Tuesday, January 25, 2011

McMenamins Hammerhead Turns 25

John Foyston has a wonderful article in today's Oregonian about the 25th anniversary of McMenamins Hammerhead Ale.  It is not so much the beer itself I celebrate today, but the McMenamins themselves:  Their pioneering spirit and funky asthetic that infuses their pub empire are, in my mind, primarily responsible for the Oregon brew-pub culture that we now take for granted.

Here is John:

Most cities wouldn't celebrate a beer's birthday, but only one city is Beervana, with more breweries than any other and a beer culture that's the envy of the world. And today, it celebrates the 25th anniversary of Hammerhead, the most popular and one of the longest-lived McMenamins beers.

Which makes it one of the longest continually brewed beers in Portland. Widmer Alt comes close, but is too rarely seen these days, and BridgePort doesn't brew any beers from its early days. McMenamins Terminator edges it out in longevity, but only just -- it was batch No. 12 and Hammerhead was batch No. 37 from Captain Neon's Fermentation Chamber, the brewery that made McMenamins Hillsdale Public House the first of many Oregon brewpubs.

Mike and Brian McMenamin were part of the group of brewers and publicans who got Oregon law changed to allow brewpubs in 1985. The McMenamins went on to build a brewpub empire infused with the quirkiness and creativity of the Pacific Northwest, and they're another big reason that Portland is one of the world's great beer cities. And sometime during those last 25 years, at one or another McMenamins pub, most of us beer drinkers have had a Hammerhead.

But in 1986, neither Beervana nor the beer originally called Old Hammerhead strong ale were quite as we know them today. Hammerhead back then was brewed with malt extract syrups, which is how many beginning homebrewers make beer. It allows brewers to make beer without the hassle of milling malted barley, then steeping and boiling it to create the wort that's fermented with yeast to make beer. But all-grain brewing, as it's known, is the REAL way to make beer, and it was just a matter of time before some ambitious young brewer made an honest beer out of Hammerhead.

That brewer was John Harris. He brews for Full Sail these days, and was at Deschutes Brewery, where he formulated Mirror Pond, before that. In 1987 he was a recently hired brewer at McMenamins Hillsdale pub. "When we went from extract to all grain," Harris said, "in the process of converting the recipe, I threw out the idea of, 'Let's hop the Hammerhead up a little bit more. It's just like a little more hoppy than Crystal, and a little darker, you know, so let's just hop it up.'"

And once again the godfather of Oregon craft brewing, John Harris, pops up - his fingerprints all over the early seeds of the craft beer revolution. It is not hard to imagine an alternate history without John where craft brewing fizzles and remains a niche product.

Anyway this is also a good opportunity to call out the McBrothers because the empire I love so dearly is in trouble in my opinion.

As a student at Lewis & Clark in the late 1980s, the Hillsdale Pub was where it was at - close to campus and serving all kinds of crazy beers like Hammerhead and Terminator.  After I graduated in 1990 I moved to NW 23rd and Glisan (is it a coincidence that it subsequently became so trendy? - I think not) and the Blue Moon and the Rams Head became my favorite hang outs while the Mission was where a poor espresso maker could stretch his meager tips into a fine night of eating, drinking and movie watching. 

But nowadays I hesitate to go to a McMenamins and generally only go for some other reason - a movie or some golf at the Edgefield - and I get anxious when I order beer because you just never know what you are going to get.  McMenamins beer, when done right are respectable and enjoyable beers.  I, predictably, like the IPA - which can be a wonderfully aromatic and tasty beer.  But more often than not it is funky or poorly made or both.  Their kitchen suffers similar inconsistency. 

In many ways this is completely predictable - their empire is huge and many businesses have struggle under the weight of complexity - but their non-business approach to business has not helped them.  They have an internal distribution network that is a disaster that to an economist is easy to fix: create a market.  But to do so you have to embrace incentives and this is not easy for them to do in my opinion.  They started by having pooled tips for servers and part of the charm for me in visiting when young was to see how long it would take for service.  Now with kids, that charm has become a weakness.

But beer is their core business and serving funky and poorly made beer is inexcusable.  I have heard that turnover is frequent among the brewers and that part of that is due to low pay.  I don't know if this is true, but they need to become more professional in their beer.  Hammerhead is a great beer but only when it is made and served right.

A few weeks ago I had a typical McMenamins experience at a pub I had never visited: the St. Johns.  It is a great place, a wonderfully quirky old building restored and funkified.  I was there to watch the Wisconsin Badgers lay an egg at the Rose Bowl and had a delightful time.  But they had a guest tap - the Fort George Coffee Porter - which I immediately ordered knowing it would be great and that it was the one beer I could count on.   Later I got the courage up to order the IPA and delightedly it was a fine example of what the McBrewers can do when they are paying attention.

I hope the brothers can right the ship before it is too late, they are too much of a local treasure to lose.

Tuesday, January 18, 2011

A Tale of Four Businesses. Part 1: Ninkasi

I have been swamped lately and have not had time to get back to writing about my trip (with the Beerax) down the valley to visit four very different breweries.  Jeff has done a good job describing them and their different objectives, but I want to focus on their very different businesses.  I will do it in four parts (because I am still pretty busy).  I will start big and go ever smaller: Ninkasi, Oakshire, Block 15 and Brewer's Union Local 180.

So today I'll talk about arguably the easiest one - Ninkasi. Ninkasi is a packaging brewery that is the big success story of Oregon brewing over the last few years.  Personally, I heard about this new brewery and their great beers about four short years ago.  Now, there is hardly a store in Oregon that doesn't feature their beer, they have tap handles everywhere and they are rapidly expanding into Washington and California.  In fact Ninkasi is, along with Deschutes, probably the most likely craft beer to encounter in any situation in Oregon.  There is a very good reason for this success: the beer is fantastic and nails the Northwest palate sweet-spot - extremely aggressive hop bombs that maintain balance and produce wonderful flavor and aroma.  Jamie Floyd brewer and founder (with Nikos Ridge) told us when we were there that Ninkasi was a 30,000 barrel a-year brewery that buys an amount of hops suitable for the average 200,000 barrel a-year brewery.

Jamie and Jeff talking hops

Ninkasi decided to go for aggressive big beers and to big fast.  The economics of brewing are clear: there are significant economies of scale that don't go away until well into macro territory, so growing fast makes all kinds of sense.  But going big was a significant risk.  There is a significant and growing craft beer enthusiast consumer base in the NW but would there be enough out there to sustain the amazing growth that Ninkasi has enjoyed?  I wouldn't have thought so, but I would have been wrong.  The appetite for Ninkasi's big beers has amazed me.

Ninkasi is the master of the hop-bomb and hop bombs sell.

Biggering, and biggering and biggering...
Jamie Floyd had a decade of experience in the craft beer industry before he started Ninkasi and he and Nikos came into it with a clear sense of what they wanted and how the business would grow, and grow and grow. I have no special knowledge of Ninkasi's finances, but I suspect that most of the profits have been thus far devoted to expansion.  To achieve this growth, Ninkasi has been disciplined to a price point that is competitive and this is a bit of a bet on that, in so doing, they would be able to sell in quantities that would turn a profit and drive expansion that would bring down per-unit costs.  So far so good.

New Kronos Krones bottling line.  Six-packs are coming...

Though Ninkasi is all about scale and growth, the beer industry is still very much a personality driven business, no matter how big and how fast.  And much of Ninkasi's success can clearly be traced to Jamie Floyd who is an engaging and tireless front-man for the company. Building relationships and creating brand identity is not an easy job, it requires lots of face time and glad handing and Jamie clearly has devoted himself to building the company.  You have to if you want the growth Ninkasi has enjoyed.  No distributor can be the face of the company for you and no beer sells itself.

I suppose the danger in all of this is that some other newest-latest brewery will steal their thunder and the rapid expansion will slow abruptly, leaving them with too much capacity and problems will ensue.  But, if I were a betting man, I'd bet on Ninkasi

Friday, January 14, 2011

British is a British Does

For reasons I won't go into here I spent the day swearing my allegiance to the Queen of England and becoming officially British (and American too: you can be both these days - a dual national - without either country minding).  Doing so required a quick trip to San Francisco, which is nice for me because of all the family I have in the Bay Area.  After which it seemed appropriate to go to a pub and have a pint and some fish and chips.  I shall speak no further of the fish and chips, which was pretty awful.  The Bass Ale was, well, Bass Ale, but the 'pint'  had a suspiciously thick bottom - yes, sadly it was indeed a cheater pint.  Which stuck me as ironic for an 'English Pub' serving English beer - which in England can be served only in a certified imperial pint glass (or half or quarter or now even in a new smaller size which is better for the newer higher alcohol craft beers that are gaining popularity). 

This pint is not honest

Fortunately, on the way back from the consulate we had to stop to get some groceries and I nabbed a Bellhaven Scottish Ale which I had not had before and it is fantastic.  And I say that as someone who doesn't particularly like the style.  But this is rich and smooth with a subtle but nice spicy hope note (my guess is Kent Goldings) that creates the balance.  In a word - perfect.  For Portland residents, the Highland Stillhouse in Oregon City has Bellhaven beers on tap and I always go for one of my all time favorite Twisted Thistle IPA which is a wonderful British IPA - lovely, spicy, aromatic but not a hop bomb.  Nice to know that they appear to fire on all cylinders as a brewery.

This is good beer

At my oath ceremony I had my deceased grandfathers tartan scarf, with the Munro tartan, with me for fun, and so a Scottish ale stikes me as a particularly fitting celebratory tipple. Caisteal Foulis na theine!

The Consul General was an exceedingly nice man who took a few minutes to chat after the ceremony and was not at all the pompus, upper class stuffed shirt I had expected.  The last thing he said to me was "well, thanks for becoming British and please remember to fly the flag the right way up!" "Of course," said I, knowing what he was talking about but not remembering the correct direction of the thicker white so to appease him, here it is, properly done (thicker white in the clockwise direction):

Friday, January 7, 2011

From Denver, I Bring News of Beer Innovation: The Self-Serve Beer Table

Here is the serve yourself beer tables going in at the Rock Bottom in Denver on the 16th street mall.  I am in town for a humongous economics conference and had a quick lunch at the rock bottom where work was being done on this new innovation in beer (well, new to me at least).  The idea is, according to my server, that you would pre-buy a quantity of beer and the taps would then dispense that amount of beer in whatever combination you wish (there are four tap handles per table).  This is a capital intensive operation and I am not sure that other states' laws would allow for the self-service of beer but it has a nice novel feel to it - plus it saves labor costs.  There are little video screens embedded in the table as well, perhaps to let you know how much beer has been poured. 

Too bad the beer is mediocre.  I had only time to taste their IPA and it was disappointing.  However, last night I had an Odell IPA that was lovely: a real NW style hop bomb with a lovely nose and nicely balanced. 

Wednesday, January 5, 2011

Beer Exchange

Jerry Campbell / Special to Kalamazoo Gazette

A couple of weeks ago a reader sent me a link to this story in the Kalamazoo, Michigan Gazette about a local pub that is about to embark on an interesting business experiment: a beer exchange (apparently it was on the Marginal Revolution blog). Given the holidays and the fact that I wanted to spend a little time thinking like an economist about this idea it has taken me a while to finally post a blog entry on it.

To get the basics, here is an excerpt from the paper:

The Kalamazoo Beer Exchange, located at 211 E. Water St., formerly home of Charlie Fosters, opened last week for lunch only from 11 a.m. to 2 p.m. Monday through Friday.

Once the Michigan Liquor Control Commission releases the license from escrow, owner James Flora will offer a unique concept for beer lovers.

Flora has 28 taps ready to host some of the best Michigan craft beer, as well as some imported and domestic brews.

His bar/restaurant features several TVs that will show the price of all 28 beers.

Depending on what customers purchase, the prices will rise or fall.

“It’s an ever-evolving happy hour,” Flora said.

The prices will never go higher than around 10 percent the base cost, but will drop to as much as 50 percent below base cost.

For example, a Bell’s Two-Hearted Ale may be $3 normally.

But, depending on the “market” activity (i.e. patrons buying tendencies) it could be as much as $3.25 or as little as $1.50 (prices fluctuate in increments of 25 cents).

The prices will change every 15 minutes and there will be, at random, a “stock market crash” — signified by air horns — when all 28 beers are sold at a low rate for five minutes.

My first take on this is that it is really gimmick and not substantive. As far as the bar is concerned the variety of beer sold is not as important as the overall volume so momentary discounts achieve two thinks from their perspective: one, it can increase overall sales by offering continual discounts (and I assume a clever economist will be there to help them program in elasticity formulas to maximize overall revenue - and if not, I am available!); and two, it can ensure that no one keg sits too long. It is this second aspect that appeals to me as a consumer. Though beer in a co2 keg system stays fresh for a while, it can get stale and a slow selling beer could cause quality degredation.

But I call it gimmick because it is not really a spot market (which would be really cool) whereby customers would make bids and the bar would set prices from these bid prices - then you would really achieve market efficiency!   This, of-course would be hard and clumsy so what they have designed kind of mimics such a market and does reflect some demand conditions.  And just because it is a gimmick does not mean it is bad, just from an economic perspective I am not sure to achieve any higher social welfare - except perhaps it will be a source of entertainment while in the bar. 

There are some interesting side effects to this and most are probably good: consumers that decide to go 'cheap' will get to try some interesting less well-known beers.  Brewers at smaller breweries might sell more thanks to the pricing scheme and thus more people will try their beer.

There are also some interesting strategic considerations as well.  As the reader who sent the link in suggests, a group of punters could coordinate to sent prices high on one beer by all ordering a round of the same one, but then as soon as this drives other prices down, order that beer.  Whether this saves money on average is questionable, but with the 10%/50% rule, it is possible.  There is also potential for arbitrage - buying a pint when prices are particularly low and then waiting for prices to go up a few minutes later and trying to sell the untouched pint for more than it was bought for but less than the current price. 

What do you think?  Is this exactly what your town needs?

Tuesday, January 4, 2011

England Takes the Ashes...but Free Beer Anyway

And boy could Australia use it.  First the disappointment of losing the Ashes on home soil for the first time in 30 years and now these horrendous floods (after years of serious drought).  Happily, the good folks at VB have decided to give a free beer to every legal aged Australian despite the Ashes loss (they had previously made the offer contingent on the Aussies reclaiming the ashes). 

By the way the Ashes aren't completely over yet, but England has assured at least a draw and thus has ensured that they will keep the Ashes and take them back to the motherland.  Pommie bastards...

Anyway, spare a thought for the poor Aussies, this flood is a serious catastrophe.