A better craft? Spirits, seltzer, cider, kombucha and others take aim at craft beer
‘They’ve created their own monster,’ distiller Paul Thomas said of craft beer.
San Diego craft brewers have met the enemy and their foes look awfully familiar.
No boom lasts forever and craft beer is losing fans to newer alcoholic trends: “hard” seltzer, kombucha, cider and soda, as well as small batch spirits, mead and sake. Perhaps this was inevitable.
This wasn’t: many alt-beer leaders came from the very industry they are now competing against: craft beer.
“For me, personally, the excitement feels like the early days of craft beer,” said Greg Peters, a former Lost Abbey and Saint Archer brewer. In August, he became chief brewing officer at JuneShine, a hard kombucha start-up.
Why did he leave beer? “Every single day we have a new challenge,” Peters said, “and that’s what I’ve always wanted in making alcohol.”
Steve Kozyk, owner of Kilowatt Brewing, introduced hard seltzers and cocktails this year as a way to break out of a crowded craft beer field. “We are small and want to set ourselves apart,” he said. “And it’s fun for us, as well.”
Ballast Point’s former head brewer and chief operating officer, saw spirits as brewing’s close cousin. “It just made sense to me,” said Yuseff Cherney, who in 2016 founded Cutwater Spirits, now an award-winning producer of bourbon, rum, vodka, tequila, gin and canned cocktails. “This was the next step in the alchemy of turning water into something with alcohol in it.”
Despite a growing number of rival libations, craft beer is enjoying heady times. Today, most of the 6,300-plus beer companies in the U.S. are “craft,” a term that means small (producing fewer than 6 million barrels of beer a year), traditional (methods and ingredients) and independent (outside parties own less than 25 percent). San Diego County is a leader in this movement, with more than 150 commercial breweries. It is home to national players like Stone, emerging powerhouses like Modern Times and neighborhood brewpubs like North Park’s Original 40.
The Brewers Association, a national trade group, has declared today “Small Brewery Sunday,” touting craft beer’s contributions of $79.1 billion in revenue and about 560,000 jobs to the American economy. As an industry, craft beer has never more popular or profitable.
Yet many individual breweries struggle in this over-crowded marketplace. There’s bruising competition for tap handles in restaurants and bars, as well as shelf space in supermarkets and bottle shops. This year in San Diego County, at least five breweries have folded and two Ballast Point satellites operations closed.
“They’ve created their own monster,” said Paul Thomas, the founder of Julian Hard Cider and 8-Ball Chocolate Whiskey. “It’s really created an environment where there is no loyalty — look at what’s happened to Stone and Ballast Point. They are being forced now to come up with a new beer every single month, just to remain top-of-mind with their customers.”
As an entrepreneur, Thomas surveyed the local beer landscape before deciding against opening a brewery.
“There’s enough IPAs in the market,” he said, referring to India Pale Ales, “and there’s enough vodka. I had to come in with something new.”
This is the new new. Craft beer? That’s the old new.
In 1996, San Francisco’s Anchor Brewing released Old Potrero Rye Whiskey, the debut of what would become Anchor Distilling. Other breweries took note — Delaware’s Dogfish Head traces its distilling efforts to 2002, Michigan’s New Holland to 2005, Oregon’s Rogue to 2006. At Ballast Point, Cherney cobbled together a homemade still in 2007, opening Ballast Point Distilling in 2008.
Spirits and beer are closely aligned, as both begin with the fermentation of malted grains. Hard alcohol, though, generally does not involve hops, the plant that supplies bitterness as well as a range of flavors and aromas to beer. Another key difference: spirits are distilled, often in copper columns or pots, a process that creates a more concentrated and potent fluid.
Cherney said his approach to spirits was influenced by his craft beer philosophy. For both products, he used high quality ingredients, invested time and care in the liquid, and then charged a premium price for the result. This ran counter to common practices at industrial distilleries, which in Cherney’s view prize speed and cheap materials as ways to reduce costs.
Rum, for instance, is often made with molasses, which is discarded during the refining of sugar.
“Let’s start with something really good,” Cherney said. “So we started with sugar in the raw rather than molasses.”
Although fascinated by distilling, spirits were a sideline for Cherney until 2015 when he and Ballast Point founder Jack White sold the brewery to Constellation Brands for $1 billion. Cherney took his share of this windfall and opened Cutwater a year later.
Craft beer’s popularity in San Diego, Cherney said, has made it easier to introduce local products to consumers. “It broadened our palates,” he said.
Geoff Longenecker, owner of Seven Caves Distillery and president of the San Diego Distillers Guild, agreed. “Because of the success of craft beer,” Longenecker said, “people are willing to give new things a try.”
Once an active member of the San Diego Brewers Guild, Cherney is a founder of the distillers guild. Since Anheuser-Busch bought Cutwater in February, some of the guild’s 20-odd member distilleries view Cutwater as a Big Booze outlier. Yet Cherney remains active with the group and hopes to instill the sort of one-for-all camaraderie that animates county brewers.
“People call and say, ‘We’re having trouble with our corks. Can you help us out?’” he said. Help is almost always forthcoming: “It makes sense not to re-invent the wheel.”
The region’s largest distillery, Cutwater this year will roll out more than 100,000 barrels of spirits. Seven Caves? Somewhat fewer.
“Our trademark is ludicrously small batch spirits,” Longenecker said.
Longenecker sells his wares to San Diego accounts and from his Miramar distillery. He focuses on local and seasonal ingredients; his La Jolla Cove Gin contains Meyer lemon, coriander and a bit of California sea kelp.
“My brother just brought me a bushel of Buddha’s hand,” he said. “I’ll probably make 150 bottles of gin with it and then move on.”
‘Nobody wears clothes’
At 8-Ball, owner/distiller Paul Thomas has no intention of moving on. The company has one product, chocolate whiskey, a concoction that Thomas figures is irresistible.
“Everybody loves chocolate,” he said, “and whiskeys were growing quickly. So I wondered why didn’t anyone put this together?”
The reason: capturing natural chocolate flavor in a beverage is difficult, thanks to volatile cocoa oils. After a few years, Thomas cracked the code — “my little secret,” he said, declining to be more explicit — and the first bottle was sold in February. In two weeks, he said, 8-Ball had 150 accounts in San Diego.
Whiskey is Thomas’s second venture into alt-beer territory, following his 2010 founding of Julian Hard Cider. “We have three 10,000-gallon tanks going all the time,” he said of his cidery. “We’re not Anheuser-Busch, but we’re holding our own.”
“Craft cider is where craft beer was 10 years ago,” said Rick Moreno, the owner of San Diego’s Newtopia Cyder. “A lot of craft cider enthusiasts are craft beer enthusiasts that we’ve converted.”
As the owner of Seattle’s Toronado, a spin-off of a fabled San Francisco beer bar, Moreno believes craft beer has hit a plateau. Drinkers are turning away from double IPAs and imperial stouts in favor of lighter pilsners, less-boozy session beers — or something entirely different. He founded Newtopia in 2017 and that year squeezed out 800 barrels. This year, he’s on track to crush 6,000 barrels.
“The new products, the alternatives to beer, they are a little more health conscious,” Moreno said. “In California, nobody wears clothes outside so you have to be in shape.”
California is also obsessed with youth, and 20-somethings have shown a decided preference for a new type of alcoholic drink: hard seltzer.
“Hard seltzer is definitely cutting into market share for both craft beer and craft distilling,” said Cutwater’s Cherney. He’s no fan: “I wouldn’t have expected carbonated water with alcohol and some flavoring to be a multi-billion-dollar business.”
In the wash
In the Kearny Mesa tasting room of Kilowatt Brewing, the taps dispense pilsners, pale ales, IPAs, brown ales — and a pineapple seltzer. Seltzers also flow through the brewery’s adjoining speakeasy, Forbidden Cove. The menu there is full of tropical themed cocktails like Lava Flow, a hard seltzer dosed with fruit purees (strawberry, banana, pineapple) and coconut cream.
Kilowatt’s seltzers start with a base of water and yeast, ingredients found in beer, but no hops or grains. In beer, malted grains — usually barley or wheat — supply the sugars that the yeast consumes, creating alcohol.
Seltzers, being sweeter and lighter in body, rely on sugar.
“The base is about 19 percent alcohol,” said Steve Kozyk, Kilowatt’s owner. “It’s basically a rum or vodka wash, what you would have before you distill rum or vodka.”
Seltzers, then, are not really spirits — they’re not distilled. Nor are they beers, even though the brewing process is similar and these beverages are taxed at beer’s lower rate.
“The lines are getting blurred,” Cutwater’s Cherney said. “There are products that are marketed as cocktails — margaritas, Moscow mules — that are really beer-based.”
This is a potentially lucrative market. Nationally, canned hard seltzer is now a $550 million business, and some analysts predicting revenues could hit $2.5 billion in two years. Large corporations are betting big on these fizzy drinks, rushing to market brands like White Claw (made by Mike’s Hard Lemonade), Bon & Viv (Anheuser-Busch), Truly (Boston Beer), Henry’s Hard Sparkling Water (Molson Coors) and Smirnoff Spiked Sparkling Seltzer (Diageo).
Among local breweries, Belching Beaver, Rouleur, Rough Draft and San Diego Brewing have all added house-made seltzers to their tasting room offerings.
As the weather cools, some predict seltzers will fade. Something else — sake? mead? — may become the drink of the season, and the cycle will begin anew. In the words of 8-Ball’s Thomas, “We all share belly space.”
Restaurants and bars have only so many tap handles, while markets have only so many shelves. Grab a tap, capture shelf-space or die.
“All of these newer competitors,” Thomas said, “they have to out-craft the current craft producers.”
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