Pyramid Breweries

Source: Food and Drink Digital

Date :5/25/2007 4:11:47 AM

Pyramid Breweries: Toast of the Town

Written and produced by James Buchanan & Michael Magno

Pyramid Breweries is riding the success of the public’s rejuvinated thirst for craft beers

The craft beer brewing industry can be something akin to big wave riding—wait for the right swell and ride it as far as you can.

“We are currently in the second major phase of the growing desire for craft beers in the U.S.,” says Scott Barnum, president and CEO of Pyramid Breweries Inc. “In the mid 1980s as these breweries started to appear and develop a following there was a significantly growing demand for craft brewed beers. Then, in the mid 1990s, that sort of leveled off with consolidation among various brewers, a switch to imports, and other industry changes.

“Since 2003, though, significant craft category growth has occurred, with new efforts by brewers, and increase acceptance of our products among the buying public. Last year craft beers experienced double digit growth for the first time since 1996.”

And it is growth that Barnum says should continue when looking at the psycho-demographics of the company’s market.

Psychographics, he says, is a hybrid term combining psychology (i.e. the mental attitudes toward a product or industry) and demographics, which are two elements any marketer needs to understand in order to be successful. In particular, examining the psychographics of a particular market population involves understanding lifestyle choices, attitudes, and the emotional needs and behaviors of the delineated demographic.

“Looking at these elements tells us the next generation is more educated on food and beverages, because the Baby Boom generation has instilled a knowledge and desire for diverse craft produced products,” says Barnum. “The notion of premiumization or ‘trade-up’ is a growing trend, and you can see this when you look at what has happened with coffee, ice cream and other similar indulgent products. People are seeking higher quality, more flavor, and companies with a story behind them, rather than huge faceless corporations that make homogenous products, and we see this continuing.”

So then, the challenge for any rider wanting to surf the second phase is to get its products in front of the buying public. When you’re small, says Barnum, this can be something of a challenge.

“For our size we have some fairly sophisticated selling capabilities,” he says. “We can deal with the top and biggest retailers such as Costco, Target, and Safeway, which are hard for small-size brewers to get into. It requires a significant level of sophistication to both get into and then remain in these places because you have to be able to meet the many needs and requirements of these large retailers.”

“This capability also matches well with our ability to get our beers in restaurants and bars on tap,” he adds. “Unless you have a sales organization that can get into a lot of places – retailers with the visibility and sales to move your product and promote it – it is hard to grow your business.”

Barnum goes on to say that a strong sales organization in this industry is critical for managing both the wholesaler and retail tiers in the distribution chain.

But growth is something the company has managed well from the start, Barnum says. Founded in 1984 in a small, turn of the century general store in Kalama, Wash., the company has moved from these humble beginnings to corporate offices based in Seattle, Wash., with breweries in Portland, Ore., and Berkeley, Calif., along with brewery alehouse restaurants in Seattle, Walnut Creek and Sacramento.

The company has also been listed on the NASDAQ exchange since 1995. “We are one of the first craft brewers to have gone public with, Redhook, Sam Adams, Pete’s Brewing, and maybe one or two others,” says Barnum.

He goes on to say that the company at one point had its main production facility located in Seattle. However, with the acquisition of certain assets acquired from Portland Brewing in 2004, the company compared the two facilities and decided to merge the Seattle production center with the one in Portland.

Seattle is not without any brewing capabilities, as it is the home of the company’s R&D efforts, which can replicate the processes in Berkeley and Portland on a smaller scale.

Primarily, the function of the R&D facility is to develop new beer recipes and test new brewing processes.

“We can look at everything from the milling of the grains to putting the beer in a keg,” says Barnum. “We are able to learn how to increase the efficiency of our processes and test our new products with the consumers, but in smaller batches. In this way, we can minimize the overall cost of research.”

“Having brewed now for more than 20 plus years we have a pretty good library of recipes,” he adds. “We have five beer styles in the market at any one time and these recipes are tried and true, tested and vetted.”

The Seattle R&D facility also enables the company to test “funkier” beers, such as fruit and highly hopped beers that can be released in short runs periodically throughout the year to hold the company’s customers’ interest. They can also work on special occasion beers, such as newsworthy event and off-holiday brews.

On the manufacturing side the company seeks to be as lean as is possible.

“For a company of our size we have a strong operations team,” says Barnum. “If you look at costs over time, we have been able to materially improve our cost structure – the actual cost per barrel for production – despite ever increasing inflation of the raw materials we use and in other aspects of the business. We have been able to make our brews more efficiently by deploying better, more productive equipment, refining our production processes, and growing our throughput.”

One example of how the company has become more efficient is its pairing back production from a much wider array of beers to fewer, faster moving products from a sales point of view. Removing slower sellers reduces inventory and the need to bring these beers periodically online taking up production line time and inventory space, says Barnum.

The company has also moved to just two standard bottle sizes and shapes, which makes the bottling line more efficient. Rather than break a run into a number of sizes requiring changes in all aspects of the bottling line – change the filler settings, add new packaging, new labels, etc. – standardization means one continuous run.

“Consolidation of the product line is a good thing because it is scalable,” says Barnum. “The products now more accurately reflect the customers’ desires, and we have longer production runs. Some breweries are so diverse in their product offerings that it can backfire on them. Too many SKUs (stock keeping units) cost more to produce because of inefficiencies in the process, due to shorter runs and more infrequent runs. We’ve really pared down what we make, which has made us much more efficient.”

“Balance your sales and marketing needs with manufacturing needs, and the cost per barrel will drop significantly,” says Barnum.

The company is also automating the production process as much as possible and where it makes sense to do so, he says. The line is essentially one fluid process from mixing and boiling the wort (the combination of water, hops, wheat or barley, malt, etc), to cooling, filtering, fermenting, bottling, placing the bottles in cases and moving the product to and from storage.

Asked what makes his brewery unique, Barnum says, “The primary area where we are most unique is our expertise, leadership, and innovation in the unfiltered wheat beers. Our Hefe Weizen is nationally recognized by industry experts and consumers alike.”

Up to the last few years most beers have been produced from barley malt and heavily filtered for clarity.

However, wheat beers have recently become one of the top three growing sub categories in the beer industry, says Barnum.

“Wheat makes a great beer grain because it is an approachable grain, and it has a great feel in the mouth and on the palette,” he says. “These beers are cloudier versus conventional beers such as Budweiser, because they don’t go through as much or any filtering as other beers typically do. This initially slowed our market acceptance to some degree.”

“We are leading this whole wheat area because of our core expertise,” he adds. “We can brew anything, but it seems as if the market is finally embracing wheat beers and wheat beers are what we do best.”

As the company moves forward it is looking to grow its geographic scope both nationally and internationally.

“There are a number of areas that make good sense for our products and we are focusing on the South and Southeast,” says Barnum. “Testing indicates we have good brands for these warmer markets and the craft market is emerging in these areas as well.”