Craft Beer’s Ticking Time Bomb: Succession planning

Craft beer has a succession planning problem that nobody ever talks about. I guess it’s not a sexy topic. Beer is cool. Lawyers, bankers, and accountants are not cool. However, almost all craft breweries will face this problem, and it needs to be addressed well before the owner starts looking for the door. To make matters worse, the nature of craft beer culture, business, and ownership exacerbates the problem.

That, and the flying monkeys. But there's not much we can do about those.

…and the flying monkey problem. But there’s not much we can do about that.

Small businesses and the next generation of flunkies
Realistically, most craft breweries are small businesses, nearly all of which are closely-held, if not completely family-owned. Unfortunately, family-owned businesses are notoriously unsuccessful when passed to the next generation. And it could be worse for craft successions occurring as market growth begins to slow, inter-craft competition increases, and craft consolidation begins.

Sure, you could argue that won’t happen, despite decreasing headroom for premium shelf space, an increasing number of players vying for a share, and the expansion of formerly regional breweries soaking up more of that share at lower prices. We could also pretend that people who love beer produce offspring with better decision-making skills. But I assure you…I love and drink a lot of beer, and I also have an aggregate of 65 pounds of “Why the hell would you do that?” wandering my house right now that says you’re wrong.

Shocking, but not surprising.

Shocking, but not surprising.

Hookers & Blow
Everyone is familiar with family-owned business drama worthy of Falcon Crest and little Johnny being more interested in hookers & blow than taking over the business. Certainly, craft beer is not immune to these clichéd problems. But there are other issues more endemic to craft beer that can affect the decision (or indecision) whether to hand the reins over to the kids or transition out of the business another way…possibly even aided and abetted by the Big Beer Boogeyman.

whiplash The trapped child
Actually, little Johnny may be perfectly capable. In fact, little Johnny may have forgone higher education or other job offers to benefit the family business. Further, little Johnny probably has kids, a wife, and a mortgage. Little Johnny is trapped and needs the business. Or at least that’s how his parents perceive it. But even if keeping the business family-owned or passing it on to little Johnny was initially the assumption, it may turn out not to be the parents’ best option…or even feasible.

Undercapitalized beer
Undercapitalization is apparently a rampant problem within craft beer. A major business issue in and of itself, undercapitalization poses a major problem for a successful generational transition. The parent is going to want to transition out in a way that doesn’t leave the parent exposed to the dangers of an undercapitalized business, including the inability of the business to respond to input price increases, macroeconomic changes, and the need to expand to remain competitive. In fact, that last one may have been a major impetus in the sale of Goose Island to A-B InBev.

That, and he's a beady-eyed, greedy sell-out who only thinks of himself, his family, and his employees. Fucking jerk.

That, and he’s a beady-eyed, greedy sell-out who only thinks of himself, his family, and his employees. Fucking jerk.

Not enough debt…wait, what?
Further, and perhaps counter-intuitively, the business might not have enough debt. The disadvantages of being over-leveraged are obvious. But an under-leveraged family-owned business often means too much of the parent’s wealth is wrapped up in the business. This tips the scales in favor of cashing out in a way other than family succession. Because anything other than a major cash-out of the parent’s interest leaves the parent lean in retirement and burdened with business risk.

Personal goodwill
Adding to the problem, craft beer is an extraordinarily personality-driven and relationship-driven business. Craft beer is rife with breweries the owners of which are nearly as prominent as the beer itself, not to mention the narrative of craft beer as a big, happy love-in of personal relationships between owners, suppliers, and the beer-drinking community. Absence of these personal relationships and personalities upon succession, however, can gravely affect a business’ ability to survive in the next generation (or even with a third party), particularly when little Johnny needs to start throwing some craft beer elbows to survive in an increasingly competitive craft beer arena.

sorry i elbowed you Worse yet, a lack of institutionalization often follows from a personality- and relationship-driven business. The business and its operations depend on the person who started the business, rather than other personnel and management. If not addressed, businesses like this are bound to struggle after the owner’s transition out.

Hmm, Stone must be implementing a succession plan. There's a little less Greg Koch and a touch more private equity character in this batch.

*sniff* This batch seems to have a bit less Tom Schlafly and a touch more private equity.

Dithering over the taxman Oh, people love to whine about taxes. And with a maximum gift and estate tax rate of 40 percent, how couldn’t you? Listen, I’m a tax attorney, and I have an LL.M. in tax. Don’t blame taxes. Inaction because of the taxman is worse than the taxman himself. If you start early enough, there are plenty of tools at your disposal to set the succession plan in motion, minimize tax exposure, and continue to control the business until you’re good and damn ready to be put out to pasture: Recapitalizing with different classes of stock and debt, planned gifts with valuation discounts and maximizing the annual exclusion and lifetime exemption, ESOPs, incremental sales at lower capital gain rates, trusts, preferred rates on certain small business stock gain…

However, as with all the other issues above, planning needs to start early. Like 10 years out. Options shrink with each passing year.

meme This is depressing. I need a beer.
And guess what…most of the stuff I talked about above negatively affects the value of a business, too. So, drink up and enjoy our craft beer renaissance while you can. When enough owners develop a sparse gray hackle and start looking for the door…we’re screwed. Although, Goose Island, Schlafly, Boulevard, New Belgium, and Full Sail all cashed-out successfully, or are in the process of doing so. The next big one in line appears to be Bell’s.

Unfortunately, they all have something in common: They’re relatively big craft breweries. It’s going to be much harder for the mid-sized and small breweries to survive succession. It will be interesting to see what happens. Your beer depends on it.

The Haybag: Congrats. Way to make beer boring.

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Beerbecue Exposé: Food Babe advocates tetrafluoroethane in food

The Food Babe is in the news again. About a year ago she made some outlandish claims about beer ingredients and why you should be afraid to drink the stuff.heston

She is back in the limelight again, demanding that big brewers disclose the ingredients in their beer (which they really already do). You can find an excellent rundown of her hackery at Brookston Beer Bulletin.

Suffice to say, she is clearly more interested in self-promotion and click-baiting than truth. Interestingly, she appears not to know (or care) what high fructose corn syrup is. Perhaps worse, she is unable to differentiate between what is IN beer and what is merely used in the process of making beer (never touching it). One such highly irresponsible claim is that beer contains propylene glycol.

facepalm

OK, Food Babe Army, put down your organic pitchforks and gluten-free torches. There is no anti-freeze/airplane de-icer in beer. Apart from the fact that it is generally considered safe anyway, propylene glycol never touches the damn beer!

To control the temperature of fermenting beer, fermentation tanks have a cooling jacket (especially for lagers, which generally ferment at lower temperatures than ales and have to chill out in a second conditioning phase). This self-contained jacket encircles a fermentation tank and cycles a food-grade glycol and water mixture through to maintain the temperature of the beer inside the tank. BEER INSIDE THE TANK. GLYCOL OUTSIDE THE TANK.

Sorry, I only do magnifying glass research.

Oops. Sorry, I only do magnifying glass research.

Interestingly, Food Babe has never corrected this glaring oversight. So, I can only assume that she knows something I don’t. There must be propylene glycol in beer. And it must follow that fridges impart refrigerant (tetrafluoroethane) on food. Hold up. Tetrafluoroethane can cause asphyxiation when inhaled, blindness with eye contact, and frostbite with skin contact. Food Babe wouldn’t advocate something that dangerous, would she?

Wait for it, Charlton.

Wait for it, Charlton.

Holy shyte! Her 4.6-out-of-5 star rated Food Babe’s Parfait Porridge recipe has been a little slice of oat groat, muesli, and chia seed heaven for the Food Babe Army since August 2011. But the instructions state, “Let mixture sit in fridge overnight or up to three days in fridge.” Human sacrifice! Cats and dogs living together! Mass hysteria! Who can I trust anymore!!??

No, Charlton. I'm employing reduction ad...oh, nevermind.

No, Charlton. I’m employing reductio ad…oh, nevermind.

Tell Food Babe on Facebook and Twitter to stop advocating the ingestion of tetrafluoroethane. Think of the children!

Beerbecue Health Confession. I Have Been Living a Big Fat Lie.

We are wrapping up Barf Week at beerbecue HQ. Everyone in the family should now immunized against whatever heinous daycare plague was lurking in the crevices of some Lego Duplo brick, the disease trapping fur of Big Hugs Elmo, or the dirty babbling beak of some Furby Boom. Patient zero was 2.0. Then, one-by-one, the rest of the house fell.

So now, I am finally getting around to a post I have been avoiding. Folks, I have been living a lie. I feel like the Paula Deen of the beer and BBQ blogging world. No, I have never longed for a “Plantation-style Wedding”. My wedding was pretty tame: A build-your-own taco bar, Tecate cans, and kilts. And as I’m assuming is customary at all weddings, when Smells Like Teen Spirit came on this happened:Wedding 1

Then this...

Then this…

Umm, then this...

Umm, then this…

A little less hetero than I had imagined my wedding.

A little less hetero than I had imagined my wedding.

No. No. I have promoted beer swilling and BBQ eating, while walking around as a ticking time bomb of rotundity and high cholesterol. And all the while, there was no way you could have known that following my lead was potentially harmful to your health. Reckless.

My doctor has her stethoscope in a twist about the amount of grains and gluten in my diet (which admittedly hasn’t changed much since I was swimming 5,000-10,000 yards a day in college). Apparently, along with genetics and a lack of exercise, this is suppressing my HDL and boosting my LDL. In fact, she did the equivalent of a medical facepalm when I told her I write a beer and bbq blog.

I suppose in light of my family history, the responsible thing to do is to make some lifestyle changes. Thus, my fat ass is back in the pool. And I have to make some changes regarding beer consumption. This could affect the blog. I know this may be disappointing to many of my readers, but I have given this much thought. I’m going to have to drink more bourbon. Sorry, but I have to do what’s best for my family.

Interestingly enough, I see a move to liquor as happening more broadly. Over the past several years, I have seen restaurants and bars upping their liquor game with better booze selection and carefully crafted cocktails. And with websites like Bread&Gin (check out this video) and friends with snazzily stocked liquor cabinets and freezer trays that make huge ice cubes, I can’t help but think that liquor could cut into craft beer’s game at least a little bit. (And, of course, don’t forget It’s Just the Booze Dancing…G-Lo has been distracted by Whiskey for years.)

And I can’t say I’m disappointed. First, I don’t think it will detract much from craft beer, if at all. In many ways, they occupy different realms. If anything, liquor may just impede or slow craft beer’s foray into fancy pants drinking. Second, I love bourbon. Who wouldn’t want more selection and availability. And I love me a good Manhattan, which is what I got the other day complements of my friend’s snazzy liquor cabinet…complete with home-soaked cherries, Bulleitt Bourbon, and Carpano Antica Formula. Without a doubt, the best Manhattan evar.

manhattanWhat say you about snazzy liquor vs. craft beer?

The Session #81: Why Women Shouldn’t Drink (my) Beer

sessionThis month’s installment of the Session is hosted by Nichole of the Tasting Nitch. The topic is Women and Beer: Scary Beer Feminists or a Healthy Growing Demographic? So, this Session, Nitch has us examining the cultural shift that gender is taking in the beer world. I have some opinions on the matter.

It’s an outrage. Their ranks are growing. They’re drinking more beer and becoming more vocal.  It’s a scourge. Why is the explosion of women drinking beer a bad thing?

They have opinions
This is the worst, amiright? Whatever happened to seen and not heard? Or was that kids? It should have been women, I’ll tell you that much. And why should I have to take someone else’s feelings into account? When the Haybag was pregnant I had free-reign over the beer supply. Not one complaint about day-in-and-day-out of oppressive sours or bone-dry saisons. It was beautiful. Which leads me to my next point:

We have to share
I don’t want to share my beer. It’s my beer dammit. Now, I’m not a total jerk. You ladies can have a sip, but stop being so damn greedy. And with the hyper competition for the great beers, do you guys really want to throw the other half of the human race into the melee? No.

They have economic power
Listen, I’m fine with the ladies entering the workforce and all. It’s not like I’m a sexist or anything. But seriously, just because you make some money suddenly entitles you to a say in purchasing decisions or having your preferences heard? That’s preposterous. You hear that beeping? Yeah, that’s the entitlement bus, and it needs to back the fuck up.

Women apparently have better tastebuds
Oh, so now you’re bringing the ad hominem. Real mature, ladies. Kick us while we’re down. Take our stuff, then ridicule us based on innate physiological capacity. Listen, just because we’re sensory-challenged, doesn’t mean we don’t have feelings. Jerks.

I mean, is there some sort of Cosmo shortage? Is that why you’re swooping on one of our last remaining domains? Did widespread frost decimate this year’s appletini crop? Listen, it’s cool if this is temporary; but if this turns into a long-term thing, it’s gonna be a problem.

Ahhh, the good ole days.

Ahhh, the good ole days.

The Haybag: I’m going to assume this is satire and let you live. Now, why don’t you be a dear and go fetch us a beer.

The Session #79: A new forum for Ding’s anger.

sessionThis month’s installment of the Session is hosted by the divisive, and English, Adrian “Ding” Dingle of dingsbeerblog. The topic is US vs. Old-World Beer Culture: What the hell has America done to beer?

For those familiar with Ding, this topic is no surprise. For everybody else, all you really need to know is that he is infamous for his blustery but stale criticisms of US beer, his slavish and innovation-stiffling adherence to style guidelines, his strict traditionalist stance on cask ale, and his red-faced insistence upon the 4% ABV session beer Maginot Line.

Interestingly, Ding’s long trail of blocked twitter users (and twitter users blocking Ding) will lead you to the home base for his insurrection: Atlanta. Of course, complaining about US beer culture from Atlanta is like sitting in Newark and whining about the uninspiring view of the US National Park system.

In fact, a quick search of ancestry.com reveals that Ding comes from a long line of naysaying blowhards. So, to better understand Ding and how the US has apparently screwed up beer, one must take a long look back at how people have probably actually been “screwing up” beer for centuries. So, without further adieu, I present beerbecue’s first animated video:

Beerbecue Daycare: Day 3 – DIPAs and Statutory Interpretation

The Haybag was back at the office Wednesday. So, Beerbecue Daycare day #3 started with the sinking feeling that willfully ignoring diapers would get me nowhere. And I had forgotten how much you talk to babies when you’re alone. Not the cutesy “Oh, look at Mr. Giraffe” bullshit. More like the offhand small talk, even though they clearly can’t respond. Unfortunately, I don’t think Clara would respond anyway. She has formed an exclusive “besties” clique with her feet. This may seem a little strange, but imagine you just discovered your feet. It’d be mind-blowing…like you simultaneously figured out how to achieve cold fusion and beat Mike Tyson’s Punch Out.

2.0 and I made our way to Old Town’s Pizzeria Paradiso. They are having JulyPA the next 2 weeks, which apparently means all their taps will be IPA, or similar. One offering caught my eye: Blue Mountain Barrel-Aged Big Blue DIPA. So, Beerbecue Daycare was on the scene to investigate.
The online list said it was a barrel-aged baller. Interestingly, the on-site beer list made no mention of baller status. And unfortunately, nobody at Pizzeria Paradiso seemed to know. The best they could do was speculate that since there was enough room on the menu to have included a reference to its barrel-aged status, it must not be one. I think this is known as the “it coulda fit” school of statutory interpretation, which is a lesser-known off-shoot of strict constructionism. Also, it’s not to be confused with the more inclusive “it couldn’ta fit” school of thought.
20130704-152656.jpg

“The Court finds persuasive the petitioner’s argument that but for the lack of space between the seventh and eighth article of amendment the Framers would have included the right to free donuts. It just couldn’ta fit.”

Now to the beer:

20130705-080042.jpg

It poured a clear amber. And it had a tiny, white head, but I think the bartender was just maximizing the beer in the cute, little glass they use. Also, you can’t smell as much when it’s filled to the brim, but I ain’t gonna hate for that. It’s huge: Grapefruit, pineapple, sweet malt, and what could either be oakiness or a woodsy hop character. Baller status, inconclusive. Magic 8-Ball says ask again later. It finishes pretty bitter, with a bit of booziness and some herbal and earthy business creeping in once in awhile. I like it, but it could be a little (lot) much for some. But it’s a Double IPA, playa. If it’s too much for you, your contributory negligence begs the question: What’re you doin’ in Double IPA’s neighborhood at this time of night anyway? Go cry to your Double IPA Victims Group. I take a break to throw some peaches and sweet potatoes at 2.0, but the finish is still hanging around like Captain Woody Hazelwood has run his hop oil tanker aground  in my mouth; and iconic, pitiful pictures of my hop-coated tongue will circulate the interwebz for years after the destruction subsides.
The Haybag: Ahhh, sweet potatoes and peaches. That explains the orange gunk I found between her fingers and toes last night.

Beerbecue Daycare: Day 2 – ¡Derecho!

Day 2 of Beerbecue Daycare found the Haybag at home teleworking. And the day started unceremoniously, as 2.0 awoke and loudly announced the results of her overnight diaper stress-test. Her insistent babbling translated to something like: Wakey, wakey, suckers. This piss-brick ain’t gonna change itself.

I didn’t break away for a beer until afternoon, but this gave me a chance to eat lunch with the Haybag. During lunch, 2.0 appeared to be working on a serious deuce. I didn’t think she had consummated the deal, though. And afterwards, the Haybag plucked 2.0 out of her chair and offered to go change her before getting back to work (presumably thinking it was just a wet D). Good thing for me. The Haybag ended-up changing the baby work-product that resulted from this face:

poop

We now call this the “20 wipe face”.

Hey, I don’t make the rules. You find it, you clean it. It’s the beerbecue daycare jungle, dude.

Clean baby in hand, 2.0 and I headed to Rustico for a Port City Derecho Common. Port City is a local brewery that I am proud to pimp. Their beers are all dependable and some are quite good. Derecho came about last year after a freak derecho storm rolled through the area knocking everyone’s power out. Actually, our neighborhood didn’t go out. Everyone around us did. Oh well…don’t hate the playa. Hate the grid.

Port City had it especially bad, though. Their power ended up being out for 5 days, it was hotter outside than two bears in a treehouse, and they had 60-barrel tank of Downright Pilsner that would have preferred to ferment at 50 degrees. They eventually tracked down a big-ass generator, but not before the $20,000 worth of Downright Pilsner was not really Downright Pilsnery anymore.

Undeterred, they released it as a California Common (one could call it a Steam Beer if they wanted an IP bitch-slap from Anchor Brewing). California Common is a lager, like Downright, but it is fermented at higher temps…which, is what they did in California in the mid- to late- 1800s if they didn’t have refrigeration to get knocked out.

Oddly enough, the other day when Port City had a Derecho Common release party to commemorate the power going out a year ago, there was a big storm and the power went out. Luckily, it was back on by the next morning.

20130703-084707.jpg

Derecho pours an unfiltered-looking pale gold with a delicate, but persistent, white head. The smell doesn’t bring the same bag-of-Noble-hops aroma as Downright, perhaps a little more Pilsnery malt and lager yeast character. The hop character isn’t absent from the taste, though. It has a pleasant bitter and spicy finish that builds as you work your way to the bottom of the glass (I would even say moreso than Downright). It’s a nice, crisp, and drinkable beer, but not one that you forget you’re drinking. And at 4.8 percent, it’s fine to pound a second one when you get your kid to take a bar nap.

The Haybag: I don’t buy that you didn’t smell that nasty D. And C totally smelled like a bar when you brought her home. Beerbecue Daycare is sketchy.