by Tom Acitelli
A few had exited already while the getting was good. BridgePort Brewing in Portland, Oregon, had sold itself to Gambrinus in the fall of 1995. Cofounder Dick Ponzi explained that it was either not expand and maybe even prune distribution, or expand with fresh investments that might mean giving up control of the company, or sell—pretty much the summation of choices all smaller craft breweries faced. The first choice would have likely spelled disaster for anyone as the industry heated up; the last two, on the other hand, proved much safer bets. Gordon Biersch, the brewpub chain started in Palo Alto, California, sold a controlling stake for $17 million to Fertitta Enterprises, a gambling and hotels company out of Las Vegas; the November 1995 sale allowed Gordon Biersch to expand at a time when founders Dan Gordon and Dean Biersch, who kept 30 percent of the company in the deal, had grown the chain to five locations.
The same year, in a deal fraught with inescapable symbolism, the largest winemaker in Washington State bought America’s oldest brewpub. The irrepressible Bert Grant—he of the vial of hop oil, the kilt, the Rolls-Royce with “Real Ale” on the vanity plate, the contention to critic Michael Jackson that the hoppy Scotch ale he brewed was a Scotch ale because Grant had been born in Scotland—realized that with craft beer really taking off, he needed to more effectively market his thirteen-year-old, twelve-thousand-barrel Yakima Brewing and Malting Company. According to him, marketing “was never my big suit anyway.” At age sixty-seven, Grant would stay in what he described as “anti-retirement,” remaining as brewmaster as new owner International Wine and Spirits anticipated quadrupling production while still limiting its distribution to the Northwest.
To drum up cash, Pete’s actually spent much of early 1998 looking to make similar acquisitions of smaller competitors when its investment bank, Morgan Stanley, came back with another option: sell. And the bank had a buyer: San Antonio, Texas-based Gambrinus, one of the nation’s ten biggest importers, had already saved the regional Spoetzl Brewery and had acquired BridgePort for its first foray into craft beer. It might have seemed to some a bit incongruous for the importer of Corona—the big Mexican brand that was a particular bugbear of Michael Jackson—to snap up the second-largest craft brewing company, whose beers had been the gateway drink for millions of craft beer geeks and had spawned not a few imitators. But Gambrinus made it worth a struggling Pete’s while: an affiliate of the importer offered $69 million in cash, or $6.375 a share, when Pete’s shares were trading at around $5.80. Gambrinus would keep Pete’s recipes—it would even keep Pete; part of the deal, closed in June 1998, was that Slosberg remain for two years as pitchman.
Slosberg was one of the shakeout’s graceful exits. So was Rhonda Kallman. The bar-savvy, twenty-something secretary turned beer mogul, leader of the industry’s most productive sales force who shared an office with Jim Koch until her final day in late 1999, was done. The last few contentious years had taken a lot of the fun out of the day-to-day work, and besides, Kallman had other opportunities she wanted to pursue.* As for Slosberg, he would remain a presence in craft beer, not only in those two remaining years at Pete’s and not only in America, but also by lecturing throughout the world, including in South America, which began taking its zymurgical cues from the States rather than from the Old World stalwarts like Belgium, Germany, the Czech Republic, and Ireland. Over the last thirty years, the student had become the teacher. American beer was now more diverse in style, bolder in flavor, and influential in experimentation than just about anything the European countries had produced or were producing. It was as if American craft brewers had compressed centuries of evolution into mere decades.
Michael Jackson noticed this shift earlier than anyone. Writing for an updated 1988 edition of his groundbreaking book, The World Guide to Beer, Jackson pegged it all—rightly—to that unique feature of American history, mass immigration: “Far from lacking in a beer culture, the world’s most cosmopolitan country is enriched by the traditions of all its founding nations. It made almost every type of beer before Prohibition—and is now beginning to do so again. The rediscovery of beer in the developed world is proceeding faster in America than anywhere else.”
American craft brewers, as we’ve seen, still largely defined themselves stylistically against their European counterparts. And though it would be easy to drift into a kind of obnoxious triumphalism—USA, USA!—it is important to remember that European countries faced their own brewing challenges in the 1990s. Aside from being part of nations sorting out their economies post-Cold War, German and Czech brewers were wedded to the Reinheitsgebot, the sixteenth-century German purity dictate that said beer could be comprised of only hops, water, and barley (yeast came later); it was no longer law but remained a very strong tradition. It was the same in Belgium, that tiny, big arbiter of style: save for the giant Interbrew, maker of Bass and Stella Artois, among others, tradition trumped the pursuit of explosive growth: why fix what had never broken?
As for Great Britain, it was undergoing its own consolidation wave: “The once gentlemanly trade of beer making has fallen prey to big business,” as the Birmingham Evening Mail delicately put it in December 1998. Nowhere was this more evident than when it came to that staple of British lore and life: the pub. A flurry of deals had by the end of the 1990s left the Japanese bank Nomura as the biggest owner of British pubs: more than fifty-five hundred, including 988 from the Bass estate acquired in a nine-figure deal in February 2001. By the start of the new century, fewer than 10 percent of the kingdom’s pubs were owned by breweries like Newcastle, the majority of the rest snapped up like so many securities by investment houses like Nomura. Such consolidation meant a homogeneity in draft beer perhaps unprecedented in the long history of Albion, thousands of supposed locals all with the same taps.
Something similar was happening in Ireland, though with a nasty twist of irony. The faux-Irish pubs that popped up throughout the United States in the 1980s and 1990s now dominated the real Irish drinking landscape; the nation’s National Heritage Trust estimated that by the new century there were only twelve to fourteen examples of authentic Irish pubs left in the capital and largest city, Dublin. Add to the fates of the pubs the fact that the number of breweries was rapidly decreasing—thirty closed in the United Kingdom in the 1990s—and you had the story of American craft beer in reverse.
More than anything, though, the old countries lacked the moxie of the new. Americans came at beer from all sorts of walks of life and with all sorts of ideas in hand. They brought panache and swagger, a jones for experimentation and a Manifest Destiny-like hunger to expand (sometimes too much so, as we’ve seen from the shakeout). Nowhere but in America could or would individuals from so many different backgrounds, with so many certainties as to the way to do things, have gathered as they did at the first homebrewers conventions or Great American Beer Festivals in the early 1980s or at the first beer dinner in that hotel basement in Washington a few years later or at myriad smaller events like the one Charlie Papazian and Jim Koch hosted in Denver in October 1999.
The Denver gathering was a blind taste test for seventy-five people at John Hickenlooper’s Wynkoop Brewing Company: five American craft beers versus five European imports. Four of the American beers trumped their European challengers. Koch, who had quickly recovered his own swagger after Big Beer’s assault, declared the results proof that “when you take away the fancy bottles and the hype of the import, then the best American craft beers are making better beer.” While most Europeans still saw American beer as Budweiser, Miller Lite, and others of that ilk, things had changed stylistically as much as they had changed financially. It was this zest for experimentation and evangelization that would power the American craft beer movement through the postshake-out years and into a fresh period of explosive growth. This time, though, as Koch noted at the Denver taste test, “We’re all in this together.”
*Kallman did reemerge in the beer world in 2001 with a short-lived Hingham, Massachusetts-based brewing company called New Century. Its signature bran
d, however, was a doomed caffeinated beer called Moonshot, which met with consumer indifference and government opposition.
PART IV
PLOTTING A COMEBACK
Atlanta | 1998-2000
If ever there was an appropriate keynote speaker for the Association of Brewers’s annual Craft Brewers Conference, it was Fritz Maytag, godfather to the entire movement. And if there was ever an appropriate time for Maytag to be that keynote speaker, it was during the shakeout.
When the conference opened on April 5, 1998, in Atlanta, the industry’s growth had skidded from double-digit percentages to barely single digits—it was just under 5 percent in 1997, according to the association. Dozens of breweries and brewpubs were closing up shop forever. Once the darling of Wall Street and many Main Streets, craft beer was now incongruous to the still economically booming America. Indeed, it was a particularly cruel twist of the knife that the larger national economy continued to do so well as so many craft brewers washed out. It was an era of cheap loans, swelling stock portfolios, and, as president Bill Clinton had been fond of reminding voters during the 1996 elections, the longest peacetime economic expansion in the nation’s history. Unemployment was below 6 percent, and the Dow was headed toward a previously unfathomable ten thousand (when it finally broke that ceiling in March 1999, traders literally popped Champagne and tossed specially made rally caps). The bull market that had lured so many of Generation X’s best and brightest to Wall Street seemed to have no end, no red flag, no matador with a knife to quiet things. For a while, craft beer was a part of that. Now everyone clamored for Pets.com; much fewer wanted an IPA.
Up to the podium in Atlanta stepped the man who started it all. Maytag was not a boisterous public speaker; he was plainspoken, even matter-of-fact, with wry humor not uncommon. He came armed this time with a ladder chart to punctuate a warning for his compatriots who were left:
At Anchor, we’re trying not to grow. Each vertical line is capital investment, and each of these leaps signifies a change in the nature of your company. Don’t assume that you should make every leap. Your company may not easily make the next jump, and you don’t necessarily have to try. Being small is a matter of choice. There is a chasm between levels, and when you make a vertical leap, you may fail before you get to profitable volume. Once you get to be a medium-sized brewery, your business will change. The wives won’t be able to come in and visit as much anymore.
It was sage advice, and Maytag himself followed it. After thirty-three years under his control, Anchor was producing one hundred thousand barrels annually, an impressive amount nearly double that of a decade ago, but still a relative pittance even within the movement. Anchor was distributing farther and wider than ever before, though, to several European countries as well as Australia, Japan, Canada, and Hong Kong. Its sales would total $10 million in 1998—again impressive, but again a relative pittance, especially stacked against those who chased IPOs a few years back.
Maytag’s advice was, of course, too late for many; and it’s unlikely it would have been widely heeded. “Small is beautiful,’’ as he put it at the conference, was simply not an axiom many in an industry that had been growing so explosively wanted to hear. Nor were they likely to heed Maytag’s call for beefier pricing, not when some brewers were discounting their brands to spur sales or to simply clear back inventory amid the shakeout. “Most of the wine in the world sells for two dollars a bottle. Quite a bit sells for four dollars to five dollars a bottle, and there are many that sell for ten dollars a bottle. Then you have wines that sell for three hundred dollars a bottle. What the world needs is a beer that’s worth five dollars a bottle. I think that would be great. If all beer prices are forced down to the level of Busch Bavarian, none of us will be here.”
There were bright spots amid the ruins. Some were simply symbolic, others much more portentous. As much as Maytag emerged amid the tumult to speak at the Craft Brewers Conference, Jack McAuliffe of the long-defunct New Albion emerged, too, in a way. Six months before Maytag’s speech, the Mendocino Brewing Company released a small batch of what it called New Albion Pale Ale to honor the twentieth anniversary of the first startup craft brewery in America. McAuliffe, who had long since left the movement, had no hand in the release, but Don Barkley, the Michael Lewis student who became New Albion’s first employee in 1978, and Michael Lovett, also an old New Albion hand, were involved through their ongoing roles at Mendocino. Two kegs were shipped cross-country to the Brickskeller in Washington, DC, where the first beer dinner had been held in September 1985 and which still boasted one of the biggest beer selections on the planet. The batch birthed a mild burst of remembrance of New Albion—the Brickskeller hosted a beer tasting for journalists—although McAuliffe remained a J. D. Salinger-like figure in the movement, reclusive and legendary.
As for Mendocino itself, freshly minted majority owner Vijay Mallya hit his first roadblock in establishing a national chain of craft breweries and brewpubs. Tiny Humboldt Brewing Company, a brewpub in Arcata, California, started by Vince Celotto and his brother Mario, a former NFL linebacker, rejected the Indian billionaire’s $1.7 million offer in December 1997. They decided instead to go it alone by expanding distribution into Southern California and lowering the price of their six-packs from $6.49 to $5.99. Humboldt would just outlast the shakeout and serve as a rebuke to the way things were going.
The same was true for Shipyard Brewing Company. Founders Fred Forsley and Alan Pugsley bought back full ownership of the Portland, Maine, brewery from Miller in April 2000, after four iffy years partnered with Big Beer. Miller’s 50 percent stake was supposed to infuse Shipyard with enough capital to grow well beyond the Northeast. Instead, production actually dropped, from 39,500 barrels in 1996, the year of the Miller partnership, to 25,300 barrels in 1998, as Shipyard pulled away from markets where it wasn’t selling as well, including nearby New York. Forsley and Pugsley recalibrated the brewery to focus closer to home with three-fourths of its distribution in New England—sales promptly grew by 10 percent.
Such recalibration was all the rage as the shakeout took its toll. Craft breweries once planning for national domination—or, in the cases of the much smaller ones, regional reach—now deliberately pulled back on their distribution and therefore their production. Maybe small was beautiful, as Maytag had said. David Geary of New England’s oldest craft brewery, D. L. Geary, put it this way: “The lesson is: Devote your time, your money and your effort to your core market, and you’ll be fine.” Geary’s own distribution covered the Northeast, a market with nearly fifty-five million people, more than most countries in Europe—plenty of potential customers there.
The same was true in other regions, especially ones where craft beer’s share of the marketplace might be much larger than its sub-5 percent share nationally. Gary Fish’s Deschutes Brewery cut distribution in Colorado and the San Diego area and discovered plenty of fans in the brewery’s northwestern backyard to pick up the slack. Seattle-based Pyramid Brewing and Breckenridge Brewing in Denver also cut back out-of-state distribution, as did a number of much smaller companies. Steve Hindy and Tom Potter’s Brooklyn Brewery happily distributed 80 percent of its thirty-two thousand barrels in 1999 in the New York City metro region, the nation’s largest consumer market.
About four hours’ drive to the north, a new brewery in Cooperstown, New York, served as the perfect example of the new local focus. Husband and wife Donald Feinberg and Wendy Littlefield ran the import company Vanberg & DeWulf, which brought Belgian brands like Affligem, Duvel, and Frank Boon to the United States. In 1996, they started Brewery Ommegang on 136 campestral acres of an old hop farm in Otsego County, New York. The brewery specialized in bottle-conditioned Belgian beers, and Ommegang’s brands quickly became whispered-about treasures as they inched their way farther and farther from the Birthplace of Baseball. The New York City tabloid the Daily News dutifully instructed readers in the summer of 1998 that Ommegang’s new golden ale, Hennepin, named for the Belgian discoverer
of Niagara Falls, “was only available in a few places.” At the same time, Feinberg and Littlefield deliberately made the brewery a local nexus, offering tours and tastings and using hops from Cooperstown’s Farmers’ Museum in a later ale called Centenniale. The couple were also perfect protagonists for media stories about the rise of Belgian-style beers in America in the late 1990s. This newfound enthusiasm for what would soon be known more widely as locavorism was the triumphant reemergence of one of the original conceits of the whole craft beer movement: traditionally made local beers you couldn’t easily get anywhere else. It slapped back on a level of romance that was lost amid the red-hot growth of the early and mid-1990s, as beer became more about product than provenance.
Another portentous event during the shakeout was the 1998 retirement of Henry King as the head of the Brewers Association of America (BAA). The move marked King’s departure from brewing in general, including a twenty-two-year run as president of the United States Brewers Association that ended in 1983, shortly before its dissolution. In retirement he was recognized rightfully—and belatedly, some said—for the positive impact he had had on craft brewers. Lost in King’s regular boosterism for Big Beer, including his chumminess with the likes of August Busch Jr. and his son, was the pivotal role he played in the 1976 tax change that helped keep costs considerably low for smaller American brewers, which spawned eternal envy among their Canadian counterparts.
As we’ve seen, that change, which had failed in one form or another in Congress several times over the thirty years before King lobbied it through, reduced the federal excise tax on beer from nine dollars to seven dollars on the first sixty thousand barrels, provided the brewery produced no more than two million barrels annually—not a problem for the earliest craft beer pioneers, who recognized King’s contribution a lot more keenly than later entrants. “There is no one that I have known in my business life for whom I have more respect,” Maytag would say a few years after King’s retirement, when in his early eighties the World War II hero was battling cancer. King again provided craft beer a stimulus for growth when he helped keep beer’s excise tax at seven dollars in 1990, when Congress doubled the regular one. To King, though, beer was beer was beer, and he often expressed a polite indifference to the craft beer movement. He reserved little sympathy for smaller concerns that couldn’t find distribution if they didn’t advertise, and he lamented the lack of institutional memory among the upstarts.