Small craft advisory: though the craft-beer industry hit some turbulence in the past, its top brewers see opportunities ahead - beer

Cheers, July-August, 2002 by Cheryl Ursin

The American craft-beer industry is not made up of your more typical corporate entities.

One major player, New Belgium Brewing, takes almost as much pride in its environmental initiatives as it does in the quality of its beer. For instance, the company operates the first wind-powered brewery in the US and recently completed its own wastewater treatment facility, which creates enough methane to power the company's brewery for three hours a day.

Another, McMenamin's Pubs & Breweries, which opened the first brewpub in Oregon in 1984, continues in the brewery-restaurant business, currently running 21 beer-producing restaurants, but has also started its own winery, distillery and several other restaurants and hotels.

And then there is Alaskan Brewing Company, located in Juneau, Alaska. Although the company sells its products throughout the Pacific Northwest, it has no road connections to the rest of the United States. Everything that goes in - supplies and equipment - or comes out - its beer brands - must travel by air or water. Everything, that is, except the spruce tips used in one of its newest products, a winter ale based on a recipe used by Captain Cook in the 1700s.

It is not surprising, then, that craft brewing industry statistics do not tell the whole story. "If you look at the aggregate statistics, you no longer get the picture," says Robert Weinberg, a beer-industry analyst headquartered in St. Louis, Missouri. "The aggregate numbers show no action, but there is action." These numbers, such as those compiled by the Institute of Brewing Studies (IBS), show slight growth. The figures from IBS show craft brews, beers produced by brewpubs, microbreweries, regional specialty brewers and contract brewers, up by 1.2% for 2001.

WHERE THINGS STAND

One thing that has been misunderstood about their industry, according to craft brewers, is the rather dramatic shakeout of players that started in 1996 and, some say, continues even today. "Nineteen ninety-six - ninety-seven was the first time the music stopped," says Dan Kenary, president of The Harpoon Brewery. "This is now a very competitive industry. Success doesn't just happen, unlike 1992 through 1995, when you could practically just throw beer out there and it would sell."

Bryan Simpson, spokesperson for New Belgium Brewing, agrees. "A lot of people got into the business for the wrong reasons. They thought it was easy money, he explains. "They got winnowed out. It was the market correcting itself."

Robert Weinberg, the analyst, explains, too, that growth statistics change as an industry matures. "The largest player, Boston Beer, has slowed," he notes, "but what happened was that, while it was rolling out nationally, it was doing spectacularly well, but once it had covered the country, it slowed down."

There are some idiosyncrasies in the statistics kept on craft beer as well. When asked where their companies ranked in size in the industry, many brewers quipped, "It depends on whom you ask." Some craft-beer statistics, for example, do not include contract brewers, companies whose brands are made, under contract, by breweries the company doesn't own. This would exclude Boston Beer, which contracts out part of its production and which, when included, is the largest player, with 1,130,000 barrels for 2001, according to Weinberg.

Paul Gatza, director of IBS, points out another blip. IBS does keep numbers on the amount of beer sold by contract brewers, but those numbers can show declines when the companies behind them are doing quite well. The reason? Often, companies start by contracting out their beer production but eventually open their own facilities, dropping out of the contract-brewer numbers and showing up in the numbers for either microbreweries (breweries that produce less than 15,000 barrels annually) or regional brewers (breweries producing between 15,000 and 2,000,000 barrels annually). 'This happens with several companies every year," says Gatza.

BREWPUB REVOLUTION

There is one part of the craft-beer market that is completely unlike the rest: brewpubs or brewery-restaurants, restaurants which brew their own beer and sell most, if not all, of it on-site. At the end of 2001, there were, according to the Institute of Brewing Studies, 994 brewpubs in the United States.

Brewpubs have been around since the beginning of the craft-beer market. Indeed, some of the major players in craft beer, such as Gordon Biersch and Deschutes Brewery, started out as brewpubs.

In the beginning, many brewpubs were tiny establishments that focused most of their attention on their beer, offering "pub grub" almost as an after-thought.

TIMES HAVE CHANGED

"Clearly, we are in the restaurant business," says Ned Lidvall, president of Rock Bottom Restaurants, which runs 34 brewery-restaurants, most of them called Rock Bottom. "We compete against other similarly priced casual-dining restaurants."

Other top brewery-restaurant operators agree. "Our food drives us. We market our beer, but we are a restaurant first," says Eric Anderson, marketing director for Ram International, which has 25 brewery-restaurants of varying names, as well as five non-brewery restaurants, in eight states.