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.

I think it may take some time to process my Oregon experiences. I’ve wanted to visit Portland, dubbed ‘Beervana’ by enterprising local publicists, for a number of years. It was perhaps just behind Bamberg on my to-do-list of beer destinations. And while Bamberg exceeded my already high expectations, I’m still trying to figure Portland out. It’s indisputable that quality craft beer has permeated the city. You can find a solid pint in nearly every restaurant in the city, even the diviest Chinese joint. Where most cities would offer Sapporo or another bland lager at an Asian restaurant, we always found Black Butte Porter or Mirror Pond Pale Ale from Deschutes and oddly, Fat Tire was everywhere. And while we visited a couple of dozen breweries, brewpubs, and beer bars in the course of five days in the city and the quality was always high, something about the experience failed to quite live up to the hype. The only comparison I have is Bamberg, which also has a dozen or more breweries, brewpubs, and beer bars in a small city. While Portland definitely offers a greater quantity of beer spots, I think Bamberg may be the better city for beer (even if the diversity of selection is less than Portland).

I can unequivocally say that the Oregon Brewers Guild did a great job with its guide to the state’s breweries. In a dozen pages in its “Guide to All Things Beer in Oregon,” the guild lists dozens of beer events and festivals, 139 breweries, brewpubs, and brewery tap houses, and 9 local tap houses. Add in a helpful map with locations of all of the above spots and visitors have a tremendously handy resource to finding quality pints in the state. I’ve recently been perusing similar guides from other areas and associations, including the San Diego Brewers Guild and the Michigan Brewers Guild, and firmly believe more state organizations should spend a few dollars to promote their interests in this accessible manner.

I can also unequivocally state that a brewery the size of Widmer should run more than 3 tours per week, serving approximately 45 people. In a time when Widmer ought to be concerned with its public image due to its relationship with Anheuser-Busch, one which I support, I think that engaging the community a little more might be wise.

While my feelings on Portland are not yet fully formed, I can say that the Bier Stein Bottleshop & Pub in Eugene is one of my new favorite places to have a beer. The concept here is one that we rarely see, due to expense, insurance issues, or more likely, local and state regulations. The Bier Stein is a package store that also offers patrons a place to stay and drink their recently purchased bottles. If you take away the beer, you get 15% off your bill. If you stay, you’ll be drinking a huge range of craft beers from around the world at substantially cheaper prices than what you would be paying in a bar. Want to try all of New Belgium’s lineup? $1.95 per bottle. How about Elysian’s Jasmine IPA in a 22 ounce bottle? $5.95. The beers are served in appropriate glassware and you can also select from ten or so well-priced draft beers. I’ve also seen the concept of a package store bar in Sonoma, California, at the Wine Exchange, which offers six or so draft beers as well as a much smaller number of chilled bottles. I love the concept and think it’s a great way to sample new beers at very friendly prices, especially in this price sensitive climate.

There were certainly a number of quintessential and memorable beer related moments during the trip, including the visit to the crazy Kennedy School, seeing Don Younger smoking and playing video poker at the Horse Brass, and drinking a number of excellent organic beers (including from the Hopworks in the company of local writer and photographer Matt Wiater of Portlandbeer.org and his girlfriend Becky). During the trip, we also spent some time with the employees of Full Sail in Hood River, the locals at Rogue in Newport, and at various places around Western Oregon. After some contemplation, I’m sure I’ll return to offer some more coherent thoughts on the trip.

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.

Media outlets (including beer bloggers) reporting on the merger have called the new brewery, derisively called Widhook (better than Redmer), the second, third, or fourth largest craft brewery. Putting aside the Brewers Association’s silly debate over the ‘craft’ moniker, shouldn’t the size of the new company be something that we can easily agree upon? I’ve seen a number of media outlets reporting that Redhook’s production was a mere 168,000 barrels last year. Added to Widmer’s production of 269,000 barrels in 2006, the total production would just beat New Belgium for third place. But if you look at Redhook’s own SEC reports, its production in 2006 was actually 271,600 barrels, which would make the new brewery slide in just behind Sierra Nevada for a solid third. I was actually surprised to see Redhook’s numbers, as I was under the impression the brewery had suffered through flat sales in recent years.

Some clips from the joint press release.

“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.�

With annual sales of $40 million compared to Widmer’s $73 million, it’s hard to see how Redhook comes out as the winner in this deal, as many media outlets have reported. Kurt Widmer will serve as the company’s chairman of the board and Paul Shipman will serve as chairman emeritus, effectively ending his career in the beer industry. 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.