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Wednesday, November 14, 2007

The Economist's View of Widhook

At the Oregon Economics Blog, Patrick Emerson suggests a factor I hadn't considered:
The question will be, do consumers love variety enough to shell out $9 for a six pack of Dead Guy versus $5 for a six of Broken Halo? (Psst...go for the Dead Guy) I fear the answer to that question, for it is one thing to have brew-pubs where you can find quality, interesting craft beer, but it is another thing to find it in supermarkets (especially when you have two young kids and pubs are not so easy to frequent).
A question arises: will Broken Halo sell for less, or will it just be more profitable at $9? Looking at the other two bigs in the market, Sierra Nevada and Boston Beer, I don't see the efficiencies of scale getting passed along to the consumer. They seem to sell for about the going rate. Of course, if hops and barley squeeze the market, lowered production costs may make the difference between survival and bankruptcy.

A more likely scenario is that Widhook will roll its savings from production costs into muscle to break into new markets. It is difficult to find shelves in places where breweries have no track record, so they often have to sell to retail at drastic discounts for a period of time while they build a consumer base. This loss-leading strategy necessity means only larger companies have the capital to break into new markets. (The Fat Tire assualt on Portland from a few years back is a case in point--New Belgium didn't enter a market where there was huge demand; they tried to saturate the city with supply in the hope that it would create a market.)

Will that affect small breweries elsewhere? Could be. But there's another possibility, too. In places where there is effectively no market for craft beer, the arrival of two more national brands--along with Boston Beer, Sierra Nevada, maybe Anchor and a couple of faux micros from A-B--it might actually help create one.

Patrick's hypothesis isn't one I'll dismiss. Widhook could spend its capital consolidating existing markets. But it could also use it to create new ones. The former is bad for small breweries, but the latter could be good for them.


  1. But Widmer and Redhook are already distributed in most markets by the AB distributors. AB distributors already use the widhook to muscle shelf space and draught accounts from local breweries in other markets. More of the same? There must be some production savings coming in somewhere.

  2. Hi Jeff and readers,
    This is a very exciting time for our brewery and I wanted to give you and your readers access to information from the source as the inevitable rumors begin. No question that this is the most significant event for our brewery since Kurt and I made the leap from home brewing in 1984. Kurt and I love great beer and we love seeing our brewery grow. This latest step puts together a team of great people and provides them the resources to really create something special in the craft beer business.

    A couple of quick responses to your readers:

    AB fits in the way they always have. They have the best beer distribution system in the world when it comes to taking care of beer. Over the years, we've done business with all the rest and no one comes close to AB distributors when it comes to delivering fresh beer. For people who appreciate beer there is nothing better than a fresh and well cared for glass of beer.

    I know that some people don't care for some of our more popular beers but I'd encourage those folks to stop by the Gasthaus and see if they can't find a beer that fits their definition of craft. Kurt and I and all of our brewers have always taken great pride in brewing a wide range of beer styles. Some more "mainstream" and some with a more limited customer base in mind. It's funny, 20 years ago our Widmer Hefeweizen was considered extreme...and in many parts of the country it still is. So, while we will not apologize for the popularity of our beers we know that they are "crafted" as well as, and with as much pride as, any beer in the world.

    The Collaborator project will continue as it has and will certainly benefit by the added capacity.

    Jeff, thanks for providing a forum for me to share information and let me know any time you have any questions about what's happening.


  3. I would like to make it very clear that I don't blame Widmer for the economic forces at work. My worry is that, as an industry, economies of scale may lead to consolidation. Widmer just ahppens to be the brewery that is responding earliest and most aggressively to these forces. I wish them well, but am very interested to see how it affects the industry in Oregon.

  4. One thing to consider about scale is it invites more scale in associated industries. As the capacity increases for a Portland/Seattle based group of brewhauses, all supply categories will see an uptick in orders, obviously. And while I couldn't tell you what it is, there is a threshhold of economic size that draws allied industry towards it--thus ALSO often benefitting everyone down the food chain, who can take advantage of the regional "buy" power for supplies.

    New England has an anchor brewery of size to draw allied business. Denver has an anchor brewery of size. San Francisco has one. In this particular case, I think it's probably to the good of the NW to have a similar anchor brewery. (Note I didn't say St. Louis, because there's not really a major craft industry there, is there? Not notably in my mind, anyway).

    So maybe one way to look at it is to think of the Widmer Brothers shouting "Another round of free yeast slurry for all my frienzzzzzzz!"

  5. Rob, thanks for dropping by. I will second your comments about the range of beers available at the Gasthaus (and have, incidentally, elsewhere on the site).

    I'm extremely glad to hear Collaborator will survive! It's one of the coolest partnerships in all of brewing.

  6. Just want to say how much I appreciate this blog! Thank you!

  7. "Now he is Deaf..."
    "Now he is Dumb..."

    -Tommy, The Whomw