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Wednesday, November 14, 2007

They're Already Calling it WidHook

It's not every day that the two biggest breweries in the Northwest join, and the news has kicked off quite a bit of chatter and speculation. Given that these two breweries long ago threw their lot in with the Evil Empire (Anheuser-Busch) for distribution rights, a lot of that chatter is derisive. The nom de moment: WidHook.

So far, there's not a whole lot more news to impart, though John Foyston has a nice recap in the Oregonian today. That leaves us with speculation and rumor, the blogosphere's stock in trade. So with that, I make haste!

Background
RedHook, founded in 1982, and Widmer, founded in 1984, are two of the founding breweries in the craft beer movement. Both were among the first wave of breweries in Seattle and Portland in the early 80s, and their histories are somewhat similar. Both had big designs, and both expanded rapidly in the first decade of craft brewing. Both also over-extended themselves in the mid-90s, looking to become mid-sized regional breweries just at the moment that the market shook out; in addition to a brand-new plant in Woodinville, WA, Redhook opened up a New England plant for East Coast distribution. When the market dried up, breweries had to scramble to avoid bankruptcy (many didn't). To stay competitive, both threw their lots in with Anheuser-Busch, offering a minority partnership for rights to A-B's vast distribution network. (Redhook, a public company, announced their deal--it was a 25% share to A-B. Widmer, which is private, has never disclosed the deal, but it was assumed to be similar.)

It worked; they survived the shake-out and grew into healthy regional breweries. However, neither has become a national brewery like Sierra Nevada or Boston Beer. And so you see how we have arrived at the merger: national distribution, joint marketing muscle, a second wave of double-digit growth in the craft brewing segment.

Local Versus National
It seems like the Northwest would be the ideal place from which to build a craft-brewing empire. The local market is the best in the country: 11% of the beer consumed in Oregon is craft-brewed, compared to 3.5% nationally; Portland is the single biggest consumer of beer in the country while Seattle is third. Widmer and Redhook have strong local constitencies, which gives them firm footing to grow. But here's the interesting thing about that base: to the extent a beer is perceived as non-local, it falls out of favor with Oregonians. Washington drinkers are far less parochial, but in Oregon, the Widmers have been suspect since signing up with A-B. The brewery will have to navigate the next few months and years carefully to avoid being seen as a sell-out to national interests.

The Widmer Brothers know this, and they have spent the last decade as one of the most community-engaged breweries in the city. With Kurt Widmer taking the reigns of the new joint and the brewery and label staying in Portland, local loyalty probably won't falter. An interesting moment, though.

Corporate Beer
With some notable exceptions, it seems that as Northwest craft breweries get larger, the beer gets more corporate. That is, more mainstream and less daring. Consistency is prized over innovation. This strategy must have some numbers behind it, because so many breweries do it. The logic is a little funny though: the beer is tailored for people who aren't avid beer drinkers. Both Redhook, with its so-so ESB and Widmer, with its bland Hefeweizen, have long trawled these waters. However, as a model for growth, the theory seems flawed. Sierra Nevada and Boston Beer both brew outstanding, non-corporate beer. Surely Boston Beer's main success comes from Boston Lager--outstanding if appealing to a mainstream audience--but the brand is enhanced by the huge variety of off-beat, aggressive, and esoteric seasonals. It will be interesting to see what Widhook's first new beers look like--we'll be able to tell, in the short term anyway, which model they've adopted.

Small Breweries
I don't think this will hurt small breweries in the Northwest. For the most part, growth for Widhook will come in new markets nationally. That's not a bad thing--any drinker who's switched to ESB or even Hefeweizen from Bud is a victory. There are larger areas of the country where good beer isn't available. Now Bud trucks will arrive at grocery stores with Widmer. No one who loves Roots Epic or Deschutes Obsidian Stout or even Terminal Gravity IPA need worry that this will affect their faves. There are too many people with developed palates who like these strong, characterful beers. If Widmer and Redhook start brewing beers like that--well, that would be all right, too. But I'm not going to worry about that just yet.

So: yet another merger, but not a symbolic one, I don't think. Widmer and Redhook have been kindred spirits for years. This doesn't immediately look like a Pyramid-MacTarnahan's merger, where two waning breweries clutch at each other to survive the cold market. In other words: meet the new brewery, same as the old breweries.

2 comments:

Patrick Emerson said...

I am fare less sanguine.

http://oregonecon.blogspot.com/2007/11/beeronomics-widmer-and-red-hook-merger.html

dr wort said...

These "Soul Selling" mergers can be the downfall of craft brewing...

Nice article Jeff!

Seems some of the locals have a mistakenly "Rosey" view of this merger.

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