With a title like this you are probably thinking PE4Fams committed the cardinal sin of good journalism, a typo in the headline. Not so fast my proofreading friends, this blog is about disruptive technologies and the pervasive onslaught of India Pale Ales.
The Economist Editorial staff produced a really interesting history of IPA’s in its Dec 24, 2016 Double Holiday Issue: “A child of Britain’s industrial revolution and imperial expansion that rose to world-straddling greatness, IPA went on to be humbled by its upstart rival, lager. It had all but banished when plucky supporters restored it to life and once more put the world at its feet. Here is beer with a back story.”
I immediately thought about analogous banishments like suspenders, bell bottoms, and fondue pots but realized that these fashion and lifestyle faux pas could never have the rebound potential or manifest destiny of a product as seductive as India Pale Ale. How could an almost dormant taste morph into ales with seductive names like “Blind Pig”, “Hop, Drop and Roll”, a “Whiter Shade of Pale”, “Modus Hoperandi”, “Effinguud” (phonetic) and “Kilt Lifter”? How can any 21st century discerning beer drinker go for monosyllabic offerings like Bud, Coors, Lite, and Pabst? Maybe the mystery of a “PBR” offering should compete with the promise of “Elysian Space Dust”, “Hoppy Ending” or “Beard of Zeus”, but the competition stops when the alcohol content exceeds 8% and a double or triple IPA is named “Alimony Ale” with a tag line “The bitterest brew in town”
The Economist is right, however, about the back story. IPA monopolized the beer industry in the 18th century on the back of Britain’s Hogdon’s Bow Brewery and the miracle of coke fired ovens that imparted a pale and more consistent product which began to compete with darker porters and stouts. The heavy, bitter hops counteracted the sweeter malt and preserved flavor and punch over the long voyages to India where it became the tipple of the British Army in India. Hogdon’s monopoly based on generous credit terms to ship owners for promoting the brand eventually gave way to well-known British competitors like Bass, Worthington, Tennets and Charrington. As The Economist explains: “As IPA conquered taste buds in India it spread across the world turning up in America, Australia and Southeast Asia…Bass’s Ale (in style, an IPA) made it Britain’s biggest brewery and its red triangle logo appeared around the world- some call it the world’s first global brand.”
Like all monopolies, though, the dominant brands caught the attention of politicians who believed it was fair to impose an excise tax on strong alcohol content which was IPA’s hallmark. World War I also led to the commandeering of grains that supported the brews. The rout of IPA was so severe that the leading breweries in England were mothballed. Taxes, war, prohibition in the U.S. and the growth of mixed drinks all conspired to end IPA hegemony.
For those of us who are baby boomers, the brands of our youth were national lagers like Budweiser, Miller and local brands like Stroh’s and Carling. With time, the dominant national brands in the U.S. began to consolidate all of the capital intensive, limited distribution local brands. New techniques for preserving quality brews and the onslaught of grocery stores and regional distribution all favored hub and spoke manufacturing and distribution models. The beer wars increasingly were won by publicly traded, well capitalized, marketing savvy national and international brands. Local beers, like Stroh’s and Carling, feeling the press of extinction, surrendered quicker than the France facing a Panzer division. Eventually, even Augie Busch sold out to In Bev. But just about the same moment I was burning my bell bottoms, hiding my suspenders and jettisoning Gordon Gecko hair gel, craft brewing began a quiet comeback.
Today when I travel, I routinely ask every bartender and waitress whether they serve a local IPA. Places like Mt Airy Virginia (Hoptimization”), Damariscotta Maine (“Farmhouse” by Oxbow), Hartford Connecticut (“From The Ashes”), Springfield Missouri (“Gravel Bar”), Ft Wayne Indiana (“Funky Wild Ryed”)and Dayton Ohio (No brewery for 50 years – “Double or Nothing”) all have a local favorite and sometimes two or three. Cleveland now has three or four thriving local breweries with fantastic offerings. As The Economist also points out there is a subculture of inclusion that is driving these flavorful favorites. There are local hops growers, the second best “off the grid” cash crop that make the local hops in Mt Airy a little like terroir in Napa. There is an immediate camaraderie around eliciting local pride for their local favorites. You are united by hops in a way that national lite beers simply cannot. If you had to choose between being skinny or drinking IPA which would you choose? Effinguud (phonetic) or Hop, Drop and Roll?”
The business model implications for oligopolists like Miller and In Bev are frightening. The local barriers to entry for craft beers are low and often powered by hobbyists. Local pride and word of mouth provide free marketing. The cool factor fuels the craze and makes the brands travel. Most perverse is any craft brand that succeeds on a national scale has to be bought. So oligops pay twice for national insurgents like Lagunitas, once when Lagunitas takes your market share in bars and specialty stores and again when you have to buy them out at 12x to regain share and remove competition. After In Bev has brought you into its family, it is really not cool any more to drink their brand. This happened to Sam Adams after it was sold to In Bev. Lagunitas makes great beer buy the suggestive pleasure of Hoppy Ending will always be worth a shot.
Remembering Porter’s five forces- barriers to entry must be sustainable. When an old world product that used to be a monopoly based on taste and punch is resurrected in an era of low capitalization, high quality craft brewing, watch the oligopolies fall. Can you think of one or two more business models that might be disrupted? How about print and television media? How about book publishing? How about Department Stores and Big Box retail?
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Rob McCreary, Chairman
January 26, 2017
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