by Tom Acitelli
Brooklyn | 1995
It was like a scene straight out of Goodfellas. Two big limousines pulled up in front of a construction project in a gritty, isolated area of Brooklyn. Somber, serious men in bulky overcoats got out as the construction workers scrambled for cover. In heavy Brooklyn accents, the men from the limos asked to speak to “the man in charge.” That man was Steve Hindy, the construction super told them, but he was out to lunch. That was OK, the men said; they could wait.
The construction project was for the new Brooklyn Brewery. Hindy and Tom Potter’s operation by 1995 had made a leap that other contract brewers routinely talked of making though rarely did: creating a physical brewery to take over a large chunk of production. They had found an old warehouse space in the Williamsburg neighborhood of Brooklyn, which, a century before, had served as the nexus for the city’s brewing industry. The neighborhood, although it would in a few years become synonymous with hip (in no small part owing to the Brooklyn Brewery), was then far from fancy, which was why Hindy and Potter were able to plant their flag there. They had looked first in Manhattan. Through real estate agents, they sized up an old jazz club in Greenwich Village. The original estimate to build out the space into a brewpub was $3 to $4 million; Hindy and Potter showed the estimate to Milton Glaser, the legendary graphic designer who had been given a stake in the brewery in exchange for designing its logo. Glaser told them it would cost almost twice that much. The pair abandoned Manhattan for their brewery’s namesake borough.
And why not? Brooklyn resonated as a brand in itself the world over. Hindy especially knew the borough’s reach from his former life as a foreign correspondent. A friend of his from the New York Times had been seized without any press credentials by the Palestinian Liberation Organization during the 1982 Israeli siege of Beirut. A hooded interrogator asked him where he was from. Brooklyn. What street? Flatbush Avenue. What was the name of the baseball team that left? The Dodgers.
“You seem to know something about Brooklyn,” the Times reporter said.
“Yes, I live there,” the hooded interrogator replied.
The brewery space that Hindy and Potter found in the fall of 1994 was actually across the street from the windowless, gas-heated office they were using to coordinate the distribution and marketing of the now more than eleven thousand barrels annually being brewed at F. X. Matt in Utica. What looked like one red-brick building was actually an old matzo factory over three smaller, adjoining ones totaling around twenty thousand square feet and including a five-thousand-square-foot space with twenty-five-foot ceilings and no columns: a perfect brewhouse. Hindy and Potter arranged a five-year lease with an option to buy the space for $1.1 million. The landlord included the option to buy only reluctantly: there was a sense in the mid-1990s that New York City was changing for the better and that the right kind of business in a space like this could really do well—for itself and for the neighborhood.
Deal in hand, throughout 1995 Hindy and Potter, along with brewery staff as well as the contractors and subcontractors, planned and renovated the space. The partners were careful of cost overruns, like those sustained by Matthew Reich’s old New Amsterdam brewpub in Manhattan. The costs, however, did run away from Hindy and Potter at times: new floor drains, $13,000; a new sidewalk, $20,000; new wood beams in the crawl space to support the brew kettles and tuns, another twenty grand. It was a common refrain in brewery build-outs. Still, the construction work heralded something big for the area, and that’s what the papers wrote about—and the somber men from the limos read about.
The overcoat-clad men wanted to wet their beaks through unionized construction jobs. They leaned on the brewery for a sit-down, and Hindy obliged them for what turned out to be a solo meeting with the boss of the Brooklyn building trades union and several of his associates. Hindy kicked things off by telling them his life story, emphasizing his experience covering wars in the Middle East. He then suggested going somewhere for lunch. The boss suggested they go to the brewery’s warehouse. The warehouse didn’t have enough chairs for the boss and his associates, so Hindy said he would fetch more.
“No,” the boss said, “at our meetings, the old men sit and the young men stand.”
Fair enough. The boss, Hindy, and a union secretary sat down. Hindy began to weave his life story into the brewery’s story, highlighting the challenges he and Potter had confronted: the self-distribution, the skeptical investors. He found himself talking about his foreign-correspondent days again. The union treasurer, a plump guy with a shaved head who was standing while Hindy talked, interrupted.
“Yeah, yeah, yeah. We’ve heard enough of this bullshit. We’re here for one thing: J-O-B-S, jobs. You built this brewery without us. The first brewery in Brooklyn in a long time. That’s an insult.”
The boss cut him off and let Hindy continue. Finally, the boss looked him in the eye. “Look, we don’t want to hurt you.”
The blood drained from Hindy’s face.
“I don’t mean physical stuff,” the boss said. The blood crept back. “We don’t do that. We have lawyers. If we put a picket around your project, no one will come near it. If we put the word out in Brooklyn, no one will unload your products.”
“My project is almost complete,” Hindy replied. “I’m on a very tight budget and I think you would be destroying a company that will bring jobs and goodwill to Brooklyn.”
That set the treasurer with the shaved head off again. He demanded a meeting behind some nearby pallets stacked with beer—without Hindy. Which was fine with him. His shirt was soaked in sweat; fresh doubts about the brewery galloped through his mind, now alongside what the boss might make him do. No-show jobs? What would he say to that? What could he say to that?
The union members reemerged. The boss walked up to Hindy, still in his chair, and grabbed the inside of his right thigh, his face inches from Hindy’s. “We’re going to have to hurt you.”
Hindy stared back, trying not to show fear. Then the boss grabbed his shoulders and shook with laughter. “Just kidding!” Everyone else laughed.
“Look, we’re going to leave you alone. But if you expand this brewery, or build anything new, we have to be in on it.”
Hindy nodded.
“And,” the boss went on, “we want you to come to our Christmas party; bring your wife, and take an ad in our journal.”
Hindy could live with that.* The Brooklyn Brewery was back on, about to ride—as both a driver and a passenger—not only the American craft beer boom but also the renaissance of the nation’s largest city and consumer market.
*It turned out the brewery had, in fact, been employing union construction workers; it was just that the unions did not have enough work for them, so they took the brewery job on the side. (Per Hindy and Potter, Beer School, 171-72.)
ATTACK OF THE PHANTOM CRAFTS
Denver; St . Louis | 1994-1995
More people than ever, from the mob to the media, were paying attention to the American craft beer movement, and that included Big Beer. The wider industry had spent a generation ignoring it or, at best, treating it as a fad. The number of barrels produced by the largest breweries only grew, after all, through the 1980s as the number of breweries shrank dramatically. With market share increasing and competition decreasing, why fret some dreamers in sneakers in their rented warehouse space and glorified speakeasies? It wasn’t arrogance on the part of Big Beer; it was charts and graphs that showed clear trends through decades now—no matter how clever, creative, or just genuinely better tasting the craft start-ups were. For all the Sturm und Drang of the already storied sector, it still accounted for less than 3 percent of US beer sales by the 1990s.
Then 1992 rolled around. The productivity levels of Big Beer rolled back; the charts and graphs were no longer going inexorably upward. There were different causes, not least of which was the recession of the early 1990s and renewed competition from imports. It was around this time, too, that Big Beer turned to more aggressive marketing overseas, including i
n the recently liberated nations of Eastern Europe no longer behind the Iron Curtain. More than anything, it appears Big Beer simply overdid it with the domestic marketing and advertising and in the end ceded ground or lost it. Top industry analyst Bob Weinberg called the period from 1991 to 1995 “the brewing industry’s Vietnam,” when Big Beer could have enticed more consumers but instead stuck to what seemed tried-and-true measures. “I don’t know why the industry doesn’t aggressively campaign for intelligent drinking,” Weinberg told a reporter. “Less than half of the people who can drink legally, do. None of the brewers do this, however. They go after the twenty-one-to-twenty-four-year-olds instead, and that’s just preaching to the choir.” The advertising, so potently effective in the 1970s and 1980s, seemed to have run its course, and the overseas market was not going to pick up all of the slack. Where to next?
The name conjured up something ruggedly American: a wild, untamable animal; mountains meant to hold possibilities; a way away from cities and toward something new. In the spring of 1994, Anheuser-Busch debuted its Elk Mountain Ale, a red ale intended to compete, at least according to reports, with Coors’s Killian’s Irish Red, unveiled at the first Great American Beer Festival in 1982, and Miller’s Leinenkugel Red, spun from the Wisconsin regional that it had taken over in 1988.* But there was something about the earnestness with which Anheuser-Busch hawked Elk Mountain: its debut was pushed up several months, moving from the back burner at the St. Louis headquarters to “priority” status. Some in the industry said it was because August Busch IV, great-great-grandson of the brewery’s cofounder, had recently ascended to the top marketing spot. “This one is his,” one insider whispered. “As August has moved up, so has this idea.” Others pointed to something more prosaic: Sales of craft beer had taken off, as had sales of specialty lines by other Big Beer brands. Killian’s sales were up 60 percent in 1993 and trending upward again for the new year. Miller took note, too: its Leinenkugel and the Coors brand were going head-to-head in national advertising campaigns, competing to convince consumers which was “the better red.”
This new competition was no fad. Coors debuted in March 1994 its first-ever line of seasonal beers, including a wheat and an Oktoberfest; ripping a page from craft beer, the giant was doing little to no advertising for it, instead emphasizing in media coverage the styles themselves and what set them apart from the usual watery lagers. Anheuser-Busch, as it introduced Elk Mountain, was also raising Red Wolf, its first-ever red lager, set for release that fall; according to marketing, it got its color from specially roasted barley malt that added a “subtle, sweet taste.” Miller had already rolled out what it primly called its Reserve Amber Ale and Reserve Velvet Stout. There was even a Rolling Rock Bock. It was all a far cry from “Head for the Mountains,” Rodney Dangerfield bowling, and “Great Taste, Less Filling.”
Craft brewers noticed this furtive imitation. After being ignored or dismissed for so many years, it appeared that Big Beer was trying to elbow in on their consumers by mimicking their styles and techniques—and by charging a premium: the new beers were priced slightly higher than Big Beer’s traditional fare. And they weren’t bad, either, richer in taste than the usual bastardized pilsners. “The big breweries are quite capable of making excellent beers,” said Bert Grant, founder of the nation’s oldest brewpub and a former brewer at Stroh’s, at one of the Great American Beer Festivals at the time. “They did make excellent beers,” he clarified. Others were not so sanguine, seeing what came to be called “phantom micros” or “phantom crafts” as a particularly insidious—and ingenious—threat in the marketplace. “It definitely makes it more competitive out there,” noted an ever-diplomatic Charlie Papazian at the same GABF. Ken Allen, a chiropractor who cofounded the Anderson Valley Brewing Company in Mendocino County, California, in 1986, pushed it a little further when a reporter from San Diego broached the subject: “We’re much smaller than David—and they’re much larger than Goliath. ‘The King of Beers’? They want to be the despot of beers.” The whole situation was a tad ironic: by ignoring it for so long, Big Beer had allowed craft beer to develop without undue influence or downward pressure; now, during its biggest growth spurt, the largest breweries sought to co-opt craft beer by pretending to be what craft beer had been when they were ignoring it.
Phantom crafts were not initially big sellers for Big Beer. They did succeed, however, in muddying things enough to take a bite out of craft brewers’ market share. Simply put, consumers didn’t know what they were drinking unless they read the fine print on the packaging. The phantom crafts followed tried-and-true formulas, including homespun labels, names that evoked some sort of back-to-the-earth ethos, an emphasis on ingredients, a painstaking care in the brewing process—in other words, everything but the reality of craft brewers. Given their dominance in distribution already, Big Beer was able to also plant these labels in front of more consumers, especially on retail shelves. While light beer remained the sales leader for Big Beer in the 1990s, it was only a matter of time before one of these phantom-craft brands did break out. That brand was Coors’s Blue Moon.
Blue Moon was born in a brewpub behind the right-field stands at Coors Field in Denver, home of the Colorado Rockies. It was there that brewmaster Keith Villa, who studied brewing at UC-Davis and then earned a PhD in brewing and fermentation biochemistry in Brussels, devised the recipes for a string of beers that Coors broke off into what it called the Blue Moon Brewery—as in “once in a blue moon,” a nod to how unique the Big Beer operation knew Villa’s efforts were. Coors saw to it that Villa’s beers got a wider audience. The first Blue Moon beers, rolled out in the fall of 1995, included a Belgian-style wheat ale spiced with coriander and orange peel, as well as what the company called Honey Blonde, Nut Brown Ale, and Harvest Pumpkin Ale, meant to be a seasonal. While the earliest incarnations were served at the Coors Field brewpub, the 1995 rollout involved twenty-two states; six-packs of Blue Moon showed up virtually overnight in grocery stores from New York to Colorado. It was a flexing of distribution muscle that no craft brewery—not even Pete’s Brewing and Boston Beer—could hope to compete with in terms of scope and speed.
The beers were an immediate consumer hit, and distribution spread within two years to all fifty states. “Coors” did not appear anywhere on the packaging; for all a prospective consumer knew, here was another entry in that burgeoning craft beer field he or she had heard or read so much about lately. The label for the wheat ale, the most ubiquitous of the new line, showed a big, bright moon looming above a bucolic forest and, beneath it, BLUE MOON BREWING COMPANY. The beer from inside the bottle was not bad, either. One guide noted, “It’s heartening that American drinkers have taken to Blue Moon, since it decidedly does not taste like typical American beer offerings. A moderately soapy coriander nose with slight sour notes wafts from the glass, and the palate is floral, gently malty, with light bitterness.” (The same guide’s verdict on Coors’s flagship pale lager: “A light, sweet nose smells vaguely of white wine, but who swirls and sniffs Coors?”) Blue Moon seemed to have it all from the get-go: widespread distribution, consumer enthusiasm, and critical praise. Taken at face value, the Blue Moon Brewing Company could be considered to have overtaken Pete’s Brewing as the number two craft operation in the United States by the end of the decade, second only to Boston Beer.
Its success with consumers sent purists like Bert Grant into paroxysms of frustration, though what really drove them nuts was that, for all its success, Blue Moon, like any of the other phantom crafts from any other Big Beer operation, was not really important to Coors’s bottom line. The critical and consumer attention was all well and fine, but no one was going to close up shop if a Belgian-style wheat or an ale infused with pumpkin flavor didn’t succeed in the marketplace. Pete Coors, the brewery’s CEO and great-grandson of its founder, sat down with Modern Brewery Age for a long interview in the fall of 1997, two years after Blue Moon’s debut. Here was how he saw things visà-vis “the specialty arena” of American be
er: “We will continue to play in the areas where there is industry growth, and where we see opportunity. Frankly, in the specialty market, when you take out Sam Adams and Pete’s, it’s pretty small potatoes. It’s difficult for a company our size, that puts out twenty million barrels, to get too excited about fifty thousand or one hundred thousand or even three hundred thousand barrels of product.” But get excited they would.
*Anheuser-Busch owned a hop farm called Elk Mountain, hence the name.
“BUDHOOK” AND THE BULL BEER MARKET
Seattle; Portsmouth, NH; Frederick, MD | 1995-1996
The numbers were enough to stand out even in the 1990s bull market. On Wednesday, August 16, 1995, the Seattle-based company had its initial public offering at seventeen dollars a share. Trading on the NASDAQ under the symbol “HOOK,” the company’s share price climbed steadily by ten dollars within the first six months as millions from the IPO poured into its operating coffers, and it was able to pay down millions more in debt. It seemed to be following the well-trodden (and well-covered) path of other IPOs in the decade’s bull market, including a seemingly ceaseless stream of Internet companies. But the Seattle firm was no Internet start-up. It had begun life thirteen years ago in an old transmission shop as the Independent Ale Brewing Company, with a signature product called Redhook Ale, what the locals quickly nicknamed “banana beer” because of the spiciness provided in large part by a Belgian yeast strain. This, the first Initial Public Offering by an existing American craft brewery, was what had the market agog—and investors like Anheuser-Busch interested.
The biggest Big Beer operation of them all, which a year before had taken a 25 percent stake in Redhook for $18 million, had pumped in another $9 million to maintain that stake, which was the largest single chunk of shares—nearly three times that of the second-largest investor, GE Capital, a financial services wing of General Electric. The IPO was underwritten by investment houses Smith Barney, Montgomery Securities, and Piper Jaffray. Redhook emerged from the process valued at more than $111 million; more immediately important, it generated $33 million and change for operating costs, including expansion; and, finally, the IPO allowed the brewery to reduce its long-term debt by $3 million. It also made the brewery’s founders some tidy bundles. Paul Shipman, the one-time wine salesman and discoverer of that key Belgian yeast strain, made $986,000 from a dividend payout tied to the 6.7 percent stake he owned, which was worth well north of $6 million; and Gary Bowker, the writer who had been behind the original Starbucks as well, made $369,000 in dividends on his 4.2 percent stake. Other Seattle-area investors also made hundreds of thousands upfront on similar single-digit slices.