Where the Big Breweries Are
Chris Furnari broke some pretty big Oregon news yesterday in Brewbound: longtime Rogue Ales head Brett Joyce is stepping down as president. Brewbound tracks executive moves closely, and they are usually total yawners. This seems far more significant. Brett’s dad founded Rogue 30 years ago and it has always been helmed by a Joyce. An ex-Nike guy, Jack Joyce imported the lessons of sports gear to selling beer, for better and worse, and that approach has always guided Rogue’s thinking. Their branding suggested the revolutionary elements early craft brewing launched at big beer, but in many ways the brewery was non-normative within craft beer. The new president Dharma Tamm, is currently the General manager, but was formerly a vet of ABI’s High End and would bring, I’m guessing, a more orthodox approach.
Dharma Tamm/LinkedIn
Rogue was always out of step with its contemporaries. While other breweries thought small, Jack Joyce launched Rogue with the idea of taking it national as soon as possible—which he did. Other little breweries had homey branding, the garage-band counter to big beer’s corporate pop. But Rogue was always highly branded in a way that was decades ahead of most other breweries. Those decisions allowed it to thrive in the 90s, when the market was immature, but other decisions prevented the kind of growth breweries like Widmer and Deschutes enjoyed. The national approach meant ignoring the home market, and steep prices and a stand-offish attitude alienated locals. (It’s the 42nd largest US brewery but isn’t even in Oregon’s top ten.) Once volumes stopped growing, Rogue scrambled to retool its approach, getting into farming barley and hops and diversifying into spirits and cider. Its products tilted to the outlandish, and the brewery embraced weird collaborations. Outside the NW, where its portfolio is less well-known, it took on the reputation of a very old-school brewery that made gimmick beers. (Locals know there is much more nuance in the line, even if they don’t want to pay a 25% premium to enjoy the better beers.) I have no special insight into Rogue, but this new hire would seem to be a repudiation of past thinking and an effort to find growth by using a new approach.
That got me thinking. What follows is a bit of an exploration of where Oregon’s big breweries are now. They are pretty typical of national breweries of similar sizes, with unique challenges in every case. What follows is suggestive of why this tier of breweries is suffering so sharply in the new market, which favors local, variety, hops, and novelty.
Rogue ales
Flagship: Dead Guy Ale (1994)
Footprint: 50 states
Oregon Sales: 15,749 barrels in 2017 (11th)
US Rank (all breweries): 42nd
Ownership: Independent
Comments. In the Brewbound story, Chris mentioned that Rogue tumbled from 117,000 barrels in 2014 to 98,000 last year—and I suspect the tumble continues apace. It’s also very hard to make money when you’re selling your beer nationally—the margins are bad, it’s inefficient, and management and sales are a nightmare. No one would set it up this way today. On the other hand, Rogue has also set up one of the most interesting operations, with estate-grown barley and hops, along with their cider and spirits business. They also have a number of great pubs, but they’re underutilized because they’ve so badly alienated Oregonians with off-message branding and high prices.
Update. It also occurs to me that Rogue is one of the more acute victims of the collapse of 22-ounce bottles, which gave them the margins to sell nationally that they are surely losing now.
Deschutes Brewery
Flagship: Fresh-Squeezed IPA (2010)
Footprint: 29 states
Oregon Sales: 68,729 (1st)
US Rank: 20th
Ownership: Independent
Comments. Deschutes is the best-selling beer in Oregon and Washington, though it lost 15,000 barrels in Oregon in 2017. It has the advantage of managing to introduce a new flagship to replace 80s-era stalwarts, but in the half-life of craft beer, even Fresh-Squeezed is looking long in the tooth. Plans to build an East Coast brewery are simmering on the back burner, but unless sales pick up again, it’s hard to see how it pencils out financially. Deschutes is clearly one of the strongest brands nationally, but it has been a little lost in the last two years, and is looking for clear direction.
Craft Brew Alliance
Flagship: Kona Big Wave (1995), Widmer Hefeweizen (regionally, 1986)
Footprint: 50 states
Oregon Sales: Not available (2nd)
US Rank: 12th
Ownership: AB InBev holds a minority share and may buy the company outright
Comments. Because of Kona, CBA is one a very strong position nationally. It’s one of the few brands that’s growing, and there doesn’t seem to be any sign of slowing down. A couple years ago, the company, now lodged in Portland’s Widmer facility, acknowledged this by launching a “Kona Plus” strategy. The Redhook and Widmer brands are in freefall, though CBA does seem to be making a real push to bring Widmer back into relevance. The specter of complete buy-out hangs over the brewery, however. In that instance, Kona would become a key brand in the ABI portfolio, but it’s unclear what would happen to other brands or the now-aging brewery in Portland.
Full Sail
Flagship: Session Lager (?) (2005)
Footprint: 28 states
Oregon Sales: 26,345 barrels (6th)
US Rank: 39th
Ownership: Encore Consumer Capital, a private equity firm, bought out the company’s ESOP in 2015
Comments. Full Sail is an oddball. Founded in 1987, it had a major flagship in Amber Ale (basically a pale ale with more caramel malt) and a strong hops-focused lineup. Then it launched Session, a pale lager that recalled the Northwest’s regional breweries of the 1970s. At this point, the brewery has gone all-in on what has become a Session line, and the Full Sail beers are an afterthought. The brewery seems to be running the way you’d expect private equity to run it, focusing on branding and mainstream tastes, presumably with the goal of boosting it enough to sell for a profit. (That bet looked a lot smarter in 2015 than it does now.) It’s not clear what happens if the Session line falters.
Ninkasi Brewing
Flagship: Total Domination IPA (2006)
Footprint: 12 states
Oregon Sales: 48,679 barrels (3rd)
US Rank: 48th
Ownership: Independent
Comments. Ninkasi had perhaps the steepest growth curve of any NW brewery—you’d have to go back to Widmer for a similar pattern. Constant growth led the brewery to build a big, beautiful facility in Eugene, but right about the moment they christened it, the growth went bust (it topped out at 100k barrels but dropped back to 92,000 last year). They’ve had strange leadership changes, with founding CEO Nikos Ridge leaving in 2017 and returning this year. They would seem to be well-positioned, with a hop-heavy portfolio, but they’ve suffered in their transition from the wunderkinds of brewing to old stalwarts.
I present all this as a thought experiment. Seeing Rogue make a pretty serious shift in direction made me wonder about where Oregon’s other big breweries were and what they were doing. If you had to choose one of these breweries to compete in the market, which would you select? Do you see prospects for revitalization in any of the breweries currently in a slide? What would you tell the boards if they asked you what they should be doing next? And, since it’s topical, what do you make of the Rogue decision? There are 50-100 breweries nationwide who are in situations similar to the ones above, and these questions are being asked daily at every one.