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Hiring the Best Brewers
Schedule for Opening Day
Beer Across America 2007
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1999 CBC Safety Panel
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Road Trip Blog (for live reporting from the road).
Trip departure was June 4, 2007.
Return to Eugene was October 20, 2007.
Total Length of Trip was: 139 days (4 months + 19 days).

2008 - Economic Issues

Sent: Thursday, January 31, 2008 12:17 AM
Subject: Re: Economic Issues, Some Questions

I recently returned from a 5-month cross-country road trip where I visited 70 separate breweries. Macro economics is part of the business of beer and definitely has an effect. I watched June 2007's optimistic excitement of impending expansions slowly morph into a grounded pessimism over hops and malt availability and cost by September 2007. To answer Andy's specific questions:

Q: Is anyone holding off on any expansion/big ticket items to see what exactly will happen? Your reasons? How long will you wait?

A: From what I saw, only new start-ups seemed to be holding off and postponing building and opening. I think they will wait until malt and hop prices stabilize and become available again. Stainless prices were high and used equipment was hard to find. These folks will be re-running their numbers until the numbers pencil out. I think some may wait until used equipment prices come down in price, in order to offset the increased cost of raw materials.

Q: Do you see opportunities for growth even in an economic slow down?

A: Yes. The low dollar keeps the price of imported beer high and therefore competitive with craft beer compared to 1996-2003. Those who contracted their malt and hops early or who have economies of scale will fare the best if there is a recession, as they will be able to keep their beer prices lower than others who do not have those advantages.

Q: Does the economic situation coupled with the increase in beer prices due to hop/malt supply create a perfect storm in which people may turn away from craft beer to something less expensive?

A: What are the alternatives? With the dollar so low, it won't be imported beer. It may be the lower-priced mass-produced lagers, however long-time craft beer drinkers may not be able to switch completely. During the last 10-15 years, the manufacturers of mass-produced lagers (International mega-brewers) have been perfecting their craft knock-off beers. These bottled craft-alikes generally do not list the real name of the manufacturer, but list a quaint "Plank Road" type brewery name on the label. The craft knock-offs will probably not affect draft craft beer sold in pubs because a bartender is an effective beer tour guide. However, they may create serious competition in the grocery store marketplace because of lower price, excellent distribution, severe lack of beer stewards cruising the beer aisle, and the ability to stealthily sit on a shelf in the craft beer section and look just like a craft beer. Perhaps our best defense is a "drink local" or "know your brewer" campaign?

Q: Is beer recession-proof, as the saying goes?

A: Some beer is definitely recession-proof. The question is, which beers?

Q: If we do find ourselves in a recession which area do you think will feel it first, retail (brewpub) or wholesale (packaging breweries)?

A: Depends on the newness of the brewery, and whether or not they contracted enough malt and hops to get them through the bumpy ride. That said, a brewpub is a restaurant first. If a brewpub can't get raw materials, it will still be able to get beer. So a brewpub will be able to exist and function mostly as it was designed, although if it has to buy beer because the brewer did not contract raw materials, the brewer may be out of a job. A packaging craft brewery has only one function, and that is to produce and sell beer. Newer, and therefore less experienced, packaging craft breweries may have missed their opportunity to contract raw materials at a good price, and possibly may have missed their opportunity to contract altogether. If the packaging brewery cannot get raw materials, it cannot achieve its function and will cease to exist.

Please see the March-April issue of New Brewer for my trip report and prognostications in the article, "Across America's Beerscape."

Cheers, Teri

 


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