Founded in 1988, Deschutes Brewery is settling into its early 30s as one of the respected elders of U.S. craft beer. But after decades as a regional powerhouse in the Pacific Northwest—and with a distribution footprint spread across 33 states—the brewery is now facing declining sales for its core brands. So far, its new products haven’t offset those losses.
The Bend, Oregon brewery has seen its total sales in chain retail stores, as tracked by market research company IRI, drop from $88 million in 2016 to $74 million in 2019; it’s on pace to end 2020 roughly flat from last year. The last four years at Deschutes have included forays into flavored malt beverages (FMBs), six-figure marketing events and expensive integrated advertising campaigns, and now-halted plans for a second production brewery in Virginia. None have delivered the needed jolt to make Deschutes hip again.
Looking to 2021, the brewery says it’s ready to mature into a mindset that’s characteristic of its age. Deschutes’ staff say they want the business to embrace its identity while making needed changes. Those planned changes include:
Focusing distributors’ attention on just four Deschutes beers: Black Butte Porter, Fresh Squeezed IPA, Fresh Haze IPA, and a fourth selection of the distributor’s choosing. In prior years, distributors were asked to focus on the brewery’s new releases while also maintaining shelf space for core beers.
Debuting ’90s-era, retro-inspired packaging for four of its classic beers—Mirror Pond Pale Ale, Black Butte Porter, Obsidian Stout, and Inversion IPA—in late February or early March.
Taking a less risky, data-driven approach to launching new brands. Neal Stewart, Deschutes’ vice president of sales and marketing, says in the past, the brewery debuted new brands nationally right away, which is like “throwing the Hail Mary and hoping it’s the next big thing.” Modified Theory, an FMB line, was an example of this thinking. It lasted in the market less than a year.
Rolling out more cans and 12-packs, which drinkers have demanded during COVID-19.
Stewart, and Deschutes’ director of product development, Veronica Vega, say the brewery will be more responsive to what drinkers are actually clamoring for, rather than what the company assumes will sell. It’s a huge shift in thinking for a brewery that has, for three decades, let its brewers set the tone. In the past, the company pushed new releases across its full geographic footprint, and that strategy worked—until recently. Going forward, Deschutes plans to test more products in smaller markets, only scaling up the ones that prove to be sales successes.
The brewery is bullish on changes that prioritize quantifiable decision-making. But that sets up a tricky balancing act: Deschutes says it wants to respond quickly to drinkers’ demands for new beers and packaging, yet it’s also investing in legacy brands whose sales have been declining for years. Even during the pandemic, when long-tenured brands have seen a boost, the likes of Samuel Adams’ Boston Lager or New Belgium Brewing’s Fat Tire are still well behind the growth of craft beer overall.
Next year will be a case study in how well a near-national brewery can course-correct—and whether it can successfully marry legacy with relevance.
Deschutes hasn’t been able to count on its core in recent years, whether in regard to its beers or geography.
IRI-tracked chain retail sales for Black Butte Porter, still the best-selling Porter in the U.S., declined nearly 3% in the 52-week period ending Nov. 29 versus a year ago, despite drinkers shopping more at grocery, big-box, and other chain retailers during the COVID-19 pandemic. (The second-best-selling Porter, Breckenridge Brewery’s Vanilla Porter, grew almost 10% in the same period.)
Chain retail sales of Mirror Pond Pale Ale, only available in the Pacific Northwest, fell 45% between 2016-2019.
Fresh Squeezed IPA and Fresh Haze IPA have made up for some of the declines, but even packages sales of Fresh Squeezed are roughly flat this year.
And the brewery’s been losing ground at home, too. Chain sales of Deschutes beer in Oregon—which make up more than a quarter of the brewery’s overall chain retail dollars—fell about 2% in the 52-week period ending Nov. 1 versus a year prior. Again, that’s despite COVID-19 pushing shoppers to purchase beer in those chain stores where Deschutes has long had a presence. Other breweries are more than happy to steal Deschutes’ lunch: Oregon alone is responsible for two-thirds of added dollar sales for the Molson Coors-owned Hop Valley Brewing Co. this year.
Deschutes hasn’t made up these losses with new brands—nor does it entirely aim to. Stewart says its message to distributors at the brewery’s annual distributor summit in September was to focus on growing sales for Fresh Squeezed, Fresh Haze, and Black Butte. Fresh Squeezed, a 6.4% ABV Citra-hopped IPA, was first brewed in 2009; Fresh Haze, a 6.5% ABV Hazy IPA, debuted nationally in 2018.
Part of the plan to grow sales for core beers is to ask retailers to display Fresh Haze and Fresh Squeezed side by side, which Deschutes says has increased the rate of sale for both. The brewery will also put more consumer marketing dollars behind the two IPAs, which could include in-store signs and merchandising as well as social media ads. Deschutes hopes that the new, retro packaging for four legacy brands will reinvigorate drinkers’ interest in beers they might not have purchased in years. It’s an appeal to older drinkers’ nostalgia while, on the other hand, the brewery tries to appeal to younger craft drinkers with Hazy IPAs like Fresh Haze.
When asked how the brewery would recoup losses if declines continue for those core beers, Stewart responded:
“I’d rather not answer the question that way. It’s about building brands that have a base of volume. To say, ‘Well if that doesn’t work, then what do you do?’ No, we have to make that work.”
This doesn’t leave much room for alternative outcomes. And it bets Deschutes’ success on a dual, maybe even contradictory, mission: renew interest in its longstanding beers, and convince drinkers it’s still a forward-thinking brewery.
New beers are still part of the game plan, of course. But recently, Deschutes has been listening more to suggestions from the sales and marketing department when it considers what to brew. This tactic hasn’t come easily to the brewery, which, for three decades, operated under the oft-repeated mindset of “brewers brewing what they like to drink.”
“There’s a tension in that maybe sales and marketing might have insight to an unmet need [among drinkers]. But if you tell a brewer what to make, then [they think] it’s no longer craft beer, because it’s no longer coming from the heart and soul of creativity, where craft beer started,” says Vega.
But recent brand debuts haven’t been smash hits. Da Shootz! American Pilsner, a 4% ABV Lager marketed on its 4.2 grams of carbs, and 99 calories, debuted in 2019 and cracked $2 million in national chain sales that year. It’s on pace to post just $1.9 million in sales in its second year—typically a pivotal time for a brand to show its ability for growth or whether it may stagnate.
Forays into hybrid beverages have also fallen flat. Humm Zinger kombucha Radler, a partnership with Humm Kombucha released seasonally in 2018 and 2019, didn’t return for 2020. Modified Theory was perhaps the largest flop. The brewery “conducted more consumer research for Modified Theory than any product in the company’s 31-year history,” according to Brewbound, and even created and tried to popularize the term “bevy” for the product line. Just a year later, Stewart referred to Modified Theory as “a distraction” for the brewery.
Vega says WOWZA!, Deschutes’ 100-calorie Hazy Pale Ale that launched in January, was a strong example of the brewery’s new, sales-driven way of thinking. But WOWZA! has sold a modest $1.5 million in chain retail stores nationally through the end of November, about as much as Old Nation Brewing Company’s Boss Tweed Double IPA.
Deschutes also hopes to catch up to sales team requests when it comes to packaging—for cans over bottles, and 12oz bottles over 22oz bombers. The brewery’s packaged beer is evenly split between cans and bottles currently, though Stewart admits there’s unmet demand for canned variety packs and 12-packs especially. A 12-can variety pack will launch in February or March, and seasonal beers will switch from 12-packs of bottles to 12-packs of cans this spring.
Vega says that packaging changes are logistically complicated and expensive, and “customers have had to really literally yell in our faces to some degree” to make them happen. Pantry-stocking during the pandemic represented a missed opportunity for more of Deschutes’ brands to sell in larger packs. For comparison, Hop Valley’s canned IPA variety pack grew 102% in the Pacific region this year, according to Nielsen data cited by Molson Coors.
Deschutes says it’s focused on data-proven winners moving forward. But if the brewery applied this thinking to its current portfolio, sales numbers would point toward scaling back or potentially retiring brands like Mirror Pond, rather than investing in them further. This attitude is an example of the tension the brewery potentially encounters when it tries to balance its legacy beers with contemporary drinkers’ demands.
In addition to pledging to listen more to drinkers’ preferences, Deschutes will also scale its new releases differently from before. It intends to test new beers more quickly and on a smaller scale, whether that’s in its pub or in just one state. Currently, the brewery is trialing a 2.7% IPA called Teensy, as well as a dark, non-alcoholic beer similar in style to a Stout. It might even use stickered rather than fully labeled cans to get a small-batch beer out quickly. Then, if the beer sells well in the minor leagues, it might graduate to a full-scale release. Stewart says this approach will put sales results behind new beers the brewery is pushing out to national stores or bars.
“When we talk to a chain retailer in the Central or Eastern time zone and pitch them on a brand, they want to know, ‘How did this brand do in your home footprint?’ If we haven’t launched it there yet, they’re like, ‘Why don’t you do that and get back to us?’” he says.
Squeezy Rider West Coast IPA is an example of this tiered approach. It debuted as a draft beer earlier this year at Deschutes’ pubs and taprooms, where it was among the top two best-selling beers for weeks. This spring, Deschutes will launch that IPA across the Pacific Northwest, then potentially to southern California, Colorado, and Ohio if it sells well.
It might seem paradoxical, but Vega says the tiered approach allows her team to test out new beers more quickly.
“The logistical complication of having something like a rotating, experimental-hop IPA full-footprint that you haven’t tested somewhere is huge,” she says. “Now, you’re building something that you have customers asking for rather than relying on my own gut instinct or the brewers’ gut instinct and doing all this work to make it go to 28 states.”
Deschutes is hoping its more nimble reactions to what consumers want aren’t too little, too late. With restaurant and bar traffic way down due to COVID, more breweries are competing for attention on shelves.
And delays can be costly. In Roanoke, Virginia, where Deschutes’ plans for a $95 million production brewery are on indefinite hold, the pause has soured some drinkers on the company.
“Everyone’s definitely disappointed and it certainly reflects in our sales of Deschutes,” says Martin Keck, owner of Barrel Chest Wine & Beer in Roanoke. He hasn’t ordered any Deschutes products in two years. “The beer was going out of date before we could sell it. No one’s asking for it anymore.”
While Keck says he understands why pausing the brewery construction might have been a financial necessity for Deschutes, his customers have already moved on to locally made IPAs instead of Fresh Squeezed.
“If people were coming in every week asking where Fresh Squeezed is, we’d have it on the shelf. But there’s so many other things that are selling.”
Nationally, Deschutes’ vaunted reputation as a craft beer pioneer, its near-national distribution, and some popular IPAs have kept it afloat the last few years. But it found itself behind the eight ball in terms of the packaging and styles drinkers wanted in 2020—mistakes it will have to correct more quickly than it has in the past.
Words by Kate Bernot