Craft Brewing ’08

Fast on the heels of another highly successful year, the American craft beer industry is gearing up for another profitable one and the challenges that accompany success. As the segment continues its development from a tiny niche to a legitimate force in the beverage alcohol marketplace, craft brewers are increasingly coming to grips with the changing realities of their improved prospects. With the big brewers showing a renewed interest in the category and the recently announced merger of Redhook Ale Brewery and Widmer Brothers Brewing, 2OO8 is shaping up to be the year when craft brewers, both large and small, solidly enter adulthood.

Anheuser-Busch “Crafts” A Better Beer
In the months of December and January, football fans across the country were introduced to a familiar face, but with a new shtick. The television advertisements showed various Anheuser-Busch employees touting the quality of Michelob and its grand history, tradition and reputation for quality. The ad’s focus then surprisingly shifted from the standard Michelob lager to the brewery’s less familiar “family” of Michelob brands. The ad featured the Michelob Porter, Pale Ale and Hefeweizen and again heralded their quality. The ad ends with the campaign’s new tagline, “crafting a better beer”.

My initial reaction was admittedly one of mild shock. While I had read the standard industry announcements that routinely precede such television releases, the audacity of this particular ad is something to behold and signals an odd note of acceptance by America’s largest brewer. The television ad, part of Anheuser-Busch’s $3O million campaign to rejuvenate the ailing Michelob brand, was a low key, exploitation-free promotion of the flavor and heritage of the Michelob brand. The ad is also the brewery’s latest attempt at fighting back against the gains of brewers in the better beer segment.

Beyond the unmitigated gall that it takes to co-opt the hard fought name and message of the craft brewing movement, the television spot also closely mimics the successful ads released in 2OO7 by the Boston Beer Company. Those ads, which often feature founder Jim Koch and his team of brewers talking passionately about their beers and smelling baskets of fresh hops, helped the Samuel Adams brand gain tremendous strength last year, which in turn drove greater growth amongst all craft brewers. In Anheuser-Busch’s knock-off spot, a brewer smells the malt and talks about Michelob’s traditions and dedication to brewing flavorful beers. The campaign goes far beyond merely releasing beer after new beer and hoping one sticks. It is a celebration of flavor, quality and better beer. To stop and think about the ad’s tagline, “crafting a better beer” leads football fans and other viewing consumers to necessarily inquire, “Better than what?” The only answers a viewer can be left with are Budweiser and Bud Light.

One member of the Michelob brand family that does not appear in the ad is Michelob Ultra, the company’s former low carbohydrate sales golden boy. In response to the news of the new campaign, one company executive told advertising age that the disassociation was a conscious decision. “You’re going to see us reduce the reliance on the name Michelob with Ultra, maybe even to the point of taking it off the packaging down the road,” the executive said. Regardless of whether the campaign, which again finds Anheuser-Busch trying to promote Michelob as a connoisseur’s brand, actually increases Michelob’s sales, the overall message is clear. Craft brewers have succeeded in changing the nature of the game and they need to be ready for the effects of greater corporate interest in their profitable category.

A Fight Of A Different Kin
After months of speculation, the Bell’s Brewing Company of Kalamazoo, Michigan, recently confirmed that it intended to return to the Chicago area market with two “new” brands in early December. As part of a small, initial test run, the brewery shipped its “new” Kalamazoo Amber Ale to six bars in the Chicago area. Now I use “new” because Bell’s is using this limited release to test the waters of Illinois distribution and franchising law with these brands. Formerly doing business as the Kalamazoo Brewing Company, the brewery stopped shipping beer to Illinois one year ago because of a dispute with National Wine & Spirits, the company that has the rights to distribute Bell’s Beer in Illinois. The brewery’s brands, long a fixture in Chicago’s better beer taverns, disappeared from the market after owner Larry Bell decided to end his relationship with NWS, which acquired the rights to the brand after Bell’s former distributor was purchased.

Bell founded his brewery as a home-brewing supply shop in 1983, with the first pint going across the bar in 1985. He has grown his brewery from a tiny, one-man operation with a production of 135 barrels in 1986 to more than 9O,OOO barrels in 2OO7. After a substantial recent expansion, which now covers 6O,OOO square feet of space in Comstock, Michigan, the brewery now boasts 14O,OOO barrels of brewing production.

The case is consequential because it raises several important legal questions about the legitimacy of state franchise laws which appear to restrict a brewery’s rights to switch distributors. Some in Illinois argue that the laws should be interpreted to allow for a brand to return after a year’s absence from the market, while others interpret the dense code to prohibit the transfer of brands to another wholesaler without the agreement of both parties.

With his return, Bell is trying a backdoor approach.

He says that he has released three new beers specifically for the Chicago market that are not subject to the prior distribution agreement. The new beers, offered under the Bell’s Brewery name, will include the Kalamazoo Porter, the Kalamazoo IPA and the Kalamazoo Royal Amber Ale. The labels read, “Brewed especially for the people of the great state of Illinois.” To some, including the distributor’s lawyers, it may appear that these new releases look similar to the Bell’s Porter, IPA (or Two Hearted IPA) and Amber, all products that were once popular in the Chicago market. Whether the new beers and their flavors bear any similarity to the old beers will likely be subject to many glass clinking debates.


The Stakes Are Not Always So High
The husband and wife owners of one of Maine’s oldest microbrbreweries, the Bar Harbor Brewing Company, recently announced their plans to sell their business to a Florida-based advertising executive. The sale of the brewery, which produces the award-winning Cadillac Mountain Stout and Thunder Hole Ale beers, was expected to close in early 2OO8. The new owner, Evan Contorakes, is the Chief Executive Officer of the Ronin Advertising Group of Miami, Florida, and also owns the Parkside Restaurant in Bar Harbor. Tod and Suzi Foster, original owners of the brewery, will retain a consulting role for one year following the sale in order to aid in the transition of the brewery.

The Fosters founded Bar Harbor Brewing in 199O from the basement of their area home. While living in California, the couple sat front row center for the early days of the microbrewing movement. Tod took up homebrewing while a student at

UC-Santa Barbara and the Fosters traveled throughout the state visiting new breweries as they opened. After moving to Suzi’s hometown of Bar Harbor, the couple would talk about Tod’s idea for opening his own brewery. He knew Bar Harbor had a huge tourist industry and that anything with the town’s name stenciled on it sold quickly as souvenirs. He discussed the idea with his wife so often that one day Suzi just looked at him and asked him whether he was actually going to do anything about it.

From the beginning, Tod knew that he wanted to run a very small operation, called a cottage brewery, where he would handle the brewing and Suzi would run the business. On a return trip to California, the Fosters met with several brewery and pub owners to get a sense of what they’d need to accomplish their goal. The couple almost decided against opening their own place after repeatedly being told they would need nearly $4OO,OOO of startup capital to succeed. After securing a small two-barrel Pierre Rajotte brewing system, Tod created the first batches of his flagship Thunder Hole Ale. When the beer proved popular, the Fosters eventually moved from their cramped, 15O-square foot basement to a new house on two and a half acres a few miles outside of town. The new owner plans to move the brewery, which presently covers 85O-square feet of the Foster’s basement, to a storefront in downtown Bar Harbor. The new space will include the brewing facilities and a tasting room for tourists.

Comments by Contorakes to the local newspapers show that he has great plans for the little brewery. While the Fosters had trouble maintaining the brewery’s 325 barrel production, Contorakes plans to catch up with local demand and then expand the brand “up and down the East Coast” as he told the mount desert islander. Contorakes’s bold plans also include taking the small, little known brand to a national audience. “I guarantee there’s a national pipeline we could put this into,” he told the local newspaper. “People around the country are always looking for these microbrews.” To achieve these goals, Contorakes says that he will likely contract with a larger brewer for off-site production of Bar Harbor Brewing’s brands.

The Rise, Fall, and Possible Rebirth of Another Local Brewery
In its short existence, the Concord Brewery has seen some very tough times, bouncing between four different names, a succession of new owners and a handful of homes.

The brewery’s accountant, David Asadoorian, purchased the brewery in 2OO3 from the former brewer, renamed it the Concord Brewery, and relocated operations to the old Brewery Exchange complex in Lowell. Despite the change in environs, the brewery struggled under Asadoorian’s ownership. The brewery’s once-popular Concord and Rapscallion brands never grew beyond their local following in Lowell and the quality of the beer, in the marketplace and at the adjacent pub, also suffered.

A new chapter in Concord’s complicated history is presently being written and it looks pretty similar to previous pages, with new owners, a name change, and a change in location. The brewery has been sold to Peter and Cedric Daniel, who plan to change Concord’s name to Rapscallion. The new owners plan to decamp to Milford, New Hampshire, where the company’s brands will be brewed under contract by the Pennichuck Brewing Company.

Developed as a personal artisanal project by former brewer Dann Paquette, the Rapscallion line has perhaps been the brewery’s most visible project and was a pioneering brand that pushed the definitional bouandaries of ‘beer’. Born in the spirit of beers that are intentionally different from batch to batch, the Rapscallion line of beers defied the notion that consistency in flavor profile is the brewer’s only goal. The three early Rapscallion brands, named Blessing, Creation and Premier, varied in consistency and flavor from batch-to-batch, but were widely lauded by beer enthusiasts.

The new brewery’s first release will be the Concord Extra Pale Honey Ale, rebranded as the Rapscallion Honey Ale. The new owners expect to resurrect other beers from both the Concord and Rapscallion lines.

The brewery’s troubles show that a rising tide in the craft brewing segment does not necessarily translate to an increase in sales. The company’s shift from a local brewery with a solid native customer base to a brewery in Lowell with no ties to the community has wreaked havoc on the brand’s growth prospects. On the rebranded brewery’s website, the new owners joked about the company’s troubled history. “Maybe you never understood why a beer brewed in Lowell, Massachusetts, went by the name of Concord. Well, we didn’t either.”

In light of the segment’s continued growth and the increased profitability of better beer (craft beer now accounts for more than five-percent of total beer sales in the United States), smaller brewers should expect that their once unnoticed industry will continue to meet with new challenges and the renewed interest of deep-pocketed competitors.