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Wednesday, January 23, 2013

Heading in Opposite Directions, MacTarnahan's and Breakside

We begin today's post by turning it over to the economist Joseph Schumpeter:
The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.
The truths of Schumpeter's observation (referred elsewhere, delightfully, as "Schumpeter's gale") are evident in the fortunes of two breweries, both with big news out this week.  The first comes from one of the shining new stars of the Oregon brewing scene: 
New Breakside brewery/taproom opens Jan 30.  From nanobrewery to microbrewery with a 30 barrel system in three years, Breakside Brewery’s new location is proof the craft beer producer has no intention of slowing down. The new 7,000 square foot facility opens Wed., Jan. 30 just behind Bob’s Red Mill in Milwaukie and features a tasting room with 24 taps. 
The second from one of the aging veterans of the first days of craft brewing (no link):
An exciting change for Portland’s beer scene is quickly taking shape. The company that brews the beloved MacTarnahan’s Amber Ale and other craft beers is going back to its original name and will once again operate as Portland Brewing Company, beginning in February 2013.
Schumpeter's thumbnail description nearly perfectly describes what's going on here.  American brewing has, in the aggregate, been very good for new breweries in the last 30 years.  But despite the overall health of the herd, there have been some pretty spectacular die-offs.  Indeed, when you look back at that first decade of microbrewing, you see how the game turned out to be  high-risk, high-reward.  When you look at the largest American breweries today, among those founded after 1980, most of the largest were founded in the late 70s or 1980s.  Early success gave those breweries a huge advantage.  You see that in Oregon, too, where the biggest breweries--Widmer, Deschutes, Full Sail, and Rogue--were all founded before 1990. 

But it was also high risk.  Breweries like Pete's Wicked skyrocketed and then collapsed.  Others, like Portland Brewing [MacTarnahan's] and Pyramid stumbled badly after the market re-set in the mid-1990s.  Redhook and Full Sail are two examples of breweries that nearly went the way of Pete's but finally flourished, but Portland and Pyramid fall into a separate, depressing cateogry, sort of like zombie breweries.  I have no idea how much beer the newly re-olded Portland Brewing makes, but if it weren't for that gorgeous facility they have, the brand would have died a long time ago.  Brands are fungible; brewing plants retain their value. Two months ago we learned that in yet another buy-out, Portland would be acquired by a Costa Rican company. That's not how Art Larrance and Fred Bowman drew it up when they founded the brewery 27 years ago.

Contrast that with the more modest risk/modest reward ventures of post-shakeout craft breweries.  They're among the safest businesses to start (at least in Oregon), and few fail.  On the other hand, most don't get huge, either.  Ninkasi is the rare example of a quickly-growing new brewery, and I'd put Breakside into that category.  Going from three barrels to thirty is a huge jump--rare in the 21st century.  Collectively, though, the dozens of small breweries create quite a force.  They are "revolutionizing the economic structure from within, incessantly destroying the old one." 

Is rebranding enough for a brewery dependent on a generation-old amber ale?  PBCo (as the employees used to call it) are reviving the elephant-themed IPA from the old Alan Kornhauser days, but is an IPA enough?  It sure doesn't seem like it.  What are you more excited about, Ben Edmunds' next concoction or a new "brand" from a tired old brewery?  The gale blows...

11 comments:

Anonymous said...

Zombie brewery?...seems more like zombie writing! Maybe you just don't understand the beer industry or just general buisness 101.

Jeff Alworth said...

Do enlighten me, oh brave anonymous one.

Frank White said...

Big fan of the Breakside guys, but I think you're premature in lumping them in with Ninkasi. Buying a bigger system than you need isn't the same as selling a boatload... Breakside might get there, but it hasn't happened yet.

Sanjay R. said...

I think Pyramid has done a pretty good job of rebranding and reinvigorating their lineup in the past 18 months. I expect the NAB folks are attempting to copy the same playbook for PBC. We'll see if it works.

Agree with Frank. Breakside is great, but I wouldn't group them in the same category as Ninkasi. They need to get their beer into Freddie's first. :)

Pete Dunlop said...

Your bias toward Breakside and Ben Edmunds is well-known...and I give you a pass because I think they create some fantastic stuff. The significantly larger brewing system won't get them to Ninkasi's level. That's because it took more than good beer for Ninkasi to get where it is. They developed some ingenious marketing concepts and partnerships that expanded their reach outside Oregon. Their brand-building efforts have required enormous investment. Is Breakside on that wavelength? I suspect not. I suspect their growth model is different. But I don't have a crystal ball and I don't know every damn thing, so who knows. As Sanjay says, seeing Breakside on shelves in Freddy's would be a nice baby step.

As for the rebranding and buyout of Portland Brewing (or whatever it is), this is a brand in steep decline. Changing the name doesn't change the reality.

Jeff Alworth said...

Breakside doesn't brew as much beer as Ninkasi and I didn't mean to suggest it. Just that the growth spike is impressive and that it contrasts sharply with poor PBCo. over the past three years.

Anonymous said...

The question is there are many new or upgraded breweries who have built for large capacities without the sales. Ninkasi has built what? 3 or 4 breweries to catch up with their demand. The capital investment for a Worthy, Goodlife, Breakside, etc. is huge for virtually no sales. I don't wish them ill, but it's going to be interesting seeing how it all shakes out.

B-Dub said...

I worked for Portland Brewing Co. (PBCo.) for almost 4 years. In that time I never saw them take any risks in brewing. In fact they had us bring the IBUs down in Macs. They are a castrated bunch of marketing lackeys. That brewery has all the potential of making some of the country's best beers, but the risk takers in the marketing dept feel better in the bunny slops of ambers and pales dumbed down to post micro level than what the country expects from a non-macro. If that brewery took the pad filter off line, dry hopped a beer or two and made a statement beside "I am bland and boring because marketing sucks," it could and would make a stand as one of the best breweries in the country. Sad to see one of Portland's first breweries go down in slow flames because marketing was poor and weak.

B-Dub

Nelson W said...

So to your comments about advertising to young people vs old people, it's pretty basic marketing strategy to aim at the 16-45 age bracket. You can mess with the ages on both sides of those numbers, but you get the idea. By the time people hit 45 they are likely not changing their basic habits.
I am not trying to be smarmy but the point needed to be made. I love reading your work.

Jeff Alworth said...

Nelson, that's really my point. Mac's/Portland has never been especially adept at that, and this move looks like a nostalgic glance backward, not a step into the future. It's why Breakside makes such a sharp contrast.

Steve Armbrust said...

I know the Gigantic folks got famously upset when asked whether there were too many breweries in Portland, wondering why no one asks if there are too many restaurants. But perhaps there are enough now that brewery longevity or riskiness may be more like the average restaurant than the safe bet it used to be. Just as foodies might have gotten tired of Genoa and migrated to Le Pigeon and other newer spots, beer drinkers might now migrate from Mac's and Bridgeport to Breakside and Ninkasi and Gigantic. If you don't stay vibrant and current, you could be history. Even today's star breweries need to keep that in mind.

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