- Written by Jason Notte
- Published in Manufacturing
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Why the Craft Brew Alliance is shifting from craft beer to seltzer, spritz and a fresh start as an alcoholic beverage company
Update: Since this article was published, Anheuser-Busch bought the remaining shares it does not own in Craft Brew Alliance for $16.50 per share.
The Widmer Brothers taproom at 955 North Russell Street in Portland is dark. Television screens are off, the tap-list board is empty, and just a handful of Widmer beers sit in the refrigerators behind the bar.
The pub, once known as the Gasthaus, was closed in January by Widmer Brothers’ parent company, Craft Brew Alliance (CBA), which had other plans for it.
Just behind the taproom, in a former Widmer Brothers event space and banquet room, a satellite-shaped chandelier illuminates walls painted bright white.
Floating shelves hold evenly spaced, Instagram-ready cans of seltzers and canned cocktails of Craft Brew Alliance’s newest project: the pH Experiment.
From a table in the center of the room, a team of five curates product photos, sends out samples and turns ideas into beverages within months instead of years.
The Craft Brew Alliance is experimenting with canned selzers, a departure from its previous focus on craft beer
“Our work is for the long-term sustainability of Craft Brew Alliance,” says Karmen Olson, an eight-year company veteran who co-founded the pH Experiment and serves as its general manager.
“Our vision is to quench drinkers’ thirst. We do that in a way that helps CBA survive in the long term, and there may be short-term ways to provide value.”
One space is Craft Brew Alliance’s past, the other is its future. The company’s challenge is convincing both consumers and shareholders which is which.
General manager and co-founder of the pH Experiment Karmen Olson
“The beer-industry structure was built for a different day and age,” Craft Brew Alliance chief executive Andy Thomas told analysts on a conference call in September.
“As you look at contemporizing that, and you look at the roles that distributors, merchandisers and key accounts play, I think our DNA needs to be blown up and rebuilt.”
There’s some urgency behind Thomas’ observation. Since Widmer Brothers and Seattle-born Redhook Ale Brewery formed what was then the Craft Brands Alliance in 2008, Anheuser-Busch InBev has owned a more than 31% stake in the company.
Anheuser-Busch holds two seats on Craft Brew Alliance’s board, has a distribution agreement with its brands, and had the option to buy out the remaining portion of the company for $24.50 a share — or roughly $475 million — on Aug. 23.
The beer conglomerate didn’t exercise that option. It gave Craft Brew Alliance $20 million for its trouble, but the damage was done.
Anheuser-Busch spokesperson Josh Gold states: “Our existing commercial agreements and 31.3% ownership stake in Craft Brew Alliance (CBA) remain in place. The long-standing and strong partnership we have with CBA is extremely valuable to us and continues to be a key complement to our industry-leading craft portfolio. We look forward to working together with CBA for many years to come.”
Still, the company’s share price plummeted more than 37% from nearly $12.96 on Aug. 22 to $8.14 by Oct. 9. It’s down more than 60% from its all-time high of $20.55 in July 2018. The future of 660 employees, including 190 in Oregon alone, was in question.
“There’s been a lot of chatter about this among the beer folks, and people feel generally that CBA is not in a good position,” says Jeff Alworth, Portland-based author of the “Beervana” blog and several books, including the Craft Brew Alliance-commissioned Widmer Brothers history, The Widmer Way.
“Their stock is down and, for people in the Northwest who look at Widmer and Redhook, they seem to be in a bad position. I think they’re in a great position.”
Thomas says Craft Brew Alliance is “disappointed” in the wake of Anheuser-Busch’s decision, but its predicament mirrors that of craft beer and the beer industry in general. In fact, some of its decisions over the past few years have put it in a better position than its share price may indicate.
"I think our DNA needs to be blown up and rebuilt.” Andy Thomas, Craft Brew Alliance chief executive
According to IRI Worldwide market data, provided by beer-industry consulting firm Bump Williams Consulting, craft-beer sales volumes increased 1.1% during the 52-week period ending Sept. 22.
That not only lags the beer industry’s 3.9% growth during that same span, but it lags behind the 58.7% growth of flavored malt beverages, including hard seltzers such as White Claw.
When Craft Brew Alliance formed in 2008, the Brewers Association, a craft-beer industry group, counted 1,574 breweries in the U.S. By the end of 2018, there were 7,450 breweries competing for drinkers’ attention.
During that same span, national beer consumption decreased from 199.5 million barrels to 182.9 million barrels.
“Anheuser-Busch tends to react to where they see market trends, and at this point, craft beer has kind of slowed down,” says Terry Michaelson, who served as chief executive of Craft Brew Alliance from its formation in 2008 until 2009. He is currently CEO of Portland Bottling Company.
“Anheuser-Busch has taken some big bets on other breweries like Golden Road [Brewing], so it appeared to me that they were going to say that the [CBA] breweries and infrastructure would be challenging.”
During Michaelson’s tenure with Craft Brew Alliance, Anheuser-Busch purchased the Chicago-based Goose Island brand from the company for $38.8 million in 2011. Not only did that give Craft Brew Alliance a $16.3 million cash infusion at the time, but it offered the company a discounted distribution fee that helped it grow its beer brands.
No Craft Brew Alliance brand benefited more than Hawaii-based Kona, which partnered on brewing for several years before becoming part of the company in 2010.
The year of the Goose Island deal, Widmer was the company’s No. 1 brand with more than 271,000 barrels of production to Kona’s 172,800. By 2013 Kona was in the lead by a 256,800 to 252,600 margin.
With the Kona brand key to Craft Brew Alliance’s 2016 distribution agreement with Anheuser-Busch — with Kona getting use of Anheuser-Busch brewing facilities and international distributors in Brazil and Mexico — Kona grew to 456,300 barrels of the company’s total 719,400-barrel production in 2018.
As Craft Brew Alliance beer sales dropped 1.5%, Kona’s rose 7.5%.
“There’s the whole thing in business that we forget about called ‘Let’s do what’s working,’ and clearly Kona is working,” says Sam Holloway, professor at the University of Portland’s Pamplin School of Business and founder of beer business site Crafting a Strategy.
“I think lifestyle brands are a great way for large craft breweries of CBA’s size to make up for the fact that they aren’t local anymore. A lot of people know what Hawaii is, they know what [that] lifestyle is and they aspire to feel that way.”
Thomas has called Craft Brew Alliance’s strategy since 2016 “Kona Plus,” combining Kona’s growth with a downsized U.S. craft-beer presence.
In 2017 Craft Brew Alliance sold its large Redhook brewing facility in Woodinville, Washington, for $24.5 million. In 2018 it placed Redhook in the far smaller Redhook Brewlab, a small-batch brewery and pub on Seattle’s Capitol Hill.
“Anheuser-Busch tends to react to where they see market trends, and at this point, craft beer has kind of slowed down.” Terry Michaelson, a former chief executive of Craft Brew Alliance
That same year, it bought longtime partner breweries Cisco Brewers in Nantucket, Massachusetts; Appalachian Mountain Brewery in Boone, North Carolina; and Wynwood Brewery in Miami. It also rebranded a more than 20-year-old Redhook facility in Portsmouth, New Hampshire, as a Cisco brewers.
Josh Noel, who wrote Barrel-Aged Stout and Selling Out: Goose Island, Anheuser-Busch, and How Craft Beer Became Big Business, notes that Craft Brew Alliance’s acquisitions followed a path Anheuser-Busch took after it bought Craft Brew Alliance-owned Goose Island.
Anheuser-Busch now owns nearly a dozen U.S. craft-beer brands — including Bend’s 10 Barrel Brewing Co., Seattle’s Elysian Brewing and Los Angeles-based Golden Road Brewing.
It’s an approach that’s been replicated by craft competitors including CANarchy (which owns the Cigar City Brewing, Deep Ellum Brewing Company, Oskar Blues Brewery, Perrin Brewing Company, Three Weavers Brewing Company and Utah Brewers Cooperative brands) and Artisanal Brewing Ventures (Sixpoint Brewing, Southern Tier Brewing Co. and Victory Brewing Company).
“Was it overzealousness or was it brilliant strategy?” Noel says. “I don’t think there’s a single answer as to whether that regional family approach works, but there are indications that with the right brands and done the right way, it can work.”
But it may not work in Craft Brew Alliance’s hometown of Portland. The company closed Widmer Brothers’ 22-year-old pub on Russell Street only after pioneering Portland brewers Portland Brewing and Lompoc Brewing closed pubs of their own.
Not only did Laurelwood Brewing Co. follow by closing its Sellwood pub this year, but the BridgePort, Alameda and Burnside breweries closed altogether. And in October, Lompoc Brewing shut down its North Portland brewery after 23 years.
“CBA is in the weird position where it’s neither fish nor fowl,” Alworth says. “The Widmer brand itself has languished, but it will take a long time for that to die. Even if that happens, it doesn’t seem that CBA is nearly in the same trouble as its peers.”
Yet the Widmer pub remains key to Craft Brew Alliance’s future. Sharing a wall with both the darkened pub and the bright-white pH Experiment headquarters is a chipboard-clad, equipment-strewn innovation brewery that looks more like a homebrewer’s shed.
The room where Craft Brew Alliance head brewer Tom Bleigh tinkers with new kinds of alcoholic beverages
It was former Hopworks Urban Brewery and Pyramid Brewing Co. brewer Tom Bleigh’s space when he joined Craft Brew Alliance as an innovation brewer in 2016, and he still uses it today as head brewer and co-founder of the pH Experiment.
Since early 2019, Bleigh has tinkered with meads, ciders, cocktails, kombucha, homemade bitters and even fermented Tang, an artificial drink mix once used by NASA during space missions.
As he’s developed pickled gose, a take on the Aperol spritz (called Aperitivo Spritz), a canned sangria and a 2% alcohol-by-volume seltzer called Pacer, he’s introduced them to Olson and the rest of the team and sent them out to 50 or so subscribers through Amazon Go.
He occasionally uses the Widmer pub for tastings, but notes that what Craft Brew Alliance has lost in the physical space, it’s gained in the virtual space by connecting with drinkers through social media and groups like Open Influencers (which connects the company to social media personalities with 100,000 followers or more) and getting products through them via Amazon Go.
Head brewer and co-founder of the pH Experiment Tom Bleigh
It’s allowed the pH Experiment to get its Pacer low-alcohol seltzers into grocery chains, such as Safeway, within three months of being pitched. It has also allowed products like the Aperitivo Spritz to find footing in Santa Rosa, California, wine country and other places Craft Brew Alliance didn’t or couldn’t go with Widmer’s beers.
“Without being too dire, I think the reality is that the marketplace is the marketplace,” Bleigh says. “I had a huge amount of desire to be a part of problem solving and expand Widmer’s brand and recognition back into the community, but I also know that sometimes that juggernaut is too big for one person to handle on their own.”
As a result, Craft Brew Alliance’s future may depend less on craft beer by necessity. As even the Brewers Association acknowledges, women make up just 31% of all craft-beer drinkers nationally despite being 53% of craft drinkers in Portland.
Meanwhile, only about 14% of craft-beer drinkers come from any background other than non-Hispanic white. Though Thomas and Olson both cited Miami-based Wynwood’s La Rubia blonde ale as a beer with potential to buck that trend, University of Portland’s Holloway notes that it has to join Kona and the pH Experiment in reaching out to consumers craft beer generally ignores.
“There are so many opportunities for great craft breweries to serve people other than Caucasian males with neckbeards,” he says. “La Rubia is a blonde ale made at 5% alcohol content or below, and if it’s marketed toward people who are used to drinking a light, refreshing lager, why wouldn’t it work?”
As Craft Brew Alliance mulls its future, Anheuser-Busch is attempting to expand its reach with Mexican lagers, a craft-cider brand, a seltzer brand, a tea partnership with Starbucks, organic beverages and a kombucha. Samuel Adams brewer Boston Beer Company dabbles in cider, hard teas and a hard seltzer brand of its own.
The Craft Brew Alliance is joining them and others in shifting from a beer brewer to an alcoholic beverage company. It took its first steps toward that goal under Michaelson by adding gluten-removed Omission Brewing Co. beers in 2012 and Square Mile Cider in 2013.
However, in September, the pH Experiment crew discovered how much more awaited them while attending Fizz Fest, a hard-seltzer festival in Denver. They were surrounded by 140 hard seltzers, 40 different manufacturers and drinkers who didn’t expect them to explain the value of a 2% seltzer.
Not only were the people around them more attuned to seltzer and wine culture, but they were more open to a six-pack that, at 290 calories, was equivalent to a brewpub’s most boring salad.
“The big question that I had coming from craft beer was how do we invite people to this really cool party?” Olson says. “What we found out at Fizz Fest is that these people didn’t want to come to our party; we have to go to their party. Because we became such an echo chamber, we felt that the world was revolving around us and that we could just invite people in, but we have to go out to them.”
Photos By Jason E. Kaplan
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