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Microbrewing '90.


The American brewing industry was in danger of becoming a sclerotic giant during the 70s, with consolidation purging the industry of its regional breweries, and most players concentrating on brewing enormous volumes of light lager. The industry has received a much-needed infusion of new blood with the return of small-scale "micro" brewing to the scene.

Microbreweries, defined as those producing fewer than 15,000 barrels annually, were the norm in 19th-century America. In the post-Prohibition era, however, the undeniable cost-efficiency of large-volume brewing forced breweries to increase volume or perish. Since the majority of demand was for lagers, brewers concentrated on producing the light-colored, light-bodied lager that has become the American standard.

Exploiting The Niches

As the major brewers concentrated on producing lager on a mass-scale, they inevitably left niches in their wake, small pockets of consumers who preferred something other than the prevailing beer style. The microbrewery movement has seized upon these niches, brewing "craft" beer in a wide variety of styles.

After early success on the West Coast, the microbrewery movement has continued to accelerate, and American brewing has shown a dynamism not seen since the fevered rush into business following Repeal. This latter-day brewing renaissance has become a flood, with countless micros and brewpubs springing up in every region of the country. As the industry enters the 90s, the flood remains unabated, with brewpubs touted as one of the hottest business opportunities of the coming decade.

Miniscule Market Share

Despite the hyperbole, however, small-scale brewing remains scarcely a blip on the economic screen. Jeff Mendel, research director for the Association of Brewers, reports the estimated 225-230 micro and pub-brewers (excluding contractors) held 14/100ths of 1 percent of the market in 1989. That percentage, while miniscule, represents a substantial 35-percent increase from the previous year.

According to Mendel, America's microbrewers produced an estimated 250,000 barrels last year; small potatoes when you consider that Anheuser-Busch brewed 80 million barrels on its own.

Statistics aside, the rise of microbrewing is having a remarkable effect on the nature of the American brewing industry.

Despite beer's long and fruitful history in the United States, the continuity of America's brewing tradition was shattered by Prohibition. Microbrewing offers an avenue for rediscovering the full richness of the country's brewing heritage.

Consumer Demand

The specialty beers produced by microbrewers have typically appealed to beer drinkers looking for more exotic brews than those available in the mainstream. This demand is only the latest manifestation of the quiet consumer movement towards high quality products. The rise of small wineries was an early indicator of this trend, followed by increasing numbers of gourmet-type specialty foods.

Importers were the first beneficiaries of the reawakened consumer interest in beer, with sales of exotic brands and styles showing sudden and dynamic growth. The next logical step was brewing specialty beers right in the U.S.

The Rise of Specialty Beer

The new brewers have answered that demand with a profusion of beer styles unseen in this country since before Prohibition, if ever. Beer styles now available to consumers draw from every world brewing tradition, running the gamut from Belgian ales to German dopple bocks. It would be no exaggeration to say that the American brewing industry is now the most diverse in the world.

Spreading Recognition

Consumers in some regions, notably the WestCoast, have embraced the microbrewing concept wholeheartedly. Other markets have proven more difficult to crack. Texas, for example, is one of the country's largest beer markets, but boasts just a single micro.

At this stage, the word appears to be spreading to those areas passed over by the first wave. The Southwest and Southeastern corners are the latest growth areas for microbreweries.

Rumors of war

Importers are perhaps the only ones viewing the trend with gritted teeth. Imports have gone into a precipitous decline in the past year, at least in part as a result of increased competition from microbrewers. Microbrewers have not shied away from targeting their products at import drinkers, citing the perishability of beer transported over long distances at fluctuating temperatures.

Importers still command impressive resources, however, and the large players in that segment will undoubtedly take aggressive steps to hold their share.

At least one importer (who shall remain nameless) is already mobilizing for a campaign aimed specifically at microbrewers. Hoping to "smother" microbrewer's market share, this importer has declared "war" with an onslaught of glassware and other promotional materials for their distributors. Similar campaigns will undoubtedly follow from importers eager to reclaim their slices of the specialty beer market.

Land of the Giants

An interesting point of speculation has devolved upon the intentions of the large national brewers. It remains unclear whether the upper tier brewers are willing or able to brew craft beer for niche markets. Although the giants have refrained from entering the specialty beer niche with any weight, they have made several tenative efforts.

Coors has been the most aggressive, with the marketing of its Killian's Red, and the revolutionary (for a large brewer) return to a seasonal with Winterfest. Anheuser-Busch has test-marketed its Anheuser Marzen and Anheuser Pilsener in some regions, although it hasn't supported either brand with any sort of advertising. Miller hasn't launched any specialty beers of its own since its abortive Plank Road and Dakota efforts, but the acquisition of Leinenkugel brings the brewer some interesting regional specialties. Of the Top Five, Heileman made the strongest commitment to the specialty niche with its Val Blatz brewery, an effort that unfortunately failed.

Jeff Mendel is skeptical of any major move by the nationals into the specialty beers in the near future. "Craft beers go against the grain for the large nationals," he points out. "They're used to brewing on a mass-scale, with pre-set ingredient mixtures in automated plants. It would be quite out of character," he says, "since it's diametrically opposed to their prevailing volume-based strategy. I think they recognize they can't be all things to all people."

Modern Brewery Age recently solicited the views of a cross-section of brewers from microbrewing's upper-echelon, questioning them about their own operations and their view of the segment's future.


The nation's largest microbrewer has ambitions worthy of its stature. Redhook edged above the 15,000-barrel mark in 1989, and projects sales of over 20,000 barrels in 1990. "We benefited dramatically from the boom in Puget Sound," president Paul Shipman reports, "and we are planning on building a second specialty brewery in the Puget Sound area." The proposed brewery would have a capacity of 100,000-barrels, exceeding the 35,000-barrel capacity of Redhook's existing plant.

"I see the category growing up," Shipman explains. "Until now, the micro category hasn't competed for share points in markets. It's been a matter of skimming the cream off the top of the market.

"We are the first microbrewery to garner share points within our focus geography," Shipman reports. "In the Seattle area, we hold close to 1 percent of the market now. This is a time of profound opportunity," he continues. "We are seeing that micros have the potential to compete with the larger brewers. This upcoming period has the potential of being as crazy as it was back in the dawn of the microbrewing movement," he says, "the microbrewers of this country are doing amazing things, and I think we're ready to move up a notch."

Shipman reports that the import-drinker remains a prime target for microbreweries. "I don't think the imports can compete with us in this market," Shipman observes, "because they fail the freshness challenge. They have the systemic problems that arise from the fact that they are brewed in foreign countries, and shipped great distances to our market."

Shipman, however, thinks there are horizons beyond seizing import share. "We are starting to see a significant number of beer-drinkers moving up from domestic super-premiums to micro-brewed products.

"The biggest source of opportunity will be in the final round of consolidation among the big brewers," Shipman observes. "If the big six become the big three, I think that environment will leave big chunks of the market relatively uncovered. The next brewing revolution may be dawning."

According to Shipman, Redhook is prepared for this great leap forward with an automated brewhouse. "We feel automation goes hand in hand with our general business strategy," Shipman says. "At the moment we are the smallest computerized brewhouse in the country. Once we build our new brewery, our brewers will be able to move right into a larger, sophisticated plant, with scarcely any transition time. We'll be ready to go up a notch."

Questioned on possible intrusion into the micro niche by the big national brewers, Shipman offers a different scenario. "If I was managing one of the big three, my attention would be towards the larger world market. That's where they could capitalize on the unique competitive strengths of the U.S. brewing industry, with mass-scale brewing and large-scale marketing. If they take that approach to Europe and Asia," he says, "they'll clean up.

"If they want to get into small-scale brewing," Shipman announces, "I invite them to join us. But I just can't see breweries of that size grappling for the 10ths-of-a-percent that are at issue in this segment."


Irene Firmat is general manager of the Hood River Brewing Co., one of the West Coast's most dynamic young breweries. Hood River has undergone remarkable growth since opening in 1987, producing around 8,000 barrels in 1989. "We initially projected 12,000 barrels in 1990," Firmat reports, "but it looks like we'll be reaching 14 or 15,000. We had wanted to stabilize our growth, because it has been so fast, but we've decided it's more important to keep our clients stocked."

According to Firmat, the company's meteoric rise can be attributed in large part to bottling in a predominantly draught market. "We were the first to take advantage of the growing recognition of this industry by bottling," she states. "There are plenty of bottled beers out there," she says, "but none of them had been brewed here. We benefited from Oregonian chauvinism on that count."

According to Firmat, the segment is still showing strong growth potential. "I think there are limits to how much more it can grow," she says, "but we have been continually surprised, because there doesn't seem to be a ceiling. We thought we'd hit it, but it hasn't happened.

"I would think that eventually there has got to be a limit," Firmat notes, "if only because they can't fit another tap handle behind the bar."


"We're brewing and selling right on the edge of capacity," reports Kurt Widmer, president of Widmer Brewing Co. of Portland, OR. "Sales were up 70 percent in 1989, and for 1990 we expect more of the same." To handle demand, Widmer reports a new 30-barrel brewhouse will go on-line in June.

"People are very interested in the beer that micros are brewing," Widmer says, "and I think that the established small brewers here in the northwest will continue to have opportunities for growth. Unfortunately," he points out, "aspiring microbrewers might find this market saturated."

Widmer is refraining from opening a bottling line at this time. "Bottling opens up a new facet for a brewery," Widmer notes, "but as long as the draught market continues to grow, we can grow with it. I think there's a growing awareness of our beers, and they are consistently among the top five sellers at most outlets--right up there with the established national brands."

For the future, Widmer sees continued growth, with possible market expansion. "We'd like to increase our presence in other markets," Widmer says, "we haven't limited ourselves yet. So far it seems like success just keeps breeding success."

CATAMOUNT BREWING CO. White River Junction, VT

Steve Mason, president and master brewer for Catamount Brewing of White River Junction, VT, is encouraged by the continued growth of the market. The only thing he worries about is meeting demand. "We really can't supply all of our distribution bases," he reports, "the opportunity for sales is there, we've just got to brew more beer. We're producing at full-tilt, right up to our 6500-bbl. capacity."

To meet demand, Catamount has set a major expansion in motion. "Our new maximum will be 15,000 barrels," he says. "It's a strong step forward for us, and we're ready to begin a new phase in our business."

Mason attributes Catamount's success to the continuous growth of their brands in New England, and the addition of two contract brands to the company's repertoire. "The contract efforts pushed us right over the edge of plant capacity," he reports, "but they signified a continuing opportunity for us, and it has worked out very well for all concerned." He states Catamount will continue to broaden market area to include all of New England and portions of N.Y. state.

According to Mason, there is continued opportunity for new brewers in the field, although perhaps on a more limited basis. "The new breweries that are opening up are mostly brewpubs," he observes, "which is a testimony to the continuing demand for characterful beers and ales. Pure microbreweries will be harder to start, though, since there is more direct competition today.

"That's not to say it can't be done," Mason continues. "As long as there is public recognition of the product, sales levels can be achieved. It just takes a lot of hard work, and extremely creative marketing. Besides that, microbrewers can't expect to build a reputation overnight. It takes years."

Mason points out the importance of educating the consumer. "It's a very competitive market," he says, "but it narrows down once you emphasize the attributes of microbrewed products. We've got two main advantages over imports, our freshness and the fact that we are local or regional. People appreciate those things--as long as they're aware of them."

Mason also notes the inevitable distribution constraints on small-scale brewers. "Our products don't sell at the volume that big brands do," he says, "and although we'd love it if distributors would give our product a lot of attention, it naturally comes down to money. We're trying harder, however, and we've got three full-time salespeople out there working with distributors, promoting our product in the market place."


"Business is strong," reports Jack Bryce, general manager for the Hart Brewing Company of Kalama, WA, "and we are increasing our capacity to meet it."

Bryce attributes the growth of the microbrewing segment in the Pacific Northwest to the open-mindedness of the populace. "People up here seem to be willing to try something different," he says, "and that's a big part of our success. We've worked pretty hard at it, but it hasn't been through a real corporate push. People are awfully loyal around here."

Bryce feels the microbrewing movement is more than just a passing consumer fancy. "It could be argued that we're just going through something like the hoola-hoop fad," Bryce observes, "and microbrewed beer isn't going to last any longer than fizzies or Pop-Tarts. I would disagree. Beer has a great deal of history behind it, and there is also the correlation to the rise of the boutique wineries. If anything is faddish," he notes, "it may be the notion of brewpubs. We've had a couple go Chapter 11 in the Seattle market."

Distributor relationships have become an important part of the business for Hart. "Some of the distributors may not have been all that receptive initially," Bryce says, "but that has turned around, and they have been great. We don't have any delusions of grandeur-- because we realize the major brands pay their light bills. All we want to do is fill in a niche for them," he adds, "be the frosting on the cake."


Bright industry forecasts notwithstanding, the people at Mass. Bay are wary. "The environment is different now than it was five years ago," says Rich Doyle, president of Mass. Bay. "Sales growth will be a lot tougher to come by in future years, because there are a lot more players in this category. Just like any business cycle," he points out, "when you have a glut on the supply side, you get a decrease on the demand side. Microbrewers have got to watch the bottom line, and be careful, because the market is glutted and shrinking.

"Some players may drop out," Doyle speculates, "and people will turn to the traditional tactics of the beer market, price-cutting and product proliferation."

Doyle reports that Mas. Bay's prospects remain good. "Boston and New England are very strong markets to begin with," he says, "and we're increasing our production to handle a new product."

Doyle notes that Mass. Bay has contracted out a portion of their production to F.X. Mart in Utica, N.Y. "We found ourselves in a somewhat seasonal area," he explains, "and having a production line that could keep up with summer demand didn't make sense in the winter. We're continuing to look at other market areas," he concludes, "and our prospects are very good."


Allegheny is a relative newcomer to the field, with construction of its brewery completed last year. The plant is housed in Pittsburgh's old Eberhard & Ober brewery, which operated for one hundred years before closing in 1952.

"We have really shaken up the beer market in Pittsburgh," states president Tom Pastorius, "and we have been delightfully surprised by the response to our products."

Pastorius reports Allegheny has benefited from an unexpected fact of demographics. "Pittsburgh has become a magnet for German companies coming into the U.S.," he says, "there are 150 companies in town, employing upwards of 10,000 German nationals. They miss their beer, and since we brew ten different Germanic styles, they have been discovering us.

"Pennsylvania was several years behind the West Coast," Pastorius points out, "because this is a more conservative market. But today I think consumers everywhere are interested in buying better products. Americans are tired of being patsies--they are demanding quality across the board."

For those reasons, Pastorius sees the microbrewing movement as a strong factor in the future of American brewing. "This is not a fad," he says, "this is a renaissance. It's a reappreciation of quality brewing."

Pastorius does not foresee any credible entry by the national brewers into the craft beer market. "As long as they can sell their products on the basis of hype and advertising, why should they start brewing quality products?," he asks rhetorically. "Naturally, they could throw some caramel color in their beer and call it a craft-brew," he continues, "but it takes a lot of effort to do it right."

Pastorius notes that all production at the Pittsburgh microbrewery is draught, and he has no plans to install a bottling line in the near future. Bottled products continue to be produced under contract at the Jones Brewing Company in Smithton, PA.


"Saleswise we expect sales to increase in 1990," states president Fred Schumacher, "up to 50% better than last year."

Schumacher notes the Michigan market has taken time to open up to the concept of microbrewed beers. "It's a conservative market," he remarks, "but people are starting to take notice, and it seems to be opening up.

"I think the micro segment has great potential for growth," Schumacher continues, "despite the concern with alcohol today. I think consumers are going to drink `less but better.' Instead of guzzling a case, they'll buy a six-pack of something with a little more character to it."

According to Schumacher, consistent quality should be microbrewer's top priority. "Anytime a microbrewer starts brewing inconsistent, poor-quality beer," he says, "it hurts the whole segment. The people who are drinking our beer are used to drinking high-class imports," he points out, "and we have to put out top-notch beer on that same level."


Expansion has been continuing at Mendocino Brewing Co., in Hopland, CA. "This past year we put in three new 2400-gallon fermenters," reports general manager Mike Laybourn, "which effectively doubles our capacity.

"The market looks good," Laybourn continues, "and we are exploring the possibility of building another 100-barrel brewery. We think the aging population of baby-boomers will continue to broaden our niche. They're willing to pay more for good quality."

On a more somber note, Laybourn voices concerns about regressive taxation. "Here in California," he reports, "we're concerned about being taxed to death. Frankly, I just don't know how the smaller guys are going to survive. Everyone will have to pass it on," he notes, "and there's a danger of getting priced out of sight."

Despite skyrocketing taxes, Laybourn is optimistic about the soundness of microbrewing. "I think we are fulfilling a strong need in people," he states, "the need for a better quality, fuller-flavored beer."

Laybourn does suggest that the brewpub explosion may contain elements of faddishness. "I think there's a perception by some people that you can build a brewpub and make a mint real quick," he says, "and some people will get into the business who shouldn't. It's not as easy as it looks."

"In the next few years," Laybourn predicts, "I suspect the Japanese will want to buy into small breweries. They are very forward-looking," he says, "and the attitude of Japanese management seems to be, `don't worry about what is costs, just make the best.'"


"Things are going gang-busters," says Tim Bosworth, Bridgeport's pub manager, "but we have tried to grow in a measured way, and not bite off more than we can chew.

"Perhaps we're not as ambitious as some of the others," Bosworth continues, "but we have a goal of making a good beer on a scale where we can ensure consistent top quality."

Bosworth touches on the possibility of market saturation, and resulting failures. "I think there's already a shake-out occuring in the North West," he observes. "Some of the brewpubs lived and died based on their restaurants. There will be continued shakeouts when push comes to shove," he notes, "but this is still a market that's growing.

"Microbrewing is a great thing for the consumer," Bosworth continues, "with the imports you never know what you'll be getting. This movement is all about giving people what they like--freedom of choice."

Strong Future

The microbrewing segment continues to show strong growth, despite lurking fears of a major shake-out. Although a handful of microbreweries failed in 1989, any attrition was out-paced by a spate of new openings.

The long predicted franchising of brewpubs is beginning to take place, with chains of pub breweries starting to snake out across the country. The large brewers have even started to show some interest in that part of the segment.

Wholesalers continue to keep a wary eye on pub-brewers, fearful of infringement on the well-established three-tier distribution system. A recent Michigan statute forbids brewpubs in that state, and may be used as a precedent for legislation restricting brewpubs in other states as well.

Among threats to small-scale brewing, however, all pale beside the specter of increased excise taxes and greater regulation. In this area, craft-brewers are suddenly finding themselves on common ground with the rest of the brewing and wholesaling industry. As the industry moves into the 90s, it will be in the best interests of all to join the fight against the regulation and taxation that threaten large and small brewers alike.
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Title Annotation:1990 Microbrewery Report; industry forecast and analysis
Publication:Modern Brewery Age
Date:May 14, 1990
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