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12 NW Wiskeys Reviewed

By Lenny Gotter, CAS Member Expert, Spirits Guru and more

Note: Neither Lenny nor CAS receive financial compensation or other benefits from the selected companies. Analysis and results are from whiskey enthusiasts and made out of love and delight…

Photo by Polara Studio: PolaraStudio.com

Most consumers have performed some blind taste test in one form or another. In talking to friends and family many reference wine tasting as their first experience tasting something they know nothing about and then trying to determine flavors, aromas, and quality. Participating in many wine tastings myself, I remember looking around and observing others with the very same question on their minds “Do I like this?” Pretty tough question when you don’t know the ingredients, manufacturing process, cost, and how the packaging looks. Researchers typically use blind taste testing to compare one brand to others. Here in Portland, Oregon State University has a Sensory and Consumer Group in which I have volunteered a few times to blind taste test foods, the last being frozen Ahi Tuna. The Sensory Group has strict guidelines including no one is allowed to wear fragrances on the day of testing.

This year was my first year as a spirits judge.  Previously, I had been on the production side of the industry as the founder of Eastside Distilling.  There I had created flavor profiles for more than 20 products, many that ended up winning awards and several that are now multimillion dollar brands. I have done hundreds of experiments on flavor. Back then, before becoming a judge, I thought I had an educated and diverse palette. Wow did I have a lot to learn! When your first task as a judge is to rate 21 corn vodkas, all made from the same bulk neutral grain spirit, your taste buds and your brain go to a whole new level.  When all those glasses of clear alcohol stare at you blankly with no input as to cost, and packaging and marketing, you have to dig in and really evaluate based on smell and flavor. I know that sounds obvious, but trust me, organize a blind test with your friends.  Pool together ten bottles of very similar products, say 4 year Bourbons, have your spouse pour the samples in another room and start tasting them one at a time (you will need lots of glasses).  What you think is your favorite Bourbon may not be your favorite Bourbon!

American malt whiskey is not a defined category in spirits, yet… so a blind tasting is even more challenging.  What is American Malt Whiskey? Well here is the standard from the American Malt Whiskey Commission: Made from 100% malted barley and distilled in entirely one distillery. Mashed distilled and matured in the United States of America. Matured in Oak casks not exceeding 700 L. Distilled to no more than 160 proof or 80% alcohol by volume. Bottled at 80 proof, 40% alcohol or more by volume. This is pretty loose for a whiskey definition and leaves plenty of room for variation and innovation.

The products we tried here did not all fit into this guideline as some were made with less than 100% barley, but they are all similar enough in production to warrant a taste test. Everything we tasted was in the range of flavor from an Irish whiskey to Scotch whiskey to something totally different.  I decided to do my tasting at Polaris Studio here in Portland because they have been working with me for many years in taking product shots for not only my products but also other companies I work forI had originally thought of bringing in whiskey professionals, but I decided that instead of professionals I would get enthusiasts.  I was not disappointed with the results.  Out of the 12 samples, three rose above the rest, and the top two spots were very… very close.  All of the products were very good and there were no bad whiskeys in the lot.  In general, the products that did not score in our top were simply younger and a bit less structured.

All of these whiskeys are from Oregon & Washington where some of the best barley in the world grows:

#1
Westland Single Malt Whiskey

aromas of blackcurrant tangerine and walnuts
flavors of mossy bog, tar, waffle cone, and campfire smoke
a long pleasant lasting earthy hint of peat finish
Westland Distillery - WestlandDistillery.com

#2
Bull Run Oregon Single Malt Whiskey aged four years 89.08 proof

the nose is moderate with aromas of malt, toffee, light peat smoke and a touch of cardamom and tobacco leaf
the taste is cocoa powder, waffle cone, white pepper and raisin
an oily lasting finish of coffee, caramel, and a touch of mushroom funk on the end
Bull Run Distillery - BullRunDistillery.com


#3
Clear Creek Distilling’s McCarthy’s Single Malt Whiskey

nose is peaty smoke with a hint of cinnamon
flavors of smoke, peat, and honey
earthy campfire smooth finish
Clear Creek Distillery - ClearCreekDistillery.com

The rest in alphabetical order:


13 Corners American Malt Whiskey 80 proof
nose is very light aromas of alcohol fuel oil and whole wheat bread
flavors of soggy toast clove and milk chocolate
finish complemented by a lasting light malty and almond flavor and a bit medicinal
Wishkah River Distillery – WishkaRiver.com

Copperworks Distilling American Single Malt Whiskey 106 proof
the nose is very light of smoky cocoa beans a touch of cinnamon
the taste is lots of caramel and graham cracker with black pepper
finish is dry and malty with a burnt sugar sweetness
we found it to be a bit hot at 106 proof, but a few drops of water opened it up nicely
Copperworks Distilling – CopperworksDistilling.com

Four Spirits Single Malt Whiskey 80 proof
This was the wildcard of the bunch. Aromas of banana popsicle and chai tea
flavors very sugary reminiscent of custard and bananas foster
a short fruity, grassy finish
4 Spirits Distillery – 4SpiritsDistillery.com

Idle Hour Malt Whiskey 88 proof
aromas of peach pie, caramel, and grain
flavors a little bit hot reminiscent of lightly burnt wheat toast
sea salt air finish that ends a bit medicinal
Seattle Distilling Company – SeattleDistilling.com

Madam Damnable Washington Single Malt Whiskey 88 proof
nose is rising rye bread with white pepper and hazelnut
Flavors of rye toast moss and black cardamom with a spicy rye finish that burned a little bit.  Few drops of water took off the excess spicy bite
finish of modest peat smoke and caramel
Sounds Spirits – DrinkSoundSpirits.com

Ransom Spirits The Emerald 1865
noses pleasant and balanced shortcake allspice and brown sugar
full-bodied and rich flavors of butterscotch pancakes almond and a dusting of clove
finishes smooth and malty
Ransom Spirits – RansomSpirits.com

Rogue Spirits Oregon Single Malt Whiskey 80 proof
the nose is very light gunpowder phenolic with aromas of orange piecrust demerara sugar and hazelnut
flavors of buckwheat pancake peaty smoke hazelnut and nutmeg with a waxy texture
the finish is lasting malty mushroom and smoke
Rogue Spirits – Rogue.com

Tualatin Valley distilling Oregon single malt 92 proof
almost no nose cinnamon cookie with clove moderate alcohol presence and a slight medicinal quality
flavors very light of barley biscuit pecan a touch of caramel with a white pepper burn
a lingering finish of pepper spiciness
Tualatin Valley Distilling – Tvdistilling.com

Westward American single malt whiskey 92 proof
aroma doughy cinnamon roll prune and a light iodine aroma
the flavors are ready yeast general and malt
finish of burnt caramel, with a bit of mushroom funk
House Spirits – HouseSpirits.com

In closing I would like to add that this was an exceptionally enjoyable tasting and I’m very excited about all of these products what the future holds for American malt whiskey.  It is my firm belief that American Malt Whiskey will become the next big category in the American spirits so you heard it here first.  I’m very excited to have so many excellent products from so many local distilleries.

Lenny Gotter
Spirits Guru/Brand/Marketing/Sales Consultant/CAS Member Expert
LennyGotter.com

In a Year That Soured, Here Were Some Winning Strategies

By Sam Holloway, President Crafting A Strategy

This blog features a few of our member success stories from 2017. I’ve organized these stories using the Boston Consulting Group’s decision-making framework: The Strategy Palette. This should help you decide how your brewery should think and act in 2018 if you survived the craft beer pinch of 2017.

The last five days have renewed my confidence in strategic thinking and how our approach at Crafting A Strategy works. This may seem odd since the last five days have been dominated with bad news, brewery closings, layoffs, and a general malaise resulting from 2017. Still, at the risk of shameless self-promotion, I think it is worth noting that during the toughest year in beer since the mid 1990s none of our member breweries closed. How did they survive? Why did their strategies work? How do our members work together? It’s because we think and act differently, not building strategies typically taught in a traditional MBA. It's no longer sufficient to have one strategy. Success in 2017 and beyond requires breweries to operate in multiple business models, each with their own strategy, goals, and mindset.

We hope these brave entrepreneurs will inspire. We also hope that more committed entrepreneurs will join Crafting A Strategy and help us sustain the global craft beer renaissance. This blog is longer than I would normally like, but it could help save your business by teaching you how to think. Here’s one of our members describing how his thinking has changed:

Ben Parsons, Co-Founder, Baerlic Brewing (Portland, OR): “In terms of the brewing industry, I tend to exist in the gray area between the brewers and the owners. More often than not, the owner is not the brewer. They are vastly different skill sets and require vastly different mind frames. This is where I really get the most out of the CAS community. It’s more a brewery entrepreneur community and that's really where my time gets more bang for its buck in terms of making better beer. If I run a better business now then I am afforded the opportunities to make better beer in the future.”

The BCG Strategy Palette: The Inspiration For Crafting A Strategy’s Strategic Mindset

Developed by Martin Reeves and his colleagues at the Boston Consulting Group, we believe this lens allows us to explain why our members succeed when others fail.

Source: BCG Henderson Institute: https://www.bcg.com/publications/collections/your-strategy-needs-strategy/intro.aspx

Quadrant 1: Classical

I’m already big, and won’t need to change

KEEP OUT! STAY AWAY! THIS IS WHERE CRAFT BREWERIES GO TO DIE!

Unfortunately, this quadrant is where a classically trained MBA lives. The best way to win here is to be big. If you are big, you get all the scale advantages and bargaining power. Getting big was a great strategy if your brewery was founded before about 2003. This is the quadrant of a blind commitment to volume growth. This is the quadrant of deep pockets. If you aren’t already big, don’t think this way. If you are already big, congratulations and good luck. Get ready for a blood bath, a red ocean, and to merge and acquire each other.

Quadrant 2: Adaptive

It’s harder to predict, but I can and will change

This is where most of our production brewery members live. They trade profit maximization and volume growth for growth in happiness, sustainability, employee morale and reasonable profitability.

Steve Waters, CEO Backwoods Brewing (Carson, WA): “2017 was the first year we acted differently. For the first time, we didn’t bank on explosive growth. We readjusted our goals to include profitability and moderate growth. Everyone saw the slowdown coming; we just decided to respond to it where previously we ignored it. You see, my parents put their life savings into this brewery and then gave it to my brothers and I to run. That’s a lot of responsibility. We joined Crafting A Strategy because we wanted to think and act differently. We wanted to be profitable. I’m happy to report, with Sam’s guidance and support from our CAS peers, 2017 was our first positive EBITDA year ever and we grew volume on top of it!”

McKean Banzer-Lausberg, Co-Owner Migration Brewing (Portland, OR): “The entire Migration management team receives the (CAS) weekly emails and very often have strategic discussions about relevant topics brought up in the emails. We have also referenced a wide variety of white papers to help drive decision making. Migration's primary goal for 2017 was to secure a production facility location and financing for a major expansion. Secondary was to bolster our growing team with talented, thoughtful people that compliment our company's culture. We worked with Noah Brockman at the SBDC, Josh Bean of Ethos Commercial Advisors, Columbia Distribution, and Pacific Continental Bank in order to achieve these goals.”

Quadrant 3: Shaping

I can’t predict it, but I can control it

This is where most of our brewpub members and self-distributor members operate. Sure, some also have wholesale agreements that place them in the adaptive quadrant for that part of their business, but their forward looking and strategic choices lie in shaping a future where they can win. Often, this starts with looking in the mirror and asking themselves if they can commit to thinking and acting differently.

Ben Parsons, Co-Founder of Baerlic Brewing (Portland, OR): “For me, 2017 was a year of trying to get into stride. Since Baerlic opened in 2014, it has been a near endless amount of work in mostly the putting out fires category and I have worked really hard to try and move away from that mentality…The biggest of which was removing myself from the day to day operations of physically brewing beer. Which was hard, because I absolutely love brewing beer. It's why I wanted to open a brewery in the first place. But, as much as it pained me, I quickly recognized that decision as one of the best business decisions I have ever made. It has allowed me the proper amount of time and energy to build the business side of Baerlic.”

Steve Waters, CEO Backwoods Brewing (Carson, WA): “The weekly updates from Sam and Joe have helped shape our mindset. We realized a reckoning was coming and our market was getting tougher by the day. We had to treat Backwoods first like a business and second like an art – not the other way around. Looking ahead to 2018, there is so much knowledge within Crafting A Strategy – other breweries, distributors, professors, lawyers – we are leveraging this knowledge to improve our operations. We’re even taking a few field trips to other member breweries to steal some of their secrets. Everyone here shares knowledge. Everyone here wins together.”

Tom Schmidlin, Founder and Head Brewer Postdoc Brewing (Redmond, WA): “We are not doing much differently than other successful breweries, but I think there is some separation between the successful and not successful breweries. New beer releases always give a brief uptick in sales, whether it is a new product, a new package, or a new distribution channel. Even with the recent closures I believe there are more breweries in Washington than ever and consumers are looking for what is new. We will continue to create new products and packaging to keep people interested in our brand. At the same time, we are committed to our core brands and continue to grow those, opening new channels for selling those beers.”

Quadrant 4: Visionary

I can predict it and I can change it

We teach our members to fail cheap and fail fast. The strategic way to try new things is to do them in a way that won’t wreck the business. These strategic moves are business model moves based on your vision of your best future. They are hypotheses, both of business model and markets, and they influence and shape each other over time (Holloway and Sebastiao, 2010).

Ryan Flynn, North American Sales Director for Oproer Brewing (Utrecht Netherlands): “We believe that it is nonsense to waste the environment with the transport (of Dutch-made beer) to the USA. So, we reached out to Sam Holloway and asked if any CAS members had excess capacity and a desire to make our beer closer to where it was going to be consumed. Sam recommended CAS Member Coin Toss Brewing and CAS Member LGM Distributing to make and sell the beer for us in Portland. Since then, we have expanded our vision to include brewing American craft beer in Utrecht for sale in The Netherlands and beyond. We articulated our vision in this blog, and now we have a growing and different business model of fresher beer at a much lower cost to the breweries and to the environment.”

Ben Parsons, Co-Founder Baerlic Brewing (Portland, OR): “As Baerlic is a pretty direct expression of who I am, it has been hard at times to really dig into what makes Baerlic “Baerlic” without going down that rabbit hole of self-exploration that might have some scary implications, ha! But, in a pretty concerted effort to discover what truly defines us, I realized that our biggest differentiator in the market is our agility. This is where our ninja like agility has evolved from. We are a very small brewery making and selling just over 1100 BBLs in 2017 and we have learned to use our size to our advantage. We can turn on a dime, when a larger brewery cannot. We can change our entire sales strategy, when a larger brewery cannot. We brew many many different styles well and can push new products to market at lightning speed when larger breweries simply cannot. Every time we try and act like a large production brewery, we fall flat. This has been a crucial realization for us over the last several years and I attribute our year over year growth in terms of brand equity AND actual sales to this mantra. We are not a hoppy beer brewery. We are not a German or Belgian beer brewery. We are not a lager brewery. We're not a sour brewery. We are all of these things and that is what really defines Baerlic. And we will continue this scrappy mindset as long as it works.”

Renewal: The Penalty Box

BCG Director, Martin Reeves calls strategic renewal “The Penalty Box.” In this mindset, the most strategic thing you can do is survive. Our members faced tough times in 2017 and found ways survive and advance toward a profitable 2018 and beyond.

Tom Schmidlin, Founder and Head Brewer Postdoc Brewing (Redmond, WA): “In this market, success sometimes means outlasting the competition. We grew in 2017, although not as much as we had hoped. Our Seattle sales rep left us for personal reasons, and we have been unable to find a suitable replacement. This definitely put a dent in our sales. But when we look around our area, there have been several brewery closures while we are still growing. Just in Redmond we had one surprise closing and another coming up in a month, so there will only be three breweries left.”

To Summarize: Your Strategy Needs A Strategy

Winning in 2017 and beyond means that your brewery can’t survive with only one strategy. It all starts with your business models. Each channel you sell beer through (or plan to) needs its own business model and its own strategy. These business models should complement and reinforce each other as much as possible, but don’t try to jam a single business model into every channel. Also, don’t rely upon a volume growth strategy as your primary strategy (unless you are already large or have unusually deep pockets). Finally, you don’t have to do this alone. The breweries at CAS work together and continuously share ideas, successes, and failures. Plus, other members including lawyers, CPAs, bankers, consultants, and several professors surround them.

Please review our membership and testimonials from beer entrepreneurs like you. Our community gets stronger with more breweries. For less than the price of one nice dinner with your management team, you can give them a year of training, networking, and learning on our all digital and on demand platform.

Sources and Additional Resources

If you’ve made it this far through the blog and still want more…

Watch BCG’s 3-minute video on The Strategy Palette, "Your Strategy Needs Strategy".

If you want a 10-minute video on why The Strategy Palette helps companies in tough times, watch this Ted Talk from lead author, Martin Reeves. I use Reeve’s Ted Talk to start all of my Executive MBA workshops – both in the USA and abroad.

The Case for International Contract Brewing

For the past several months, I have been engaging CAS members on the topic of contract brewing. There is a growing movement within our membership that believes in a simple principle: Beer should be made as close as possible to where it will be consumed. Several members have come out more strongly, saying “it is morally wrong to ship beer across oceans.”

What principles does shipping beer overseas compromise?

  • Environmental principle: Shipping water over water is wasteful.
  • Freshness principle: If beer needs to be consumed within six months, why let it spend a month on a boat before it enters a distant market?
  • Cold chain principle: Many foreign countries simply don’t have a cold infrastructure set up for beer
  • Brand and community principle: Suppliers that simply say goodbye to their beer when it leaves their dock have less control over how and where their beer is marketed and lack a direct connection to their new, local market. And, they don’t make good partners to their distributors
  • Financial principle: Shipping beer internationally is expensive. Because it can be impossible to retrieve brewery owned kegs internationally, new costs and environmental impacts of one-way kegs are introduced

How could a new business model based on international contract brewing remove these obstacles? What are the benefits?

  • Environmental benefits: carbon footprint is reduced
  • Freshness Benefits: Beer can be packaged and delivered to retail bars or grocery stores within days (not months)
  • Cold chain benefits: There are certain distributors in Europe/Asia that have cold storage, although many bars store beer in the basement (not terrible, but usually 16 degrees Celsius instead of the preferred 5 degrees Celsius). Finding the right distributor with enough cold storage is essential
  • Brand and community benefits: Local knowledge, local networks, and an understanding of local labor laws and wages/benefits packages to attract the best talent. Also an understanding of how to remove employees, which is nearly impossible in some countries.
  • Financial benefits: It costs between 5,000 Euros (East coast of USA) and 9,000 Euros (West coast) to ship a refrigerated 40 foot container of beer to Europe. Brewing locally, this cost goes away, but pricing stays basically the same. Cooperating partners can use this value to ensure QC/QA, to procure the right ingredients, and also ensure each entity’s margin targets are met.

Fundamentally, a new business model based on international contract brewing creates business advantages. Here are some examples:

  • Access new markets and grow your business without capital investments.
  • Reciprocity: Contract brew beer for your foreign partner at home, grow new and diverse revenue channels
  • Fractional in-market sales reps: Imagine offering your European wholesale partner on the ground support personnel in Europe, but sharing this cost with other CAS member breweries? Each Brewery pays a percentage, the distributor picks up a percentage and you now have a knowledgeable person talking about your beers to new consumers.
  • Have fun! Imagine a business trip to Europe or Asia to promote your beer. When was the last time you took a vacation, anyways???
  • Be local. We all know that being local and small is a great competitive advantage. Why not partner with a local brewery to brew your beer on their system? You are automatically local, new and innovative.
  • Develop your people. Have you ever had a sales person or other employee approach you saying they needed a change? What if you could rotate people through your European operations and create a win-win professional development and personal development scenario?
  • Be environmentally friendly.
  • Increase the variety of beers you can brew in new markets by eliminating the freshness challenge.

Of course there are risks as well, and we’ve got an entire forum thread on concerns about ingredient quality, equipment, beer quality, storage, and more. Click here for the forum thread: Contract Brewing - Key Contract Provisions.

Next Steps:

CAS member breweries should consider this new business model. Brewers in Europe have a long history of contract brewing. And distribution is not subject to traditional franchise laws like you may see in your state. With no shipping, there is money in the system to make sure everyone gets a fair price. CAS members are already engaged in facilitating contract brewing here in The Netherlands.  And, I just toured a brand new, cold warehouse in Breda, Netherlands (images below) and spoke with the owners of USA Beer. They see a bright future in partnering with us. Who’s in?

Building a PR Foundation with Nuts and Bolts Press Releases

Note from CAS President, Sam Holloway: I am thrilled to add CAS Member, Kerby Meyers to our group of Member Experts. Kerby’s background includes a career in journalism as well as several years as Principal of The Communications Refinery where he offers training and consulting services in strategic thinking and communications. This first blog post is publicly available, future posts will be exclusively for CAS members.

You see them on a regular basis: announcements from national, regional and local brewers published in industry magazines, on brewing websites, local news sites and business publications.

Sometimes the news item features a new flagship ale or a seasonal concoction. Other times, it touts a new hire. Occasionally, it describes a brewery’s investment in a new brewhouse or taproom.

While usually brief and too the point, each bit of such content provides a valuable boost to a brewery’s online presence and, to some degree, its reputation among consumers and fellow brewers, as well as editors, reporters, bloggers and other influencers.

Given the potential ripple effect, the basic press release should be a key tool within your promotional toolbox.

Key Steps to Writing an Effective Press Release

Emphasize Newsiness

Simply put, the basic press release must convey news of some sort. That is, a timely development within your business that is relevant to the readership of a publication, website or blog.

As noted above, the craft beer industry has some long-established news themes, but it could also make sense to announce community support events or other unique aspects of your brewery’s business that are coming down the pike.

To convert that newsworthy element and shape it into a press release, grab a piece of letterhead (copying and pasting your logo on the top of a blank Word doc will do) and write it at the top of the page.

On subsequent lines, add two or three supporting facts or data.

Review what you’ve written.

Confirm that all of the following questions answered: Who? What? Where? When? Why? How? If not, determine if they need to be.

Now, looking at all of your notes, is the most essential point—the most newsy one—at the top of the piece of paper? Do the supporting points truly round out the information you’re looking to share?

For example, if you’re rolling out your Winter Warmer Ale, what are the flavors I’ll find in it? How are you selling it? When will it be available? Where can I find it? Is it becoming part of your core lineup or is it seasonal?

Once you’re satisfied that you’ve successfully covered all the relevant bases, you’re ready to whip your notes into shape.

Build on the Basics

Starting from your simple outline, put some meat on it: Add some context, some color and some active verbs.

Think of the added points as the answer to the question “so what?” Assess the relevance of everything you add, and if you determine it doesn’t add any value—or if it gets too technical—cut it out.

For example, will the specific hop strains be important to the description of your new IPA? Quite likely. How newsworthy is the background of your new head brewer? Probably worth a sentence or two. Do you need a lengthy quote on the life-changing journey that served as the inspiration for your Winter Warmer Ale? Save the complete version for the taproom, but whittle it down to the gist for the press release.

In the end, you should be looking at 3-5 paragraphs. Any more than that, go through the “so what” exercise again.

Top it with a basic headline along the lines of “ABC Brewery Taps Winter Warmer Ale,” and it’s virtually ready to go—allowing for a bit of time for polishing.

Regardless of the news you’re looking to share, adhere to the traditional KISS adage—Keep it Simple, Stupid (yes, that’s how it’s explained to young reporters). Provide enough information to support why this is news, but don’t clutter things up with extraneous copy.

Remember, it is generally going to be edited down to a short blurb, or if it is run in its entirety, it will appear on pages where readers only skim the first couple of paragraphs anyway.

Some Technical Pointers

To help enhance the effectiveness of any press release, consider the following:

  • Assume the reader knows nothing about your organization—always close with a couple of descriptive sentences about your brewery (also known as boilerplate copy).
  • Better yet, assume the reader knows nothing about anything—short explanatory phrases may seem redundant to you, but for some readers they’re absolutely necessary, and you don’t want to lose them.
  • Keep paragraphs short—one or two sentences. Try and keep lengthy lists to a minimum.
  • If you believe you have two items of near-equivalent importance, break them out into two press releases and send them a week apart (if possible).
  • Once you’ve written a press release, put it aside overnight. Then, when you return to it in the next day or two, you’ll be looking at it as a reader/editor, not the creator.

As with any public relations effort, there are no guarantees of placement in any medium. But with a smart approach you’ll boost the odds that your announcement will establish a foothold in your targeted newsfeeds.

 

Why is Being Small Such Good Strategy?

Sam Holloway, Ph.D., November 15, 2016

What if being bigger isn’t enough to win anymore? The 3-tiered system was originally conceived to protect consumers and little distributors from big breweries (Tied houses). Now, the big breweries and the big distributors control everything. It used to be that being big was the only way to survive, but that has changed. How can being small work to your craft brewery’s advantage? Small isn’t only a measure of barrels produced. Small isn’t just a mindset or part of what it means to be ‘craft.’ Now, for perhaps the first time in the global beer industry, ‘small’ is a source of competitive advantage. If you don’t believe me, watch this Ted Talk. If you want to learn how to compete and thrive, no matter your craft brewery’s size – keep reading. If these ideas resonate with you, stop wasting your time and money on old ways of thinking. Join Crafting A Strategy, where our members rewrite the rules to feature their own strengths, not those popular in the archaic 3-tiered system.

How Do Entrepreneurs Make Small A Weapon?

This isn’t wishful thinking or desperation, it’s science. Small is the weapon of choice among expert entrepreneurs. I have spent my career being fascinated by expert entrepreneurs.  They start with nothing and eschew traditional thinking about how being ‘big’ is the only answer. Let me share with you a little bit about how small works in uncertain markets.

Building off the work of Sarasvathy and her colleagues (Effectuation.org), I have sought to reinterpret traditional ways of thinking through an effectual lens. First, Dr. Helder Sebastiao and I wrote about how business models can be used as strategic weapons when traditional competitive levers are too expensive, unavailable, or require resources outside the entrepreneur’s control. Next, Professor Peter Whalen and I wrote about how marketing planning needs to be reinterpreted if it is to prove useful under extreme uncertainty. We wrote these papers to talk about new ventures in general, it was only recently that I realized how powerful these ways of thinking can be for small and independent craft breweries trying to do the right things for themselves, their breweries, and their employees.

August 2016 – Craft Breweries & Investors Need To Wake Up

I was asked to speak at the first ever, Craft Beer Finance and Investment Conference in San Diego, CA. It was fortuitous that I was the last speaker. Going last gave me the chance to listen to a bunch of presentations about how professional investors evaluated craft brewery investments, what was working, what was not working, and how a craft brewery should prepare for outside investment. I was shocked at how orderly the presentations went. It seemed that each of these professional investors was applying a playbook from a time when craft breweries and the consumer market were tightly linked, growing fast, and easy to predict. However, over beers that evening, many investors confided in me that the current reality was very different than what they predicted when they made the investment.  I realized at that conference that the craft beer industry was becoming increasingly more uncertain and, perhaps for the first time, the principles I learned studying uncertainty could apply. I quickly rewrote my speech and focused on how old ways of thinking can be misleading and dangerous when a market is changing as rapidly as the craft beer industry. I wasn’t sure if anyone would stick around to listen to my speech, nor was I sure those that stayed would buy into this new way of thinking. I decided to go for it anyway.

The response to that speech has been tremendous. In San Diego, I had leaders from Goldman Sachs, private equity firms, brewery executives and bankers taking furious notes. I’ve since been asked to give the same speech at the Orchestrate 2016 Conference, with over 200 craft breweries present. It made me realize that the principles of decision-making under uncertainty apply to all craft breweries. It’s time to get the word out.

Over the next several weeks, I am going to write about how to apply the principles of effectuation to your craft beer business. My approach, which is to summarize the new way of thinking as a business model paradigm, has resonated with many folks. Those that apply the business model paradigm introduce new innovations, take market share, drive down costs, and increase margins – even if they don’t have vast amounts of cash and even if they have zero leverage against their wholesale partners. This new way of thinking is our industry’s future. If we continue to play by the old rules, then only those firms that are already big can win out. Here is a preview of how business model thinking (new paradigm) differs from business planning (old paradigm). Are you ready to join the new paradigm?

Old Paradigm - Business Planning New Paradigm - Business Models
Market Research Market Entry & Experimentation
Full Scale Marketing Plan Short Term Hypercycle Plan
First to Market First to Mindshare
Be Secretive and Be Perfect: Hide in your office conducting market research, write the perfect business plan, only enter the market after securing outside funding Fail Fast and Fail Cheap: Talk to everyone, get outside the building, launch the business as soon as possible, experiment, fail cheap, learn, try again
Upside market potential drives business plan funding needs Downside market risk drives business model needs
Return on Investment Affordable Loss

 

China is the Future of Craft Beer

If you are a supplier in the U.S. craft beer industry, you had better get your game plan ready for China

 Sam Holloway, Ph.D., May 30, 2016

I just returned from a week in Shanghai where I attended the first ever, China Craft Beer Conference and Exhibition. Over six hundred eager entrepreneurs attended and their laser like focus on learning and willingness to share knowledge was impressive. Throughout the week I was reminded of a famous paper written by my friend and mentor, Alan Meyer and his colleague, Joseph Lampel.  Their paper: Field Configuring Events as Structuring Mechanisms: How Conferences, Ceremonies, and Trade Shows Constitute New Technologies, Industries and Markets[1], tries to predict the initial conditions of market emergence. Lampel and Meyer hope to answer a famous question that is not well understood: “Where do Markets Come From?” A field, like a market, can emerge due to many different initial conditions. In this blog I will lay out the initial conditions proposed by Meyer and Lampel (2008) and show our readers why China is poised to dominate the global craft beer market.

What Are Field Configuring Events (FCE’s)

FCE’s are “arenas in which networks are constructed, business cards are exchanged, reputations are advanced, deals are struck, news is shared, accomplishments are recognized, standards are set, and dominant designs are selected” Lampel and Meyer (2008). Meyer and Lampel (2008) go on to suggest: “FCEs can enhance, reorient, or even undermine existing technologies, industries, or markets; or alternately, they can become crucibles from which new technologies, industries, and markets emerge. Recognizing this, their organizers often design FCEs with an eye towards influencing field evolution.” CBCE organizer Michelle Wang and her colleagues at The Beer Link China are change agents, helping the craft beer industry accelerate in China.

With Lampel and Meyer’s (2008) definition as a baseline, let’s examine the precursors for field (market) emergence and how the China Craft Beer Conference and Exhibition is a catalyst for the entire Chinese craft beer industry. I will lay out each criterion in order, and provide examples of the people I met, the speeches I heard, the business cards exchanged, and the standards being set in China that will enable this country to quickly become the new home of craft beer. And I am going to mostly use pictures, to ease the strain on your eyes and let the images tell a more powerful story. In the end, you too will realize that China is poised to dominate global craft beer production, consumption, and innovation – perhaps in as little as ten years from now. You had better get your game plan ready!

1. FCEs assemble in one location, actors from diverse professional, organizational and geographic backgrounds.

Spend a few minutes reviewing the CBCE conference program here. You will see industry experts from America, Europe, Latin America, and China all descending on Shanghai, China for three days. Here is a brief snapshot:

China for three days. Here is a brief snapshot:

2. FCEs duration is limited, often running from a few hours to a few days

Over a three-day period, conference attendees were subject to multiple interactions, instructional demonstrations, meals and networking, and live translation of all English/Chinese discussions.

3.  FCEs provide unstructured opportunities for face-to-face social interaction

Hosted by CAS Member, BoxingCat Brewery and featuring a Firestone Walker Tap Takeover, complete with Firestone Walker Brewmaster Matt Brynildson, conference attendees attended a fun evening at BoxingCat’s Liquid Laundry facility:

4. FCEs include ceremonial and dramaturgical activities

Traditional foods from the Yangtze River Delta region were shared by the Dean of the University of Portland, Robin Anderson, the Dean of Doemens Asian Beer Academy, Professor Guangtian Zhou, and CEO & Brewer of the Beer Link China, Mr. Liu:

5. FCEs are occasions for informational exchange and collective sensemaking

Dr. Mark Meckler speaks about how craft breweries help the economic conditions in every state of the USA, even rural regions, as he explains how craft breweries can help any village of any size in China.

Dr. Sam Holloway speaks about economic strategies for small breweries, no matter their size or location in China:

6. FCEs generate social and reputational resources that can be deployed elsewhere for other purposes

Maybe my favorite part of the whole conference... Discussing with the Beer Link and Doemens Asian Beer Academy how the University of Portland and Crafting A Strategy can help Chinese brewing students understand the business side of craft beer:

 

[1] Field-Configuring Events as Structuring Mechanisms: How Conferences, Ceremonies, and Trade Shows Constitute New Technologies, Industries, and Markets. Available from: https://www.researchgate.net/publication/228316629_Field-Configuring_Events_as_Structuring_Mechanisms_How_Conferences_Ceremonies_and_Trade_Shows_Constitute_New_Technologies_Industries_and_Markets [accessed May 30, 2016].

The Case to Reduce Federal Excise Taxes for Distilleries

Note from CAS President, Sam Holloway: About once per month I get asked if CAS can help distilleries. The truth is, I’m not sure. It’s hard enough for me to keep current on the beer industry, but I also know that craft distilleries need a voice and need access to business wisdom. I’m thrilled to announce our newest Member Expert Blogger, Lenny Gotter. Lenny founded Eastside Distilling and took that company from an idea inside his own head into a publicly traded and industry leading craft distillery. Lenny has literally “done it all” in distilling and he approached me with a desire to give back. I’d like to personally thank Lenny for being in our community the past year or so, for seeing a need to give advice on distilleries and business strategy, and stepping up to lend his voice to our community. This initial blog is publicly available and shareable, future blogs will be exclusively for our membership.

Lenny Gotter, Member Expert – Founder, Eastside Distilling & Lenny Gotter Brand Consulting Services
April 24, 2016

Owning a local distillery is something to be proud of, for you can supply your neighbors with the libations they need to celebrate life events. Bringing joy to people is a Pro in being a distillery owner, and naturally one of the most stressful Cons is taxes. I know the sheer mention of taxes can bring one to drink, but before you fill your shot glass just know for the past few years, we craft spirits business professionals have been working hard with our elected officials to get a craft distillery tax break in Federal Excise Tax (FET). Several local distillers of Distillery Row and I met with Congressman Bleumenaur in the summer of 2010. We were expressing the need for this tax break to ensure the survival of local distilleries, and after many years, the prospect of a tax reduction similar to what is already enjoyed by the craft beer and wine industry is a possibility.

According to the Alcohol and Tobacco Tax and Trade Bureau (TTB), if you are a small alcohol excise taxpayer who has paid less than $50,000 in beer excise tax in the previous year, you may be eligible to file returns and pay excise taxes on a quarterly basis. So cheers to that! However, if you exceed $50,000 in a calendar year, which is only 3700 proof gallons or roughly 2000 cases, you must pay semimonthly instead of quarterly.

Grab a bourbon on the rocks, pull out a chair, and allow me to break it down for you. When a distillery grows to approximately 2000 cases per year their federal tax is due semimonthly instead of quarterly.  Taxes on products that leave your bonded space, some of which not being sold yet, from January 1st thru the 15th will be due on January 21st. What this means is you will pay tax on a product that you may not receive payment for weeks or months.  The tax paid in advance increases so much that it becomes an asset on your balance sheet. A huge amount of operating capital becomes tied up in tax payments instead of growing your business.  I cannot stress what an enormous cash drain this is and how it can increase as your business grows.

How could this tax break really help?

At 10,000 proof gallons, current FET would be $135,000, and the tax break FET would be $27,000. That savings is equal to two new employees or a new still.

At 20,000 proof gallons, current FET would be $270,000, and with the tax break the FET would be $54,000. 

At 100,000 proof gallons, current FET would be $1,350,000, and with the tax break the FET would be $270,000. That savings is equal to five new jobs/employees, a rick house, and full health benefits for staff. Let’s drink to that!

We are pushing to create a bill to receive a 20% FET rate for the first 100,000 proof gallons of any distillery production from $13.50 to $2.70 per proof gallon, and following with a 30% reduction from $13.50 to $9/gallon. Instead of only pertaining to “craft” distilleries, this discount would apply to every distillery, thus giving the bill some chance for success.  This FET reduction is a double benefit for small producers; you would have to pay semimonthly at roughly 18,000 cases instead of 2000, and that alone means years of tax relief for small distillers. Time to toast with your favorite spirit for this good news!

This tax benefit has been enjoyed by the craft beer and wine industry for some time now. With this tax break implemented small distilleries will flourish, staff will have better pay and benefits, necessary equipment could be purchased, and all those tax savings will go right back into growing your business and local economy.

We as local distillers deserve tax breaks that will ensure the success of our business.

A new bill in place is beneficial for owners, employees and local economy. So raise your glasses to decades of supplying your townspeople with the Spirits they need at any celebratory occasion.

It’s time we take action to help the growing craft spirits industry and support FET reduction. For more info check out the ACSA FET info page.

The End of Big Beer

Sam Holloway, Ph.D. - President, Crafting A Strategy - February 29, 2016

I believe that industry consolidation may be the death throes of mature industries as they struggle to compete with America’s return to a more entrepreneurial, craft economy.
--Nicco Mele, HBR Blogs, October 26, 2015

When I first read Nicco Mele’s article in October 2015, I was impressed with his arguments for why M&A activity might be a sign that craft beer was winning. In fact, I think these large scale mergers mostly function as a way to play for time before the big decline. I am guessing that in boardrooms in fancy office suites, executives with nice shoes are praying that craft goes away, somehow, during that time.

But it won't. It is not a passing fad. America's craft breweries are strong and getting stronger, and smarter about business, every day. The movement is spreading all over the world. Craftspeople are rising up all over the world, reclaiming their professions, and in turn offering customers products and services of real value. The maturity stage of the life cycle for the monoliths is ending. There is no place left to merge. Adding a few craft acquisitions here and there to extend their portfolios was/is a good idea, but this pulls their average margins down, not up. If I were a major brewer, I'd be a seller about now. Is there a place in the new reality for the monoliths? Yes. But it's going to be a lot smaller place than it was.

Since October 2015, I've seen several more signs that support Mele's claims and it's time I put these before our membership.

Mele suggests that the rampant M&A in the beer industry (most notably AB InBev’s acquisition of SABMiller) is a sign that scale is no longer winning. Economies of scale arise when greater quantities of production also result in lower costs per unit (Porter, 2008). Since the industrial revolution, scale was always expensive to maintain and served as a primary barrier to new entrants joining a market. Mele, with an assist from Maxwell Wessel, suggest that in a game where innovation is rampant (like craft beer with its sour beers, saisons, barrel aged, etc.) companies cannot rest. For companies that ignore innovation and focus on doing business the same way as before, then M&A is a value creation lever that can be pulled to appease shareholders – at least for a while. Wessel (2012) goes as far as saying that big incumbent firms turn to M&A as a last resort, referring to scale economies as a “last bastion of the competitive storm.”

A lack of innovation and a commitment to scale and extreme profits is what has historically killed big companies (Which I first blogged about in 2014).  However, I was still skeptical, especially when Matt Allyn of Men’s Journal suggested that the price AB InBev was paying for SABMiller could buy the entire American craft beer industry five times over! Where were more signs that the ideals of the craft economy were winning out over big business?

My next indication that the craft economy was winning came from our own Dr. Mark Meckler in February 2016. Mark suggested that most Americans are “addicted to efficiency” and their purchasing habit is always looking for a better deal, a cheaper price, a shorter route, or faster service. However, Mark said the craft beer industry was different. Rather than an addiction to efficiency, craft beer entrepreneurs accept lower profits and less efficiency if it means a better work life, better wages for employees, providing them health insurance, and raising everyone's overall happiness. According to Meckler, craft breweries can afford to do this because the public, going against their typical efficiency driven demand for the lowest price, is willing to pay a higher price for a pint or a six-pack of good craft beer. In this case of craft, they are not engrossed with bargain seeking. Why? Maybe it is because the beer is so much better, and maybe because they love the movement and the ethic behind it. Maybe it is because they know that even with that high price, craft brewers are not ripping them off. For me, craft brewers are my neighbors, working hard and making a living by providing value, something wonderful that has been missing from our community for so long. The Portland Tribune’s Peter Korn gave several examples of brewery owners choosing less efficiency for more happiness, which goes completely against conventional wisdom and economies of scale logics. Why is craft beer so different?

The latest indication that craft beer is changing the rules came from the last place I would ever look for innovation – Private Equity Investors. The news that Victory Brewing founders were able to cash out and still maintain control of decision-making completely knocked me over (Brewbound.com). This merger was innovative and went completely against the cold-hearted traditions in private equity where transactions come with total control for the new money and the abdication of the founder’s and any residual brand nostalgia or authenticity. Big money wins out, scale wins again, and consumers complain that they’ve lost another one of their own to greed and a commitment to getting big – that’s the traditional narrative that was missing from the merger between Victory Brewing and Southern Tier. Why was Ulysses Management, LLC willing to do things differently?

Keep your eyes on the craft beer industry as it will teach us how innovation, inefficiency, people and happiness continue to win over money, scale, efficiency, and big.  I am starting to agree with Nicco Mele and Max Wessel, the end of big is upon us.

Works Cited

Korn, P. 2016. Brewing a new model for sharing the wealth. The Portland Tribune. February 9, 2016 accessed at

Mele, N. 2015. Why More M&As is a Sign That Scale Is No Longer and Advantage. Harvard Business Review Blogs. October 26, 2015. Accessed on February 28, 2015

Porter, M.E. 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review 86(1): 78-93.

Wessel, M. (2012). The Commoditization of Scale. Harvard Business Review Blogs. March 26, 2012. Accessed on February 28, 2015.

Your Strategic Weapons Against AB InBev

I get asked a lot to give advice on how craft breweries can respond to the moves being made by AB InBev and what the future may look like for small independent craft breweries. There is great concern among the Brewers Association and its members surrounding the merger of AB InBev and SABMiller and even greater worry about accusations that InBev is purposefully freezing out craft beer by instructing their company owned distributors to stop buying it.  While the Brewers Association is doing its part to support our interests (you can read BA CEO Bob Pease’s full U.S. Senate Committee testimony about the merger here), what sort of strategic moves can we be making? What moves should we be making to protect our futures?

I am always inspired when I see creative entrepreneurs using business model innovations to overcome such constraints. My latest inspiration is Mr. Richard Doyle and his company, Enjoy Beer. Rich Doyle is a former CEO of Harpoon Brewing, who understands that the craft beer industry can’t simply wait around and hope for help from the Department of Justice. Those looming constraints from AB InBev’s merger with SABMiller – Mr. Doyle isn’t scared. Mr. Doyle sees those constraints as opportunities, and he’s building a new business model that overcomes these constraints through value chain innovations. Below I will describe how this works.

Value chain innovations look at the current supply chain relationships in the beer industry and seek ways to collapse or combine these relationships to allow a brewery to capture more value. (CAS members can click here for a 14-minute video on value chain innovations in the craft beer industry; non-members can click here for a free 45-minute presentation). Craft beer entrepreneurs should look at the looming constraints associated with the AB InBev & SABMiller merger and use these constraints as a source of inspiration that leads to innovation.  Let me give you two business models that embody this type of innovation.

First, let’s look at a type of value chain innovation I like to call “Collapsing Value Chain Functions” or a “Collapsing Business Model.” The best example of collapsing value chain functions is the brewpub business model. By serving beer on site and directly to the consumer, brewpubs collapsed the value chain and removed the need for a brewery to use a distributor or retailer, since they perform both of those functions themselves. The value capture associated with the brewpub innovation is that the brewpub can now sell each keg for $500 - $600 instead of selling that same keg to a distributor for $110. This elegant innovation, collapsing value chain functions, is what has disrupted the traditional beer market over the last 30 years and continues to be the driving force of change in our industry.

Second, let’s look at a different value chain innovation: The aggregation of multiple functions into a distinct entity or what I call “The Aggregation Business Model.” Rather than collapsing value chain innovations like the brewpub business model, aggregation business models allow for purchasing efficiencies, increases in bargaining power, and thus, lower prices for all partners of the combined entity. Aggregation Business Models are a strategic response to shortages in supply, rising prices, and downstream pricing pressure from distributors. For craft breweries worried about access to hops and other inputs if the AB InBev merger is allowed to proceed, the Aggregation Business Model is a perfect strategic response. This is exactly what Abita Brewing Company did a few months ago by joining forces with Enjoy Beer.

Enjoy Beer is a classic Aggregator Business Model that uses value chain innovation to help breweries like Abita survive and thrive. Enjoy Beer buys supplies for Abita and other breweries, they also perform other value chain functions like bookkeeping, negotiating with distributors, financing expansion, marketing, logistics, you name it. This innovative business model has aggregated several value chain functions into one entity, and because they are buying for many breweries, they have greater bargaining power and can get a better deal. Further, this company does much of the “dirty work” or “boring business stuff” so their partner breweries can focus on the beer and the brand, without worrying as much about supply chain, purchasing, and marketing.

Want my advice for craft beer entrepreneurs and the overall craft beer industry? Follow the lead of innovators like Rich Doyle and develop new business models that aggregate value chain functions. Scale your brewery through brewpub business models (like Fathead’s is doing) and not via traditional wholesale distribution. Think differently, work together, and be innovative! You will insulate yourself and your partner breweries from fluctuations in supply and also increase your ability to bargain with distributors. Choose your partners wisely, but don’t simply keep doing the status quo. If you choose to do nothing, AB InBev wins.

Collaboration Brews - Regulatory Concerns

Note from CAS President, Sam Holloway: I am thrilled to introduce our newest CAS Guest Expert, Janene Grace. Janene has over 11 years experience as a TTB compliance officer and as Regulatory Manager for Craft Brew Alliance. We are thrilled to bring Janene’s expertise to our learning community. As you can see from her first blog post, she brings a wealth of knowledge and practical advice for how to run your craft brewery responsibly and within federal and state regulations. This first blog post is publicly available; future content will be exclusively for CAS members.

Collaborations are becoming increasingly common amongst craft brewers, and for good reason:  working together on a beer allows for an exchange of ideas and techniques.  Unfortunately, brewery regulations in the United States aren’t exactly designed to make collaborations easy.  From a regulatory perspective, the best intentions of two willing breweries can lead those firms into trouble. I will demonstrate this with an example from cider making, an increasingly hot market within the craft food and beverage industries.

In America, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) and most states consider cider to be a type of wine, and as such, these agencies require wine permits/licenses to make cider.  Along with the wine licensing comes the wine regulations, and for TTB this means wine can be transferred in bond between any two (or more) wineries.  (“Transfer in bond” refers to the movement of alcohol between bonded facilities without the payment of tax).  This is important because once taxes are paid, breweries and wineries are very limited in what they can do with the beer or wine.

The ability to transfer wine and cider in bond means that production can begin in one facility and end in another.  So let’s say Jack’s Cidery is planning to collaborate with Jill’s Orchards to make a barrel aged cider.  Jack has good facilities for pressing and fermenting, but no room to store barrels.  Jill, on the other hand, has less fermentation capacity but plenty of room for barrel aging.  Clearly, it would be most efficient if Jack handled the pressing and fermentation, and then transferred the bulk cider in bond to Jill for barrel aging. Once the cider is ready for packing, Jill bottles some of it, then transfers the rest back to Jack because he has a canning line.

Rumor has it that similar transactions occur often among breweries in Europe, but here in the USA, when Congress wrote the laws after prohibition they didn’t provide for similar movement of beer between American breweries.  Breweries of the same ownership can transfer beer in bond between facilities (if state law allows), but that is the only legal circumstance when this movement can happen.  In order for a brewery to receive and store beer produced by another brewery:

  • The beer must be received taxpaid;
  • The beer must be packaged (a requirement to tax pay beer);
  • The taxpaid beer can only be stored on the receiving brewery’s premises if:
    • It is in the brewery’s pub (if they have one) or
    • The brewery must hold a wholesale permit and store the beer in a segregated area (which may need to be designated on the Brewer’s Notice);
  • The state law must allow this transaction, and proper state licensing must be in place.

What About A Similar Collaboration Between Breweries?

If you don’t currently make cider, but you do barrel age beers, how does our example affect you and a similar collaboration? What if Joe’s Brewpub wants to handle brewing and fermentation, then send it to Ben’s Brewery for barrel ageing and packaging?  With beer collaborations, all aspects of production must occur at the same brewery, except the production of wort.  (Because wort does not contain alcohol, TTB allows it to be moved freely between breweries.)  This means collaborators generally decide which brewery has to do all the work and which one will only contribute recipes or expertise. This affects the cost structures for both breweries, something CAS Guest Expert Dr. Andre Sammartino discusses in his blog on Crafty Collaborations. Alternatively, each brewing partner can make their own batch using a shared recipe, or they can share a single batch of wort.

In my 11 years as Regulatory Manager for Craft Brew Alliance and as a TTB compliance officer, the arrangement I most often oversaw had one partner in the collaboration make all the beer, so let’s take a look at the regulatory logistics of this arrangement.  First, labeling:  Ben’s Brewery is going the make the collaboration beer, but Joe’s Brewpub designed the label – who must secure the TTB Certificate of Label Approval, the COLA?  That would be Ben.  Why?  Because the COLA must always be secured by the entity that puts the beer in the bottle, can or keg.  Which brewery’s name goes on the label?  Well, that depends on the part of the label we are looking at.  All breweries participating in the collaboration get to have their name/logo on the label, but they must be shown in conjunction with each other and be of similar prominence.  But for the mandatory name and address statement, this must be the name and address of the bottler.  So while Joe and Ben both have their logos front and center on the label, somewhere else the label must say “Ben’s Brewery, Portland, OR”.

State label approvals may be handled differently, depending on the state and which brewery is shipping the beer to that state.  This is a bit more complicated that I want to address here, but if you have questions about this, visit http://www.graceregconsult.com or email me at janene@graceregconsult.com. 

Since collaboration brews often contain unusual ingredients, they most likely also need formula approval.  This is less of an issue since TTB exempted a number of ingredients from formula approval with Ruling 2014-4, but brewers are far more creative than the government so don’t be surprised if you need formula approval.  Like the label, formulas must be secured by the brewer who is brewing the beer – in our example this would be Ben’s Brewery.  If there is any possibility that the other breweries in the collaboration may make the beer at some point, they should get the formula approved for themselves as well.  Remember:  formulas must be approved before you begin making the beer; and unlike COLAS, formulas are required whether the beer is crossing state lines or not.

Now that Ben’s Brewery has gotten the formula and COLA approved, and has made the beer, how does Joe’s Brewpub get some?  If Joe’s Brewpub is also located in Oregon this isn’t a problem – Ben can just give/sell Joe his share of the beer.  Ben will pay the taxes on it (both TTB and OR taxes, in this case) and Joe will have to store the beer in the portion of his brewpub that was designated as the pub on his Brewer’s Notice.  Easy.

Interstate Collaborations

But what if Joe’s Brewpub is in another state?  This raises a few issues.  First is licensing.  As in normal interstate distribution, in order for Ben to ship beer to another state his brewery (usually) must hold a license, such as a certificate of approval or importer license, in that state.   Another issue is label approval or brand registration, which is required in America by more than half of the states.  Typically the producing brewer secures this, but as I mentioned above, this may not always be the case.  Label approvals may cause timing issues, because even if Ben’s Brewery already holds the proper state license, label approvals in some states can take 2 or more months.  This needs to be accounted for early in order for Joe’s Brewpub to have any chance of getting fresh beer.

Getting the beer to Joe can be another problem.  Aside from the logistics of shipping the beer, there are regulatory issues inherent in interstate commerce.  Although TTB doesn’t care about breweries moving taxpaid beer to other brewers across state lines, most states have a different opinion.  Our good friend, the three-tiered system, makes this more difficult because beer normally has to be imported into a state by a wholesaler.  More industry friendly states will allow a brewery to import beer from another state, but in some cases the beer must be sold to a distributor in the receiving state, who will in turn sell it to the collaborating brewery.  If wholesalers are allowed to sell to manufacturers in that state, and Ben’s Brewery has a wholesaler there, and the stars are properly aligned, and the month has an “r” in it….  OK – this is another issue beyond the scope of this article, but definitely something to look into in the early stages of an interstate collaboration.

Then there are the tax issues.  As always, the brewery that removes the beer “for sale or consumption” must pay the federal excise tax.  In this case, that would be Ben’s Brewery.  But the state taxes will be reported and paid according to the receiving state’s rules.  If you are new to the state in question, be sure to confirm how taxes and reporting are handled.

International Collaborations

Collaborating with a foreign brewery creates a whole different set of issues.  While you get to avoid our three-tiered system, you add customs, foreign liquor laws, international trade issues, language barriers and a host of other red tape.  This doesn’t mean international collaborations can’t be done; they just take additional advanced planning.  Assuming a US brewery is producing the beer, matters are greatly simplified if you are collaborating with a brewery in a country that you already export to.  In this case, you can work within your existing framework to get beer to your partner.  If you don’t already do business in that country, then you will need to contact trade experts in advance.  A good place to start is the US Export Assistance Center; the local Portland office’s website is: http://export.gov/oregon/index.asp.  You can also find information on foreign alcohol import requirements on TTB’s website at: http://www.ttb.gov/itd/interre1.shtml. Last, CAS members have direct access to an award winning beer exporter, Craftport Exports. Founders Andy Kalamaris and Nate Webb are very active CAS members and can answer questions directly or via the CAS member forum.

What if the foreign brewery is producing the beer and you want to import it?  In this case you will either need an Import Permit from TTB, or work with someone who has one.  The importer will need to secure a COLA for the beer before it enters the US, and will have to pay the excise tax and any duties due.  For more information, check here: http://www.ttb.gov/itd/importing_alcohol.shtml

Speaking of TTB, what role do they play in exported beer?  They do not require label approval if the beer is not sold in interstate commerce; so if your collaboration beer is only sold in your home state and Canada then you don’t need a COLA.  But you still need a formula if the beer contains ingredients that are not on the exempted ingredients list.  No state or federal excise taxes are due on exported beer, but the transaction has to be properly documented and reported.

I hope I haven’t scared you away from collaborations!  Complying with regulatory requirements on collaborations isn’t as complex as it is time consuming.  In other words, if there is one thing I want you to take away from this blog, it is: please involve your regulatory compliance person as soon as possible in the planning process.  This will keep the regulators happy, and prevent watching beer age in your cooler because you don’t have approval to send it to your partner. 

Feel free to let me know if you have any questions or comments.  Thanks!

Janene Grace, CEO

Grace Regulatory Consultants, LLC

janene@graceregconsult.com

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