Going Extra Local - Cask Ale

Over at Beervana, Jeff has a really nice post on Ted Sobel, Oregon's Pied Piper of cask (or 'real') ale, trying to lead Oregon's craft beer lovers to a new frontier - but here the analogy ends for this frontier leads not to their doom but to a new and glorious part of Beervana.  Ted is the owner and brewer at Brewers Union Local 180 in far-off Oakridge, Oregon (pretty far even for the real Pied Piper to get followers to come) and he is the states only cask-only brewer.

Here is Jeff:

There are a lot of ways to sell beer in this state, but the easiest is to make them big and hoppy. It helps if you're conveniently located in East Portland--though Eugene seems like a pretty good location, too. A sure-fire business model includes a pub/taproom and capacity to distribute 22-ounce bottles and/or kegs to alehouses around the Northwest. Do that and your road is lined with rose petals.

Ted Sobel ... has not chosen the easy way. He makes small beers with low levels of hops. His pub is three hours from Portland, in Oakridge. He brews real ale, sold exclusively by firkin, and only really trusts one other pub to handle his beer. To reach the Portland market, he must load the casks into the back of his station wagon and drive them up himself. For his trouble, he earns less per firkin than he would if he sold the beer in his own pub. In the term of art, Ted has not yet figured out how to "monetize" his vision in the way other pubs have. His road is thorny, cold, and lonely.

For those Portlanders and Oregonians who are into fresh, natural and local, cask ale would seem to be a no-brainer. Cask is all of those things and nothing is more local and ephemeral than a locally brewed and prepared cask. In only a few days it will spoil after it is tapped, no artifical gases are injected into it - all carbonation is naturally occurring (and as I write this I am fearful of making a error that Ted will surely correct for such is the state of cask knowledge that even someone such as I, a huge cask enthusiast, only has rudimentary knowledge of the art).  The absence of injected carbon dioxide tends to reveal flavors that are hidden by the gas and, to my mind you get a fuller, richer experience of the ingredients and flavors that mingle on your tongue.  Which is also why mild beers are perfect for cask, flavors that CO2 washes out will remain on cask.  Mild beers are also perfect for an evening of socializing - quaffable, enjoyable and easy on the brain.

But because of the difficulty of preparing, serving and keeping cask ales, until the appreciation for the product causes a real demand shift it is hard to make them profitable.  Which is why I am here to tell you that if you missed the meet-the-brewer event at the Green Dragon last night, you have another rare chance to meet Ted and taste his beer served the way it is supposed to be served - from a fresh cask - tonight at Belmont Station.  The cask gets tapped at 3.  I shall be making a mad dash to meet Jeff there after my last meeting in Corvallis and hoping that y'all have to wait until later so there is some left for me.  [If you see me, say 'hi.']  It is only through repeated exposure that cask - just as craft beer itself - will catch on and create its own market.

The Hopopotamus™ Update: It has been racked into bottles and will be ready in a week or so, but the occasional zwickel has left me confident that it is, and I am sure all tasters will agree, The Best Beer Ever Brewed™.  In case you were wondering...

Also, my wee hop plant is not so wee anymore, and have been convinced by the beer savant to add about 6 more feet to my trellis support.  It has about 15 feet to grow up now.

Now all we need is some sunny weather and I can get to work perfecting my Northwest Best Bitter.

The Hopopotamus™ Lives!

I am very pleased with my new all-outdoor brewing set-up, and was so determined to brew outdoors that The Hopopotamus™was delayed by the extended wet and cold weather we have had over the last few weeks.  But last Friday the weather cleared, I wrapped up all the tasks I had to do early, and set to brewing.

After a trip to Steinbart's, where many hops were purchased, I swung by and picked up The Beerax for moral and spiritual guidance and then set up my al-fresco brewhouse on my patio.  My new propane burner was fantastic and in no time at all I was ready to mash.  So mash I did.  Here is a picture of the grain sack early on in the mash.

 

Then it was time for the powdered malt extract andhere the trouble began.  After stirring the malt extract a little I noticed my floating thermometer was trying to float horizontally. I figured at fist this was due to malt extract - pretty gooey stuff before it dissolves - sticking to it.  But when I pulled it out I discovered, to my horror, that it had shattered at the bottom leaving behind glass and weighting pellets of unknown provenance. [In the picture you can see the offending thermometer] The thermometer itself which rests inside the glass container, was intact (and thus no mercury contamination - if there is any in these things anymore), so there was a few moments when I pondered continuing on and straining out the debris.  After all, the little weighting pellets couldn't be lead could they?  No one would be the wiser, I thought, and what is a little shard of glass in a beer anyway but a fun amusement?  

Fortunately, seeing my moment of weakness, Jeff looked at me in the eye and said "I 'aint drinking your beer man..."  Of course he was right and so a mad dash to Steinbart's ensued - in rush hour, argh! - to procure more grain and malt extract.  And in this cautionary tale lies yet another reason homebrewing is not a money saver - this will end up being an expensive beer, economies of scale indeed.  

So after a refreshing jaunt through Portland traffic, back we arrived and re-started the entire process with a new thermometer.  Once the grain bill was fully infused the fun began.  I, being the Beer-Whisperer, had an unconventional sense that I should add the low alpha acid hops early, creating a base of gentle bitterness that would then be layered upon with pungent, high AA, hops later in the boil.  Jeff, however, started getting skittish about the result being under-hopped and was strangely unimpressed by my Beer-Whisperer's certainty that my instinct was True and Good.  

This unsettled me.  Jeff is, after all, the Beer-Savant (or the Rain Man of beer as I like to call him) and my conviction started to wane, so I capitulated.  [Later Jeff would say that he was merely posing the question and not making a suggestion - so now I call him the passive-aggressive Rain Man of beer] I thus threw in an ounce of the ultra-high AA Simcoe hops and switched the order of the moderate AA Cascades and the lower Crystals.  More Simcoe and Amarillo were added late and in the picture below you can see the wonderful, glorious oil-slick of hop resin as well as the remaining Amarillo waiting in the carboy as my dry-hops.  

Maybe Jeff was right, thought I, as the final product in the carboy whispered to me that it was good.  I have had a bit of a under-fermentation problem recently, so I pitched two packs of Wyeast's American Ale II yeast, which reputedly is the Anchor Ale yeast.  Never used it before but it, of course, whispered to me that it was the One.

And so The Hopopotamus™sits in my basement fermenting away getting ready to make its world premier in another few weeks.

Over at the Beeronomics blog (which is simply a collection of all my Beeronomics posts from this blog) A commentator noted that perhaps my assertion that The Hopopotamus™name was a registered trademark was suspect as Roots has already had a beer of that name.  I had not known of (or more likely not remembered) the Root's brew, but in any event Craig spelled it Hoppopotamus whereas I go for the more parsimonious use of the p.  Regardless the registered trademark symbol was entirely a joke, but lest the feds get whiff of The Hopopotaumus™- and surely they will what with all the hops - I have switched to the TM symbol.  So there.

And I did rip-off the name, but not from Craig Nicholls, rather I stole it from The Flight of the Conchords.  Enjoy:

Growing Your Own - the Hop Update

Well, I never claimed to have a green thumb...  My initial rhizome didn't seem to want to emerge from the earth and greet the sun, so I had to declare a failure to thrive and make an emergency dash to Portland Nursery to get a new Cascade hop plant (which apparently is the hop of choice as the pickings were slim among Cascades, but there were ample choices of very mature hops of different varieties).  Now, after taking quite a bit more care with the planting, giving it lots of fresh soil and compost, I am happy to report that my new Cascade hop is thriving albeit still a wee thing (picture above - now about a week old, so it has grown probably 2-3" since then).  My cherry tree also looks to be gearing up for a banner year so beers with home grown ingredients are in the offing.

One side benefit to having to dash off to Portland Nursery is that I pass right by Belmont Station - a misnomer now that it is on Stark, but no matter - and, well, when in the neighborhood one must stop in mustn't one?  Since spring was in the air and hops were on the mind, I picked up a selection of IPAs that are hard to find in my local stores:

Oakshire Watershed IPA - A lovely hop aroma, amber color and medium body. A bit aggressively bitter, but another of the excellent NW IPAs out there for us hop heads.

Hair of the Dog Blue Dot - As a seasonal, it is only around part of the year, so now is the time to track this über-classic down.  Every time I try this after a long absence I am absolutely floored by it.  It is aggressively hopped but has a wonderful creamy body that balances the bitter hops.  It is much lighter than the average NW IPA and I suspect that a dose of wheat gives it its creamy body.   The hops and malt do a dance on your tongue and the floral aroma sings to your nose - rhapsodic.

Rogue Brutal Bitter - My favorite Rogue beer which apparently is being renamed Rogue Brutal IPA.  It is really not a bitter in the british sense as it has more IPA characteristics, but it is not especially bitter so I have always thought that the name did it a disservice.  As I can find about 10 other Rogue beers locally but not this one, I suspect that I am right about the name scaring people off.  Of the four beers here, this surely is the one a non-hop head would be the most likely to love.  The Crystal hops are so clean and bright on the palate it amazes me that they are not used more (at least to my knowledge). I tried to clone this beer with a few twists and it came off pretty well and now Crystals are among my favorite hops to brew with.

Bear Republic Racer 5 - This was the true revelation.  I had not had it before and I have missed out.  It is bottle conditioned (like Bridgport's IPA) which allows the flavors to shine and oh what flavor!  It is aggressively hopped by not aggressively bitter, has a wonderful aroma, floral and citrusy, a lovely amber color and is lightly carbonated thanks to the bottle conditioning. It has vaulted into the top shelf of my favorite IPAs - which includes those listed here as well as Ninkasi, HotD, and Boundary Bay, among a few others.  

I highly recommend all four.

Tomorrow I shall update the latest news on the eagerly anticipated arrival of The Hopopotamus™

External Economies of Scale

As if on cue, the always excellent John Foyston writes today in The Oregonian about Indie Hops and its new pelletizing plant to serve craft brewers specifically:

Indie Hops' shiny new $2 million hop-pelletizing plant in Hubbard is the most tangible evidence of CEO Jim Solberg's belief that it's time for the American craft brewers to move out of the shadow of the giants.

The plant has already proved that it can make hop pellets at 110 degrees and less -- 20 or 30 degrees cooler than current methods. The lower temperatures better preserve the delicate hop oils and aromas that craft brewers prize.

Hops are usually dried and baled after harvest in the fall and then sold as whole leaf, or processed into hop extract or pellets, which are hops that have been chopped and compressed into the size and shape of a pencil eraser. Pellets are easy to store and use, and produce more consistent results.

And now, Indie Hops' pellets will retain more of the volatile aromatics and aromas.

...

But there is a tradeoff: The plant runs slower than the pelletizing plants in Yakima -- about an acre an hour, Solberg said, or eight 200-pound bales of compressed hops. That fits in with the business plan devised a couple of years ago by Solberg and partner Roger Worthington, an Orange County attorney and longtime friend.

"We decided from the start to scale this to craft breweries and not the industrial brewers. Craft brewing has basically grown up on trickle-down from the mega brewers," such as AB InBev (Budweiser) and SABMiller, he said. "But craft brewers have come into their own."

Pelletizing is just part of the Indie Hops business plan, which aims to elevate Oregon's aroma hops to among the best in the world and provide the state with a processing and storage infrastructure that now exists mainly in Yakima. The U.S. grows about a quarter of the world's hops in Yakima, Oregon and Idaho. The 2008 crop was worth nearly $40 million to the state.

This is precisely the trend I was talking about in my recent Beeronomics post on economies of scale. This is an excellent example of external economies of scale: the fact that the craft beer industry as a whole has grown prompts or allows suppliers of ingredients to become more efficient and offer cheaper of better inputs which improves the costs and quality of all brewers.  Pellets are easier to ship, store and use but craft brewer worry about loosing some flavor.  Indie Hops has brought a new version that will allow craft brewers to be more efficient by using pellets but still retain the flavor that typifies their beer.

[Note: the picture is from The Oregonian's web page, but is unattributed]

Hops Poll

Hey thanks for chiming in on my now closed hops poll. I think the Hopopotamus®
will begin life with a four different hops (because a Hopopotamus®
should really full of both lots of hops and lots of varieties). So I am going to go with Crystal as a base, and Amarillo, Cascade and a touch of Simcoe hops for flavor and aroma.  Crazy, I know, but the people are going to expect something crazy good when they hear the name Hopopotamus®. And what the people want, I deliver.

The wisdom of the crowd - well really just a gaggle - suggested Willamette, but Simcoe is just too alluring...

I'll let you know how it turns out.

Non-Linear Pricing

Here is a picture I took the other day at the Deschutes' Portland pub.  It is a little out of focus, the iPhone not quite up to the job of low light detail work, but notice how the beers are priced: $5 for 500ml and $3 for 300ml.  In other words exactly 1 cent per ml.  This seems straightforward, but to me it was astonishing as you almost never see this kind of 'linear' pricing in beer.  Most places are like the Full Sail Tasting Room and Pub in Hood River which prices their imperial pints at $4.25 and half pints at $3.  This is what economists refer to as 'non-linear pricing:' when the price per unit changes as the total units change.  So a pint at Full Sail is about 21 cents an ounce and a half pint is 30 cents an ounce.  This is the norm and it is everywhere in product markets: beer, soda, chips, socks ($4 a pair or 3 pairs for $10), you name it. The question for all you budding economic naturalists (or Beeronomic naturalists) is, why?

One reason for this type of pricing is simple: costs.  It can be cheaper to sell in larger quantities.  I talked recently about the cube-square rule that generally affects packaging costs: the volume from bigger packages increases at a faster rate than the surface area of the packaging - so the costs per unit of the packaging decrease with volume.  There are reduced transactions costs per unit for bulk purchases as well.  In a pub setting, smaller servings may mean more glassware to bus and wash and more visits per table by servers.  So some of what we might be seeing in non-linear pricing is just a reflection of the added costs of smaller quantities.  

But not always.  Bill at the It's Pub Night blog has had an ongoing fascination with non-linear pricing in beer, focusing particular attention on the inflated price of 22 ounce bottles that have gained so much popularity.  Given the cube-square rule and the lower amount of packaging (no paperboard holders) you would assume that the six-pack would be costlier per ounce of beer and therefore if price was just a function of costs, 22 ounce bottles would be less expensive per ounce than six-packs, but Bill finds that the opposite is true.  So, again, what is going on?

The answer, to economists, is well known and goes by the term 'price discrimination,' or more specifically in this case 'second-degree price discrimination.'  Price discrimination in general is the ability to charge different customers different prices for the same good based on their ability to pay.  You charge more to people who value the good more and less to those that don't.  If you can do this two things happen: you do better as a seller, and you sell more than you would otherwise.  You do better because you get to capture most of the surplus from each transaction and you sell more because if you were forced to sell everything at the same price you would keep it reasonably high (if you had any market power) and thus the folks who didn't value it that highly might not get to buy.  If you can charge different prices, however, you are quite willing to sell at a low price to a customer with a low value of the good because you can still sell to the high valuation customer at a high price.

Portland's saturday market is a good laboratory to see how this works.  Go to a booth where an artisan does not post prices and observe how prices are quoted.  You will probably find that price will fluctuate based on some observable characteristics about the customer that might be reasonably related to willingness to pay for the artisan's wares: fancy clothes, watch, age, extra excitement, and so on.  To illustrate this phenomenon I always tell my students tales from when I was a Lewis & Clark College student studying overseas in India and would go to the market.  After a while I got to know the regular prices, but as soon as they saw an obvious westerner, the shopkeepers would immediately double, triple or quadruple the asking price (it helped to know a little Hindi to hear how the prices changed from a local to me).  The shopkeeper made the correct assumption that a westerner in general had a much higher willingness to pay than a local and thus wanted to extract more surplus from that transaction.  He was practicing price discrimination and thus showed himself (it was almost always men) to be a good economist.

This is close to what we refer to as first-degree price discrimination where you can tell something about individual willingness to pay for a good.  The problem with this type is that most market situations are more anonymous - you can't tell by looking at them anything about their willingness to pay or you don't even see them at all.  So what to do, well you might be able to get different types of customers to differentiate themselves by offering different prices.  This is 'second-degree' price discrimination.

Take the pub as an example.  Suppose you know that there are two types of customers: high demand and low demand.  Low demanders are only going to buy one beer and are willing to pay up to $6.  High demanders willingness to pay for one beer is $6, $5 for the second and $4 for a third or a total of $15 for three.  Now let's suppose there are equal numbers of both types and so let's talk about a single table of two people, one of each type.  Lets also assume the marginal cost is constant so that it costs them $2 to provide every beer.  The pub could charge $6 a beer and would sell two, get $12 in revenue, $4 in costs and clear $8 in net revenue.  Or they could charge $5 a beer and sell three, and make $9 net.  Or they could charge $4 a beer sell four (one to the low demander and three to the high), and make $8 net.  But a clever publican would offer a different deal: $6 per beer or three for $15.  The low demander will buy their one beer for $6 and the high demander will go for the three beer deal (if you prefer make it $14.99 so he strictly prefers this deal and gets $0.01 in surplus over one $6 beer).  The pub will make $6 + $15 in revenue, will have $8 in costs and will net $13!  Clearly this is a better plan for the pub and notice it does not require knowing which customers are high and low demanders - they self-select.

This is classic third degree price discrimination and can be applied to Bill's 22 ounce bottles as well.  There are low demanders for these beers who want just a wee bit to taste and high demander who will drink much more.  By pricing the 22 ounce bottle so much higher you charge a premium to the low demanders and you give a discount to the high demanders by offering them a volume discount in six packs (and generally even better deals with 12 packs).

But Bill should not despair (assuming he is a high-demander) because this strategy generally benefits the high demander - they get lower prices than they would in the absence of the price discrimination.  Thus the 22 ounce bottle is a good thing for the six-pack buyer.  Why?  Well, go back to my pub example and notice that the high demander pays only $5 per beer, rather than the $6 they would have paid without price discrimination.

This is a general rule in price discrimination: some groups benefit and some suffer from the practice.  In this case, high demanders see lower prices, but low demanders get the same price.  This is due to the particular simplicity of my example, more often low demanders see higher prices.  

Cheers!

Happy Hours

I have been provoked...

The OLCC has had an interesting prohibition on the advertisement of happy hour: you could do it within the premises, but you could not advertise externally.  Now, in response to increasing pressure, the have relaxed the rule but in an entirely byzantine way: you can advertise the time of special priced drinks, or you can advertise the special prices, but not both.  The rationale, according to the Oregonian article on the announcement (not on line and already recycled so I am going by memory here) is to make sure price wars don't ensue and thus promote binge drinking.

Let's take things one at a time.

First, would external advertising of drink price specials lead to lower overall prices?  Economic theory suggests that it would.  By lowering search costs for customers they find it cheaper and thus easier to be choosy and this means more price sensitive.  Most bars are serving essentially the same things - though the quality of the pour might differ and brewpubs often serve exclusive beers - so a lower price would likely be a key factor in where they drink.  How big this price effect would actually be is unclear but I suspect it would be very small given the amount of information already available about happy hours and word-of-mouth.

Second, would these lower prices result in more binge drinking and problem drinking?  There is evidence of an overall price effect on alcohol consumption, particularly among young adults and teens.  But this is not quite the same thing - we are speaking here of drinking in a bar or pub.  So the teen factor is eliminated and the drinking here is during a special time in a controlled environment.  The US Dept. of Transportation is worried about happy hours and drunken driving and suspects that it matters a lot, thought there is only indirect evidence.  But their report is about happy hours in general, not the advertising of price.  They mention one study that did not find an effect of happy hours overall:

Only one study has attempted to directly evaluate the efficacy of happy hour laws in lowering alcohol consumption. The banning of happy hour practices in Ontario, Canada, was studied by observation of drinking habits before and after the ban, supplemented with analyses of total per capita consumption in the city (Smart and Adlaf, 1986; Smart, 1996). No significant decline in alcohol consumption was observed following the ban. Given that there was little time (two days) allotted to observing pre-ban drinking habits, and given that aggregate consumption figures may not be that sensitive to changes in happy hour practices, the results were inconclusive as far as the overall effect on alcohol consumption of the presence or absence of happy hour practices.

I left the DOTs disclaimer in, but it is not clear to me that this is a problem.  Anyway, though overall drinking may not change the concentration of drinking during a time period might cause externality problems in terms of excessive drunkenness and driving whilst impaired.

But the OLCC allows happy hours already so the new law is quizzical.  If it is the price war that is of concern, then why allow price advertising at all?  And if it is the price specials during certain hours, why allow happy hours and advertising of the times?

Given the rules already in place it is hard to understand these new ones.

In the end I don't really have a opinion other than it is unnecessarily complicated and a general economist's take that it is not clear that regulation is necessary at all.  There are externalities associated with alcohol consumption, for sure, and this is one reason alcohol is taxed fairly heavily, but once the Pigovian taxes are there, let the market do its thing.  However, happy hours might contribute excessively to drunk driving in which case there might be a case for prohibiting them altogether, but the evidence is not at all clear on this connection as far as I can tell.  So the advertising part seems a bit misguided - if you are going to have a policy on happy hours themselves, fine, but if you are going to allow drinks specials then it is odd to not let you talk about them.