The Captain's Chair

Craft brewers are continuing to slowly win the hearts and minds of beer drinkers in the U.S., one triple-hopped pint at a time.  

The latest mid-year numbers from the Brewers Association in Colorado — the craft beer industry’s trade and education association — were fairly encouraging, with both sales and barrel volume seeing single digit growth so far this year. Compared against the same period in 2008, those metrics dipped ever so slightly. However, in this economy, I’d read the relative stability of those numbers as somewhat of a victory.

They don’t break out mid-year numbers by state, so no specific info on Minnesota, but a few other highlights:

• The number of U.S. breweries is the highest in 100 years because of small and independent  craft brewers.
• America’s small and independent craft brewers are still growing despite many challenges and are continuing to provide jobs to the U.S. economy.
• Dollar growth from craft brewers during the first half of 2009 increased 9%, down from 11% growth during the same period in 2008.
• Volume of craft brewed beer sold grew 5% for the first six months in 2009, compared to 6.5% growth in the first half of 2008.
• Barrels sold by craft brewers for the first half of the year is an estimated 4.2 million, compared to 4 million barrels sold in the first half of 2008.

 Read the full release here.

Planning to serve an osso bucco or vichysoisse at your next dinner party, and confused on what style of beer will best bring out all the flavors? Well, your prayers have been answered.

The good folks over at GreatBrewers.com have come up with a really intuitive, easy-to-use tool to quickly help match base ingredients with specific beer styles. According to the site:

“The Beer Sommelier graphically displays more than 250 unique dishes, which are categorized by main ingredient. Once you select a dish, the Beer Sommelier will recommend the best beer complements ranging from the more than 140 styles recognized by the Brewers Association.”

As a subscribing member to the site, you can even take it a step further to see which beer styles are available in your neighborhood, and use the beer finder feature to map the closest bars, restaurants, and beer stores that currently stock that item. The tool was developed in cooperation with Eric McKay, creator of GreatBrewers.com, Garett Oliver, esteemed brewmaster at Brooklyn Brewery, and the legendary late beer writer Michael Jackson.

And if you’re planning a vichysoisse, try a doppelbock or dunkel weizen. Magnifique.

Wanted to pass this along, an open letter from Mark Stutrud, CEO of Summit, regarding the proposed state legislation on the table to increase excise taxes by 144% on Minnesota brewers producing more than 25,000 barrels per year. In financial terms, that means brewers will have to pay $11.21 in tax on every barrel they sell to a distributor above and beyond the 25,000 barrel threshold instead of the current $4.60.

I don’t know about you…but if the legislators have their way, I see a prohibitively challenging environment for breweries to thrive in this state that could potentially spell the significant erosion of what is currently a growing craft beer industry and culture. Call it a penalty for success…because any brewer who grows enough to produce 25,000 barrels annually will start getting hit with this exorbitant tax. If I’m a Surly, Flat Earth, Brau Brothers or any other brewery under that threshold, I’d be very interested in this legislative outcome if my business plan includes visions of growth.  

Oh, and did I mention they’d also like to double the existing retail sales tax on alcoholic beverages? Nice.

Also check out Mark’s op-ed in the St. Paul Pioneer Press for additional context.

_________________________________________________

Dear Friends and Family of Summit Brewing:

It is time to take some action. As you know, many members of the Minnesota Legislature are planning to increase excise taxes and retail taxes on beer and other alcoholic beverages. The most recent attempt was House File 885. This bill was vetoed by Governor Pawlenty before the fishing opener. However, Legislators are working on a veto override and are determined to raise revenue through the consumption of beer.

This proposed legislation is described as a “dime a drink” tax. Sounds affordable, doesn’t it? I would consider erasing the State deficit by leaving a dime at the bar each time I ordered a beer. But this political position (read “spin”) is not straightforward or true.

First, most legislators or citizens do not really understand or recognize the significant amount of taxes that breweries pay today. Summit Brewing Company’s gross sales for 2008 were $15 million. Paid federal and state excise taxes totaled $1.04 million. This level of taxation represents 7% of the brewery’s total cost!

So, let’s compare this 7% cost of tax to other operating costs. Packaging, our largest cost, is 22%. Labor, with benefits, is 11%. Utilities and energy are 5%. You have read about the cost and availability of hops and malt. Our cost of raw materials, as a percentage, has increased from 11% to 17% over the past two years. This dramatic increase in cost has battered margins and profitability. The brewery projects sales of 88,000 barrels for 2009. Assuming that 88% of the company’s sales would be in Minnesota, the level of sales would be 77,000 barrels. Therefore, a tax base of 52,000 barrels is calculated considering the state excise tax exemption for the first 25,000 barrels sold.

The proposed legislation containing a 144% excise tax increase would mean a tax jump from $4.60 to $11.21 on every barrel of Summit beer, bringing the company’s annual state excise taxes from $244,000 to $594,000. Federal excise taxes would be $924,000, totaling $1.52 million paid taxes. Projected sales for 2009 are $16 million. Total excise taxes would become 10% of the brewery’s cost – almost the same cost as labor! Can you think of any other industry that is taxed to this extent?

This 144% increase on state excise tax would eliminate the brewery’s projected net profitability for 2009, 2010 and 2011. The brewery’s growth would cease, projected new employment would be eliminated, cash would be diverted away from capital expenditures and operations would contract to survive.

It is obvious that we cannot simply pass off these increases to you and other Summit drinkers.

And by the way, the 25,000 barrel per year tax exemption mentioned above, known as the “small brewer’s tax credit” is being spun. Legislators are stating that “small” brewers will not be harmed by this proposed legislation because of the tax credit. These legislators are simply honoring an existing tax exemption.

Secondly, these federal and state excise taxes are marked up twice. The taxes are a part of our price to the beer distributor as they pick up Summit at the dock. The retail account, restaurant, bar or liquor store, purchases the beer at wholesale. The retail account adds their margin to cover their costs before you buy that 12 pack of Extra Pale Ale. And finally, retail sales tax and an additional retail tax on alcoholic beverages are put on your tab. This is why excise taxes are described as hidden and regressive. Again, most people do not think about the taxes paid by the brewery. And most people do not think about these taxes as being marked up and taxed again!

Third, this legislation proposes to double the rate of the alcoholic beverage retail tax from 2.5% to 5.0%!

Does this still sound affordable to you? According to the Star Tribune and other media, 80% of Minnesotans support tax increases on beer, wine and liquor. I believe that the majority of Minnesotans do not understand the full picture. It is vital that you contact your legislators and educate other Minnesotans on what is going on.

Some other thoughts to share with your legislator: 

• Minnesota is currently taxed higher than our neighboring states of Wisconsin, Iowa, North Dakota and South Dakota.
• Almost 40% of the retail cost of a beer in Minnesota is tax.
• When the U.S. government doubled the rate of excise tax on beer in 1991, 60,000 jobs were lost in the brewing industry and the related industries.
• 65% of beer consumers earn less than $45,000 annually.
• Excise taxes affect the middle to lower income individuals the most.
• The proposed increase of excise taxes on beer unfairly targets a single industry. (Neo-prohibitionists actively support these efforts.) 

Take action now:

- Sign the petition

- Talk to your legislators ( click here to find their contact info )

- Join the Facebook group Minnesotans Against the Beer, Wine and Spirits Tax Increase

- Follow this issue on Twitter.

As always, thanks for supporting Summit beer.

Skoal!

Nice segment on KARE-11 last night profiling Surly. Really cool thread to the story is how involved Omar’s father is with the business, a true cheerleader for what has become a great Twin Cities success story. Two year waiting list for liquor stores interested in carrying their product? Wow. 

I couldn’t embed the video, so follow the link here to check it out.

Been reading some interesting posts on other blogs lately (here and here*) talking about Greg Koch at Stone Brewing and his efforts to turn more people on to craft beer in the face of corporate conglomerates selling Bud, Miller and Coors.

I think Greg’s overall point, which he attempted to make as a panelist on the recent Beer Wars live Q&A and during his speech at the Craft Brewers Conference in Boston, is that if people took a more active role in their consumer choices and considered the quality of the ingredients in their beer and the passion of the people behind the beer, that most would change their minds on drinking the macro stuff. This is the same general argument espoused by other highly respected craft brewers such as Garrett Oliver at Brooklyn Brewing (i.e. “real bread” vs. “bread in a bag” analogy).

However, some critics have called this message “elitist”, “insulated” and “self-absorbed,” largely based on Greg’s comments during the CBC speech that characterized BMC drinkers as “wusses” and the same kinds of people who prefer white bread, instant coffee and Kenny G.

Now, I’m not interested in engaging in some kind of character assassination of Mr. Koch as someone who is doing irreparable harm to the future success of the craft industry, as I am certain his intentions are good. Rather, what I have been wrestling with, in particular since my viewing of Beer Wars several weeks ago, is whether or not this approach really makes the most sense, assuming the goal is to get more people interested in craft beer.

I think one of the fatal flaws in Greg’s logic is the premise that if someone knew more about what goes into their beer they would instantly choose to drink craft beer. I know what a farmers market looks like, yet I generally choose to buy most of my vegetables and fruit from the local megagrocer. I’m the same way with cars…I own a Toyota Camry because it’s relatively inexpensive, fuel efficient and will hopefully get me from Point A to Point B. I’m not preoccupied with its overall performance and handling, or whether or not it was built by an expert mechanic in Germany who REALLY loves making fine cars. When it comes down to it, I frankly don’t care that much about that particular purchase (well, to a degree, until I’m stranded on the side of the road and late for work). But that’s me, and my consumer choice.

And like most people who drink BMC, I don’t really think they care much about the kinds of criteria Greg is talking about either. Perhaps beer is not an important enough portion of most people’s budget, diet, or daily thought process that they invest the time to truly consider the value of their purchase when compared to other life decisions such as, say, where to send your kids to school or which doctor to see. For folks like Greg, whose world is in large part defined by the craft industry, it’s clearly an important choice to make. And for me, a guy who bases my dining decisions on what kind of craft beer is on tap at a particular restaurant, it’s also an important choice. But not for most. The general population tends to drink what they know and are familiar with. For some, it takes too much brainpower, time and research to make a switch in beer preference.

The obvious argument here is that it’s somewhat of a self-fulfilling prophecy…the macro brewers have had such a strangle hold for years on both the three tier distribution system and the mass media channels to pump out their watered down message that there’s hardly a chance consumers would even know the difference. The broader consumer palate has been trained for years that bland is good, and they’re not interested in beers brewed on a smaller scale that tend to be a little more bitter than your average can of Bud. But even if we had a more level playing field, I think the vast majority of people walking into a liquor store still wouldn’t say to themselves “I’m going to select this beer because it’s produced locally and isn’t made with corn adjuncts.” Greg calls these people “dispassionate consumers,” but in today’s society (maybe to our detriment) that’s what seems to win out, convenience and familiarity.

I think it could be the same reason why chain restaurants like Applebees thrive on a larger scale while smaller independently-owned restaurants that only use locally produced ingredients are only going to have a niche appeal. Sure, there’s certainly going to be a market for these small establishments (and they base much of their differentiation on this point), but just like the craft industry, I don’t know that they’re ever going to enjoy broader appeal compared to dumbed down versions of their product. Maybe that’s a defeatist (or realistic) attitude, but when it comes down to it, the craft segment really is a specialty category, and will likely be that way for some time to come.

As a PR practitioner, I think it’s a matter of perception, positioning, and how you want to go about waging this “war” to get more people interested in craft beer. I look at Greg as someone who has incredibly noble intentions as a passionate advocate for the craft beer industry. However, some of his comments lead me to believe he is staunchly focused on the David vs. Goliath argument, making a bogeyman out of the macrobrewers and castigating BMC drinkers as “fizzy yellow beer drinkers” who have yet to be touched by the craft beer message. Sam Calagione at Dogfish Head, on the otherhand, who was portrayed in the recent Beer Wars film as an equally passionate advocate for craft beer**, seems to be more interested and content in just making a really good tasting sling shot and hoping more Davids fall in line behind him. Call it the “push” vs. “pull” strategy of the craft beer world.

So am I an advocate for BMC offerings? Absolutely not. It’s garbage made by people who are more interested in creating shareholder value versus brewing a quality product. I love craft beer, spend probably too much of my time drinking/homebrewing/thinking/reading/writing about it, and hope for its continued success in this country. But I’m also not going to rub my friends’ noses in their light lagers next time I’m at a bar with them because it was mass produced in a gigantic brewhouse in St. Louis or Milwaukee.

* By the way, very cool of Greg to comment on that post. I think he’s a guy genuinely interested in furthering the craft conversation, even if it means he takes a little flak in the process.

** I’m well aware that Sam has taken up that same mantle to some degree and made his own public remarks of disdain about BMC, I’m not picking on Greg.

Brings a tear to my eye…nice work Greg.

Minnesota is known for its hockey. But the hockey stick-like growth chart representing craft beer sales in the state last year may make it more synonymous with quality beer.

While craft beer sales nationally were up about 6% last year according to the Association of Brewers, an article in the March issue of Twin Cities Business Magazine states year-over-year craft beer growth in Minnesota was a staggering 74.5% in 2008 thanks in part to strong efforts by several local breweries like Flat Earth, Lift Bridge and Surly.

Despite the tremendous uptick in the craft beer category, the state’s two largest brewers, Summit and August Schell, only saw relatively modest sales increases last year. This was in part due to rising commodity prices for ingredients, and because a more significant portion of their distribution is tied to local restaurant and bar sales (and in this economy, people are opting to save some money by eating and drinking at home). From the article:

“Bob DuVernois, head brewer at Great Waters Brewing Company, a brewpub in St. Paul, says Great Waters sales are slightly down from January 2008 to January 2009, but it doesn’t seem to trouble him. ‘In general, people aren’t going out so much, but they are still going out—they’re just going out more economically,’ he says. Consumers are buying more local beer due in part to the rising ‘eat local’ movement, which places importance on eating and drinking food grown and produced near the end-users table, he says.”

I think all around, good news for craft brewers in the state, as well as craft beer drinkers that are likely going to be rewarded with more and more new offerings as the market matures. You have to think major craft brewers outside of the region like DFH or Stone are taking notice of the huge opportunity here.

Another great article, this time in the Small Business section of today’s Wall Street Journal, discussing the rise of microbreweries and brewpubs even during today’s lean economic times. Seems more and more people are turning to locally-produced, high quality craft beer instead of alternatives like wine or spirits, and smart entrepreneurs are recognizing the opportunity. Recent sales numbers from the Brewers Association seem to back that up.

The story highlights Metropolitan Brewing in Chicago, who I’ve been following on Twitter for a while (@MetroBrewing), as well as Cigar City Brewing, a start-up down in Tampa, Fla. Interesting to note that most of these folks raised somewhere in the neighborhood of $500,000-800,000 just to get off the ground with their breweries, even more if it’s a brewpub. Not a small sum when banks these days are more intensely scrutinizing business plans and distributors are balking at untested brands.

Pretty sweet promotion going on over at the Four Firkins right now for any Twin Cities craft beer afficionados interested in picking up what I’d consider to be one of the rarer styles around right now.

Between March 16 and 21, all you need to do is mention the Heavy Table – a new online magazine dedicated to giving folks in the Upper Midwest the latest morsels of food news, reviews and information — and you can be the proud owner of Malheur Dark Brut, a biere de champagne, for only $12.99. That’s nearly half off regular price. Not bad. 

From the Heavy Table article:

“Sensual notes of chocolate, ginger and coffee make this beer an ideal companion for dessert or a special celebration. And its 12% ABV and 750ml size make this bottle of beer more akin to a fine wine in terms of potency and size. … ‘This beer is a perfect example of what we are trying to do here at The Firkins, it’s one of the rarest styles in the world,’ says Jason Alvey, the shop’s proprietor. ‘It’s of outstanding quality and something most people will enjoy.’”

You can bet I’ll be in there, as I’m genetically incapable of passing up good deals on craft beer.