The Big Business of Small Breweries

For anyone in and around Portland, there was little surprise in yesterday's announcement that Widmer/Redhook's (Craft Brewers Alliance) had purchased Kona Brewing. The companies have long been working together, and the resulting collective will operate in much the same way. In terms of where breweries are located and who is designing and brewing the beers, not a whole lot will change. It may give most good-beer drinkers pause, but this is the artifact of ugly mergers from an earlier era. In fact, the CBA-Kona merger tells us a lot about how much things have changed since the bigs started plucking up breweries like Henry's and Rainier.

To rewind the tape, if we go back to the 1950s, regional breweries were still a fixture in the American brewing landscape. Schlitz was the top brewer, but only produced 7% of the country's beer--and the top ten breweries only produced 38%. Lots of little breweries still made beer for their home markets. In the sixties and seventies and early eighties, this all changed as the major breweries started to achieve massive dominance and control vast percentages of the total market. When these behemoths took over small breweries, they were buying brands, not breweries. They sold off the breweries and moved production to their larger, more modern and efficient breweries elsewhere. So names like Henry Weinhard became just another brand in a huge brewing operation. Generally speaking, the beers themselves also changed, so the name really was the only thing left. This all makes good economics, but it's depressing.

(Pabst, beloved of hipsters, isn't even a brewery--just a name. Milwaukee's most important brewery shut down in 1996 and PBR is now contract-brewed by Miller.)

This kind of merger has happened in craft brewing, too. Back in the 90s, particularly, lots of dying little micros managed to sell themselves off to bigger micros just before they bought the farm. In Portland, Saxer bought NorWester, closed the brewery and kept making beer under the NorWester name. Pretty soon then-Portland Brewing bought both Saxer and NorWester, closed the Saxer brewery and made the brands at PB Co. But this was folly--micros are not "brands" in the way Henry's was. The names don't mean much, and they have little value. In craft brewing, what matters much more is what's in the bottle, not what's on it.

The modern mergers aren't made between two struggling breweries, they're made between strong ones. When they merged, Widmer and Redhook were both top-ten sized craft breweries. Kona is a very healthy and expanding brewery, and is (amazingly) the 13th-largest craft brewery. The merger leaves all players intact--brewing operations continue apace in pre-existing breweries. The resulting collective will still trail Boston Beer, the largest craft brewery, by a long way (based on John's numbers, the new company will oversee 583,000 barrels of production--just a fraction of Boston Beer's 2 million), but it will benefit from increased efficiencies and marketing heft. Yet they'll remain distinct entities.

This is the big change. At this moment in time, anyway, craft breweries benefit from being distinctive and place-based. It is a strength to have diversity. As the industry matures, mergers are going to become the norm--if they aren't already. Once breweries reach a certain size threshold, those efficiencies, access to far-flung markets, and marketing heft mean the difference between stagnation and growth. But unlike the dark old days of macro mergers, most of them won't matter a whole lot to the average consumer.

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Relatedly, a friend had a sixer of Fire Rock Pale last night, and it was quite tasty. Minerally, very crisp. Pipeline is a regular go-to beer for me as well. I said above that these mergers won't matter a whole lot to consumers, but for those who have new access to these beers, that's not entirely true. And that's another reason not to fear mergers--for now, anyway.