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Monday, December 17, 2007

Moves By Three Craft Brewers Illustrate Category Strength

Every day the craft beer segment evolves. At times it can be difficult to recognize exactly what the changes mean. Business conditions claim a victim here, two companies decide to merge to better compete there. A brewpub opens a new location, while another company signs a deal with a larger brewer to try to secure better distribution in return for reduced control.

Sometimes it is hard to figure out which of these moves are best for the companies or the craft brewing movement. In many cases, it might be years before we know for sure if the promise of the press release will be fulfilled.

In the last few weeks there have been a number of announcements. Three stand out in my mind as worth noting and commenting about.

Flying Dog Brewery Consolidates its Brewing Operations in Maryland: Flying Dog has been around a surprising 17 years. It is part of the Colorado craft beer scene, which is why some people raised a brow when the company acquired a brewing facility in Frederick, Maryland. The company expanded its distribution using the facility to the point where 70 percent of its beer was being made along the east coast. Now Flying Dog has decided to stop producing beer in Colorado. They will keep their headquarters in Denver, but Maryland will be the home of its brewing plant. Flying Dog explains it had to make the move because of the loss of some of its contract brewing volume and the fact that costs are going up at least 25 percent. Everything from hops to malt and energy to packaging is costing brewers more. The Maryland plant is more modern and flexible. The move makes sense for many reasons, including economics. However, one of the key elements that set craft brewers apart from their competitors is a sense of place. Flying Dog will always be a Colorado brewer in my mind, even if most of the Flying Dog I've enjoyed in recent years was made in Maryland. It will be interesting to see if the core customer base for the brand takes note of the shift and if it really matters.

Deschutes Brewery Expands Production Capacity: Deschutes Brewery is one of the best breweries in Oregon. When travel takes me on a rare trip to the western United States it is one of the brands I look for because they make high quality and interesting beers. A pint of fresh Black Butte Porter is hard to turn down. But Deschutes beer is hard to find. Now the company is adding about 40,000 barrels of annual capacity to keep up with demand. Hopefully, some of this new production will find its way east.

McNeill's Expands in Vermont: Ray McNeill started brewing beer in Vermont back in 1991. His brews have won some prestigious awards, but unless you were close to Vermont or made it to his Brattleboro brewpub, there was not much of a chance you would get to enjoy the beer. Now the company has a production facility under construction that will give McNeill's the space to increase production by 900 percent. McNeill has that quirky Vermont edge that is hard to put into words, but he makes some darn good beer.

The message of these three business briefs is clear to me. When companies that make high quality brews like Flying Dog, Duschutes and McNeill's are investing in new equipment and facilities it is a vote of confidence in the direction of the industry. Will some small brewers be hurt and go out of business because of escalating costs? Yes, but the reality is that the overall economic conditions will likely just thin the herd a little more quickly than would have taken place if times were good. The greater threat is the consumer. Will their appetite for craft beers continue to grow? Will they try some of the attempts at craft beers from the national brewers and decide that those brews are "good enough" so why bother with the stuff from small brewers? Will they shift in even greater numbers to wines and spirits, cutting down on the available share of stomach for beer? As they age will they drink less and less beer?

Those are the questions that will keep craft brewers up at night during the new year.

1 comment:

Al @ Hop Talk said...

Re: Flying Dog

If the comments at Hop Talk are any indication, the core customer base has noticed, and they don't like it.