When I Climbed the Mountain

The writing life is filled with peaks and valleys. I've been bumping along at high altitude lately, but no time was more exhilarating than the day I woke up in Tampa, Florida after a book event, got on a plane for Atlanta, was picked up at the airport and zipped downtown to CNN. I was there to do the spot you see below--two and a half minutes of very fluffy commentary on winter ales and "light beers." (When asked to do light beers, I selected session IPAs, which was my own subversive contribution.)

At CNN, they take your pic and give you a lanyard and then you go through a pretty serious security screening. The spot we did took maybe an hour, and I got to joke around with Coy Wire, a former NFL player who hosted the piece (a down-to-earth, self-effacing guy), and a couple of producers they roped in to taste the beer. Afterward, I was shuttled to Decatur for another Beer Bible event, and I was on a 10 pm flight to Nashville for the next book event. For one marvelous day, I felt like quite a big shot.

Anyway, there it is, my 2.5 minutes of fame on national TV. The piece ran several times yesterday, and now I have it for posterity.

ON-AIR GUEST

With Coy Wire on the set.

It's Hard Out There For a Publisher

This is a slightly random aside, but I wanted to draw your attention to a great post about the state of the internet over at Talking Points Memo. For those of you who don't read political blogs for fun, TPM may have escaped your notice. It's a left-of-center site that grew out of a personal blog by Josh Marshall. (As an aside to the aside, the site was my introduction to blogging. I'd never heard the word "blog" until Paul Krugman called attention to some of the work Marshall had been doing on the coded racist words of then Majority Leader Trent Lott. Within a month, I had started my first blog.) Like all news/opinion sites, it has struggled in the age of social media.

What's changed in the last 4 to 5 years is the inroads social media sites have made into the paid advertising space. Much as Craigslist virtually destroyed the classified ads business that local newspapers owned, a site like Facebook can deliver ads more efficiently and cheaply than most traditional advertisers. 

The great liberation brought about by the internet made it possible for someone like me to put my voice in front of (potentially) the whole world--a phenomenon new in the world. But if you envision the structure of media as a funnel, where the voices of the public are the wide end, and the media gatekeepers act as the narrow end, what happened with the internet--and especially, with social media--was the elimination of that narrowing. Now all people can connect with all people, which means the writer in this equation isn't very important anymore. Josh' perspective is that of he publisher, but since we can all now be publishers as well as writers, it may be a distinction without a difference. Writers and publishers are still casting around now to figure out how to make a living. Many of us develop nervous tics because it seems like our societal value is approaching zero. Though from a purely academic perspective, the changes are fascinating.

Which I suppose is about as good a place to segue to links as any. Today at All About Beer I discuss a significant epiphany I had in Miami, Florida on the subject of beer. True story.

So join me back in the Abbey Brewing pub. Most beer culture in the world right now has its roots in European brewing. Abbey reflected that—with a healthy dose of American sprinkled in. As I mentioned, Miami is loaded with culturally-specific businesses, so there’s nothing out of the ordinary about a European-American pub making up part of the tapestry. And yet, in that moment, I realized how much American beer culture—especially craft beer culture—carries with it this European valence.

We also have the latest Beervana Podcast up and ready to caress your ears in our dulcet tones. In this latest episode, we discuss wintry beers, touching on topics like wassail, Lamb's wool, glühkriek, bière de Noël, and of course, price elasticities. We have also slightly tweaked the format to include news and beer recommendations (an extension of the "Beer Sherpa" feature birthed here on this blog) as well as a a "mailbag" feature, in which we are attempting to draw you into the discussion. We welcome questions, comments, criticisms, witticisms--anything that inspires you. Email us at the_beerax @ yahoo.com.

Let's Make a Deal

Many of the recent craft-brewery buyouts have been like shiny objects to attract our gaze, but lacking in any real value. One buyout is mostly like the next. When Constellation purchased Ballast Point on Monday for a billion dollars, though, it was more than just clickbait. It makes us consider what things are worth, and that made us consider seriously where the beer market is headed. Constellation wasn't a pundit talking about where the market was headed--they pontificated with their dollars. All of which brings me to a question.

Constellation paid a massive premium on the assumption they can build it into a formidable national brand and get a share of the growing craft pie. So, if you had been one of the C-level executives at Constellation (CEO, CFO), would you have recommended this deal?

The way you answer the question depends on how you weight several variables: 1) where the market is headed; 2) how strong Ballast Point's brand and beers are compared to other craft breweries you'd consider buying; 3) how much the market actually favors local ownership (which is to say: will locals abandon it because it's a national brand; will non-locals embrace it in an environment of localism?); and 4) whether the Ballast Point brand can translate easily into a national brand, and 5) whether Constellation has the infrastructure to support a national brand. There may be other factors as well, some unknowable (like the way the deal was structured), but these give you an idea of the calculation.

If you think Ballast Point's brand can become one of the small number of successful craft brands, that the craft market will be much larger than it is now, and that the focus on localism is overblown, a billion dollars doesn't look like a bad bet. Well?

A spirited discussion has been going on at Facebook for a couple hours, so you might prefer to comment over there.

The Point Made More Fully

Here.

Many observers believe this is further evidence of a bubble in the “craft” segment—the outrageous prices paid for breweries remind them of mortgages in 2007. Of course, that’s always possible. If the market flatlines tomorrow, Constellation will lose big on the deal. But consider: since 1990 or so, the overall beer market in the United States has remained a pretty steady 200 million barrels. (Per-capita beer consumption has declined, but the population keeps growing.) In 1990, pretty close to 100 percent of the market was mass market lagers. By 2015, the 200 million barrels of mass market lager had shrunk to about 175, and that drop-off curve gets steeper each year. They are currently hemorrhaging two or three million barrels a year, and if trends continue, that number will grow faster.

Big beer companies are well aware of these trends, and they’re asking themselves the same question: How much of the market 10 years from now will still be mass market lagers?

Read the rest.

Big Beer Bets on the Future

Another week, another buyout, another yawn. Except not this time, because the topline number has startled even cynical old beer writers like me:

Corona and Modelo beer brewer Constellation Brands Inc (STZ.N) said it will buy San Diego-based craft beer maker Ballast Point Brewing & Spirits for about $1 billion to compete in the fast-growing craft beer market.

A billion here and a billion there and pretty soon you're talking real money. Some quickie comments as the news comes in.

The Rationale

Ballast Point is one of the strongest brands in the US. There aren't a ton of top tier brands out there, so it makes sense that Constellation paid premium dollars for it.

The Valuation

On the other hand, the brewery only made 115,000 barrels and was only the 31st largest craft brewery in the US last year. Which means Constellation paid super premium dollarsar--far in excess of the current value of the company. (No financials were disclosed on the Lagunitas deal, but reports said Petaluma's--and Chicago's--finest was also valued at $1 billion, and it brewed five times as much beer in 2014 and has far greater capacity.)

The Radical Shift in the Market

All of which leads me to this last point, which is one I think most people haven't fully digested yet. Big beer companies are betting on the steep decline of mass market lagers in the US. I constantly get asked whether we're in a bubble or not, and this should be gold-plated proof: we're not. A permanent upheaval has begun in the beer market, as mass market lagers get replaced by what we formerly called craft beer. Whomever can hoover up market share on the full-flavored ales and lagers  will be the big winner in the marketplace of 2030. And if you don't believe me, believe AB InBev, Heineken, MillerCoors, and now Constellation, who are paying way, way more for breweries than their absolute 2015 value. 

The reason is because they're betting on the future, and they're betting on "craft."

Update. I elaborate on this post at All About Beer: "Betting a Billion Dollars Against a Bubble."

You Can't Recycle Originality

Martyn Cornell, who surprised me by admitting he as an MBA, just reviewed the new book by BrewDog's James Watt. It's a fascinating dissection not just of the book, but the business of beer. Here's his final paragraph, which is a great place to start a discussion:

Will someone who buys Business for Punks, given luck, be able to turn themselves into the next BrewDog? Well, no, probably not, or not in the UK beer market, because as far as what BrewDog now represents, there is only room for one iconoclastic, rule-breaking, self-proclaimed punk brewery, Dickie and Watt spotted that gap in the market and filled it extremely successfully. We may well see firms start up that will be “the BrewDog of grocery retailers”, “the BrewDog of software manufacturers”, even “the BrewDog of estate agents”. But no sector, I suggest, can sustain more than one marketing guerrilla, and guerrilla marketing is what BrewDog does brilliantly and what its fans respond to enthusiastically.

I'd take this a step further. In the business of beer, it's very difficult to follow the blueprint of any successful brewery. They're all more or less singular achievements that are very difficult to replicate. Here in Oregon, Ninkasi Brewing pulled off the neat trick of going from start-up to powerhouse in just a few years. Founded in 2007, it was able to become one of the top-three breweries in just five years. Surely there are lessons in the Ninkasi approach? Let's look at how they did it.

First, founders Jamie Floyd and Nikos Ridge took advantage of a bizarre anomaly that existed as late as 2007 in Oregon: the city of Eugene, the state's second-largest, had very few breweries and none that had become the dominant local player. Second, they came of age just in the moment that IPAs were not only becoming ascendant in craft brewing, but going through a big change in form. All of Ninkasi's early beers were hoppy and captured the zeitgeist for the "new" IPAs (which have since gone through another iteration in evolution). Of course, the brewery also had great branding, a great sales force, and great beer--necessary but hardly sufficient elements for success. In other words, cribbing notes from Ninkasi wouldn't be much help to a brewery today.

Here are some of he biggest American breweries: Boston Beer, Sierra Nevada, New Belgium, Lagunitas. Could you imagine trying to replicate the elements of their success? Try building an empire on an amber lager or amber ale today, as Boston Beer and New Belgium did. Lagunitas sells a certain California ethos as much as it does beer, but imagine trying to replicate it now. Sierra Nevada might be the one model a brewery could replicate, but the benchmarks--extraordinary quality standards with landmark beers and quiet consistency over the decades, looks like a daunting task.

I get that business books always take the shape of a kind of long-winded humble-brag about how an entrepreneur did something. But by the time you get to that phase of the business, the lessons are too particular to really benefit anyone coming up. There are a ton of things you have to do just as a matter of course for any business. But the secret sauce that leads to exceptional success in the marketplace is almost always a spark of originality that captures the imagination of customers. And you can't successfully recycle originality.

When Giants Join Forces

Q: How many Elysians could AB InBev have purchased for the price of one SABMiller (minus MillerCoors)? A:

1,700

(Not everyone is amused.)

Counterfactuals

A little Saturday morning chin-scratcher for you to mull. Stan links to an article about the famous "judgment of Paris" in the wine world and wonders:

What if Fritz Maytag had not bought Anchor Brewing in 1965?

What if the committee charged in 1906 with interpreting the meaning of the Pure Food and Drug Act had decided to implement some sort of legal differentiation between all malt and adjunct beer, or enacted a proposal that lager beer be required to lager at least three months? (Both were considered and rejected.)

What if the USDA had not released the Cascade hop variety in 1972?

In comments, I suggested that there is no analogue in the beer world. It's just impossible to imagine that beer would remain the one product immune to the post-industrial return to quality and diversity that came to all the other products on the grocery shelves.

But there's a side debate here--one Stan and I have been batting back and forth for years. When we look at the landscape of American brewing now, what we see is a fully-developed American idiom: hoppy ales made with neutral yeasts and base malts, accented (if at all) with just a bit of caramel malt. Whether the name on the package is IPA, double IPA, white IPA, Session IPA (etc), that national lineage is always evident. I have argued to Stan--who has steadfastly remained unconvinced--that there is basically one source for all that. So let me put it out to you, and you can line up in the Stan, Jeff, or alternative camp as befits your reading of history:

What if Ken Grossman had never made Sierra Nevada Pale? (And as a corollary: Sierra Nevada Celebration?)

Discuss.