Believe it or not, this is a great time to be invested in Central Oregon’s craft brewing industry, despite the fact that consumer confidence remains generally negative, the price of raw materials continues to rise, Oregon’s distribution companies are consolidating and it seems that many people, at least locally, are curtailing discretionary spending.
Yes, despite all of that sales of craft brews across the U.S. continue to rise.
According to The Nielsen Company, one of the largest providers of marketing information and audience measurement (as in Nielsen television ratings), beer sales are affected by the economic downturn the least of all alcohol-related products.
In fact, The Brewers Association, a Boulder, Colorado-based trade association representing a majority of the brewing companies in the United States, reports beer sales from American craft brewers increased 11 percent during the first half of 2008 compared to the same period in 2007 despite the inflated cost of ingredients.
The organization also reports that at the same time the volume of beer sold by craft brewers increased 6.5 percent to four million barrels, up from about 3.8 million sold through the first six months of 2007.
While those statistics reflect a national trend, local micro-brewery owners say that even though everything seems to be working against them business is up across the board compared to the last three years.
“It’s definitely a weird time to be a brewer because everything is going against us with the cost of grain, hops, gasoline and stainless steel all going up,” said Jeff Kennelly, the brewery district manager for McMenamins who oversees the Old St. Francis School in downtown Bend. “Hopefully everyone can make it, you never know, but I would guess that everything will be fine, especially in Central Oregon. It seems like craft brewing keeps going up and up and up (in Bend) because the general nature of Oregonians is to appreciate and support local breweries; as long as we stay local we will do well because of that.”
Against the grain
The current price of basic ingredients alone is enough to drive any brewer to drink. Hops have tripled since the beginning of 2007, up from $4 per pound to about $25 per pound, according to the Oregon Department of Agriculture (ODA). Malted barley has doubled in price, and everyone knows about the price of gasoline and how food distributors have to pass the higher cost of transporting goods on to customers and consumers.
Even what appears on the surface to be a positive for brewers – Oregon’s wheat farmers are experiencing a bumper crop in the Willamette Valley where 120,000 acres are being grown in 2008 compared to 30,000 in 2007 – is really negatively impacting their bottom line.
“The current economy is definitely creating challenges to procure the (ingredients) we need, and malted barley prices are going through the roof,” said J. Tyler Reichert, co-owner and founder of Bend-based Silver Moon Brewing. “Large brewery’s that use sugar sources other than barley probably don’t feel it as much. True beer uses malted barley as the only sugar source (maltose). If you’re throwing in rice-sugar, corn-sugar, cane, beet or any other sugar you’re saving a ton of money, and making something but it’s not beer. Silver Moon Brewing makes its beer from 100 percent malted barley. Barley prices are going up so we’re working on longer term contracts to ensure a reliable, affordable supply. It is crunch time for small breweries but the quality of beer we are making keeps our customers loyal and that is why Silver Moon Brewing is staying afloat. We serve great beer with a proud smile, every day.”
Nationally, news stories report that beer prices continue to rise at retail locations, but at least locally, what beer lovers are forced to pay for their favorite foamy fermented beverage is not on the rise, according to four of the seven local micro-brewery owners who talked to CBN.
“Right now the year-to-date price increases we’ve taken equal the cost increases we incurred this year,” said Gary Fish, owner and founder of Deschutes Brewery. “Cost increases are always a huge concern, and certainly the cost of food, fuel, raw materials, labor – everything is going up and exceeding the rate of inflation but those things cycle out over time as well.”
Interestingly, at the same time consumers are willing to pay more for some specialty brews, like Deschutes Brewery’s Black Butte XX ($10 per bottle), which typically sell from $4 to more than $100 per bottle.
“One way craft brewers are able to keep prices down at the tap is by pulling beers out of distribution that cost more to sell than they are worth,” said Wade Underwood, president and founder of Three Creeks Brewing Co. in Sisters. “Community-wise, I think a lot of us are starting to think about getting back to focusing on the local market.”
Community above competition
Observers might think seven local brewpubs naturally would compete against each other, especially during economic downtimes, to persuade consumers to pull up a stool at their bar over another’s, but that’s not the case at all here in Bend, according to industry insiders. Locally, everyone does what they can to help each other out to the point of sharing ingredients in a pinch when a fellow brew master may be running a little short.
“Out there in Central Oregon getting supplies can be difficult,” Kennelly said. “We’ve had to use grain or hops from the Deschutes Brewery, the Bend Brewing Co. and Silver Moon Brewing when we get caught without something we need faster than we can get it from Portland. A lot of breweries down there exchange yeast, especially during Octoberfest, use it and pass it around. It really helps down there since Bend is not close to any (distributors).”
Fish agrees with Kennelly, saying his company regularly invites other breweries to bring beers to industry events where Deschutes is a highlighted craft brewer.
“We’ve tried to be as open as we can with everybody across the state,” Fish said. “That kind of community exists in Central Oregon and beyond. Nationally, craft brewers have four percent of the market divided between 1,400-or-so companies. We’ve developed some good friendships and alliances that exist outside of that competitive environment.”
Underwood says that having seven craft brewers with headquarters in Central Oregon means better beer choices for locals and for people visiting the area and that helps the word get out about the quality and standards applied to the beer-making process in Bend.
“Of course I would prefer that people drink a Three Creeks brew, but I’m just as happy to see people come to Central Oregon and try out a Deschutes brew, or have a beer produced at the Cascade Lakes Brewing Company, or better yet spend a week here doing a brewery tour,” he said. “This is a real supportive market and it’s better for everyone when any single one of us gets any type of exposure outside of the region.”
As of late, the number of tourists tapping into Central Oregon has declined, and when the number of visitor’s dwindles so does the amount of revenue taken in by local restaurants, which includes six of the seven local brewpubs – Wildfire Brewing is the only micro-brewery that doesn’t have its own restaurant/taproom.
According to the Central Oregon Visitor’s Association, in June the City of Bend realized an 8.8 percent drop in room-tax collections, a key indicator of tourism prosperity, although for fiscal 2007-08 Bend finished with a 3.7 percent overall increase.
The larger micro-brewery operations, like McMenamins’ Old St. Francis School, which has 98 employees to help operate its destination hotel that is complete with classrooms-turned-lodging rooms, a pub, brewery and bakery, a movie theater, private meeting and event space and a Turkish-style soaking pool, have other revenue streams to help absorb changing market conditions.
“From our perspective we are not changing anything we’ve done,” Kennelly said. “We have so many things going on in our company with hotels, movie theaters – there are so many different revenue streams that we haven’t really raised our prices or done anything differently as of late, but I will say this: for a long time beer was a bigger source of profits than it is now.”
At the same time local micro-breweries, like the Silver Moon Brewery, have had to increase their price at the tap by about 50 cents per pint to offset the rising costs of ingredients and transportation, but for the most part everyone says they are not experiencing a decline in sales or revenues.
“When your prices go up 400 percent for hops alone you have to do something if you want to continue earning a living,” Reichert said.
A toast to the future
So, as the tastes of consumers continue to change and the costs of ingredients and distribution continue to increase, even the stalwarts of the U.S. brewing industry are looking for ways to increase revenue, and many are doing it through consolidation. For instance, Anheuser-Busch was purchased by Belgian company InBev SA – that’s right, Budweiser is no longer American made – and Miller Brewing Co. and Molson-Coors Brewing Co. are merging their U.S. operations.
On the other end of the spectrum the micro-brewers continue to take more market share away from the giants as consumers continue to redefine their definition of a good beer. According to The Brewers Association, craft breweries experienced 17 percent growth across the board from 2006-07, pulling in a total of about 7 percent of all U.S. supermarket sales – a $9 billion market. And in 2007 throughout the U.S. there were a total of 1,420 craft breweries – 53 regional craft breweries, 392 micro-breweries, and 975 brewpubs.
The Brewers Association says it’s not a fad either, and that it is not sure how much the craft beer market will continue to flourish, but as the magic 8-ball used to say, “All signs point to yes.”
Maybe a micro-brewery in every town isn’t such a ridiculous idea. After all, between Bend and Sisters there are seven existing side-by-side. Perhaps one day Oregon will be recognized for beer the same way California is recognized for wine.
Events like this year’s fifth annual Bend Brew Fest, held last weekend (August 15-16) do wonders to bring attention to the local micro-breweries. It delivers a well-promoted event that offers a great variety of beers and brewers for the Bend, or visiting, beer connoisseur to enjoy in one spot. It allows a large number of people to try out locally-made brews and see which ones they like best, and it gives local companies the opportunity to talk to customers and give them more insight into their beers, their brewery and how they operate.
And it’s not bad for drumming up new business either, something that seems to be an expanding theme for Central Oregon’s craft breweries.
“It’s a great occasion to meet local restaurant and bar owners and introduce them to our (products),” Reichert said. “We supply our beer to many restaurants and bars in the area for them to offer on draught. There are still a few who’ve yet to experience our line up so we want to get them (to taste some) too.”