Sorry for the delay between posts. I have to play the harvest card. It was crazy busy for a few weeks. Thankfully, our hops are all being pelleted now so another milestone passed. I also just returned from Philadelphia and the Craft Supply Conference. I gave a frank presentation about trends for the US hop supply and demand going. If you’ve been following this blog, you can probably guess the types of things I was talking about. The conference was worthwhile, definitely not a waste of time, but there were fewer brewers in attendance than I would have imagined. Honestly, there were probably more supply people there than brewers. Don’t get me wrong. That can be valuable too, but it was presented as a conference for brewers.
All of that started me thinking about what it is that brewers really want. It would make sense that as a brewer, you would want to know about the future of your supply chain and what might happen to affect your business with such key ingredients as hops and malt. I think if I were a brewer I would want to know those things. They seem important. Still, brewers don’t flock to events with a purely economic focus. We get at least one or two calls every month from a brewer who isn’t currently our customer who is having a “Hop Emergency”. That’s when a brewer has just realized he is completely out of hops in the warehouse and has no contracts in place. He needs something overnighted to him to get him through the next week while a bigger delivery gets there by some slower delivery method. When that happens, oftentimes, the shipping costs as much or more than the hops we send. It’s sad because with a little planning that brewery could have saved a ton of money. If you’ve never been in that position, you probably doubt what I’m writing and thinking, “WTF, how can people run a business that way?” Long term, you can’t. Some of the best hop farmers are the ones who went out of business a long time ago. The ones that are still around are the ones who knew how to grow hops really well AND run their businesses efficiently.
My guess is that some brewers are more artists than economists. Brewing beer is definitely an art, so that seems to make sense. A brewery running out of hops though is like Da Vinci running short of paint. Could it be that’s why he didn’t paint so many paintings? I doubt that. Artists aren’t best known for thinking like rocket scientists or economists, but they create things that rocket scientists never could … and who wants to be an economist anyway. If nothing else, at least there’s balance in the world. My other guess is that those artists are a little preoccupied, and let’s face it, distracted and overwhelmed with that 18% growth of the craft industry that we’re all hearing about. More than likely they’re under-staffed, working 18 hour days and going in too many directions at once, which is when things fall through the cracks.
Back to the topic … So that begs the question what excites the brewer if not where they spend their money. Where they make their money. Economists would say they’re worried about the top line (increasing sales and total revenue), which gives them positive feedback on the quality of their product and makes them feel great about themselves, instead of the bottom line (net earnings or net profits), which measures how efficiently they’re making that quality product.
Brewers like to attend MBAA meetings where they can hear about things like:
“Achieving Beer Characteristics Through Yeast Strain Selection
and Fermentation Management”
And, of course, the ever popular …
“Wort Contamination by Hydrophobins”
So, brewers are geeky artists who love to get deeper into the technical aspects of making better beer most likely because they’re interested in expanding sales and total revenue. That makes sense to me. If you have sucky beer, I guess it won’t matter how much your hops cost or where you can get them for very long. You only need to focus on the bottom line if you have a top line in the first place. So, it’s about priorities … Touché! Point well taken. But, the converse is also true, if you don’t pay attention to how much your raw ingredients cost and where you can get them, you won’t be making beer for very long either in a time when they are in short supply, like now. So, where is the beautiful balance we had before between art and rocket science? Gone. Lost in the fog of market expansion and company growth.
In all my years in the hop industry, I always wondered why hop dealers started down the road of creating more efficient products, like isomerized and downstream products. From where I sat, it didn’t make sense. These are products that, from the grower perspective at least, lead to less demand for hops. It would seem that hop merchants have been pulling the rug out from underneath their own feet by creating these products. Of course, you’re thinking now that it’s great when a company can create products that their customers really want … yadda yadda yadda. True! I don’t think that happened because they wanted to be nice guys, saving their customers money by creating more efficient products they can then sell at the same price. I think they have had to create reasons for their customers to want to talk to them during the times when the hop market was terrible. My guess is they had to create relevancy in the eyes of their customer during times when hops could be bought for $2 per pound and warehouses were full of cheap hops. What reason does a brewer have to engage with a hop merchant when there’s a surplus of cheap hops on the market? None! They can just call up when they need the hops, unless there’s some cool new product or widget available. Relevancy, at any expense, I think must have been the goal … even if it meant the industry sold less product overall, which was arguably the case from every product that has been developed beyond the pellet. Don’t get me wrong. There are some brilliant scientists creating this stuff and it’s amazing. I’m just curious why it was the hop industry creating it, not the brewing industry.
An older hop merchant, whose name I won’t mention because he’s still in the biz, once remarked,
“When hops are $20 a pound, it’s easy to sell them.
When they are $2 a pound, it takes a lot of work.”
And therein lies the irony of the hop industry! Brewers don’t seem to care so deeply about what is arguably one of their most important ingredients until they can’t get it. In the history of the hop market deficits and shortages have only occurred once every 10-12 years or so. Brewers didn’t have to worry about supply. That’s too harsh you say? Well, actions speak louder than words. Where do brewers spend their time? Geeky technical seminars!
Times are changing though and we’re entering a period where sustained variety deficits and structural shortages will be the norm. How long will that be true? That depends on how long the increasing demand for craft beer continues. Safe bet it’s the case through 2020, but it could extend well beyond that. Sure it will come to an end some day and things will go back to what was once the status quo in the hop world, but that could be a while.
Is the lack of interest in Hoponomics™ all the doing of the brewer though? The hop industry is shrouded in mystery. No. It’s a self-inflicted wound. Most of that mystery is a hold over from centuries-old business practices that are eroding in our increasingly open and transparent world. At 47Hops, we’re working to change that, like through this blog for example. The hop industry is still a closed and very competitive industry. It still lacks publicly available information about prices, or an accurate indication of supply and demand. You can find prices here though if you’re interested. You won’t hear a merchant talk openly about specific prices, unless they’re in very general terms or from the past. You don’t often hear them talk about anything publically, in fact. They’re all reading this blog … Hi Guys! Yes, I know you’re out there … Thanks Google analytics. Nevertheless, there are never any comments from any of them, not one. Behind the scenes though, it’s a different story! Merchants and growers invest a lot of time and energy to know what everybody else is doing and information moves quickly.
During that conference in Philadelphia, one merchant was going on about a very popular variety that has been unobtainable for quite some time. I asked the question if he had any available to which he proudly answered, “Yes”. I then asked for how much I could buy some. To that, he responded, “Oh no, we don’t do that.” To which I quickly said, “Oh, you don’t sell them? You give them away?” The room erupted in laughter, which was a welcome change of pace. I wasn’t intentionally trying to put the other guy on the spot or make a joke at his expense. I didn’t anticipate he would actually give me a price though either. I figured it would be a good way to demonstrate how evasive some merchants are when asked direct questions. That’s not something that’s usually done in public. Had he offered a price, I would have bought them then and there on the spot from him though, but he was reluctant to even speak of a price, not to mention do a deal, in public. This evasiveness comes across as very sneaky and is part of the reason, I believe, merchants don’t enjoy the best reputation among brewers. There, I said it. It’s no secret. Most brewers, and growers for that matter, seem to think of merchants as a bad thing, a middleman, somebody who has inserted himself somewhere he shouldn’t be and who is taking an unfair share of the money as the hops move between grower and brewer. Unfortunately, some people seem to think there’s nothing happening in the middle. Some growers strongly believe that … until they try to do direct deals with brewers, that is. They soon realize that it looks pretty from the outside, but that you can’t judge a book by its cover. There’s a lot of work that happens behind the scenes between grower and brewer. Don’t worry, I won’t get on a soapbox tolling the virtues of middlemen. There are some sneaky buggers in the industry who at times DO take an unfair share, but I’d say that’s the exception rather than the rule.
So, where is the balance between art and rocket science? It seems brewers want information that makes them brew better beer until they get big enough to hire people who specifically care about the costs involved with brewing beer. Problem is they may never get to that point if they don’t watch the costs involved with brewing. Most big hop merchants and growers chase after the big brewers because those big volume deals are easy. The little guy, who, by necessity, must be a Jack-of-all-trades in the first place, is, therefore, largely ignored. He is treated poorly by the majority of the big hop merchants and is left to fend for himself. That lack of information and preferential pricing in favor of the big brewers decreases the little guy’s chances of surviving what will become an increasingly competitive business. Cue the heroic music and deep narrator’s voice … Luckily for them, 47Hops is here, to level the playing field, right the wrongs of humanity, rescue kittens from trees and make the hop world a better place. If you’re a brewer, please pass this along to another brewer friend and help fuel the hop revolution. Knowledge is power! If you’re a hop merchant, please just keep quietly reading and not leaving any comments. We appreciate your interest and will be happy to take it from here. J