Congratulations on the merger. How does it feel?
It’s nice to have it done. Nothing’s really changed around here.
It’s a huge undertaking for any business. Any lessons learned?
Rob: We’ve never gone through it before. And one nice thing for us is that we had a long time to do it. We had sort of courted it starting with sales and marketing, forming a separate company, so it didn’t happen all at once. That would have been a big thing for people to swallow. People had a chance to get used to the idea.
And you say it doesn’t change anything?
Kurt: Not around here. I mean. (Pauses). No. It really hasn’t changed anything around here. It’s just nice to have it done. One of the changes is that so many of our people have been in deal mode for a long, long time. It’s nice to have them out of deal mode and back in beer brewing and beer selling mode, doing what they should be doing.
How long were you in deal mode?
Kurt: Years. I think we started talking about putting the sales and marketing group together five years ago.
Rob: Ever since the start we’ve been growing so rapidly and changing so much that everybody who is here now is used to that kind of environment, where you take a vacation, you come back and you have to figure the place out again.
How have revenues been the past few years?
Kurt: This is new, being merged. For stand-alone Widmer, we were outpacing the craft segment for four years, and then last year we were flat. And this year we’re running pretty flat. But now with the merger the measure has really changed.
So that has changed.
Kurt: That’s true. Our financing/accounting group has had a lot more work, federal compliance issues and things like that.
Rob: But change is the constant around here. Not that long ago it was just Kurt and I.
When you started this brewery 20-plus years ago, did you have any idea that down the line you’d be a public company, you’d be a national company, with international backing?
Kurt: All those things just mapped out exactly the way we planned it. There have been no surprises along the way.
Rob: You want to know what the market’s going to do tomorrow? We know.
Kurt: It’s just a matter of hanging on for the ride and trying to get out ahead of things as much as possible.
Has it been steady growth over those 20-plus years?
Kurt: Mid 90s we went flat. We actually went backwards one year didn’t we?
Rob: It was just the year we introduced bottles.
Kurt: In ’96 we were up 77 percent. In 97 we were down 4 percent or something like that. From the bottling. That’s the only year in our history where we’ve gone backwards. Right now it’s flat.
Inflation is just brutal for the consumer. I have to wonder at what point do people stop paying a premium for good beer?
Kurt: Hopefully we’re not going to find that out. We’ve seen beer sales be cyclical, but we’ve never seen beer sales go flat, major domestics down slightly, and at the same time our materials costs going up at a rate that we’ve never seen. The price for malt and hops and glass was pretty stable and now we’re seeing costs just rocket up. In past down cycles people generally haven’t traded down with beer. But this is a different climate from anything we’ve ever seen. It’s hard to say what’s going to happen.
What about the $52 billion buyout of Anheuser Busch by InBev. Does that change anything? It seemed so unexpected that any company could just move in and buy Anheuser Busch.
Kurt: I don’t know that it was unexpected.
Rob: I was at one of their national sales meetings just three years ago and (an A-B exec) said in front of the whole group that if he doesn’t do his job, somebody’s going to take over Anheuser Busch. I just thought, yeah right.
Kurt: Consolidation in the industry’s been going on for a long time, all around the world. We’d been hearing the rumors for a long time. And the final execution after a while — it just took on this air of inevitability.
Does it change things?
Kurt: Not in the short term.
Rob: Our deal with A-B has always been distribution. The way we conduct business around here doesn’t change. When we hooked up with Anheuser Busch we got access to their distribution system. We don’t really see that changing. Their wholesalers are independent businessmen for the most part and now more than ever they want craft beer. It used to be you had to have A-B’s blessing to get into that. They still want us. Besides, we are so tiny. Compared to InBev we are a speck.
At the same time craft beer is growing.
Kurt: Clearly the craft segment has had an impact on what the big brewers do. It’s no accident that all the new beers they bring out are in the craft profile and not just variations on the theme of domestic lagers.
But they’ve never gotten involved with your brewing?
Kurt: They’ve never told us what to brew or how to brew. By contract our responsibility is to do our own sales and marketing, so all they do is deliver the beer.
That’s a great partner to have for distribution.
Kurt: Well they’re better than anybody else. We’re delighted with that.
Rob: Their logistical system is unbelievable. There’s no better in the world. They take good care of our beer.
When was that relationship started and what new markets has it opened for your beer?
Kurt: It was consummated in 1996. It didn’t open new markets immediately but over time it did. We are effectively a national brand now. We had some markets east of the Rocky Mountains, but this opened up the entire United States east of the Rocky Mountains. Not that there’s a lot of demand in some places. In some states, we’ve got like one six-pack in one store. But that’s one of the advantages of this new corporate entity. It gives us the ability to increase our sales presence in new markets.
In Oregon the consumer is ready and willing and eager to buy craft beer. The percentages are much higher here aren’t they?
Kurt: It’s unbelievable. No other state even comes close.
Where is your growth opportunity nationally?
Rob: Southern California has been moving for a long time, and we’re still just a tiny speck down there.
What about the East Coast?
Rob: North Carolina. I was just there and they’re sending me back in September. It’s kind of a hot spot right now.
Kurt: We’ve always done well in the Northern Virginia, Washington, DC area. Don’t know why. But it’s been a solid market for us that continues to grow. We don’t have enough dollars to go out and create a new market. We basically identify markets that already have interest in craft beers and then we try to get into them. Because there are parts of the country where people just aren’t interested in anything but major domestics. They just aren’t. And we don’t have enough money to convince them that maybe there’s an alternative.
I imagine you get this question all the time. I’ll ask it, and you can tell me whether you’re sick of it. How do you manage your growth and yet hold onto the ideals and the commitment to a quality product that enabled you to be successful in the first place?
Kurt: Yeah, I’m tired of that question.
I have to ask it.
Kurt: It’s a huge challenge. Our beer gets better all the time. It has been on a continual improvement curve from the day we started. We’ve been able to hire people that have a real skill set. Before we were all generalists and now we bring people that have very specific skills, whether it’s microbiology or whatever it is we need. And our equipment is state of the art. From the time that we take malt in to the keg filling and the bottle filling, it’s all state of the art. There’s nothing finer out there. So when you combine our people with our equipment and our commitment to state of the art brewing, there has been a continual improvement.
But that said, one of the things that Rob and I get most frustrated about is that there are people out there who think we’re too big. These are the same people who will drink beer from another continent that’s a million times our size. They’re not too big. But we’re too big. It’s not that our quality has gone down or anything like that. It’s just that we’re too big. That kind of mentality fascinates me. If the issue is quality, if people were saying our beer used to be good but it’s not good any more, then I would apologize for that. But it’s very difficult to apologize for getting too big when the quality is better than it’s ever been.
We try to hire people who are committed to excellence. We never ask people to work faster. We want them to make the decision of when it’s right, whether it’s brewing or selling or accounting, that it’s not done until it’s right. They have to take pride in their work.
Rob: It is frustrating when people say we’ve gotten too big. I still haven’t figured out the response to that. It’s usually a pub owner and I think, do you want to sell more sandwiches tomorrow than you did today? Would you like two pubs? How about a whole bunch of pubs? We have a good beer that people like and we’ve grown…
Besides, compared to InBev, we are a speck
The new company is Craft Brewers Alliance. It’s an alliance of companies that have great reputations. Does the alliance get bigger? Is one of the strategies to grow the alliance through acquisitions?
Kurt: It may happen. Rob and I have learned to never say never. Every now and then we get a call from someone who wants access to the A-B system. Not that we control that access, but they want to know how it works and things like that. It’s a remarkable system and, well, short answer: there may be additions down the road.
Rob: Our customers want one-stop shopping. They want our salespeople to walk in and offer a lot of choices for them. We have all of our brands under one umbrella. When our guys come in they have a portfolio of brands that the customer’s been asking for. They don’t want six salesmen from six breweries taking up all day to sell a case of beer or something.
So it makes sense.
Does each brand get less attention though, when more brands come in under one umbrella?
It kind of allows us to gear beers to markets. But a lot of our customers are national players and they want national distribution. That goes back to the excellent logistical system that A-B offers. You can do a program nationally with a keystroke. That’s what those guys really like, the efficiency in that.
In the late 90s the market seemed oversaturated. But new brewpubs are opening all the time. How much room is there in the market?
Rob: For brewpubs there always will be room. For large distributing breweries, that’s tougher.
Kurt: The industry seems to be continuing to grow, and as long as the legislature continues to leave us alone, we should be able to keep growing. There have been attempts to slow us down but fortunately cooler heads have prevailed. We’re providing manufacturing jobs in our industry. We’re one of the bright spots in the economy. The economy is a little down now and sales are a bit flat but once the pendulum swings back we’ll be in good shape and so will the industry.