As the author of the Beer Goggles column for MarketWatch, Jason Notte shares his insights on the $22.3 billion U.S. craft beer industry. Based in the craft beer hotbed of Portland, Ore., Notte often engages industry execs in conversations about the highs and lows of the business, both via his column and on Twitter, where he uses the handle @notteham. Earlier this month, Notte spoke with MiBiz about the state of the industry and where Michigan’s brewers fit in the national conversation.
States like Virginia and North Carolina have successfully lured West Coast brewers to invest in satellite operations in their states, largely from their presence at trade shows like the Craft Brewers Conference. What do you think of Michigan not having a presence there?
I’m going on record to say that the state of Michigan is foolish for not courting breweries and cideries alike. … You guys have an incredible craft beer story going on there in Grand Rapids. You’re this epicenter of the movement and have a bunch of places that want real estate just to get their tap handles in your town. (Yet) nobody is there representing your interests in Philadelphia at the biggest craft beer industry event. To have nobody there is ridiculous. … That’s infuriating and an absolutely toxic view of a growing industry in your state, and shame on them.
Some people still seem to pass off the craft beer industry as a novelty.
It’s becoming a strong economic driver for your state. For a state that really struggles with the public image of its business capability or even its ability to keep basic infrastructure inline, one would think that it would want to encourage that kind of economic development.
Last year, Perrin Brewing sold to Oskar Blues in a deal backed by Fireman Capital. How does PE money fit with the ethos of the typical craft brewery owner?
You’re starting to see more of that (Oskar Blues/Fireman Capital) model, where it’s a roll up and a private house that has a long horizon. I think you’re seeing a lot more private equity houses that wouldn’t have considered craft beer before looking at this and seeing how to do it, hiring veterans from the industry. … They’re able to speak the language and make brewers comfortable and make them realize that this isn’t just you giving away your life’s work. It’s going to be in good hands.
How do the acquisitions by Anheuser-Busch play into brewers’ succession planning?
AB just keeps picking up breweries but they’re picking up breweries whose credentials, to this point, have been unassailable. You can’t have people turn around and say, ‘Oh, this is all of a sudden swill.’ … They can’t buy everybody. They’re not buying breweries with cobwebs on them. They’re buying breweries with a lot of medals on their chest. You’re getting an idea and that’s a very finite market. They are an option, but they are an option for a very narrow view in the industry.
We’re hearing there’s a divide between veterans brewers and startups in terms of access to capital. What’s your take on that?
You’re getting some people who are telling me that money is cheap and that the banks are willing to play because they’re seeing the growth in the craft sector. You have other people who are still having a great deal of difficulty scraping together their initial investment. … I think the key things that are differentiating the two, the haves from the have nots, is personnel. Usually if there are business interests behind a startup, if there are people who are veterans of the industry behind startup, they tend to fare better. … You need a team. It just can’t be some guy who’s tired of life in a cubicle and opens up a garage and starts brewing with his buddies anymore. That market just doesn’t exist in many places.
Some local brewers told us they expect to see a shakeout of those who just got into the industry for the money. How could that play out?
There has to be passion behind the beer because that’s what makes the beer that’s worth talking about. You have professionals whose job is … not to own their own brewery, but … start a brewery, leave, and go to some other market and then leave. From a quality perspective, it will eventually shake out. Here in Oregon, you have a definite line of demarcation between the brewers that are progressing and the breweries that are just doing what it takes to get by and fill the ledger on a quarterly basis.
How do new brewers manage growth while still upholding customer expectations?
Honestly, these breweries have a decision to make. If they’re going to really go for it and their idea is to get bigger and start stacking chips and scaling and making money hand over fist, then they’re going to have to get out there on the off-premise market. That is just getting really full right now. If you don’t have a product that’s going to separate itself out there, you’re going to get creamed.
The Brewers Association delisted Founders Brewing Co. as a craft brewery after it sold a 30-percent stake to Mahou San Miguel. Does the craft label mean anything now?
It means what it always did. It is a business delineation. … It’s never a statement on the quality of the beer. … Everything has gone through these kinds of organic changes, and if you’re asking yourself this of brewers acquired by AB, you now have to ask this about every brewery of that size right now. Is it craft to be bi-coastal? Is it craft to have a giant export program? These are all questions craft drinkers and certainly people who were handing out the designation now have to ask themselves.