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Mike Cote's Business Editor's Notebook: Smuttynose founder talks tough about brewing

By MIKE COTE
October 22. 2016 9:59PM
Smuttynose Brewing Co. president Peter Egelston talks about the challenges of space in the company's brewery on Heritage Avenue in Portsmouth. It opened a new brewery in North Hampton in 2014. (UNION LEADER FILE)

PORTSMOUTH - Smuttynose president Peter Egelston says he's used to getting speaking invitations, thanks to the success of his North Hampton brewery. Just don't expect him to deliver a rosy view about how great it is to be New Hampshire's craft beer king.

He tries to be frank when he talks about the industry, especially to upstart brewers.

"I start to sound like the old guy who is telling kids to get off his lawn," Egelston said Friday at Great Bay Community College. "And I know what being on both sides of that equation is like."

Egelston was the keynote speaker for the BusinessSpeak Leadership Forum, a local group that organizes quarterly events. Friday's theme was handling growth. Egelston told his company's story by offering a short history of craft brewing.

Back when Egelston joined the industry in 1987 by co-founding a brewpub in western Massachusetts, there were more than 100 breweries in the United States, including 74 microbreweries. Over the next decade, the industry enjoyed steady growth, with about 350 microbreweries by 1994, the year Smuttynose began brewing beer in Portsmouth.

Two years later, that growth hit a wall, and the fledgling brewery suffered along with the rest.

"We at Smuttynose lost 30 percent of our volume from 1996 through 1998. At the end of '98, we were shipping out about a third less beer than we had been shipping out three years before," Egelston said. "It was a scary time. And the only reason I came in every day and opened the doors was pure pigheadedness. I was not going to let this thing get me down."

Wholesalers and retailers were ready to drop microbreweries like a warm Bud Light Lime-A-Rita - just another beer fad that lost its fizz. Imported beers were the next big thing, they said.

"I didn't believe that, and I know a lot of my colleagues in the industry didn't believe it either," Egelston said.

The craft brewing industry survived and eventually began growing again, in large part because of changing tastes.

"We weren't part of that boom and bust cycle of fads and innovation in the beer industry. We were more closely related to Starbucks coffee, bonded bourbons, artisanal breads and cheeses, organic produce - the whole sea change in consumer preferences and consumer habits," said Egelston, adding that the low point of consumer culture in the U.S. was in the mid-'70s when supermarkets stocked big sections with white-label generic products.

"Consumers at a certain point just didn't have any use for that," he said. "And now we're living in a much better world. Craft beer was very much at the forefront of that movement, and now it's also benefiting from it as well."

Now there are many more players trying to latch onto the movement. A decade ago, there were about 1,500 craft breweries nationwide - now there are 5,000, including 65 in New Hampshire.

"For someone who started in the industry when there was 74 of us in the whole country ... it's a stunning change in the nature of the market," Egelston said.

While there are hundreds of new breweries competing, most are duking it out for a tiny sliver of the craft market, which represents about 12 percent of beer sales volume overall. Excluding Sam Adams maker Boston Beer Co., which is closer to a major league player now, the top 50 craft breweries in the U.S. own about 70 percent of the $22.3 billion craft beer market. The top 200 controls about 95 percent, Egelston said.

That means those young brewers who quit their jobs to open a brewery better have more going for them than the ability to make great beer.

"You've got 4,800 craft breweries who are fighting over the last 5 percent of the market, and those are the ones whose pictures you see in the newspaper," Egelston said. "Sadly for them, those guys you see in the newspaper are down at the very far end. They are probably fighting for a microscopic sliver of the craft beer market."

Smuttynose, which built a $25 million plant in North Hampton in 2014, distributes to 26 states as well as Europe and Asia. It's the largest craft brewer in the Granite State, producing about 50,000 barrels a year.

"We're kind of a big fish in a small pond when it comes to consumer products in New Hampshire. I mean how many brand-name products can you think of that are closely associated with our state?," said Egelston, who doesn't think New Hampshire does a good job promoting homegrown brands. "I think Smuttynose at this point may be New Hampshire's best-known export, other than failed presidential candidates."

He aims to keep it that way, so be forewarned young beermakers. Egelston recently spoke to a group of them attending a one-week crash course in the brewing industry offered at the University of New Hampshire in Durham.

"One of the biggest myths about craft beer is how friendly and collegial it is, and how we all like to sit around and have beers with each other," he said.

While there's some truth to that when it comes to sharing best practices, no one pulls punches in the marketplace.

"It is ruthlessly competitive," Egelston said. "One of the things I told the people gathering at this course was that when they get into the business and they are one of my competitors, I am going to try and crush them. Absolutely.

"I may see you in a bar after work and buy you a beer, but when I'm out in the field it is no-holds barred," Egelston said. "Why? Because I have much bigger competitors who want to put their foot on my throat, too, and I feel it every day."

Mike Cote is business editor. Contact him at 668-4321 ext. 324 or mcote@unionleader.com.



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