The Beer Tap

Miller Coors and Distribution

A very big announcement in the beer world today!  SAB Miller and Molson Coors have created a new joint venture to produce, market and sell their brands here in the US.  The deal helps the two companies gain scale while delivering an estimated $500 million dollars in annual savings according to the press release.  They will produce a combine 69 million BBLs which still trails A-B and their US sales of over 100 million BBLs.  I do not usually report too much news on the larger brewers, but I think that this could have an effect on the craft and micros of the brewing world. 

Part of the rationale behind completing the deal is the desire to improve distributor relations and generate efficiencies in distributor operations.  As it is now, a good number of distributors carry both Miller and Coors products while most A-B distributors are exclusive.  With two of the big three in the same house, Miller and Coors end up competing for distributor attention and resources.  If the deal closes, the new Miller Coors will contribute a large portion of the profitability to a distributor.  Add in the fact that a few of these distributors also carry Heineken, Sam Adams and some Mexican imports and its starting to get crowded.  Yes, all of these brands were there before, but on average none of them was the completely dominant player.  With one big supplier and several other important brands needing attention, what happens to a small volume craft or micro?  Will they still be able to get the support they need?  As long as the craft category continues to grow at over 10%, I think that there will be room for these brands.  Some have even established themselves as a solid player in a number of markets.  However, what happens when the category slows down?  While I think that overall craft/micros are here to stay, the growth we are currently witnessing is probably not sustainable.  Just recently, the Wall Street Journal reported on increased hop and malt costs that are having a greater impact on the craft segment.  Using more hops per barrel means a greater effect on costs.  Avoiding corn and rice in favor of using all malt also means that rising malt costs hurt the small guy as well.  The smaller breweries cannot afford to eat these increased costs because their margins are not huge to begin with.  Their only real option is to pass on the increased costs through price increases which may stall some of the growth. 

So how will all of this shake out?  I think that only time will tell.  It will be interesting to see how growing brands weather the change.  Will they be able to find new distributors to take their product into new states and regions?  I certainly hope so!  I for one enjoy added variety even if it does mean paying a little more.  I rarely let price stop me in the beer isle because I place great value on enjoying a full flavored, hop filled, malt loaded beer.        

Another key thing to note is that each distributor is ultimately their own business.  Brewers do not have the ability to force changes or limit the brands they carry unless they have agreed to limits as part of their operating agreement with a brewer (typical for A-B).  Most of the time, a brewer's and a distributor's interest aligns so suggestions from a brewer are taken into careful consideration by a distributor.  However, in the end they need to do what is right for their business and portfolio to ensure long term profitability and success.  The rationale may exist for certain houses to aggressively pursue new brands as part of their overall strategy, while not in others.  Especially with an increased reliance on a single supplier (OK...bad joke here but I can't help it.  Porter's 5 forces in action!  See also Porter if you need help with the pun.)

Should be an interesting year to see what changes do take place.  My comments are certainly at the aggregate level and generalizations.  Each market and distributor will shake out in their own way with a number of overarching trends describing the change.  I'll be sure to report back if I hear of any developments.

In the meantime...pop the top off of your favorite beer.  I'm headed to open a Lagunitas IPA right now.

Special Delivery

Yesterday I came home to find that UPS had left me a package on my door step.  It seems that since I blog about beer, I have "earned" the right to free samples when Flying Dog releases a new beer.  Its certainly not why I started blogging but I am happy to accept any beer that comes my way.  As a marketer, I have to admit I impressed by Flying Dog's attempt to reach out to the beer drinking community through alternative means such as blogs.  Let's face it....they will probably never have the budget that A-B has to produce commercials, to purchase endless signs, to print millions of POS posters, and to sponsor the Super Bowl.  However, I would also venture that 99% of all microbreweries have no desire to head down that path.  Instead, they focus on producing high quality beers made from quality ingredients and then attempt to get the word out.  From there its all about taste and continuing to produce quality.  The brewer(s) or owner(s) often personify the brand or at least set the values of the company which ultimately end up guiding the brand message.  Not exactly complicated and very much "what you see is what you get" which I believe people find refreshing in today's ad filled world.

Neal Stewart, Director of Marketing at Flying Dog, appears to be embracing the blogging world as one way to share news of new brews.  The latest release from Flying Dog is a Belgian-style Wit Beer called Woody Creek White and was nestled down in the box I found at my door.  I am assuming that a sample went out to a number of bloggers, beer writers, and other press in an attempt to generate stories on the brewery and the new beer.  Well, Neal...it worked with me.  Thanks for judging to be worthy of helping to spread the word and feel free to keep them coming!

Now on to the beer.  In preparation for tonight's tasting, I decided to calibrate my palate last night by having a Hoegaarden.  This beer by originally by Pierre Celis helped revive the style in Belgium and I thought it would be an appropriate anchor for sampling the Woody Creek.  Plus it was a hot day and I find Belgian Wit beers to be very refreshing!  Here are a few details on Woody Creek and my tasting notes:

• Alcohol Content: 4.7% ABV
• OG: 1.047
• IBUs: 14
• Ingredients: German Pilsner, Unmalted Wheat, Oats, German Hallertau hops 
• Appearance: Cloudy pale yellow, white creamy foam that fades to a thin strip that rides to the bottom of the glass leaving a nice lacing
• Aroma: Citrus, orange, coriander spice
• Taste: Orange, light sweetness, and spice up front that quickly fades into some faint wheat flavors; very light, crisp finish; Not quite as carbonated as Hoegaarden but not flat either; Also less focus on coriander

Overall, I think that Woody Creek is a very refreshing beer that stands up to the goal of being "perfect for drinking on those hot summer days."  Personally I think that slightly stronger flavors would be good, but that is personal preference. I do like the subtleness around the coriander and spice flavors and probably just want a little more wheat to come through.  Nonetheless, the beer is very enjoyable as is and should be fairly successful.  Add a few Woody Creeks to the cooler and you should have some happy guests at your picnic this summer. 

Editorial Note:  While Flying Dog did provide the sample to me free of charge, I was in no way paid for this blog post.  The opinions on the beer are mine and mine alone. 

Biofuel vs. Beer

We are hearing more and more these days about energy efficiency and global warming and the quest to discover alternative fuel sources.  In my mind, there is no doubt that we need to explore new options but the sudden rush to biofuels is starting to have an impact on how farmers are running their businesses.  The other day I read an article about how German farmers are choosing to move away from barley to rapeseed and corn which can be made into ethanol and biodiesel.  As a result, the price of barley has doubled over the last two years leading to a 40% increase in malt prices.  So far, German brewers have absorbed much of this cost increase but it appears that increase in cost is beginning to make its way to the consumer.  The article also mentions that Germany is the largest European consumer of bioenergy while also a leader in producing wind energy and recycling refuse.  I remember the heavy emphasis on returnable bottles and recycling on my trips to and through Germany so it comes as no surprise to me that the Germans have embraced this new energy source.  The question is how will an increase in beer prices affect their dedication?  Will the government step in to help ensure that enough barley is also planted to stabilize barley/beer prices?  An increase in barley prices should help keep some farmers from switching or maybe even attract farmers from other non-biofuel crops without any government intervention.  Its an interesting problem that Germany and the rest of the world, including the US, will face as they adopt biofuels.   

Flying Dog Open Source Beer Project

I received an email from Flying Dog last night announcing a new effort they have under way to brew an "open source" beer.  The goal is to take user input on hops, yeast, malt, and brewing methodology to develop a Dopplebock for release in October as part of their "Wild Dog" series.  It will be available in 750 mL hand corked bottles with only 5,000 bottles available nationwide.  According to comments on their website, this is not the first effort of its kind, but I think it may be one of the first established, commercial breweries to undertake such a project.  Personally I think it is a great idea and a great way to get the homebrewing community involved with Flying Dog.  However, I wish they had not forced a style on the project and had instead allowed the community to decide.  It might even have evolved into a totally new style or a hybrid of two existing.  Of course, no guidance at all might leave the project headed in 20 different directions right out of the gate.  In keeping with the "open" parallel to software, I guess you have to decide whether you want to create the next iTunes or Excel.   

So if you want to help shape this future release, be sure to check out their dedicated website: Open  Source Beer Project.  I know I plan to check back on a regular basis to see how the development is going.

 

Beer Tax Increases?

Last night I was watching the news and I heard that a proposal was on the table to raise beer taxes in the state of Wisconsin.  I have seen a number of stories on blogs about similar proposals in other states, but since I live here I paid more attention to this story.  After all, this is the state with the "Brew City" where beer reigns supreme.  How could they even think this would be accepted by the people?  I went to the Milwaukee Journal Sentinel to get more details and here is some of what they had to say:

'Two Democratic legislators today vowed to try again to raise the $2-per-barrel beer tax, which has been unchanged for 38 years, despite a warning they are taking on a "sacred Wisconsin beverage."

"I am not predicting it's going to pass," Democratic Rep. Terese Berceau of Madison said of her proposal to boost the $2 tax to $10 per barrel to fight drunken driving and treat alcohol addiction. "I'm kind of fooling around with holy water here."

Her beer-tax increase would raise the tax on a six-pack from 3.6-cents to 18-cents. Overall, it would cost beer drinkers between $40 million and $48 million more a year, she said.

The Assembly leader of her own party has panned her proposal, however.

Senate President Fred Risser (D-Madison) defended the increase, noting it essentially was indexing the beer tax for inflation since its last hike 38 tears ago. In 1969, Risser voted to raise the tax from $1 per barrel to $2, and he said none of the predictions then that it would devastate the state's economy came true.

Wisconsin's $2-per-barrel tax is third lowest in the nation, behind the 59-cent levy in Wyoming and the $1.86 tax in Missouri, home of Budweiser. Legislators said the highest beer tax in the nation is $33.17 per barrel in Alaska.'

The proposed increase would equate to a 3 cent increase per bottle.  Its hard to believe that any retailer would not pass on that kind of increase to the consumer even if in stages.  Why the desired increase?  To help fund programs to fight drunk driving and alcohol addiction.  What?!?! I am not saying that these are not important issues.  I just think that this is the wrong way to fund programs to address them.  Many people throughout the US are able to drink responsibly and should not be forced to fund programs for those who cannot.  Why punish everyone who is able to handle alcohol consumption responsibly?  Something tells me the amount of money needed to make a difference with these programs could easily be worked into the state budget without the tax.  Plus there is a lot that can be done through education by parents at home which is absolutely free.  Parents can have a large influence on how their kids view alcohol which I believe will translate into healthier drinking behaviors once they reach the legal drinking age.   

In the end I do not think the tax will pass, and it looks like there are groups ready to help fight (from the Capital Times):

Scott Stenger, lobbyist for the Wisconsin Tavern League, doesn't think the proposal will generate a lot of support in the Legislature.  "Part of the reason we have a low beer tax is because of the jobs generated by the beer wholesalers and retailers," he said. "Wisconsin is unique compared to most other states in that our economy is really intertwined with the brewing industry. More bars per capita generate jobs, income and taxes."

"To think that raising the tax five-fold won't negatively impact that just isn't accurate," he added.

I'll add in another argument as well...excise taxes are regressive and unfairly tax the poor and lower middle class.  As a percent of income, the poor and lower middle class end up paying a heavier tax burden.  The graph you see here shows the break down of taxes by income level including the effects of both property and excise taxes.  Just in case you need some Economics 101 to help convince you that higher beer taxes are the wrong way to go.

Alright....time to get off my soap box and to responsibly enjoy a pint.

Play Ball!

Over the weekend, I made it to my first baseball games of the season.  My brother, nephew and I road tripped to Chicago to see the Reds take on the Cubs at historic Wrigley Field. An absolutely amazing experience in all respects...except for the beer. In my family, baseball games are a three hour mixture of a classic American sport and eating. When I was a kid, my dad would always pony up for peanuts, Cracker Jacks, coney dogs, frosty malts, etc. As I reached the legal drinking age, beer also became a part of the experience. Of course at this point in my life quantity and value often out weighed quality when it came to beer. I was content to drink economy beers from the big three.  But now that I have gained an appreciation for fuller flavored craft beers, I have to admit that I am disappointed with the beer experience in most ballparks these days.  At Wrigley, my choices were Bud, Bud Light, Old Style, and Old Style Light.  Not exactly a line up that will knock your socks off!  I went with Old Style since Bud is one of my least favorites of all time.  This got me thinking....are there ball parks that have embraced the changing tastes of Americans?  Can I enjoy baseball with an American brewed craft beer in hand?  I know that there are a few places in the US where you can enjoy a craft-style beer during the game.  Here are the ones I know from personal experience:     

• Boston: Sam Adams

• Los Angeles: Gordon-Biersch

• San Francisco: Gordon-Biersch

• Houston: Saint Arnolds

Atlanta and Cincinnati also both offer a custom brewed beer that provides slightly more flavor, but each of these still falls within the German lager family.

Are there any parks out there with a large selection of crafts on tap?  If not, will MLB owners make a shift as more and more Americans trade up?  I am certainly hoping so.  I understand the need for a cool refreshing beer on a summer afternoon, but there are many other beers out there that can easily accomplish this task with much better flavor.

If you know of a ballpark with a great beer lineup, be sure to comment so that I can add those parks to my list.

Craft Brew Kicking Ass and Taking Names

Earlier this week, the Brewers Association released craft brewing sales figures for 2006.  Another year of steady growth with an increase of 11.7% across the category.  Within craft, microbreweries grew at a 17% clip.  That is absolutely amazing considering the beer category as a whole is more or less flat and maybe even shrinking.  Is this growth linked 100% to changing tastes with American consumers?  Or is it also the result of a healthy economy?  Could craft brews weather an economic downturn?  Has the "trade up" to richer, fuller flavor beer become the norm?

Now I am not an expert on consumer behavior within the beer industry, but I do analyze beer sales performance as part of my 9 to 5 job.  In my opinion, there has been a fundamental shift in consumer tastes that will continue even if the economy were to turn south (let's hope that doesn't happen though!).  It doesn't take an expert to notice that we now have hundreds of choices in soda flavors, isotonic beverages (Powerade and other sports drinks), bottled waters, teas, and even coffee varieties.  Americans have become accustomed to this variety and ability to try new flavors and even walk a little on the "wild side" with their culinary choices. 

In beer specifically, a new generation of legal drinking age consumers is entering the market with a plethora of beer, wine, and liquor brands on the shelf.  While value may drive their purchase choices 80% of the time, they are sure to experiment with some of the higher end offerings as well.  Who is more brand conscious and status aware within the legal drinking age community than people in their early twenties?  Drinking a high end craft brew shows sophistication and refinement among their peers.  Of course it helps that the beer tastes great and they actually enjoy the flavor!  As they then move into the work world and gain access to higher incomes, value may no longer drive their purchase decisions.  Why not treat yourself to a great beer after a hard week of work!

Craft brewing also has another advantage that will help protect current sales volumes: Innovation.  Pioneers at breweries across the US continue to create new styles, experiment with new ingredients, and push the limits of existing styles.  New beers excite consumers while also helping to build the reputation and brand value of a brewery. 

Craft brew is not completely recession proof or non-cyclical but these changes in consumer tastes will help retain a certain baseline sales volume.  Those breweries that are well established and have wide distribution would probably fare the best in a downturn.  Stores would want to make sure that every brand they stocked moved off shelves quickly and that would probably lead them to focus on the Sam Adams and Sierra Nevadas of the world.

With all of this growth within the craft category, what are the Big Three Brewers thinking?  Time to get in the game to try and capture the higher margins.  Can they effectively compete in this niche?  Check back for another article exploring their efforts and my thoughts on whether they will be successful.

Time to go try the 2007 Bigfoot I just bought at the store today.

Big beer = flavortastic

I came across this article in the Akron Beacon Journal today at work and thought it was a good read.  It talks about how craft brewers are continuing to develop beers with big flavor and often a lot of alcohol as well.  I enjoyed the quotes from industry experts and thought you might also.

Click here for the link to the story.

Also...they included a list of beers recommended by a number of the people interviewed in the article.  Nice to see what they recommend outside of their own beers.  Click here for the list.  It includes suggestions from:

• Luke Purcell, brewer, Great Lakes Brewing Co., Cleveland, OH
• Fred Karm, owner/brewer, Hoppin' Frog Brewing Co., Akron, OH
• Greg Koch, chief executive, Stone Brewing Co., San Marcos, CA

• Andrew Tveekrem, brewmaster, Dogfish Head Craft Brewery, Milton, DE

IPA Update:  The IPA I brewed a couple of weeks back is now in a keg carbonating.  Of course I tasted it warm and flat to get an idea of how the final product will fare.  I think it is going to taste great and prove to be popular with guests...not overly sweet, a nice balance of hop flavor and bitterness, and a cascade aroma that you begin to smell inches away from the glass!