Craft brewing 101: A new model for a next generation
George Johnson dreamed of opening a brewery and restaurant since he was 17.
Last month, that dream became a reality when Johnson and his business partner, Adam Dixon, unveiled Assembly Brewing on Southeast Foster Road. However, even with a line of customers that stretched to the door on opening day, Johnson and Dixon are aware that they've stepped into an industry that's in the middle of a major transition.
In past year and a half, the craft beer scene in Portland and in Oregon has seen more than a few long-time breweries shutter operations, from closing pubs to shutting down distribution divisions. In fall 2017, for example, Alameda Brewhouse closed after 22 years in business. Earlier this year, Widmer Brothers announced it had decided to close its pub operations but keep its bottling division going. Meanwhile, Bridgeport Brewing ended all operations.
Ask small and medium-size craft brewers and industry experts what the problem is and they'll likely point to increased competition and limited distribution avenues. Samuel Holloway, an associate professor of strategy and entrepreneurship at the University of Portland's Pamplin School of Business who has studied the craft brewing industry extensively, digs even deeper.
He points to a trend in the past few years of a handful of big-name beer companies snapping up smaller craft breweries, from Heineken's acquisition of Lagunitas to 10 Barrel Brewing's sale to Anheuser-Busch, the U.S. arm of Anheuser-Busch InBev, the largest beer maker in the world. In an acquisition earlier this month, Eugene-based Ninkasi Brewing, ranked as the 35th largest craft brewery in the country, announced it had sold a majority of its ownership stake to Legacy Breweries, which is backed in part by a public specialty real estate investment trust called EPR Properties.
Medium-sized companies like Bridgeport can't compete head-to-head in that distribution game, according to Holloway.
"The breweries that are failing and struggling, they're stuck in the middle," he said. "Four or five years ago, they made a big bet the exponential growth would continue and they would be able to continue to sell through regular distribution. That's not what the industry is any more."
But even with the recent closures, Holloway is optimistic about the future of the craft beer industry, in Portland, in Oregon and across the country. He says it's still a good time to start a small brewery operation, as long as an owner realizes the rules have changed when it comes to thriving in the craft beer industry.
"If you're going to build a beer business in this market, you have to think about adjusting the old model," he said. "The days of scaling up and selling beer in grocery stores is over unless you're big. You've got to think differently. You've got to (move) more toward the hospitality angle and customer service."
While Portland may appear to be overrun with breweries, Holloway says that isn't necessarily the case. There are still parts of the city that are craft beer deserts, and those areas are ripe for a brewery looking to gain a foothold.
"Even though Portland is a very crowded area, from a macro level, there are still these great neighborhoods that want to have a local experience," Holloway said.
Jeff Althouse, the founder and CEO of Oakshire Brewing in Eugene, thinks he's found one of those neighborhoods in Portland. Althouse is in the middle of renovating a building in the Cully-Concordia area, with the goal of turning it into a new venue called Oakshire Public Hall by this summer.
For five years, the building on Northeast 42nd Avenue served as the home of the Old Salt Marketplace. When the three restauranteurs that started the butcher shop-restaurant-deli combo, decided to close their business, they sought out Althouse. After taking a look at the neighborhood, the beer-maker decided the area was ripe for a public beer hall similar to the Oakshire Public House that Althouse operates in Eugene.
"We were looking for a (Portland) neighborhood that did not have a community gathering spot," he said.
Not beyond 82nd Avenue
Assembly owners Johnson and Dixon also were looking to fill a similar niche when they settled on their building at the corner of Southeast 61st Avenue and Southeast Foster Road.
"When we were looking for a spot, we started walking where Foster Road begins, at Southeast 52nd (Avenue)," Johnson said. "The one thing we knew was we didn't want to go past 82nd (Avenue)."
Johnson owns a home in the neighborhood and has worked at local bars for more than a decade while Dixon lives nearby. So, the partners knew the area was sorely in need of a community gathering space. There were plenty of bars in the area, but nothing that offered a unique pub-like experience. The closest craft breweries and pubs were several miles away.
With an eye toward creating a pub that fits the community, Johnson and Dixon say they've kept prices for both beer and well drinks low, with the goal of attracting area residents from all income levels.
They're also focusing on keeping thing simple, but consistent. The main feature on the menu is unique to Portland, a Detroit-style pizza with a dough and sauce spice mix custom created for Assembly Brewing. The back-to-basic approach even extends to the variety of beer on tap. Even though the brewery at the back of the building has a 15-barrel capacity, with room to add more in the future, Johnson as head brew master has decided to start simple with seven basic brews on tap and then slowly add more varieties in the future.
Perhaps the most important step Johnson and Dixon have made in the area of providing solid customer service experience is the fact that the partners usually can be found behind the bar or running pizzas, chatting with customers and telling the story of Assembly Brewing
That hands-on ownership is key for a small brewery's survival these days, according to Althouse.
"People would rather sit in a wonderful beer hall or tasting room and talk with the brewer (than buy a six-pack at a store)," he said. "They feel they get more value from the experience."
When Johnson and Dixon were looking at possible locations for Assembly Brewing, they knew they wanted a building with a parking lot and a driveway so that they could have a mobile canning operation pull up to the store. But the partners also are aware of the challenges that come with entering the world of distribution. While they say they may move in that direction someday, they're content for now to focus on brewing strictly for their pub customers
Althouse, on the other hand, sees distribution as an important part of Oakshire's business model.
For Althouse, that means creating to distinct operations: one for the public hall and another for the distribution branch. He also maintains separate staff for each operation, which allows his employees in the distribution division to focus on providing top customer service to wholesalers and retailers.
"Making the wholesale side of the business work is about zeroing in on the wholesaler and retailer relationship," Althouse said. "We work to add value to those relationships."
The distribution arm of Oakshire isn't a high-profit-margin venture, but Althouse sees it as a valuable tool to help educate people about the quality of the company's products and draw them to the public house, where they can enjoy specials tap brews that won't be found on store shelves.
"Right now, it's very, very hard to make money just at wholesale. ... but we look at the whole (division) as marketing," Althouse said. "If we take some losses, it's worth it to build our (tap house) model.
"What we're selling in the tap room really is an experience. We're selling community. We're selling humanity. We're selling an experience where people can come and enjoy each other's company."
At Assembly Brewing, Johnson and Dixon also are trying to create an environment that offers customers an experience different from what they'll find at the bars in the area. The business partners made a deliberate decision to bypass Oregon Lottery and video slot machines, even though they realized they might be giving up revenue from the games. They made the establishment limited to a 21-and-older crowd. They also decided to not install big screen televisions
It's all part of what the partners see as creating a unique experience for customers, and Johnson and Dixon say those early efforts already seem to be paying off. Just one week after a soft opening, they already had some people who live in the neighborhood establishing themselves as regulars.
"We have some people coming in two or three times a day," Dixon said. "They're making this their neighborhood spot."
Creating that specific experience is key to success for small breweries these days, in Holloway's opinion.
"You have to be very intentional about the kind of experience you're trying to create," he said. "If you create an incredible customer experience, while your equipment may not be as sophisticated as a big brewer, there's no way they can compete with the personal experience.
"If they have a laser-like focus on great customer experience, they're going to have more than a fighting chance to grow and thrive as a small craft brewery."