The Audacity of Hops: The History of America's Craft Beer Revolution (49 page)

And just a year after the company's launch, Bell and Cancro could boast a physical brewery with a forty-barrel system—in Philly's old Brewerytown section, no less, the nexus of the city's dozens of breweries before Prohibition. Cancro oversaw a talented, young staff that expanded Red Bell's repertoire to include a highly regarded Scotch ale, a pale ale, and a black cherry stout. That same year, 1996, they scored a first for the entire American craft beer movement: a brewpub within a sports arena. In this case, a ten-thousand-square-foot spread capable of producing up to two thousand barrels annually within the state-of-the-art confines of the new CoreStates Center, home to hockey's Flyers and the NBA's 76ers; not only that, but Red Bell also had the exclusive on draft beer at the twenty-thousand-seat arena.
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There were plans for more brewpubs around Philly, including one downtown in partnership with a venture-capital firm and five so-called minibrewpubs in Veterans Stadium set to debut during Major League Baseball's All-Star Game that year. There was
a flurry of forward-looking press releases and pronouncements and talk of going public, of buying the Lion Brewery in Wilkes-Barre, of merging with the venerable Pittsburgh Brewing Company farther west. Finally, in barely three years, it all seemed to come full circle: Bell told the local press in May 1996 that he planned to contract brew other beer companies' brands at the new Brewerytown location. Yes, Bell seemed well on his way to being, as he had said at the company's launch, “the next Sam Adams.” He had even adopted a mantra for all this expansion unknowingly similar to Jim Koch's about quality control: “If you deliver a good product, people will come.”

What buoyed Red Bell's swagger, what made it all so deliciously plausible, was the explosive growth in the craft beer industry. It served as a perfect backdrop for a couple of young men with limited brewing experience to talk of chains and exclusive rights, of confidence in continued double-digit growth and, at the same time, of a commitment to quality. Besides, Red Bell dovetailed nicely with its host city's renewal. Philadelphia, like other major US cities, was experiencing a historic drop in violent crime during the 1990s as well as sweeping changes in its real estate, which often involved converting unused manufacturing and other commercial space into housing, particularly downtown. These conversions, coupled with a grateful government's incentives like long-term property-tax breaks, brought, in
Philadelphia
magazine's words, “a sea of first-time buyers lured by cool historic living [and] bringing a jazzy aesthetic and a steady stream of cash that fueled a retail and dining renaissance.”

As Matthew Reich recognized more than ten years ago in a changing New York City, craft beer could have a place at this urban-infill table. “Yuppies drink it,” Reich explained to the
New York Times
then, and he targeted his sales efforts to the fashionable neighborhoods and retailers frequented by those yuppies, many of them now happily marked with the new moniker “foodie.” They may not have been called yuppies by the late 1990s—”hipsters,” perhaps—but they were the same type of consumer. Bell knew them. He was one of them, barely into his thirties and head of a thriving company.

Or was he? By 1998, the precariousness of Red Bell was an open secret. Maybe the beer wasn't all that good; the Scotch ale got solid reviews now and then, but the quality of some was hit-or-miss. Maybe the brewery didn't even care. Had not Bell once told Cancro to “come up with something like Budweiser because that sells so well?” And did he not tell a reporter from the city's largest newspaper that he preferred grape Juicy Juice to his company's beer? And all that marketing—didn't Red Bell have to pull the initial double entendre spots about blondes at your table and behind Philly's bars and come back with
new campaigns? The answers were all yes. Whatever the company's enthusiasm, one could be forgiven for thinking that Red Bell had merely thrown things against the wall to see what would stick. The emperor had barely any clothes—and the creditors were coming for those.

Red Bell had lost millions of dollars since its founding in 1993, with losses of more than $2 million some quarters. It never did acquire the Lion Brewery or merge with Pittsburgh Brewing or do much contract brewing in the Brewerytown location. That building was headed toward foreclosure anyway, with more than $1 million in mortgages as well as several hundred thousand dollars in liens. The brewpubs? Those made money, though not really enough: after fees to the arena owner and its concessionaire, Red Bell might net nineteen cents on one of those $5.25 cups.

The company did go public. The hope was to raise capital the way that first wave of craft beer IPOs did in 1995 and 1996. It didn't happen. After peaking at well over five dollars, Red Bell's share price dropped below a quarter—and then below a penny. Bell issued statements expressing confidence in a turnaround, but that never came; eventually he resigned and a creditor stepped in as chairman. Finally, Pennsylvania revoked the company's brewing license because of $80,000 in unpaid payroll taxes. The mess left hundreds of dollars in fresh legal fees and barrels of ink of negative coverage from a Philly media that had once cheered on Red Bell's bid to be the city's own Sam Adams. Things got so bad that, when the new chairman considered Chapter 11, he looked at the legal fees involved and realized it was impossible: Red Bell was too broke to go bankrupt.

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The arena is now called the Wells Fargo Center.

F
rom 1996 through 2000,
nearly two hundred breweries and brewpubs went out of business; 1999 would be the first year when more craft breweries closed than opened. The American craft beer movement had ceased growing by double-digit percentages—had ceased growing much at all—and the dreaded word “shakeout” first uttered by Wall Street analysts following the start
of the IPO wave in 1995 became a definitive part of the movement's lexicon. As much as brewers, consumers, and critics might have talked about before and after Fritz Maytag, or before and after Jack McAuliffe, or before and after the first homebrewers conferences and the Great American Beer Festivals in the early 1980s, or before and after Jim Koch, they now talked about before and after
Dateline,
or before and after 100 percent share of mind, or simply before and after the shakeout of the 1990s. The stories within the shakeout varied, but most were a combination of what happened to Red Bell in Philadelphia and Catamount in Vermont. Debt overtook revenue, supply far exceeded demand, and all in the movement, with the perfect vision of hindsight, would say they saw their fates coming years away.

Two things were inarguable. There was too much beer, a lot of it of dubious quality, and too many breweries, brewpubs, and contract brewers, the latter dominated by entities that might not have been in the movement for the craftsmanship. One brewer, who started up just as the shakeout began, described these contract brewers as “Milli Vanilli” entrants, citing the pop singers who ended their brief careers in disgrace after it was discovered they lip-synched even in the studio. Some of these entrants had internalized the worst elements of globalized manufacturing: get things done as quickly and as cheaply as possible and hope the consumer doesn't notice until after the sale.

The tenets sanctified by Fritz Maytag when his Anchor was the only game in town—small, traditional, and independent—had been tossed aside in too many cases. It was bigger, faster, stronger for several years. And consumers did notice after the sale. “There was a shitload of awful beer on the market,” one member of the movement recalled of the 1980s. Another member, one of the top brewers by the time of the shakeout, followed a similar excremental line, this time including the 1990s: “There was a lot of crappy beer sitting on the shelves.” For all the colorful packaging, the shots of bucolic mountain streams and sleigh blades slicing fluffy snow, of men with overalls and beards, of soothing assurances of “highest quality” and “best ingredients,” it still came down to taste and consistency. If consumers, especially the newly initiated, plunked down a premium too many times for what turned out to be “crappy beer,” they might be turned off to craft brands forever—all craft brands. Just as the
Dateline
segment from 1996 targeting Pete's Brewing and Boston Beer painted the entire industry with a charlatan brush, so too did one too many bottles that looked colorful and inviting on the outside but that evinced wincing, maybe even gagging, once the first sips were taken.

By no means was every shuttered brewery during the shakeout producing poor-quality beer. Stephen Mason's Catamount produced some of the
most respected beers in the entire movement. Sometimes the numbers simply did not work out—and did not work out with particularly bad timing. Catamount's grave misfortune was to expand not only before they had wider distribution in place but also just as the entire industry started to falter. On the other side of the country, Greg Koch and Steve Wagner's Stone Brewing, also makers of some of the movement's most respected beers, may very well have met the same fate had they expanded rapidly at the same time; they did not, and they survived to grow in the next decade into the biggest craft brewery in the Southwest. Ken Grossman's Sierra Nevada had also been careful not to expand too rapidly and therefore was able to spend the shakeout not only acquiring and installing a top-shelf bottling line that could fill 650 bottles a minute but also building a gorgeous new, two-hundred-barrel brewhouse at its Chico, California, headquarters dominated by copper kettles prefabricated by Huppmann in Bavaria and surrounded by murals by the artist Eric Grohe depicting the brewing process. The right decisions in the good times meant surviving the bad.

Finally, there were other reasons for the shakeout besides bad beer, tough times, and flighty newcomers. There was Big Beer's assault through the phantom crafts; Anheuser-Busch's 100 percent share of mind; the ad campaign against contract brewers; the
Dateline
segment; and the labeling petitions to the federal government. There were also the price wars between the movement's biggest players, Boston Beer and Pete's Brewing, which drove craft beer prices in some areas to the levels of Big Beer brands, further confusing consumers. And there was the movement's own infighting, as we've discussed. The movement, for all its symbiosis, had failed to produce that many benevolent godfathers in the mold of Fritz Maytag and F. X. Matt II. Charlie Papazian's Association of Brewers had served as a rallying point through it all, but its conferences and conventions were voluntary affairs and its efforts, particularly at lobbying various levels of government on behalf of smaller brewers, were overlapping with the larger Brewers Association of America, run since 1992 by the well-connected Henry King. Something had to give there, too.

In the end, the shakeout would seem a necessary thing—and not necessarily as dramatic as it looked. There were, after all, nearly six hundred breweries in operation in the United States by 1995, far and away the most existing at one time since the end of Prohibition in 1933. There would still be more than four hundred by the start of the next century, a respectable amount even in a nation closing in on three hundred million citizens.

T
he twin announcements from Pete's Brewing
came in the late winter of 1997. Mark Bozzini, the CEO who had helped steer the company to its number-two craft-brewing position behind Boston Beer, was leaving. Also, the plans for a physical brewery in Northern California were indefinitely postponed. The moves were not surprising; Pete's, like everyone else in craft beer, was having its troubles. The popularity of the company's brands over the last several years and the general growth in the industry meant that distributors typically had eighty-five days worth of Pete's beer on hand by early 1997, much too much to move before it started to go bad; the company offered to take back some beer and to slash prices so it might sell more quickly. That year, then, Pete's was able to reduce its distributors' inventories by 23,600 barrels. That helped to “better align inventories to current market trends,” as Bozzini's successor, Jeff Atkins, a top executive at Quaker Oats before he joined Pete's in December 1996 as CFO, put it. The realignment, of course, had an effect financially: the company would report a net loss of $6.1 million for the year. Production and sales dropped, too: In the last three months of 1997, Pete's shipped 94,000 barrels versus 114,000 in the same period in 1996; sales dropped annually 21 percent. Pete's stockholders lost thirteen cents per share after at least breaking even in 1996.

The euphoria of the IPO wave was a distant echo as investor confidence waned and Wall Street hustled to find the next Next Big Thing. Redhook, which had kicked off the whole wave, saw its share price drop from a summit of more than $34 in August 1995 to just above $5 by the end of 1997. Boston Beer, still by far the biggest craft brewery, hit $32.50 a share the week of Thanksgiving 1995, and was down to $8 by St. Patrick's Day 1997. And Pete's share price flirted with $30 in late 1995 and now, like Redhook, traded for around $5. All saw their sales ebb right along with their share prices. Rhonda Kallman's legendary sales force at Boston Beer had its first real off-year in 1996: there was growth, but it was in the low single-digits, a long way from “63 in ‘93.”