Market Power

On the Minneapolis Taproom Ordinance

With the stroke of a pen Wednesday morning, Minneapolis Mayor R.T. Rybak cleared the way for local brewers to start serving beer straight from their breweries. 

“We’re making it easier for Minnesota beer drinkers to drink Minnesota beer and create jobs here,” Rybak said. “Sales of pints on site will also grow the local beer economy by lowering the barriers for entry for new breweries, which will allow them to hit the ground running. And it complements Minneapolis’ burgeoning local food economy that is creating new businesses and even more jobs.”

Story here.  I agree it will make it better for the local economy, but I don't buy the jobs angle.  The ordinance will improve the local economy because the brewhouses want to have the taproom and beer drinkers want to sample the fare at the plant, so to speak.  It gives both sides more freedom and both sides will be better off.

But on the jobs angle, who is going to visit the taprooms - locals or non-locals?  How many non-locals would have come to Minneapolis anyways?  My guess is that most of the tap room visitors will be folks from the Twin Cities area (not just Minneapolis) who would have spent time in Minneapolis anyways.  In that case the ordinance would simply redistribute economic activity rather than create it

But I like the ordinance because it gives people more freedom of choice.  I just disagree with the jobs angle.

Assorted Links on Beer

Here are a couple of links on beer.

Ironman has a short post on a new beer glass that is apparently safer in those inevitable beer fights.

IPA's are not just uber-hoppy pale ales any more.  Apparently, calling a beer an IPA is synonymous with being hoppy, meaning that the beer doesn't have to actually be "pale" (i.e. golden).  Yes, Virginia, apparently there is such a thing as a Black IPA.

Of course some brewers just use the term "India" rather than use IPA to tell consumers the beer in the bottle is hoppy.  I think I prefer the use of the term "India" even though the 19th century English, to my knowledge, didn't ship anything other than hopped-up pale ales to India to quench the thirst of their soldiers stationed there.

I recently brewed a hopped-up cream stout.  I used Kent Goldings hops which are a silky-smooth hop with candy-like flavors, a hop that IMHO compliments the creaminess of the stout.  I suppose that I could call it an India Cream Stout.

A Whopper of a (Proposed) Alcohol Tax Increase

From the Sonoma Valley Sun:

A measure that would raise the excise tax on a 750 ml bottle of wine from 4 cents to $5.11 has been cleared for circulation by the Secretary of State. Proponents can begin collecting the 433,971 signatures needed to put the initiative on the November ballot.

The measure would push the tax on a six-pack of beer from 11¢ to $6.08, and raise the total tax on a 750 ml bottle of distilled spirits from 65 cents to $17.57.

The wine country in California is already hurting as I described in this recent post.  This, if it passes, isn't going to help that industry recover.

Via Craig Depken who correctly thinks this will drive more people to make their own at home since the ingredients are probably subject to a typical sales tax.  Moreover, for those, like me, who have made the requisite investment in homebrewing equipment and who have climbed the learning curve, it's already cheaper* to make their own beer.  A tax like this only makes homebrewing even cheaper in relative terms.  So what's next, a big excise tax on beer and wine ingredients too?  If so, that would mean a hefty tax on things like honey, oatmeal, and coffee which are common ingredients in some craft brews and also on wine ingredients like grapes.

*The ingredients for a typical batch of yielding two cases of craft brewed beer costs me about $25 - $30 for ingredients after tax and about 5-6 hours of my time spread over two or so weeks.  But like I said, I've already made the equipment investment and climbed the learning curve.

Assorted Links on the Craft Beer Market

Iowa brewers received the blessings of the distributor lobby and will now be able to sell beers with alcohol contents of up to 15% ABV.  Now Iowa brewers will be able to sell barleywines and imperial stouts among other strong ales and lagers.

While the market for craft beers has seen strong growth as of late, the market for brew pubs in Houston, Tx. has been flat.

Markets in everything:  personalized beer labels.

Reviving ancient beers:  "The Indiana Jones of Beer."

You've got your traditional European-style beers:  German, Czech, English, and Irish.  But what about Italy?  A rosemary ale? 

"Cincinnati beer landmarks risk being erased."  Plus one well-known craft brewer gives a hint about what is driving the premium beer market while the market for premium wines is slumping.  Hint:  it's not your parents' premium adult beverage.

In Wausau, Wi., local brewers are creating special brews for sale to help raise money to fund improvements and maintenance of the local town square.

Josh Rubin of the Toronto Star writes about Sam Adams' Boston Lager.

Why is Canning a Relatively New Phenomenon in Craft Brewing?

Canning is a relatively new phenomenon in the craft beer industry.  Why did it take so long?  If you said "demand and supply", go get yourself a bottle - or can - of your favorite brew.  If this simple explanation is, well, too simple, then check out this article in Examiner.com.  It offers a deeper explanation about the aspects of demand and the aspects of supply that drove small brewers to package their fare in bottles until recently.  I linked to the article in the update to an earlier post on premium wine vs. premium beer, but later thought it deserved a link in its own post.

In My Netflix Queue

Now that Missouri has been swatted out of the Big XII men's basketball tournament by the 12th seeded Cornhuskers of Nebraska, I have a little time to spend on other forms of entertainment.  One of the movies I plan to watch via Netflix is Beer Wars by Anat Baron.  It's available on Netflix in streaming form.  Here is Anat's IMDb profile.  Here is a trailer to the movie.

Premium Beer vs. Premium Wine

I've recently written some posts on the craft brewing industry relative to the macrobrewers like InBev-owned Anheuser Busch and MillerCoors.  While the cheaper macro brews have been hurting as of late, the more expensive craft brews have seen remarkable growth.  See here, here, here and here.

Here is another article focusing on the brewing industry along the Front Range of the Rocky Mountains, particularly the Boulder and Longmont, Co area.  Like their counterparts in other parts of the country, they have seen their business, and their industry, expanding.  Most of the numbers reported by the author, Alicia Wallace, for the industry are the same:  overall beer sales in 2009 were down 2.2% and the sales of imported beer fell by 9.9%.

But Wallace notes:

Last year's performance by 1,508 craft brewers outpaced that of 2008, when 1,459 craft breweries reported increases of 10.1 percent by dollar sales and 5.9 percent by volume sales. Craft breweries also gained a little more market share to 6.9 percent in dollar sales and 4.3 percent in volume sales,  the association said.

It's important to realize that growth rates depend on the size of the industry (or portion of the industry in this case) is a driver of growth rates.  The craft brew market is small which is partly driving the large growth rates.  But it's nice to see more brewers set up shop.  And talk about a competitive market!

Wallace writes about the canned craft beer market.  Most craft beers have been sold in bottles, partly due to a snob affect*.  But that trend has been bucked of late by brands such as Oskar Blues in Lyons, Co. and Surly Brewing in the Twin Cities of Minnesota.  The nice thing about canned beer is that you can take it to softball parks and other areas where cans are allowed but bottles aren't.  That opens up another segment of the market for beer.

Compare all this to the American wine industry where the premium brands, such as those in the Napa valley, are in a world of hurt (note the implicit attention given to derived demand).

Napa winery and vineyard loan defaults rose fourfold to 18 in the 12 months through January, according to San Diego research firm MDA DataQuick. In the survey by Silicon Valley Bank, whose clients are mostly high-end West Coast wineries, 71 percent of respondents said credit is harder to get.

The recession has set in motion a "secular change," with budget-conscious consumers trading down to less expensive wines, said Peter Kaufman, managing partner at Pleasanton' Bacchus Capital Management LLC, a private-equity fund that provides mezzanine, or short-term, financing to wineries.

The dollar value of U.S. retail wine sales dropped 3.3 percent to $29 billion in 2009 after rising every year and almost tripling from 1991 through 2008, according to Gomberg, Fredrikson & Associates in Woodside. Though consumption increased 1.9 percent to 323 million cases last year, people are buying less-expensive labels, the industry consultant said in a report Friday.

Sales of super-premium bottles - priced more than $15 - declined 10 percent last year, and those over $30, defined as ultra-premium, fell at least 15 percent, according to Rabobank Nederland NV, the Netherlands bank that finances agriculture businesses. Napa and neighboring Sonoma County are the top U.S. producers of premium wine, the bank said.

Also, see this article in Business Week.

All this raises an interesting question.  Why is it that the premium types of beer are selling like hot cakes at a time when premium wines are seeing their market contract?  I imagine that there is an InBev backlash in the beer industry.  In addition, the craft brew market is a younger market while the wine industry has reached some sort of maturity where the inefficient get weeded out.  Are government subsidies given to wineries, which tend to prop up the weakest firms in the industry, part of the equation?

A related question:  how are the wineries in atypical locations, like Minnesota and Iowa, faring these days?

Lastly, some of the wineries north of San Francisco, like this one in the Russian River Valley, sit on land that was once used to grow hops for beer.  Although it is easier said than done, don't be surprised if some of these struggling wineries can move some land to growing hops to help meet the demand for craft brews.

*Update:  here's some interesting information on why craft brewers have, until recently, stayed away from canning their beers.  Here's some information on why homebrewers don't can their beers (it's expensive).

Big Beer is Hurting Right Now

Beer sales were flat last year:

Anheuser-Busch InBev SA sold 0.7 percent less beer and soft drinks in 2009 during the economic downturn and says that global beer demand is neither growing nor shrinking.

Craft brewers are doing well, thank you very much.

The Market for Craft Brews in 2009

As I've written before, even though beer sales have been down in the US, the business of craft beers is doing very well.  Here is an article from the Boulder Daily Camera about various aspects of the craft beer market.  The author, Aubrey Laurence, notes that overall beer sales were down in the first 6 months of 2009 and that imported beer sales were down 9.5%.  But the sales of domestic craft brews was up 5% during the same period.

Not only that, but Laurence writes that there are more breweries in the United States than at any time in the last 100 years.  Of course, the US was barreling full tilt towards prohibition 100 years ago.  It took 100 years to get back to that point, even though we are nowhere near the breweries-per-capita levels of 100 years ago.

Since many craft brewers started out as homebrewers, we can also thank Congress and Jimmy Carter for passing a law in 1979 that explicitly allowed the brewing of beer in the home for personal use.  The feds forgot to add language that allowed beer brewing at home when they repealed prohibition.  They allowed for the production of wine, but not beer.  Sometimes I wonder if the brewing industry, in terms of the number of brewers and the variety of beers for sale, would have recovered more quickly had the feds specified that homebrewing was legal.

Here is a link to craftbeer.com, a website devoted to craft brewing that Laurence mentions in her article.

Schlafly's and O'Fallon's Brewing Expansion

Like it's competitor, Boulevard Brewing, 240 miles to the west in Kansas City, St. Louis' Schlafly brewing is expanding its operations to meet the growing demand for craft brews.  The addition of some new 200 barrel tanks to its primary facility has caused Schafly to hit capacity in that building, so they are in talks with other brewers, including Stevens Point Brewing in Wisconsin to have them handle some of their brewing needs.

And it's not just Schlafly's that's teaming up with Stevens Point Brewing.  O'Fallon Brewery, also in the St. Louis Metro area, has teamed up with Stevens Point brewing.