Monday, December 29, 2008
Friday, December 19, 2008
From the BBC: "Innovation, Universities and Skills Secretary John Denham, who is responsible for national weights and measures, was delighted. He said after the European Parliament vote: 'People in Britain like their pint and their mile. They should be able to use the measures they are most familiar with, and now they can be sure that they will continue to do so. '"
I have two comments. First, why don't we label the glassware used in bars so we know what we are being served? Second a minister of innovation, universities and skills?!? How cool is that title? Of course, that the secretary of I, U and S is involved in the imperial pint fracas kinds puts lie to the title, doesn't it? Still, it doesn't seem like such a bad idea to institutionalize the idea that a country should have a coordinated approach to education and research and development.
Ah well, its Friday, so cheers! Have a good weekend.
Thursday, December 11, 2008
[From Paul's NY Times page: The marquee for his talk at the Bagdad - Paul , Beer, Oregon - get it?]
Paul's most influential insights came from the idea that there may be increasing returns in trade. When applied to trade this insight helped explain why we see two-way trade in things like cars and was the principle reason he won the Nobel. But this insight quickly spilled over into other areas as well - for example, why is Silicon Valley still the center for high tech industry given that it is perhaps the most expensive place on earth to do business? Paul's answer has a lot to do with heads starts and learning curves: It may be cheaper to move Silicon Valley to Bangalore if you could do it overnight, but you can't - it takes time to build up the knowledge base and skilled work force and while that is happening, Silicon Valley can compete the nascent Bangalore away. This helps explain that while Bangalore has been able to chip away a little bit at Silicon Valley's dominance it hasn't done that much. This story is half trade and half economic geography. Economic geography talks about increasing returns that come from concentration: part of why Silicon Valley is so successful is because of the close connection inventors, entrepreneurs and venture capitalists have by virtue of being neighbors and part is the concentration of skilled workers to populate the firms.
So what does this have to do with Beervana - Portland (and Oregon's) disproportionate number of breweries and beer drinking? Well the same stories about Silicon Valley can be told here: brewing and beer drinking are both learning processes and ones that benefit from concentration. Brewing takes skill and practice and a there are a lot of knowledge spill-overs that comes from brewers talking and sampling each others products. Beer drinkers have to learn about the ingredients, how they taste and develop a palate and taste for the more robustly flavored beers. So the punchline is you tend to have concentration rather than dispersion and that places that get early starts tend to hold onto that advantage - familiar themes from Paul's work.
So really, beer drinkers of Oregon, this Nobel's all about you! Let's toast to that...
By the way, just to complete the circle - Beervana blogger Jeff Alworth left a comment on the same Krugman blog page that includes the picture above.
Wednesday, November 26, 2008
VIVA LA REVOLUTION!
WHY DID YOU PURCHASE THE DRAGON?
· We love the place; part of what we do is preserve iconic institutions which have served the craft community. Just as we have with West Brothers in Eugene, the Portland brewery, Bogart’s, and Issy brewery and public house.
· In its short life, The Green Dragon has established itself as a national treasure for its support of craft brewers and distillers. The owners developed a well-earned legacy of community loyalty and support. It would be a crime against antiquities for the Dragon to be slain.
WHAT IS YOUR GOAL? ROTATE TAPS NOT OWNERS – WE ARE THE 3RD IN 16 MONTHS.
WHO ARE YOU? A privately held company established in 1988 with the same ownership as today. We are Oregonians with our World HQ in Newport, Oregon.
We are artisianal varietal fermenter trying to do 4 things:
1. Create world class product – John Maier in charge since opened
2. Place the product in world class varietals packaging; 12 oz, 22 oz, 750, 5 gal cans, Black Beauty kegs, use painting and seriography.
3. Create unique thunder – do things differently than the “Beer Industry”
4. Integrate our sales in our communities by participating and giving.
FUNDAMENTALLY ROGUE IS A REVOLUTION THAT EXPRESSES ITSELF THROUGH HANDCRAFTED BEERS AND THE WAY THEY CONDUCT BUSINESS.
The key words
There are a few key words in this statement.
The spirit of the Rogue brand, even the name suggest doing things differently. There is a desire and a willingness to change the status quo. The reality is the Rogue brand is a revolution…started by entrepreneurs.
A revolutionist expresses themselves, their values and beliefs through their actions. They do so because they have a passion and a personal commitment to that passion and their beliefs. In the case of Rogue, it can be found in the products and in the people. The Rogue product is the way the brand and the people express themselves and their beliefs.
The way they conduct their business:
Being big or getting big does not necessarily mean you are successful. Rogue’s business will never get “big” as big is defined by the brewing industry. There are a limited number of consumers who can really appreciate the Rogue quality and craftsmanship. The product and the people of Rogue have high standards, standards by which they live. These standards and product must never be compromised for the sake of volume or broader appeal. These things alone will limit Rogues’ size, but that does not limit Rogues’ ability to be successful financially or to be a leader in the real beer industry. The great passion people have for the brand and the product will see to it that the product finds the consumer or that the consumer finds the product.
WHY DO WE DO WHAT WE DO?
To become an industry leader with an entrepreneurial organization that creates truly unique and meaningful products and program.
The key words
There are a few key words in this statement.
To be a leader does not mean you have to be the biggest or bureaucratic or compromised. The best leaders lead by example and by doing the right things at the right time. Often that may mean going against the grain. The only meaningful questions to ask at times like these are: is this right thing to do for the brand, the product and the consumer? In addition, an important part of being a believable industry leader is running an efficient, profitable business.
For Rogue this isn’t about being innocent and simply jumping into something because there was an idea or an opportunity to make a buck or two. Rather it is about the attitude of being small but very good, it is about doing your thing your way. It is about being David and not afraid to throw the stone. In the case of Rogue, it doesn’t matter so much if the thing hits the target or not. It is the attitude of being willing and able to throw the stone that’s exciting. This attitude will build the Rogue brand into an industry leader.
HOW BIG IS ROGUE? 60,000 BBL’s in size, sold in all 48 states and 17 countries – we do not care about being bigger. Just better. Smaller than Portland, Pyramid, Magic Hat, Bridgeport, and Full Sail. And obviously, Red Hook/Widmer.
WILL THERE BE CHANGES – YES! SOMEONE DEFINED STUPIDITY AS REPEATING THE SAME ACTION AND EXPECTING DIFFERENT RESULTS. WE WILL MAKE ONLY THOSE CHANGES REQUIRED TO SURVIVE AND SERVE THE CRAFT COMMUNITY.
CAN YOU BE MORE SPECIFIC?
We will not change – rotation as a tap theory – Rogue will only have one or two as before. Brewers’ Nights will continue under the guidance of Jim Parker; games and shuffle board will stay for now.
WHAT WILL YOU CHANGE?
· Turn up the lights, turn music down as it was when the Dragon opened.
· Double the # of taps
· Finish construction as required by regulators: $50-75,000
· Add video poker and Lego table for kids
· Ban cell phones at we have for 18 years
· Staff will be in identifiable gear as well as name tags so you can tell them from the customers
· Deliver beer and food to your home or office.
· Sell to go – bottles, cans, growlers, and kegs.
WILL BEER PRICES GO UP? TBA – Prices need to be high enough for Dragon survival.
ISN’T RENT HERE LOWER THAN THE PEARL? Not for us it’s higher.
WILL HOPOES AND ROGUE NATION CARDS BE HONORED? Yes.
WILL ROGUE FARMS HOPS AND BARLEY, FARM TOURS ORIGINATE AT DRAGON? Yes and so will OBF bus.
WHO IS MANAGER? Russ Menegat whose craft career started on Belmont at the original Dublin Pub – a pioneer in great beers. He has been with Rogue for 18 years in SF, Newport, Astoria and Portland. His love of ales, porters, stouts and lagers has been his only career. A lifetime Oregonian.
DO YOU DISTILL? Yes.
Where/What? White, Dark, Hazelnut Rums in PDX. Spruce and Pink Gin, Vintage Vodka, Dead Guy Whiskey in Newport. Equipment is not as fancy as Integrity but good enough to be award winning and available in 20 states and 5 countries.
WILL STAFF BE RETAINED? YES, IF THEY MEET OUR STANDARDS OF CUSTOMER SERVICE AND CONDUCT.
WILL YOU BREW ROGUE HERE? No – Only in Newport; Issaquah brews “Frogs”; Eugene “Track Town.”
Will you have:
· Garage Sales – yes
· Hoppy Meals – yes
· Aloha Thursday – yes
· Dog Menu – yes
· Kids Menu – yes
· Lapiniere – yes
· Bathoom Tours –yes
· Outside seating – yes
· Patio – yes, hopefully with access from the inside
· Mug Club – yes
· wheel chair bar seating - yes
· Thanksgiving and Christmas service - We are at other locations. Staff decides.
· TV’s - TBA- we are not a sports bar. On only for major events. Sound on once a year.
WILL YOU CONTINUE MUSIC? Yes, for a while. Not part of original concept. Not if City wants handrails. Not if we need the space.
WILL YOU CHANGE THE MENU? Yes.
How? TBA – Hope to add items made with beer and retain smoker.
WE CANNOT GIVE YOU THE SECRET TO SUCCESS. WE CAN GIVE YOU THE SECRET TO FAILURE: TRY TO PLEASE EVERYONE.
Friday, November 14, 2008
Brewpublic seems to really hate Rogue [update: Angelo of Brewpublic objects to this characterization and I agree, he really hates the idea of loosing the Green Dragon and the potential of its staff loosing their jobs, but hating Rogue is not accurate - my apologies], and while I agree that my experience in their pubs has been one of extraordinarily expensive food and indifferent service, I remain a big fan of the company and (much of) the beer. I don't like this though - I lament any decline in independent tap rooms in Portland. In my neighborhood the Oaks Bottom Public House was bought by the Lompoc folks to the great detriment of the pub. Fortunately there is still the Muddy Rudder. And Portland still has Bailey's Taproom (please serve food!), Henry's, Concordia, Belmont Station and others.
Ah well, at least you don't have to walk far from the Green Dragon to Roots, where they have finished a remodel and now serve lunch! Hey, that reminds me, I'm gettin' a little peckish myself...
Friday, October 31, 2008
Over at Beervana, Jeff poses a question about the effect on craft brew sales if Budweiser's American Ale (which he proclaims is not half-bad) is a hit. Could it, he wonders, actually help sales of craft beers by bringing in new customers that would previously not look past macro-brews? Does this theory make sense economically? Well, yes.
Maureen Ogle points out that this idea is not new to the business of, shall we say, 'sophisticated foods.' That Starbucks appears to help nearby coffee shops instead of hurt them.
First the economics. It is pretty obvious to everyone that there are two competing forces at work here - the expansion of overall demand and the capturing of that demand by particular brands. In cases where the niche demand is a small part of the overall demand for the basic category (beer or coffee in our two examples) one might expect that the increase in overall demand to outpace the capturing of the market, especially at first. In economics terms, is American Ale a complement to craft brews or a substitute? Here are some thoughts:
One wonders is what the end game is. Budweiser has huge advantages in scale, supply chain, distribution and marketing: once the demand for taste in beer hits its zenith, what next, do brewers start competing heavily on cost. If so, this is where Bud wins. However, if the entire demand expansion is based on the idea that beers are distinctive and diverse, it will be hard to dominate with a single beer.
I think that while Bud AA might lead to a vast increase in overall demand for craft brewed ales, it will probably have a bigger impact on beers that have gone for the mainstream, like Fat Tire, with which AA compares favorably, according to Jeff. It is their part of the demand curve that is most contestable by a large brewer.
If American Ale is not an immediate hit for Bud, and I am guessing it will not be, will the marketing types and bean counters at AB have patience and allow it to gain traction, or will the profit motive be so strong that they will abandon it quickly? I give it 50-50 odds.
In the current economic climate, it is a hard time to turn Bud drinkers on to a more expensive beer, will Bud keep prices low to allow it to sell?
Finally, a large part of the craft brew demand is from folks who relish being 'in the know' and cherishing the latest iconoclastic small brewer, will this scuttle Buds attempt to crash the party?
Time will tell...
Apropos of nothing: I picked up a bottle of Elysian's Immortal IPA the other day and noticed, when I cracked it that it was contract brewed by New Belgium. Thus it has the curious distinction of being both the best beer New Belgium brews, and a terrible purchase for a Northwesterner concerned with the carbon footprint of his purchases.
Tuesday, October 28, 2008
"For decades wholesalers have quietly added 18-25 percent to every bottle of beer, glass of wine, and shot of liquor you pour down your gullet."
This makes intuitive sense undoubtedly, but what are the economics of it all? It turns out this is a classic case of "double marginalization." Double marginalization occurs when you have two imperfectly competitive firms in a 'vertical' relationship. Vertical refers to the producer/retailer relationship generally, and in this case it is the producer/distributor relationship. Clearly beer producers are not perfect competitors, they do not sell a homogenized product for one, and neither are distributors that have exclusive rights to sell to retailers particular beers. [Note that if they were perfectly competitive, then there would be no problem as price would always equal the marginal cost of providing the beer for sale]
So what happens? Well the basic story is that both firms want to extract their profits and in so doing end up creating a retail price that is significantly higher, and a quantity that is significantly lower, than it would be if they merged (or if breweries could distribute themselves). Here is (I know you were hoping for one!) the graph:
In this picture the demand curve for the downstream firm, or distributor, (denoted d) is given in blue. [In this case we make the simplifying assumption that both firms are simple monopolists - but any market power is enough for the analysis to follow] This is the demand for beer from retail establishments which (since they are highly competitive) closely resembles the demand for beer in the market. Since the distributor is a monopolist they make their price and quantity decision where their marginal revenue (denoted MRd) equals their marginal cost (denoted MCd). Their marginal cost is the price they have to pay the brewer. From this quantity (qu = qd ) they would charge their margin which is the difference between MCd and Pd. Thus the distributor gets a profit equal to the dark red shaded area.
So where does MCd come from? Well, note that depending on what the brewer (the upstream firm = u) charges, the quantity demanded will be read off of the downstream firm's MR curve. Thus the downstream firm's MR curve is the same as the upstream firm's demand curve, creating an upstream firm MR curve. The brewer's MC curve comes from the cost of making the beer and so they set MRu=MCu and lo and behold, the quantity demanded from the brewer is the same as a the quantity sold by the distributor, qu = qd. The brewer's profits are given by the light red shaded area. So consumers would pay pd (assuming competitive retailers) and consume qu = qd beer.
Now let's consider what would happen if the brewery distributed itself (getting rid of the middle person). They would now face the blue demand curve, set quantity at q* and the price would be at p* = pu. The brewer's profits would now be both the light red and the blue shaded areas. So consumers would pay less (p* instead of pd), consume more and brewers would earn more profits.
Interestingly, I once had the owner of an Oregon brewery tell me that he/she likes distributors and thinks that they should remain in place. The owner said that the distributors were their advocates in retail establishments far and wide that they otherwise would not have access to. Perhaps then distributors provide a service not accounted for by this analysis. But if this is efficient, then doing away with laws requiring distributors should leave them in place.
I, for one, would love to see that experiment.
NB: "Marginal" refers to the extra cost or extra revenue from making and selling one more bottle of beer. Marginal revenue is below demand because for a monopolist, making and selling one more bottle means that you have to charge just a little less to get the last person to buy it. But this means that you charge that slightly lower price on all your beer, which dampens total revenue. So the effect on marginal revenue is amplified and thus MR is below D.
Friday, October 17, 2008
Speaking of Amarillo hops, John, who stopped by our table for a chat (his brewery is on the other side of the glass wall and there was some sort of Full Sail thingy going on because I spied Irene Firmat and Jamie Emmerson - he apparently doesn't realize one m is enough - and general noshing at a shrimp cocktail spread) told us that the reason there are no Amarillo hops available is that it is a proprietary hop and there is not that much in cultivation. Apparently it started as a wild variant that was discovered on a hop farm and cultivated.
Anyway, this is supposed to be beeronomics and as much as my gastronomic adventures are surely fascinating to all of my devoted readers, let's try and turn my drinking into field research so I can write-off my tab.
So what's the deal with all of these fresh hop beers? Perhaps it is just a way to keep brewers from getting too bored, but I think there is more. In many markets, limited editions, special varieties, alternate versions are thought of as a way to increase demand. The idea is roughly this: for customers that have a strong demand for a product may regularly consume, say, one six-pack of Full Sail beer a week. They may switch from pale to amber and so on, but their demand does not change from week to week. You may be able to increase demand for these consumers from time to time by a special variety that will not last. (It may also be the case that they will just forgo the regular six-pack for the special variety and no new demand will be created). Creating buzz with new products is also useful to get the uninitiated to try a company's beers, to create or solidify a reputation for quality and creativity, and create another opportunity to get people to try 'bigger' beers and thus create more demand.
By the way, in economics the private incentive for firms that have products of multiple varieties is to produce too much relative to the socially optimal amount. Why? Well, the closer you get your product to the idea variety of a consumer, the more you can charge a consumer for that product. But variety is expensive for producers, so overall the costs (and thus prices) overall will rise due to this variety.
John had an interesting insight when I mentioned the recession proof-ness (s0 far) of craft beer. He observed that it may be the bottling breweries that are the recession proof part of the craft brew scene for the supermarket six-pack is not seen as that much of an extravagance, while brewpubs are more vulnerable because a night out in a brewpub where you pay $5 for a pint is probably much more of a splurge for many people. We, I am afraid, will have a long and deep recession in which to test this theory.
So hurry to the Pilsner Room to get your Lupulins before the recession really sets in...
Wednesday, October 15, 2008
I blogged a lot about hops shortages and barley prices creating a perfect storm for craft brewers and now the economy has turned south at precisely the time that craft brewers are forced to raise prices. Big trouble right? Apparently not. And from here I outsource and refer you to a great article from the Wall Street Journal on the eve of the Great American Brewer's Festival which is held annually in Denver.
Here are the meat and potatoes:
Despite rising prices and a shortage in hops, craft beer -- beer made by small, independent and traditional breweries -- has grown 6.5% in volume and 11% in sales in the first half of 2008, roughly the same amount as the same period last year, Mr. Gatza says. According to the Brewers Association, in 2006 and 2007, 47 of the top 50 craft brewing companies grew in production to keep up with demand. So far this year about 42 of the top 50 are growing to keep up with demand, Mr. Gatza said.
One of the reasons for this continued growth despite the economic downturn is that craft beer is still one of cheaper luxury items people can buy, with most six packs cost less than $10, says Mr. Norgrove of Bear Republic Brewery. Bear Republic has seen business grow by more than 50% in 2006 and 2007, and is seeing healthy profits gain this year, he says. "We are in one of those industries that is really doing well. I don't want to say it's recession proof, but we are seeing steady growth."
Wow, sales are up 11%! One could possibly infer from this that craft beer, like macrobrews, are an inferior good (in the economics sense, not in the real sense). This means that as incomes fall, you actually consumer more. The classic example of this are the potatoes in the aforementioned meat and potatoes meal. As incomes get tight the plate becomes more potatoes and less meat (and vice versa when people are flush). Perhaps craft brew becomes a substitute for fine wine, scotch and the like. Of course it is more likely that demand just continues to rise as more and more people wake up to the fact that beer doesn't have to taste like crap (pardon me - that is an economic term of art for "Bud"). Oh and what about those macros? Sales are flat, just like the keg the day after the frat party.* Anyway, read the WSJ article, as it addresses how brewers are coping with hops shortages and increasing input prices. Beeronomics indeed...
Oh and one more note about the GABF: Kudos to my old buddy and Ithaca Beer founder Dan Mitchell for coming home with two silver medals. Truth be told, the beer wasn't that great at the beginning, but it is good stuff now.
*I know that at Oregon State Frats the kegs are more likely to be Rogue. ;-)
Friday, October 10, 2008
Anyway, since I haven't had time to do much beeronomics blogging, this will have to suffice for now.
Tuesday, August 12, 2008
Contrast this with the thriving Rogue Brewery. I was in Newport over the weekend with the in-laws and my father-on-law, who arrived first, called up from the grocery store to ask what beer to buy. When in Newport, get Rogue, said I. Later, with a sixer of Dead Guy in hang, he was amazed at the price: "I have never in my life pain $11 for a six pack of beer, how can they possibility sell any beer at that price?" It was a very good question. Rogue is always the most expensive beer in my local grocery, and yet they thrive. I told my father-in-law that they have a loyal following and a strong brand identity, but that felt a little hollow even to me. I rarely buy Dead Guy, it is good, but there are almost always just as good beers for two to three dollars less. Over the weekend I lunched at the restaurant in the brewery. It is a decidedly low key place, especially compared to the BridgePort. Plywood and unfinished surfaces, wobbly tables and no decor. And yet they charge $15 for a hamburger and had a line out the door of people waiting to get in. Go figure. The food, by the way, was good, and the beer was exceptional. I brought home a bottle of Juniper Pale Ale and blew the father-in-law away.
Rogue seems to play by its own rules, and for whatever reason almost everything it touches, turns to gold. My impression of owner Jack Joyce is that he doesn't care to think too much about it, but rather go with his gut. He is also not really interested in going for the big selling high-volume beer. And even they have had some misfires: remember the short-lived packages with historic photos of fishermen and such? No? I got your back. But in all of this remains a mystery of the business. How do you stay fresh and relevant in consumers eyes? Jack Joyce does it by following his inner muse. BridgePort seems to be trying to listen to its inner MBA. The former is not always a good idea - many a good brewery has been lost to those not very business savvy. And the latter is not always bad. Full Sail's regrettable new packaging, session beer and slogan "Brewed to Stoke, Stoked to Brew" seems to have worked out very well.
Economics has lots of theories of branding, advertising, consumer preference and the like, but when it comes to trends, fads and the like. We are just as in the dark as everyone else. So, ideas?
Friday, July 25, 2008