beer express smoothly rides today.

A funny thing happened to these wildly successful brands on the way to craft beer utopia: a new generation of craft beer know-it-alls used the success of the beer pioneers against them. Content to reject Sam Adams, Sierra, and other popular brands as passe examples of the Old Guard, or even dismiss them as corporate beer shills, these founding fathers suddenly became something other than craft. Beyond the industry insider definitional debates over volume and barrelage numbers, the young started to prey on their elders in quiet but vicious fashion.

After enduring years of cheap shots, the generational attitude shift appears to have rubbed off on the beer pioneers themselves. For the first time, the future prospects of the industry’s two most stalwart brands, Samuel Adams Boston Lager and Sierra Nevada Pale Ale, the yin and the yang of the craft beer world, look dim. Supplanted by seasonal brands, endangered by the race for the holy one-off grail, and lost in the hunt for more hops, these respected and balanced brands look increasingly out of place in the wider world of craft beer. And the pioneers seem to know it. In response, Sierra Nevada has focused a lot of energy on its Torpedo IPA brand, which ups the hops from the company’s style defining flagship Pale Ale. Even Boston Beer has launched its own IPA, Latitude 48, even as Twisted Tea offering surpasses Boston Lager as the company’s best selling product and a series of seasonal beers capture the attention of beer drinkers and distributors.

Other breweries aren’t immune from this shift. Widmer Hefeweizen receives a lot less attention from the brothers in the wake of new releases, including a rotating IPA series. The flagship brands of Redhook, Boulevard, and Deschutes have also started to lose focus to other brands and line extensions. Even once seemingly invincible Fat Tire is losing share of New Belgium Brewing’s mind to the brewery’s juggernaut Ranger IPA.

So in the end of an era for some pioneer brands, where consumers appear ready to fully embrace their long-developing beer brand promiscuity, the first era of the flagship is over. The ultimate result of the evolving craft beer consumer’s fickle palate is the end of relations with these former beaus, only to be replaced with a new, younger, and hipper string of beer relations.

While some nostalgia for these great and trailblazing brands is warranted, the new chapter shows the continued maturation and development of craft beer in America. Even as market share slowly inches up, consumers are deciding for themselves that they want new beers, happy to push beyond their early favorites into new and unexplored flavor territories.

–Article appeared in Issue 66 of BeerAdvocate Magazine.

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What Will The Big Brewers Do About Craft Beer?

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America’s largest commercial breweries have long had a love-hate relationship with craft beer. Often run by families with long brewing pedigrees, the macro brewers took serious offense at suggestions that their beers-pictures of consistency and efficiency-were somehow inferior to those produced by the bands of ragtag, scraggly haired, tattooed wannabes. The big brewers didn’t view the newcomers so much as competitors, but curious interlopers riding a brief fad.

In response to the early rise of craft brewers, Anheuser-Busch developed and released a series of half-hearted, faux-craft brands that tried to co-opt craft’s cool while simultaneously portraying the trend as cartoonish. Over at SABMiller, CEO Graham Mackay flippantly gave Fortune Magazine as late as 2007 his thoughts on craft beer. “I think it’s going to fade. It’s inevitable.”

With the explosive and long-sustained success of craft beer over the past decade, even through the terrible economy of the last two years, Mackay’s comical statements likely signify the last time a big brewery CEO doubted craft beer’s staying power. The only question remains, where do the nation’s biggest breweries go from here?

Having purchased substantial stakes in several craft breweries, from Redhook to Old Dominion, A-B InBev’s future in the better beer segment remains an open question. With the company’s primary focus on developing its core brands and its massive outstanding debt, it seems unlikely that future purchases and partnerships will occur. Add in the company’s dedication to premium brand building, and not to cultivating smaller craft brands, and the situation leaves a decided air of uncertainty hovering over companies such as Goose Island and Widmer. Within its own portfolio, A-B’s more flavorful beers also appear to be on the outside compared to Stella and its bland brethren.

With craft beer continuing to grow in dollar and market share, the big guys can’t be expected to sit back and watch their brands get ridiculed and become culturally irrelevant. After nearly two decades of flat out denying that consumers would switch from interchangeable beer widgets to characterful ales and lagers, macro brewers face some very difficult choices. Do they focus on foreign markets and continue to follow the old playbook in the United States? With the slow growth of craft beer from Scandinavia to Italy and Brazil, this seems like a poor response. Buying a stake in or taking over aging craft brewers also hasn’t panned out for the big guys as savvy beer consumers tend to hold such alliances against them. And when not taken seriously, their own organic products have tended to be resounding failures.

For its part, Coors appears to be the only big brewer to have not taken the upstart flavorful beer segment for granted, having developed and supported the now category leading Blue Moon brand despite some uncertainty along the way. And while some beer geeks may slam down their pints in anger when Blue Moon advertises on the Discovery Channel’s Brew Masters show, the new MillerCoors has doubled down on the better beer segment with its recent formation of the Tenth and Blake brewing outfit. The division’s new president, Tom Cardella, recently admitted to a Milwaukee newspaper that “[y]ou are seeing a tremendous amount of consumers gravitating to craft beer. Consumers are being more discerning about beer.”

A watershed moment in the history of craft brewing, it’s time for the macro brewers to acknowledge the new role flavorful beer plays in this nation, the strength of its future prospects, and help raise the bar for beer in America. Instead of trying to demean, ignore, or dismiss characterful beer, A-B InBev and MillerCoors should endeavor to help usher in the next era of great American beer. Because one thing remains clear for the big guys in the midst of all this uncertainty: those meddling craft brewers aren’t going anywhere.

–Article appeared in Issue 48 of BeerAdvocate Magazine.

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In Praise Of The “One Beer”…

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Tens of millions of barrels later, the craft beer renaissance can be traced to a single beer. Now, I don’t mean Anchor Steam, Redhook Ale, or even the New Albion Ale, though they might qualify for some of you. Instead, I’m talking about the experience every dedicated craft beer drinker has enjoyed at one point, the time that “the beer� set them upon the road to beer enrichment. It’s a moment you’d think we could never forget. But with all the excitement our industry has to offer, it sometimes seems as if we’ve forgotten the remarkable place from where we’ve come.

Sparking an interest in craft beer is all about the right beer at the right moment, the one sip that radically transforms the imbiber’s way of thinking about beer. After experiencing a flood of yellow, fizzy, cold monotony, it’s the scene stealing instant of real flavor that stops you in your tracks and ends with an exclamation point hovering in a speech bubble above your head. An internal cymbal crash signifies the breaking of long-held beer stereotypes, be they an avowed dislike of “dark beer� or a staunch opposition to “bitter beers.�

Depending upon when you came of age, the defining beer might be Sierra Nevada IPA or Samuel Adams Boston Lager, recalling a seemingly distant time when these beers were anything but omni-present and not derided by beer geeks as “mainstream brands.� For others, “the beer� may have been a locally produced pale ale, brown ale, or hefe-weizen. Others still may have first seen the light as it passed through an invitingly hazy Blue Moon Belgian White, a laudable product of Coors.

In truth, “the beer� is more likely a series of beer sojourns spaced over an extended journey into craft beer. For every beer lover, life is a series of single beers and defining moments, the right pub and atmosphere at the right time, warm weather and the perfect quencher, celebratory moments with family or stolen seconds of personal solace at the end of a long day, each accompanied by “the beer.�

After a long, monogamous relationship with Miller Genuine Draft, my personal interest in better beer started with the first sip of Guinness. A near polar opposite in terms of body, flavor, and overall perception from American-style premium and light lagers, this “gateway beer� led me to my first brewery tour and a romp through locally available imported brands. When a brewpub opened in my college town, I visited and ordered my first sampler, in the process unknowingly stumbling upon my second “the beer� moment. The first taste of Court Avenue’s Blackhawk Stout subconsciously taught me the difference between ubiquitous Irish dry stouts and the sweeter but less popular foreign-style or export stout variety. From there, Vermont Pub’s syrupy Wee Heavy, Capital’s malty Blonde Doppelbock, and Summit’s bitter IPA and smooth Maibock propelled my interest. And just when I think I’ve seen it all, along comes the Sly Fox Pikeland Pils, a wonderfully hoppy German-style pilsner whose remarkable complexity is matched only by the come-full-circle irony of enjoying the beer directly from its can.

These single beers define the development of a craft beer drinker, from early, beerphobic days to passionate travels to far-flung breweries. In this era of eBay’d extreme beers, Dark Lord Days, and famed international brewing collaborations, it’s sometimes easy to lose track of the simple origins of our interest. Perhaps more importantly, our passions can sometimes disconnect us from the 95-percent of beer drinkers who do not share our enthusiasm for the charming marriage of hops and malt. With this in mind, I’ve made a resolution this year to redouble my efforts to spread the good word of “the beer� to friends, family, new acquaintances, and strangers yet to be known.

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Anheuser-Busch, InBev, and the Changing Face of American Beer…

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The King is dead, long live the king. After more than a year of rumors, analyst whispers, and convenient press leaks, corporate brewing giant InBev finally made its move on America’s largest brewery. Founded as a small St. Louis brewing operation in 1860 by a German immigrant, the Anheuser-Busch Brewing Company would in less than a century grow to become the country’s dominant brewing business and one of its most iconic brands.

In the days following InBev’s offer for A-B, even otherwise detached Joe Sixpacks tipped their recliners forward and took notice of history being made before their damp eyes. The unthinkable had occurred; the American eagle had fallen prey to a foreign hunter. Once laying claim to half of the American beer market, A-B has long served as a national monolith, imposing its 100-percent share of mind campaign from the Atlantic to the Pacific. The brewery’s television ads dominated the airwaves, its brands omnipresent on the taps of every neighborhood bar and in the cooler at the corner gas station.

A-B’s executives, including the recently installed August Busch IV, tried to put a brave face on a fight they knew they would lose. Wielding xenophobic appeals and feeble court actions, the tough, “not on my watch� rhetoric quickly crumbled in the face of a stagnant stock price, a failure to embrace international expansion, and a tumbling dollar that made the giant brewing company affordable.

What happens after this anti-climactic, first round knockout is anyone’s guess. While InBev has publicly stated that it will not immediately sink its cost-cutting teeth into A-B’s bloat, including its twelve American breweries, this pledge rings hollow for the long term. Ironically, America’s loss may very well turn out to be the world’s gain as Budweiser is now set to become the combined brewery’s international flagship brand. Dethroned as America’s king of beer sales by sibling Bud Light and then later demoted by Miller Lite, Bud will enjoy a renewed focus in a bevy of new markets around the globe. Cousin Stella Artois will inevitably take a backseat to an international icon known even in the world’s smallest villages.

The bigger and lesser understood concern is how the deal, which will create the world’s largest brewery, will affect smaller outfits. We know that Pabst and the Boston Beer Company are left to fight over which brewery is now the country’s largest American owned brewery, but the toll on craft breweries is difficult to determine. While Anheuser-Busch InBev will undoubtedly continue to wield considerable distribution power, better beer fans can rejoice that this deal happened in 2008 and not 1998. A decade ago, craft brewers fought fruitless daily battles for the attention of wholesaler and beer buyers. Today, many craft brewers can’t find the time to field calls from people lined up to bring their flavorful and well-priced beers to new markets.

While hard core beer geeks would argue to the contrary, the loss of Anheuser-Busch should also be seen as a setback to the cause of better beer. Driven by the success of craft brewers, A-B has been a high profile advocate of flavorful beer in recent years. Through its highs and lows, A-B’s attempt to elevate and enhance beer’s public image with its “Here’s to Beer� campaign was a welcomed addition to the good beer praising craft chorus. And while this campaign was scheduled to end within the next year, it’s difficult to picture InBev replicating the promotion in the future. We can also expect the company to reconsider the future prospects of the newly formed Michelob Brewing Company and its line of flavorful beers.

One final consequence of the deal, assuming it survives regulatory review, is that breweries such as Old Dominion, Widmer Brothers, Redhook, and Goose Island will become distant members of the global InBev family. In InBev’s drive to focus on its core brands, these historic craft brands may find a cool reception in the boardrooms of Leuven, Belgium.

–Article appeared in Volume II, Issue VIII of BeerAdvocate Magazine.

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A Look at the Hops and Malt ‘Crisis’…

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The Hop Crisis

The celebrations of craft beer producers have a darkening cloud hanging over them. The talk among brewers and distributors in recent months has turned from their recent successes to the possibility of a severe shortage of raw materials for use in the brewing process. While craft brewers produced a greater number of so-called fresh hop beers, those brewed with hops fresh from the field, hop growers and traders were becoming increasingly concerned about the sorry state of the world’s hop supply. The first whispers focused on a poor hop harvest in the Yakima Valley region of the Pacific Northwest and in the Hallertau region of southern Germany.

Despite recent increases in American demand for hops, worldwide hop production is significantly reduced from previous years. Between the late 1990s and early 2000s, an excess of hop production caused price depression. According to a recent seminar developed by the Brewers Association, overall hop production today is now ten to fifteen percent below the current demand, which has caused a tightened market. Worldwide hop acreage has dropped almost fifty percent in the last ten years, from 203,000 acres to 113,000, as farmers have chosen to plant crops other than hops. In 1996, the United States boasted 44,161 acres of hops. By 2006, that number had dropped to 29,435.

In addition to the loss of hop acreage, the remaining stocks are subject to poor weather, fires, and other catastrophes. A slight loss of the existing hop crop can cause reverberations and volatility throughout the hop marketplace. In Slovenia, which is a leading grower of the Styrians variety, hop growers may have lost as much as half of their crop to a hailstorm. A devastating warehouse fire in Washington State and fires at two hop-drying kilns caused a twenty percent decline in available hops.

The result has been a substantial increase in hop prices on the spot market for those who did not secure long-term contracts with suppliers. In the recent past, brewers could pay as little as $1.70 for a pound of the popular Cascade hops. This price hurt growers whose costs exceeded the sale price. Prices have now reached historic levels, with Cascade hops hitting seven dollars per pound and more, and with other varieties exceeding ten dollars per pound on the open market. The scarcity of hops has caused increase competition among world brewers. Many high alpha acid American grown hops, as well as aroma hops, are going abroad for brewers in China and Europe that now can benefit from the American dollar’s dropping value.

The difficult situation has resulted in two different reactions depending upon which side of the crisis you are facing. According to Ralph Olson, General Manager and Owner of HopUnion LLC, the growers who remained in the hop growing business are now enjoying their present situation. Dr. Johann Pichlmaier, president of the Association of German Hop Growers based in the Hallertau region of Germany, agrees. “The market is quite tight and times are good again.�

Things are not so good for the brewers who now have to meet higher hop prices. Olson concedes that he foresees that some brewers may have to shut down due to a lack of available hops. The danger is most present for those brewers that failed to contract enough hops before the shortage, according to the Brewers Association. While larger breweries buy options on raw materials several years in advance and existing customers will likely continue to receive their hop orders, smaller brewers may find their access to specific and favored hop varieties limited. This may lead some brewers to have to switch varieties and alter the flavors and aromas of their beers.

At the Brewers Association seminar, Olson counseled craft brewers to seek contracts with hop suppliers to combat against future price increases. “What we really need is for brewers to understand that it is OK to have longer than a year’s supply of hops…An extra inventory of hops can come in handy should sales go better than normal during a given year.â€? Olson also reported to brewers that he does not see the situation improving in the near future. “It is not going to get better soon, but will be likely just as bad, or worse, for the crops from 2008 and 2009, in other words, for beers brewed from now through 2010.â€?

The Malt Crisis

In addition to the global hop shortage, brewers are also starting to get hit with price increases for malt as well. Barley crops have taken a hard hit in recent years. In the last two years, North American brewers and producers have seen a significant decrease in their supplies as the demand for barley has risen. Poor global barley yields for two consecutive harvests have resulted in a barley shortage. Some meager worldwide harvests, which have largely occurred due to poor weather conditions, have sent European and Australian brewers to North American suppliers for barley. Due to high corn prices and demand, a shift in feed grain has caused farmers to move away from corn and towards barley and oats, further stressing the amount of barley available for malting. Recent poor returns for growers and maltsters has led to either a move away from barley planting or the use of barley crops in the production of bio-fuel, which results in a forecast of further reduction of barley acreage in the future.

Brewers have already seen the price of several varieties of base malt increase 5 to 10 cents per pound. Despite these increases and dire warnings, Ian Ward, President for Sales and Marketing at the Brewers Supply Group, counsels that the situation is likely to improve in the next season. “Most maltsters have by now purchased all the barley requirements they are likely to need since they have had to make contracts for malt with brewers,� he said at the recent Brewers Association seminar. “As the inquiries from maltsters have fallen, farmers who have grain left to sell have found themselves having to be somewhat less bullish. What this means for the brewer is that prices are not likely to rise further in 2008 based on barley cost.� There is, of course, always the possibility of price increases looming, warns Ward. “The upward trend in oil prices and currency may play a role in spot purchase malt, especially from overseas. What is important now is what futures are trading for in the 2008 crop and how the growing season plays out from April next year.�

So What Does It All Mean?

The increases will certainly affect smaller producers and those brewers who did not secure the necessary contracts in advance. But while hop and malt prices have increased on the spot market in recent months, many brewers have contracts for their raw materials that will serve them for several months if not years to come. There is no agreement how the prices, or the perception of price increases, will affect six pack and keg prices and when the effects will be seen. It is possible that some small producers may use the perception of the raw material cost increases as cover for a desire to increase the prices of their products. In the dozen or more informal conversations I have had with brewers over the last few weeks, not one has expected to keep his prices stagnant. Most expect to implement a price increase of anywhere from fifty cents to one dollar per six-pack by Spring 2008.

The Birth of A Craft Conglomerate

After years of working together in a sales and marketing joint venture called the Craft Brands Alliance (CBA), the Widmer Brothers Brewing Company and the Redhook Ale Brewery have announced their intention to merge into one company. The new brewery, which will be called the Craft Brewers Alliance, will create one of the nation’s largest craft breweries. Kurt Widmer will serve as the company’s chairman of the board and Paul Shipman will serve as chairman emeritus, effectively starting his retirement from the beer trade. Redhook’s current president and chief operating officer Dave Mickelson and Terry Michaelson, president of the Craft Brands Alliance, will serve as co-CEOs of the new company. The deal with also include Widmer’s forty-percent share of the Goose Island Brewing Company of Chicago, Illinois.

“I believe that the merger will allow us even greater opportunity to deliver unique and great-tasting beers for our customers,� said Kurt Widmer, president and brewmaster of Widmer Brothers. “The two companies have a common goal—we both strive to brew the best possible beer for our customers.� “Our combination of talented people, high-quality beers and first-class brewing operations presents tremendous advantages for the combined company,� said Paul Shipman, founder and chief executive officer of Redhook. “The two breweries have worked well together over the past few years, and I’m confident that we will be even stronger as one company.�

Relations have not always been so rosy between the two companies. In a 2006 filing with the Securities and Exchange Commission, Redhook complained that its brands were getting shortchanged in the sales and marketing alliance it forged with Widmer in 2004. In that filing, Redhook said, “The Company believes its third quarter sales in CBA territory have declined due to CBA’s unsuccessful execution of its sales and marketing strategy for Redhook’s core and emerging products. During this same period, CBA has been very successful selling the Widmer and Kona products.�

While the two breweries have agreed to merge, the deal remains subject to shareholder and regulatory approval, which includes the voice of Anheuser-Busch, which owns a significant percentage of both Redhook and Widmer. The breweries hope to complete the merger by first quarter of 2008 and expect to maintain both the Redhook and Widmer brands in the marketplace. The all stock transaction will result in Widmer shareholders and existing Redhook shareholders each holding approximately fifty-percent of the outstanding shares in the new company.

Widmer has by far been the more successful of the two breweries, growing from 199,000 barrels in 2004 to 269,000 barrels in 2006. Redhook produced 271,600 in 2006, on weak to stagnant sales. After releasing news of the merger, Redhook announced a decline in profits for the first three quarters of 2007. As a private company, Widmer does not release sales figures.

Aftermath of the Deal

After years of toiling as the little kids, it is now clear that craft brewers must view themselves as nearing adulthood. With the renewed interest of domestic macro-breweries and the merging and distribution alliances of larger craft breweries, regional breweries will have to consider their strategic visions for the future. What was once for many just about the beer and fun is now about serious business.

–Article appeared in January 2008 issue of Beverage Business Magazine.

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