FEATURE // The Sipping Point

Why the West Coast craft beer industry continues to expand, despite the worst economic downturn in decades

Story by Chad Walsh

There was always ambrosia. And peaches. Canned, crescent-wedged peaches preserved in a thick, translucent, sugary syrup. There was a time, not too long ago, if you lived in the Midwest or even in parts of the South, that peaches only came in cans. Just like peas, and olives. And corn, unless it was summer, in which case fresh ears could always be fetched from the market. And, increasingly, beer came in cans, too,
but it still mostly came in bottles. It didn’t matter which because it always
tasted—reliably—crisp, cold, and vaguely yellow. And no one seemed to notice, not because they didn’t know any better, but because they simply, and quite literally, didn’t know what they were missing.

The term ‘“vaguely yellow” defined  American beer culture 30 years ago. There was no recognizable slow food movement in the United States, there was no dearth of farmers markets. So imagine what it must’ve been like to grow up to be an adult who’d never tasted a fresh peach, or a real olive, and who subsisted on crisp, cold, watery beer.

The lack of variety in beer may have been because, at the end of the 1970s, there were less than 50 breweries in the United States—more than 80 years earlier, at the turn of the 20th century, there were more than 1,800—and beers brewed any color that was not vaguely yellow were hard, though not impossible, to find.

Skip ahead 10 years to downtown L.A. in the late 1980s, littered with dive bars, where there lived a young man named Greg Koch who thought to himself, like just about every young man does, I’d really love a beer right now. So into a dark tavern he went and, instead of ordering up the usual yellow fizz, Koch noticed a beer he’d never tried before and of which he was only dimly aware: an Anchor Steam Beer from San Francisco’s Anchor Brewing Company. He ordered one and took his first sip.

“I couldn’t believe that beer could actually taste that good,” Koch recalls. The experience turned him on to the seemingly endless possibilities of how a beer can smell, feel, and taste. Inspired, he started exploring California’s breweries and brewpubs, sampling as many different varieties of beer as he could. He later took a class at University of California-Davis called “A Sensory Evaluation of Beer,” at which he would reconnected with someone he had only faintly known during his early days in the music business, a bassist named Steve Wagner. A short time later, they began experimenting with homebrewing kits. It wasn’t long before the two hobbyists became budding entrepreneurs, rolling out their first barrel of craft beer in 1996. Fifteen years later, Koch and Wagner’s Stone Brewing Co., in Escondido, California, is the 14th largest craft brewery in the United States, and it’s projected to produce, in 2011, 4,650,000 gallons of craft beer (enough to fill up 300,000 kegs), making it one of the craft beer industry’s fastest growing operations. Their growth is not an anomaly.

According to the Brewers Association in Boulder, Colorado, the future of craft beer is looking rosy. Although craft brewers capture just under five percent of the total market share in the United States, craft breweries continue to grow, outgrow, and expand their capacity at an insane pace, especially considering the economic state of the country. In 2010, craft brewers produced nearly 10 million barrels of beer (almost 20 million kegs worth), employed more than 100,000 people and brought in revenues of $7.6 billion. The growth is especially rampant along the West Coast, where breweries continue springing up like forest mushrooms after an early fall rain and where the percentage consumption of craft beer versus macro-beer is the highest in the country, in some cities, like Portland, Oregon and Seattle reaching 30 percent.

And craft breweries have achieved all of this growth even though we as a country are purchasing less beer. While beer sales dipped one percentage point in 2010, nationally, from the year before, craft beer sales increased by 12 percent.

Paul Gatza, director of the Brewers Association, says there are plenty of variables that could indicate why the craft beer industry is experiencing such a healthy growth in an industry that, overall, seems to be plateauing.

Millennials of drinking age, he says, are, for the first time in generations, experiencing a world in which they’re given the opportunity to choose from an abundance of beers made with countless ingredients and methods, and they’re supporting many of these small brewers as a first choice.

Wholesalers and retailers are recognizing this trend in growth, Gatza says, so they’re providing more shelf space for craft beer, while servers in restaurants and pubs are helping educate their guests about the beers they’ll likely drink alongside their dinner.

“In addition, the concept of ‘local’ has gone mainstream, and many people think about the economic benefits to a community when they buy a beer from the region,” Gatza explains. “People are increasingly attracted to small and independent companies.”

While Gatza said he hadn’t heard of The Lipstick Effect—the theory that when times are lean, women will skip the trip abroad or hold off on buying a new car, but will splurge instead on a $25 tube of lipstick—he says he did notice that a similar effect occurred in the craft beer industry during the recession.

“We talked about [craft beer] as an affordable luxury,” he says. “People are willing to spend a little more on a beer that they really want to drink.”

That’s also how Christian Ettinger sees it. Ettinger is the the 37-year-old owner, brewmaster, and head of quality and sustainability at Hopworks Urban Brewery in Portland, Oregon. He says he sees in the craft beer industry a corollary similar to the Lipstick Effect.

“I think it speaks to the economic times we’re in, where someone might not get that new house or that bmw, but they’ll definitely treat themselves to a nice beer,” Ettinger says.

Northwesterner Matt McClung, owner and brewmaster and of downtown Seattle’s Schooner exact, echoes Gatza, saying he believes that the tastes of new, of-age beer drinkers, as they enter the market, are more in line with the hoppier, maltier, tastier beers that craft brewers continue dreaming up.

Or, as he puts it in terms he describes as a little morbid: “As yellow beer drinkers leave the market,”—meaning, as they die—“they are being replaced by craft beer drinkers.”

Along with variety, taste, and youth, McClung says geography doesn’t hurt either. “We live in a bit of a bubble here in the Northwest,” he says. One of his local distributors told him that craft beers in Oregon and Washington capture 35 and 30 percent shares of their respective
beer markets.

Not surprisingly, a lot of the craft breweries that have sprung up in those states have clustered along those states’ western coasts. “Breweries…spring up in areas where population meets access to transportation,” says Ettinger, pointing out the I-5 corridor that runs down the West Coast, connecting northern Washington to San Diego, making the distribution solution simpler.

Koch says he believes that the further inland one travels, the more rural the country gets. “Time tends to move slower,” he says, “It’s not a craft beer thing specifically, it’s just the nature of things. Urbanites have more choices, and thus trends can develop.”

So geography, and the adventurous tastes of the people who populate that geography, says McClung, are two of the reasons that Schooner exact has been able to rapidly expand its production and its brand in such a short period of time.

Before the days of Schooner, McClung, a Portland native, says, when it came to craft beer, he figuratively lost his baby teeth in 1991 when, at the age of 21, he began sampling from Portland’s growing roster of craft beers. Eight years later, he was brewing his own beer atop the stove in his college apartment. He became then what so many brewers are before they even begin to dream: a hobbyist.

Ten years passed. During that time, McClung had been teaching chemistry to Seattle high school students, but when he came home at night, he continued experimenting with crafting different styles of beer, and he had been joined by his new wife, Heather, an elementary school teacher (who now holds the position of president of the Washington Brewers Guild).

By early 2007, the McClungs had taken the plunge into the craft beer world. They quit their day jobs, invested in space and equipment as a fully functioning nanobrewery, and began rolling out the first barrels of Schooner exact, producing a mere four kegs per week.

Four years later, Schooner has grown enough to be classified as a microbrewery, and is on pace to produce 1,750 barrels by the end of 2011 (compared to just 50 barrels in 2007). Now, a beer drinker can find one of their 13 varieties of beer on tap in as many as 200 Seattle restaurants and pubs. The brewery is also undergoing another major expansion, nearly doubling in size from 4,000 to 7,200 square feet. And in the next year, the McClungs plan to transform their brewery’s tasting room into more of a destination by offering local, healthy food alongside pints of beer. At the same time, they’re also preparing a plan to begin bottling, or canning, and distributing their beer in an effort to tap into Portland’s retail market by 2012.

With such rapid growth, McClung says he does worry a little. After all, he quit his day job and followed his dream, but he’s 40 now, and he and his wife are expecting.

“I do feel stressed and anxious almost everyday,” he says. “Expansion is risky and expensive and there is always room for improving already established systems in the brewery.”

But Ettinger, whom McClung credits as a valuable advisory resource, says without risk, there’s no real reward. That’s why Ettinger “planned for success,” by opening a brewpub with enough space—5,000 square feet—in which to grow when more of his supply is demanded. And now, people are demanding it.

In June of this year, just 90 days after signing a lease, Ettinger opened the doors to a second Hopworks location—a 2,500 square-foot satellite pub along one of Portland’s main bike commuting corridors on north Williams Street—dubbed BikeBar, which serves up fresh Hopworks beer, grass-fed, hormone-free meat sandwiches and salads, as well as offering spare bike parts and a water bottle-filling station for Portland’s bicycling community. The day after opening BikeBar, Ettinger arrived at his brewpub in southeast Portland to oversee the installation of three new brewing tanks which will increase his annual production by as many as 4,000 barrels, allowing Hopworks to brew more than 10,000 barrels each year.

Within a year of opening its doors in 2006, Ettinger says Hopworks was already aggressively moving to distribute its certified organic beers directly to his patrons in 22-ounce bottles.

Bottled beer may not be as fresh as draft beer, he says, “but three out of every four beer servings are consumed out of a container in the home.” After all, Ettinger, who began homebrewing at the age of 18, enjoyed his first beer—a Bridgeport Blue Heron Ale—from a pony keg on his front porch. Now, through a wider distribution, Hopworks beer is consumed by people in northern Idaho, Seattle, and even Vancouver, B.C.

Ettinger’s secret to such swift success, he implies, is that there’s really no secret at all. People spend too much time looking for what he calls a “silver bullet,”—here, he excuses himself with a laugh by inadvertently referencing Coors Light—that “panacea” that they think will drive their costs and trends.

Instead he follows rather simple advice he picked up from his grandfather: make quality products, and treat your people like gold.

“I almost enjoy ignoring the numbers and focusing on the quality of the product,” Ettinger says. “Profits follow when you mind your product and you mind your people.”

Between his brewery, with its on-site pub, and the BikeBar, Hopworks now employs 130 Portlanders, to whom he supplies tax-incentives to encourage them to bike to work, including stipends for things like helmets, lights, fenders, and locks. This brings him into compliance with a self-enforced philosophy of doing good business as a responsible steward of the planet.

And he says the locals continue to reward him. “They’ve been so supportive,” he says, at once humbled, and a little in awe. “The reason we’re successful is because [people] appreciate high-quality beer and food and appreciate the [green] ways in which we execute those things.”

Both McClung and Koch say their philosophies are pretty much in line with Ettinger’s. If there is a “panacea,” it is most likely, at the risk of sounding superstitious, a simple chant which must be always remembered, and often repeated, over and over again: Quality. Quality. Quality.

“Our success can be measured in numerous ways,” says McClung. “We’re producing a tasty product that people really like—I am still trying to figure out whether it is skill or luck—and we have a salesman who busts his ass.”

And while he considers Schooner’s recent exponential growth challenging—meaning the expenses and the risks that accompany such growth—he feels his crew’s passion for beer will be evident to those who drink it. And when they do drink it, McClung’s certain that they’ll remember those experiences the next time they’re ready to order a beer at a pub where there’s a Schooner draft on tap.

And he’s ambitious about how he can better help his crew, too. Currently, he’s able to provide them with standard industry wages, and he covers about 75 percent of their health care costs. But he wishes to pay them wages above industry standards and hopes to soon be in the position to cover health care costs entirely.

“We began as a nano and made a successful jump to micro,” says McClung. “We represent the American Dream. We are a husband-wife team that quit their day jobs to follow their dreams. Does it get any better than that?”

In a manner of speaking, it all depends upon how one interprets the word “better.”

Koch has created, from scratch, what could be considered a brewing empire in the craft beer industry.

And while he may have gotten into the brewery ownership game a lot earlier than both McClung and Ettinger, he points out that his company’s growth and reputation rests not on his various projects, but on the beer itself.

“The fact is, it’s never mattered to us how much beer we make, but rather how we make it,” says Koch. “We brew the beer we want to drink, with big character and plenty of flavor. No adjuncts. No pasteurization. No B.S. Just good craft beer.”

And in their 15 years, Stone Brewing Co. has bore witness to an awful lot of people discovering that drinking good beer is not only a privilege, but a right. Currently, Stone beer is distributed in 36 states—this year they picked up accounts in Minnesota and Missouri—but they continue to aim the focus of their growth at home.

Besides producing a lot of beer for Americans all over the United States, Stone has for years been operating the successful Stone Brewing Bistro & Gardens, an 8,500 square-foot restaurant on an acre of well-manicure land. But the brewing company—which is not just the country’s 14th largest producer of craft beer, but the 23rd largest producer of beer overall—will be consolidating a lot of its growth to the greater Sand Diego area.

To wit: Within the next few years
Stone is sinking more than $20 million into opening a second bistro at Liberty Station near downtown San Diego. They’re expanding their brewing operations and storage facilities, which already stands at 55,000 square feet. They’re opening a company store in downtown San Diego, including a catering branch and an event space. They’re opening a 50-room hotel and they already own a distributorship. And even though they’re San Diego’s largest buyer of local produce, they recently purchased what they’re now calling Stone Farms, an 18-acre farm just a few miles away from the brewery that will provide both bistros with fresh, local, sustainable, and organic produce.

“We really feel that being able to see where your favorite beer is made is a great experience,” says Koch. “I know I still get a kick out of visiting other breweries, and if we can create a great dining experience to go along with that, and soon, a pillow to rest your head on afterward, again I ask, ‘Why not?’ Escondido or bust baby!”

Still, that hasn’t stopped Koch or Wagner from eyeballing opportunities outside of California, or even outside of the United States.

At present, Koch says Stone has set its sights on continental Europe. There’s been a demand there for the company’s beer, he says, and rather than creating and leaving behind a giant carbon footprint by shipping that beer overseas, he thinks, why not open a brewery across the pond? So far they’ve narrowed it down to two possible cities: Brugge and Berlin.

But besides simply creating quality craft beer that people want to drink, Koch says there’s a more abstract philosophy behind Stone’s success that’s enabled it to continue its impressive growth.

“To thine own self be true,” says Koch. “Ignore the detractors. Ignore the naysayers. Ignore everybody.”

In theory, it’s possible that, with enough experience and enthusiasm, anybody can create a tasty batch of beer. But to make a lot beer for a lot of people requires at least a little bit of risk. Not the kind that will bring the global economy to its knees, but the calculated and measured kind that has the potential to empower a still relatively small industry from making inroads into the hearts and minds of consumers. Because these brewing companies are changing not just our tastes, but the ways in which we experience and celebrate our free time.

And that deserves a toast. So put away the Champagne flutes and raise high instead your draft-pulled pints of micro-brewed beer.

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