Dueling Brewers

Industry Recap 5-4-08 (Magic Hat/Pyramid Breweries Merge, First Cicerones Announced)

Okay, I realize these last couple weeks have been all over the place.  I’m going to work hard to get back on track this week.  Quickly, there were several notable bits of beer news in the last week.

 Magic Hat is continuing its steep growing trend.  After announcing earlier this year it would invest in expanding their brewing operations, this last week it was announced it would merge with West Coast brewer, Pyramid Breweries.  This partnership will bring span the entire US.  The plan is to keep both brands operating a normal under a shared management, capital and distribution network.  If anything I hope this allows more of both products to be delivered to my hometown in STL.  We will keep an eye on this as the results of the merger are realized. 

The very first Cicerone’s were announced this week.  Ray Daniels posted on the website the names of the first certified Cicerones:

• Rob Gerrity - Sierra Nevada Brewing Company
• Scott Kerkmans - Four Points by Sheraton
• Ron Kloth - Papago Brewing Company
• Andrew Waer - Unaffiliated
• Neil Witte - Boulevard Brewing Company

Mr Kerkmans jumps off the list here, as he was also recently names the Chief Beer Officer with the Four Points Sheraton hotel chain.  Really taking to a careful selection of beers in their hotel’s, Sheraton is a true market leader in this area.  As a regular business traveler I am barraged with shallow, boring selections at hotels so I really appreciate the efforts taken by Sheraton.  Congrats to the others, it’s good to know there is a Cicerone just across the state in KC.

More next week… 

Industry Recap 4-25-08 (AB Earnings, BrewBlog Battle, World Beer Cup 2008)

AB released their quarterly earnings report which included a 1.3% drop in Q1 Net Income with a 0.7% drop in sales-to-retailers as the leading cause.  The entire industry is experiencing extreme cost pressures as we have noted earlier (see hops/malt shortage discussions), and AB has made several cost-reduction efforts to mitigate the impact.  A few key AB stats:

• US Sales Volume Increased 0.4%
• International Volume Increased 3.1%
• Shipments to US Wholesalers Increased 0.4% (entirely due to greater import shipments)
• Sales to US Retailers Decreased 0.7% (excluding imports down 1.4%)
• US Market Share Increased from 50.6% to 50.9%

So how many of you have actually gone to the links I’ve posted from BrewBlog.  In case you hadn’t picked up on the peculiarity of Miller covering AB so closely on their blog, there was an article in WSJ this week about this very phenomenon.  Miller has been attempting to gain greater control over the information that is broadcast about itself and its competitors.  BrewBlog has been the flea on the Dalmatian’s back for AB.  AB has been finding itself helpless when it comes to controlling announcements around new product launches (see Bud Light Lime, Bud Ale), change in management, new strategic relationships and earnings announcements.  Aggressively controlling this communication medium has put Miller in the driver’s seat.  Miller does cover their own news but I don’t think any reader of BrewBlog would acknowledge equality in their coverage.  According to the WSJ article, Mr. Schuhmacher, the editor of Beer Business Daily, a subscription based industry publication, is also growing perturbed by the BrewBlog coverage, he views the free blog as a destroyer of the trade press.  Like any free blog writer, I am all for a free flow of information, it keeps everyone honest.  Thanks to BrewBlog we can all see how a marketshare giant (just hit 50.9% as noted above) makes so many moves which would ordinarily stay below the radar.  I don’t suspect Bud will start a similar tactic bu there must be some response now that BrewBlog is receiving so much attention.  This is an interesting development and we will definitely keep our eyes on this new AB/Miller battle.

Late last week the World Beer Cup winners were announced.  Along with the Great American Beer Festival, the World Beer Cup is one of the largest and most prestigous competitions in the world.  On top of the typical beer style categories, there are awards given to brewpubs and brewing companies.  A few year’s back Piece Brewery in Chicago won the Best Small Brewpub category and boy did they enjoy advertising they were winners.  Here we announce this year’s brewing company and brewpub winners.  You can go to www.worldbeercup.org for all the category winners.  If you’re in the Pacific Northwest, Enjoy!

Best Small Brewpub Category
Bend Brewing Company - Bend, OR
Tonya Cornett

Best Large Brewpub Category
Pelican Pub & Brewery - Pacific City, OR
Darron R. S. Welch

Best Small Brewing Company Category
Port Brewing Company and The Lost Abbey - San Marcos, CA
Tomme Arthur

Best Mid-Size Brewing Company Category
Privatbrauerei Hoepfner GmbH - Karlsruhe, GER
Peter Bucher

Best Large Brewing Company Category
Blue Moon Brewing Company - Golden, CO
Warren Quilliam 
  

Industry Recap 4-11-08 (Schlitz, Bottle Recall, Heineken Purchase, Hop Acreage)

Pabst Brewing is planning to reintroduce Schlitzback to the upper midwest.  Schlitz was once one of the most popular brands, especially in the Midwest.  In the 1970’s a recipe change left a bad taste in consumers mouths (literally) and the brand collapsed after that.  If you’re in the Chicago area you’ll have to see how Pabst decided to fit this age-old brand back into their portfolio.

Boston Beer Co. was forced to recall some of their bottlesafter a routine inspection detected particles of glass in the bottles.  While this story came out with much fanfare earlier this week, no implications have been reported.  All the bottles came from one Cincinnati based supplier which provides about 25% of BBC’s bottles, although it is estimated that only 1% of bottles on store shelves could cause a problem.  This is the first time BBC has had a bottle recall.  While bottle recalls have been required for other brewries (Dogfish Head, Harpoon), this is still a rare occurence .  Yet another case for cans!  The financial implications are yet to be realized.

Heineken accounced a purchase of another european brewery - Eichof Holdings in Switzerland.  This gives Heineken a 10% market share in the Swiss beer market and by making the deal at 12 times 2007 EBITDA, this acquisition will add value in 2009 and beyond. 

Supply I’d like to introduce you to demand, demand this is supply.  Farmers in the Yakima Valley in Washington are pulling out acres of existing crops to begin growing hops.  The Northwest experienced 2,000 acre growth in 2007 and is expecting more than 5,000 in 2008.  Leading up to this year’s hop shortage there was an oversupply due to the emerging trend in high alpha acid hop varieties, the more potent varieties went a lot further in recipe formulation.  The excess supply led to lowered prices and minimized margins for the growers.  Other crops became more attractive and eventually the oversupply became a shortage.  More and more hop buyers are demanding longer term contracts to prevent against a relapse of the 2007 hop crisis.  Many of these contracts are front loaded, giving growers the incentive to recondition land and buy new equipment that had grown obsolete in the last few years.  Ever rising consumer demand for the end product - craft beer - has buoyed the financials of the breweries and helped everyone ride through this rocky time in beer’s history.  We’re not yet in the clear, hops can take years to realize full yields but this is certainly a good step for the industry.       

Industry Recap 4-4-08 (Brand Rankings, Canned Fat Tire, AB Distributor Relationships)

Sorry for the delayed recap.  I had a busy weekend and I’m back on the road on a project which requires a bit more work.

Information Resources, Inc. reported the Top 30 Brand Performers in supermarkets for 2007.  As they reported:

“The historic trend of consumers trading up and paying a premium price for their favorite brands continued in 2007,” said Bump Williams, general manager, IRI Beer, Wine and Spirits Practice. “In fact, 20 of the top 30 Beer performers are high-end brands that include 13 imports and seven craft brands. Brewers, Distributors and Retailers are doing a phenomenal job of meeting the ever-changing tastes of consumer demands with their new product innovations. The key now is getting the proper amount of shelf space and distribution in the right stores across multiple trade channels to support these power brands.”

While this ranking clearly demonstrates the tolerance and preference for higher priced premium beers, this ranking is limited to supermarket sales activity and is biased towards the largest and most pervasive distribution networks.

New Belgium is announcing canned packaging for their ever lovable Fat Tire brand.  This makes perfect sense for a company with such a focus on sustainable production techniques.  Cans offer so much more (portability, freshness, recyclable) than bottles and is something that I have thought would have been one of the biggest industry trends of 2008.  I’m not sure that the long-run demand for craft brews is insisting on this form of packaging and until that changes, or until craft breweries can create canned packaging at a significantly reduced cost, we should expect to continue to see an overwhelming prevalence of bottles.  I’m all for the can.

In the 1990’s AB provided incentives to distributors who exclusively carried AB products.  That model is not working anymore with more and more missed revenue from craft and import brands.  In order to appease the wholesalers who wish to break the exclusivity agreements, AB is granting some leeway in the arrangement.  In some states franchise laws prevent a distributor from carrying some of the aligned AB import brands such as Stella Artois and Grolsch.  In these cases AB will allow “competitive volume” of either local craft brands, water or tea (not wine or spirits).  According to the new agreement these competitive brands must be approved by AB and not represent more than 3% of sales.  The distributors who carry these “approved” brands will get 1 cent per case from AB, a four-day extension of credit and $1500 per truck for new paint jobs.  The new arrangement is a small step in the right direction for distributors and the craft brands.  I suppose a portion of the rationale for AB, aside from keeping the existing distributor relationships, is that as a particular wholesaler is allowed to carry some competitive brands additional retail space may become available; this would only add to the network for the distributor and potentially AB.   

Industry Recap 3-28-08 (BBC Options Exercised, Heineken, Craft Beer Shakedown?)

A couple Boston Beer Co. Execs, Jim Koch and Robert Hall, exercised a bulk of options (10,000 and 20,000 respectively) and sold the shares on the same day.  Both took advantage of these deep-in-the-money options after the share price jumped to close to $50/share.  I don’t believe this is a sign of bad times ahead, especially in light of their most recent booming quarter and increasing demand.  Maybe the guys just needed the cash and it gives us common folk 30,000 more opportunities to buy a share of the company. 

Heineken purchased a Czech brewer, Drinks Union, to expand their presence in Eastern Europe.  This move grows Heineken’s Czech market share from 4% to 12%.  More lager for everyone!

As was reported a few weeks back, United Brewries, an Indian brewer, was involved in the split of S&N.  A 39% stake in UB was transferred to Heineken.  Indian regulatory officials initially thought an open offer of the ownership would be made, but now UB has decided it would buyback it’s shares from Heineken due to an ”existing business conflict” Heineken has in the Indian market.  UB is trying to protect the biggest Indian brand, Kingfisher.  We’ll see if this impacts the takeover agreement originally established in January. 

In conjunction with Beer Marketer’s Insights and Beer Business Daily, Miller’s Brew Blogindicated that while so many craft brands are growing rapidly due to the seemingly never ending palate of flavors, the threat looms large for many other small to mid-sized brewers. Rising input costs (barley, hops, electric/gas energy) and a softening economy being the most obvious leading causes.  There is already evidence of a shakedown in the market in the west coast as more than 100 taps of Seattle-based Pacific Rim had to be shut down.  Morgan Stanley analyst William Pecoriello noted slowing growth at supermarkets with the craft brands.  Some fear we could be on the cusp of a shakedown similar to the 1990’s, the only saving grace is the steady high demand for craft beers.  As we’ve noted before on this site the rising cost of raw materials will really test the business models across the country.  This is something that will take months, maybe years, to unfold completely but I feel the worst is still yet to come for the brewers.  Those brewers who have strong enough brand awareness to maintain sales, have established long-term raw materials contracts and have strong leadership will make the necessary changes and perservere. 

Beer and Food Pairing: New Zealand Mussels and Oven-Fries with Oude Gueuze

For our first official pairing, Laura and I decided to attempt a slightly more creative take on a Belgian staple; Moules Frites paired with Gueuze.  This recipe was formed really out of necessity when a casual browsing of the 4th St. Whole Foods turned into a splurge of three different brands of Oude Gueuze (Hanssen’s, 3 Fontein and Boon Marriage Parfait).  After consulting my food/beer spreadsheet, it seemed we had some nice options, of which most thrived on seafood and some sort of citrus intervention.  While ceviche is clearly one of the best options to pair with any sour beer, Laura and I were both looking for something a little more substantial for a weekend dinner.  Therefore, we thought we’d go with the traditional Belgian route. 

Rather than use a traditional black mussel, we used some large, colorful and fresher tasting mussels from New Zealand.  Not only were these mussels larger than the traditional mussels you’d find at any supermarket, but they were a lot fresher tasting and no more expensive. 

Given that we don’t have access to a frier in the apartment, we decided to make a slightly healthier side dish of oven baked potato strips rolled in some olive oil, salt and pepper.  Laura also developed a nice aioli recipe for the dipping sauce.  This one included some garlic, parsley and almonds for texture.  

If you don’t know anything about Gueuze, this beer is a moderately sour/acidic ale fermented naturally by a variety of microbiota (wild yeast) in the air.  Traditional Gueuze comes from in and around the country-side of Brussels, Belgium in the Senne Valley.  Every terroir in the world has it’s own mixture and species of microbiota (San Francisco sourdough yeast is another), but this particular area is famous for how the particular combination of yeasts ferment the open coolships of wort (unfermented beer) over time, developing a wonderfully complex aroma and flavor profile.  If you’ve heard of Lambic, it’s basically the same thing, but blended with various aged versions for more control, house creativity and consistency.  The blending process usually takes 1, 2 and 3 year-old Lambics and combines them to a particular house flavor for a less pungent but more balanced angle.  Post blending, they are served carbonated and enjoyed with Moules Frites for their ability to contrast the sweet-sea flavors of mussels with that of a sour, earthy beverage.  The sourness also cuts through the fat in frites and traditional fatty dipping sauce (aioli). 
  
Moules
Wash and debeard:
2lbs New Zealand Mussels

Place them in a large pot and add:
1 cup Gueuze
1 can diced tomatoes
1/2 cup minced parsley
2 tbsp chopped garlic

Cover the pot over high heat and cook 8-10 minutes.  The New Zealand Mussels might already be open when you buy them, depending whether or not they were caught during spawning season (right now).  If they aren’t open or you are using black mussels, wait until most of the mussels have opened.  Use a slotted spoon to remove mussels and drizzle over:
1 tbsp of extra vigin olive oil
Juice of 1 lemon

Frites 
2 potatoes, sliced into 1/4 in. strips

Soak in cold water for 10 minutes then drain and dry well btwn towels

Roll in:
1 tbsp of olive oil
salt
pepper

Bake in oven @ 450F for 30- 40 minutes turning once and until crispy, golden brown

Aioli
Mince:
4 to 6 garlic cloves

Place in a bowl and whisk together with:
2 egg yolks, room temp
1/8 tsp salt
pepper to taste

Very slowly, and whisking constantly, add:
1 cup olive oil

Whisk in:
1 tsp fresh lemon juice
1/2 tsp cold waterAfter sauce has thickened add:
1/4 cup ground almonds
1/4 cup fresh breadcrumbs
1 tbsp fresh lemon juice
2 tbsp fresh parsley
1/4 tsp salt, or more to taste

As a pairing, this was fantastic.  Just as I mentioned before, the sweetness of the mussels and tomatoes were a nice contrast to the sour and tart Gueuze.  My favorite part though, had to be the potatoes and aioli as the sourness and effervescence of the beer met the formidable flavor of garlic, parsley in the fatty sauce.  The carbonation helped lift away the oil and the flavor/aroma married perfectly with the earthy flavors of the beer.  Perfect.

Industry Recap 3-21-07 (Carolina Craft Distribution, Cali Barrel-Aged Beer, Bud Ale, Natty)

Probrewer announced that Carolina Craft Distributing (Rock Hill, SC) is going to purchase Chavon Distributing (Charleston, SC).  This is an interesting growth move in the South, arguably the biggest hole in the craft beer market.  Carolina Craft Distributing currently carries brands like Old Speckled Hen, Founders, New Holland, Boulder Beer and Bear Republic.  Expanding their network in the south with these brands is certainly good news for the craft brewers.

California Board of Equalization has just passed a ruling that may unintentionally force brewers to prove that their barrel-aged beers are not distilled spirits, otherwise face the increased taxes.  The portion of the ruling that is so troubling is as follows:

“…any alcoholic beverage, except wine, which contains 0.5 percent or more alcohol by volume from flavors or ingredients containing alcohol obtained from the distillation of fermented agricultural products will be classified as a distilled spirit for tax purposes.”   

Brookston Beer Bulletin provides a great perspective here and views this as a major obstacle for the barrel-aged movement which has officially become it’s own beer style (See Grant’s post) .  Brookston also noted,

“Also, under the ruling the Board of Equalization will give itself the authority to define and implement regulations applying to alcohol, a power previously reserved for the legislature (and enforced by the ABC). That, too, I find disturbing. Tax authorities regulating alcohol do not exactly have a good track record.”

California can’t really be serious, right?  Personally I think this will be fought voraciously by all the Cali craft brewers, but it could require a lot of time…time not spent brewing great beer.  It’s still very troubling to even think that a tax collecting entity would have power over determining the taxable components on alcoholic beverages and that allowing beer to come in contact with old, empty bourbon barrels would pose such a huge problem.  We will have to keep our eye on this one.

News from the Macros.  AB is attempting to extend its core brand (Bud) into the craft segment.  There was a recent approval for the Budweiser Ale label.  As Brewblog.com noted this seems like a natural extension onto its recent advertising campaign with the “Great American Lager”.   The ale will be priced higher than their other brands and be served with a more robust 5.1% ABV.

“A-B VP Marketing Dave Peacock told BBD that they just finished an extensive research process which suggests that the concept is “very appealing” to consumers and it “improves the Budweiser image and validates our Great American Lager positioning for the mother brand.”  

AB is also attempting to add some character to one of their sub-premium brands.  The typical medium for beer pong and funnels, Natty Light will have a nationwide marketing effort targeting over 30 mid-markets across the country.  Brian Morgan at Euromonitor says it best.

“I think it’s interesting that the largest beer company in America decides to finally pour some money in this segment that has been on the decline…What it shows is that there is this expectation that despite the rebound of beer, they think that a large group of people who have been loyal to the economy segment will not be enticed like they might have been two or three years ago by these newer premium category beers.” 

Industry Recap 3-14-08 (Boston Beer Profits)

Biggest news this week.  Boston Beer Company making a splash on Wall Street. 

This week Boston Beer Company surprised the market with more than 200% increase in quarterly profit (from a year ago) which beat analysts expectations.  Shipment volume went up by 20% while net revenue per barrel went up 5.2%.  The expectations for 2008 are just as rosy with an expected per share profit of $1.70 to $2.  In order to counter an expected 12-16% rise in production costs there will be a 5% increase in prices for the consumer.  While it won’t be directly reported in the financials you have to guess that Koch’s Hops charity will drive growth on a number of levels for the brand.  Lew Bryson expected this from BBC in his analysis of the operations that he wrote for Portfolio.com   

BJCP Revises Guidelines, BA Expands to ~140 styles

In late February of 2008, the BJCP released their 2008 revised version of style guidelines.  Apart from minor changes in descriptions, updates of commercial examples and some elaboration of SRM qualification, not too much changed.   The BA on the other hand, released a new version of their style guidelines at the beginning of the year which added a plethora of new styles and descriptions to an already lengthy list (they’re now up to ~140 styles!).  Given that both associations try to keep their fingers on the pulse of the industry, this begs the question of who is right? 

As a newly appointed member of the BJCP, my stance might be obvious and a bit biased.  That being said, how much more can style guidelines apportion and subdivide styles until each beer is a style in itself?  Some might argue that beers made by breweries like Russian River and Allagash are a case in point.  Although their inspiration is clearly Belgian, I would agree.  Therefore, without making a bigger deal about this than is necessary, I would say that the BJCP’s spice, specialty and wood-aged categories are a catch-all for these types of beers. 

Eventually, we might get to the point where every beer is as original and exciting as the next (as in Belgium), but for now, let’s not get too carried away. 

Links to both updated guidelines:

1) BJCP, 2008 and listing of changes

2) BA, 2008 and listing of changes

Industry Recap 3-7-08 (Dogfish Distribution, High Life Loyalty Program, Wild Blue)

I apologize for the tardiness in last week’s recap.  Here are the articles hitting our radar. 

Dogfish is finally winding its way into the Bay area through two distributors - DBI in San Francisco and Mesa in North Bay.  Something that we should all be happy about, even from the Midwest.  Now if only they could come to an agreement with a STL distributor.

Miller is rolling out a national loyalty program for 2008 under it’s Miller High Life brand.  This has the eerie stench of loyalty programs we’ve seen in the past from Marlboro and Pepsi where consumers can redeem their points for other branded wares.  While I’m sure Miller learned not to advertise a Harrier jet as an option, I’m sure there are high hopes for this.

Also from the Macros - AB is increasing production of it’s “Wild Blue” blueberry beer for nationwide production.  Interestingly enough this was available at the St. Louis Brewers Heritage Festival last spring and it consistently had the longest line.  AB appears to be taking a different tack with this brand:

“We aren’t taking this beer down the traditional path. Wild Blue is going places we haven’t been before and we know having the beer at places where adults like to get together, socialize and try new things will be key.”

Beer Advocate gave it a rather favorable article, but who knows how much of that was heavily influenced by AB.  Time will tell how this pans out nationally.

Have a good week everyone and I’ll promise to get this week’s recap out in a more timely fashion