MODERN BREWERY AGE WEEKLY, DECEMBER 18, 2006

Greg Hall began his brewing career in 1988, as assistant brewer at the Goose Island Brewpub on Chicago’s Clybourn Avenue, a job that earned only minimum wage. ‘‘The people answering the phones made more than I did,’’ Greg laughs. ‘‘My dad didn't play favorites.’’ Son of Goose Island president John Hall, Greg graduated from the Siebel Institute in 1989, and began an independent study of brewing techniques, touring craft breweries throughout the U.S. and traveling to Europe to study Old World methods. By the time the company’s bottling operation began in 1995, Greg Hall had become the brewmaster of Goose Island Beer Co. Under Hall's direction, Goose Island has expanded its repertoire of both draft and bottled beers. He has been a driving force behind the brands of Goose Island's Reserve line, which have been receiving greater notice of late—Matilda won a gold medal at the Great American Beer Festival and Bourbon County Stout won gold at the World Beer Cup. ‘‘I had high expectations for Greg as a brewer," says father John Hall. ‘‘But it turns out he's even better than I thought. He's great at what he does, and it's a joy for me to watch him grow and succeed at something he loves. A father couldn't ask for anything more than that." Earlier this year, Goose Island entered into a distribution partnership with Anheuser-Busch through that company’s Craft Brands Alliance. The A-B deal has opened up new vistas for Goose Island, and we discuss that with Greg in the interview that follows

Greg, all the stars seem to be aligned for craft brewers right now.

There has never been a better time to be an American brewer than right now.

Why do you think that is?

There are some good things happening in the market right now. There is some maturity now, and that is allowing us to do the kind of thing we’ve always done in our brewpub, and always had an interested in doing. And now demand is accelerating rapidly for the funkier beers.

Chicago has been historically a tough market for craft...

Yes, absolutely, and it still is. It still has its challenges. Anytime you have a really big market, the people with a lot of money to spend find their way to that market. There is a lot of opportunity here, so for most of the really big brands, Chicago is a focus. That is always something we have had to compete against.

For the imports, it is certainly viewed as a top market...

Imports, crafts and certainly the big brewers spend a lot of money here. It’s one of the last markets where Miller is number one, so Miller spends a lot of money to make sure they stay number one. And our friends at A-B are spending some money to try to change that. And in between, you’ve got a lot of imports that are spending money here. I understand it is the number one market for Sam Adams, and I think it is also the number one market for Blue Moon. It is a big market, with a lot of draught beer. So it is a market that is worth fighting for, and we will keep fighting for it.

On the bright side, it is probably the most developed craft beer markets in the Midwest...

Absolutely. Larry Bell has sold beer in this market. Sierra Nevada has had a strong presence here for awhile. There are several other small brewers, that are doing great niche products, including Two Brothers and Three Floyds. And we’ve got some good very small distributors that have an extremely wide range of craft beer and specialty imports. So it is a great time to be a beer drinker in Chicago. There is a huge amount of beer, and the competition makes it typically less expensive than it is in some other towns.

You mentioned that you are now able to brew things you had been hoping to brew for a long time...

Well, our Reserve line is an example. We first made Bourbon County Stout in 1991-1992, and now we can’t make enough of it. Our Imperial IPA is the same kind of thing. It is a beer with 100+ IBUs. Ten years ago, if we made it at the brewpub, the Chicago Beer Society guys would be in there enjoying it, but our staff might have had trouble getting behind it. Now, we’ve got it in bars all over town, some bars that aren’t even specialty beer bars. We’re also really getting into the Belgians, like our Pere Jacques and Matilda. We are finding that we are getting demands for those in accounts that we really hadn’t thought of as well-developed craft beer accounts. There is a lot of momentum behind craft beer, and some of the newer flavors that are out there. The Belgians are hot, and so is the barrel-aged stuff.

How has the brewing capability of the company evolved?

We have a great team of brewers here. Mary Pelleteri runs our lab, and our quality control. She is behind the science of some of the new stuff we are doing. We are working with some interesting yeast strains now for making beers like our Matilda. We’re able to do stuff now that we hadn’t been able to do before. Right now, we’re putting stuff on the drawing board for 2007 that I think there will be demand for, even though people don’t even know it yet. Consumers are very excited about new beer styles, anything that is different. There is such a demand in the market. People are asking “what’s new, what will you have next?” People are asking for more barrel-aged beers, more Belgian beers.

It’s great that this time around, consumers are interested in style, not just packages and unusual names...

Absolutely. We have a couple of really mainstream bars that are doing extremely well with Matilda. It is a Belgian-style abbey ale that has a big Brettanomyces bloom in it. It’s the kind of thing that ten years ago, we could have served in the brewpub. The beer geeks would have loved it, but everyone else would have said there was something wrong with it. Now, we’re selling it at P.J. Clarks. Hari-Kiri’s and nightclubs like Rocket. Five or ten years ago, we didn’t even bother to knock on the door of those accounts.

Why do you think Goose Island was able to gut it out, while a lot of the Chicago micros in the first wave didn’t, like Chicago Brewing and Baderbrau...

The brewpub was the key. Having four walls that people could come and visit, and sit down and try the beer and talk to the guy behind the bar. That’s something you can never replace. You can make great beers, and do clever marketing, but when you talk to the customer face-to-face over the bar, that’s a relationship that there is no substitute for. We developed a lot of relationships that way. We also got a huge amount of support from the Chicago Beer Society.They have been doing their monthly meetings at our brewpub for going on 15-16 years. They come in, and try the beer, and then they go out and talk about them. I think we figured out early on that there was a constant demand for something new. For the last 12 years, we’ve been doing a lot more product in our brewpub. Every Tuesday we release a new style. So there is always something new. People call up asking when a beer will be available...

That must make for a demanding brewing schedule...

It does. Before our Fulton brewery was open, it was very difficult. We had to keep brands like Honker’s Ale on all the time. Now, all the Honker’s comes out of Fulton, and Will Turner at the brewpub has a huge amount of flexibility. He doesn’t have to make more than one batch of anything besides a few key brands, like the hefeweizen. He can do one-offs all the time. It becomes something like a big commercial home brewery.

You signed that distribution deal this year with A-B. What concerns with market access led up to that?

Well, our concerns were simple. We were getting calls from people all over the Midwest, asking us “where can we get your beer? I can’t find your beer.” And these were from states where we were supposedly selling beer. We would even get calls from Chicago suburbs where you would think we would have good distribution. Our old distributor did a great job getting us to where we were, but once we got to the point where we had so much demand... A great example is in the off-premise. They would deliver beer on Friday, and we’d be out of beer by Saturday or Sunday, and they wouldn’t be back into those accounts until Monday or Tuesday. There is only so much room on the shelf, so they stock it on Friday, and then it’s gone. So what do you do? Well, the beer wholesalers we have now are in there all weekend. We’re seeing a huge up-tick in the supermarkets. Those are accounts where we’ve always done well, and now we’re doing better just because we’re not out of stock anymore. What these A-B guys are good at doing—are really brilliant at doing—is keeping in stock. There are also markets outside Chicago where we are suddenly doing really well. Places like Peoria, and the Quad Cities—Moline and Rock Island, and in Springfield, MO. These are markets we didn’t really target as growth opportunities. But once we were in the A-B network, they have been great growth opportunities. And we don’t really have to do anything, except keep sending them more beer.

Are there any other A-B linkages beyond physical distribution in the A-B system?

They have provided support and ideas on doing things a bit better. They have been big proponents of the “fresh beer” thing for the last ten years. And they have got our beer rotations working more quickly. We used to have some old beer in the market. I used to go down to Indianapolis or Columbus or Louisville, and find beer that was a month old. Then I would go into a store a block from my house in Chicago, and find beer that was four months old. That was frustrating. The A-B system is very strong on rotating beer and keeping it fresh. They have standards for us to meet. They won’t allow us to ship them beer that is too old. It has to be fresh going in, and then they get it out there really quickly. They have the infrastructure to do it. We benefit from it, and the beer drinker benefits even more. The consumer gets really fresh beer now.

How are they doing in terms of merchandising and POS?

I go into an A-B house, and I ask “Where’s our P.O.S.?” And they say, “We don’t have any here, it’s out on the street.” You give these guys a sign request today, and it gets printed tonight, and it’s on the street tomorrow. They have state-of-the-art digital large format printing capabilities, so that’s a big benefit. The stuff we used to out-source, and have printed at our cost, they print it next day, and it gets up immediately.

That’s a good point about the P.O.S. Some houses seem to like to keep it around as décor...

Right. And it’s a big investment for us. It’s money you have tied up in paper sitting on someone’s shelf, instead of an extra person out selling beer, or an extra tank, or sponsoring a music festival. You hate to see it get wasted, and I think a lot of it does get wasted. But since they are printing as you need it, and getting it up right away, there’s very little waste. So our dollar becomes more efficient on the support side.

Has A-B made any suggestions on the production side?

They’ve had a couple of guys come through and look at our practices, to make sure our standards meet up with they have. They’ve given us some good ideas. In a lot of cases, they have reinforced things that we are already doing, and that makes you feel good. One of the things they are really into is taste panels. They can afford any analytical equipment in the world, but they still do a lot of taste panels. We’ve always agreed with that approach. Something can measure up perfectly, but if doesn’t taste right, that doesn’t really matter. That is also the A-B philosophy, so it was great to have that reinforced. And they have us tasting stuff we never tasted before.We’ve always tasted our beer, and we’ve tasted our water. But they have us tasting a lot of the raw materials, and even tasting the condensate water. If you get any leaks then it will start tasting different, and you end up having problems with your product.

Have you taken any flak from colleagues in the craft beer sector for linking up with Anheuser-Busch?

We’ve taken some, but a lot less than I thought we would. A lot of guys say, “hey, good for you.” Ten years ago, when other breweries went down this road, there was a huge amount of flak. And I would by lying if I said I wasn’t one of the ones giving it. But distribution is such an important part of our business now. It is as important as making the beer. If you can’t get it out there, you are a homebrewer, and this is a hobby, not a business. It’s gotten so competitive. You see not only wholesalers, but now retailers consolidating. You’ve got to be able to talk to the right people, and deliver at the right dock times, and jump through all the hoops they put up. It’s not enough to just make great beer anymore. You have to start off with making great beer. But if all you do is make great beer, and you can’t offer great service, a lot of retailers won’t make the effort to carry you.

You were with United States Beverage (for distribution) for awhile, right?

Yes. They helped us professionalize the way we looked at things outside the four walls of our brewery. Especially with the chains. Chicago is a chain-driven market, and they really helped us there. If we hadn’t been with them, we wouldn’t have had all the insight on how to look at the market, especially the chains. But we are very happy to be back on our own, and controlling our own destiny.

What will be the next phase for craft?

I don’t know where it will top out. But right now, there is huge momentum behind craft in this market. Not only in Chicago, it’s in a lot of outlying markets. We’re doing great in Madison, WI, and in Louisville, KY. There is a lot of catching up to do. I think you will see retailers giving us more space, and giving us more space for different products. I think you will see brewers continuing to get new products out there. I love going to the Map Room or the Hop Leaf in Chicago and see what the other craft brewers are doing. There is something new all the time. Rob Todd at Allagash is doing a great job putting things out there. And guys like Jolly Pumpkin in Michigan, doing all their wood aged stuff. There is more and more acceptance for these kinds of beers. And when you do this really funky Belgian and wood aged stuff, you can move into these wine price-points. And that is very healthy for the industry. We’ve almost had a self-imposed price ceiling in the beer business for a long time. No one had the guts to make a really expensive beer, except for Jim Koch at Boston Beer and Sam Calagione at Dogfish. I think they have shown that there is less of a price ceiling than a lot of us thought there was. We just made a barrel aged brown ale in two different bourbon barrels for almost two years. That went out to the distributor at $125 a case. We could have made more of it-we’re getting calls from all our distributors, and we only sent it to about six of them. They don’t care what the price is anymore, because they know there is a market for it.

So you see craft growth as having legs this time around?

The ‘90s was about craft labels. What you got was a lot of drinkers who would dip into craft and go back out. Now you have a generation that started in craft, and will always stay in craft. Where they dip out is into some exotic Belgian, or something, but they are craft beer drinkers on a regular basis, and will be for life. Also, ten years ago, you had amber ales and pale ales, and a lot of them. That was about all you saw. Now you’re seeing a lot of growth on both ends.We’re seeing a lot of good gateway beers, like the unfiltered wheat beers. They have a lot more character than a mainstream American lager, but they are low enough in IBU so the soccer mom will pick up a six-pack. So that is bringing more people into craft. At the other end, we’re getting all this really fun high-end stuff. The strong beers, and the extreme beers and the Belgian styles. These are really pushing the interest. We don’t sell as much of our Belgians as we do our Honker’s Ale, but the Belgians are what everyone wants to talk about. You go into a bar, and they might be doing ten kegs of Honker’s a month, and 2- 3 1/6 barrels of Matilda, and all they want to talk about is Matilda.

So the customer has evolved...

I think the retailer evolved, and that is a big part of it. The retailer was the last piece. We brewers were willing and able to make wonderful, higher-value beers. And the consumer wanted them. People were looking to experiment and try stuff, especially on premise. And I think there was doubt in the retailer’s mind whether it would sell. That was the last piece, and that piece has fallen into place. Retailers are calling us, saying “I’m seeing this Matilda all over, where can I get it, how can I get the glassware?” People are asking for it now, where just a year ago, we were having to explain why you’d want to have a beer on tap that costs $8 for a 10-ounce pour.

That’s a nice price point.

Look at the evolution of prices in a bar. Twenty or thirty years ago, you’d walk into a bar with a few bucks, and you could get a drink or a glass of wine or a beer. Now it’s $3-$4 for a beer, but it’s $8-$12 for a drink or a glass of wine. Why have wine and liquor accelerated faster than beer? I think it’s because brewers didn’t have the guts to raise the prices. The same guy that is buying a $10 martini, there is no reason he won’t pay $8 for a draft beer, if it’s a good enough draft beer. He won’t pay that $8 for a beer if it’s the same one he can get anywhere for $4, but if he thinks it’s worth more, he’ll pay that price.

Limited availability plays into that...

Yes. The dearness of something being rare and exclusive, that’s something the wine guys have had on us for a long time.

A criticism of the A-B system is that they don’t hand-sell very well. What has your experience been with that?

Some of that is changing. Not every wholesaler in the system has bought into it yet, but a lot of them have added hand-sell people. The ones that have done that are showing the benefits. Those are the houses where we are really doing well. Some of the markets I’ve mentioned earlier where we are really doing well are evidence of that - Madison, WI; Louisville, KY and Springfield, MO. That’s mostly due to handsell people on their end, because we are not affecting the market with our people, it’s their people.

What’s next for Goose Island?

Right now, we’re pretty happy with our footprint. We’re not looking to add new states or new markets.We’re just trying to fill out the markets we are already in. We will make a big push with glassware.We think that is a big part for us, getting the proper beer in the proper glass. Then also moving the needle on the Reserve line. Once we start getting distributors to buy into it, they find it is an easier sell than they thought. The customers are out there. Go to the web-site BeerAdvocate.com, and look at where these guys are that are reviewing beer. They are not all in Chicago or New York. There are people reviewing beer all over the country in these little towns.Maybe they have to rely on one of their buddies to send them beer. I say we should start selling beer in those little towns!

Thanks for your time, Greg, and keep on making good beer.

I promise we will.