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What’s Happening with the Growth of Craft Beer? | October

by Pablo Fuentes | Last Updated September 20, 2017
What’s Happening with the Growth of Craft Beer? | October

There has been an explosion in growth of the craft beer market over the past 10 years. Today, there are more than 5,300 breweries in operation in the U.S., up from just 2,000 in 2011.

That means breweries have grown 21% annually since 2011!

However, after 8 years of double digit market growth, in 2016, the craft beer volume fell to just 6% year of year growth.

What does this mean for the craft brewery market? Is it time to panic or is this just a sign of the industry growing up? Have we reached a saturation point?

We sat down with Mike Raspatello, founder of October, a beer magazine and website, to discuss where he thinks the craft brew industry is going. 

This and much more in today's episode of Small Business War Stories.

Listen to the podcast:

The Soul of America Tour

This episode is part of the Soul of America tour sponsored by Tecovas Boots, Badger Maps, and Impact Dog Crates. During April 2017, I drove with my six month-old puppy Muddy Waggers, my guitar, and my podcasting equipment with the goal of recording podcast episodes with small business owners throughout the heart of America.

Show Notes

A summary of our interview with Mike Raspatello of October is below.

You can use the links below to jump to your interests.


What is October, and how did it come to be?

Mike Raspatello: So October's a beer website, a digital magazine that also throws beer events, beer dinners, beer festivals, beer and music events where there's a unique tie-in from a beer to a concert. Going back in time, October was something a colleague of mine and I thought of last year, actually, sitting around after the Super Bowl at some work-related event, maybe becoming a little tired of our day jobs and the things we were working on. We worked in a venture fund and we were tasked with finding new investment opportunities that were tangential to beer, that lifted the beer category, that in some way supported and grew beer culture.

And what realize is obviously, yes, we're gonna go out and try to find the ideal partners and the people that we should be working with to further that. You know, there's the relationship with home brew supply companies, home brewing, the physical infrastructure as well, we invest in that. But there was not anything on the editorial side. There was a big white space, where there's Bon Appétit for food, there's Eater for food, there's Wine Spectator for wine, there's Cigar Aficionado for cigars.

There wasn't anything like that for the beer industry and when someone told me that, when we were sitting around, kind of thinking of what could be the next passion project that could benefit the company, I was like, "bullshit, there's no way that doesn't exist." Beer has been hip and hot now for a handful of years. There's no way this doesn't already exist. Dumb idea. He's like, "no man, take my word for it, it does not." He was a creative director, I was partnership and more boring business guy at the company, so the next day I started doing the research and sure enough, he was absolutely right.

So we realized that there was a place for this, there was a white space, so the idea was then to go into ZX Ventures and propose that we would start one. We would create the highest end editorial destination for beer and we would support that with an event business that would be a revenue positive for profit event business that would both the editorial brand and be supported by the editorial brand.

We went around and we interviewed the big media companies. We talked to Time, we talked to Turner, Thrillest, kind of the “who's who.” And all along we were trying to get in to talk to Condé because naturally, due to the model we envisioned, Pitchfork was the ideal partner, because of what they do.

So what's the connection to Pitchfork?

Mike Raspatello: Essentially, the partnership has ZX's support. ZX is an incubator, they are a venture fund, and they are supported by investment from AB InBev. But no means though do they exist to further the marketing objectives of AB InBev or do its bidding. They exist as a company that invests in other companies or fosters other companies that are beneficial to the industry as a whole.

They want to improve the experience of beer culture, of beer consumption, of things like that, and obviously, it's an investment fund so it's hoping to build value over time without question.

Are they the main investor in October?

Mike Raspatello: They are the main investor in October. So they are an investor with kind of a sweat equity and an upside benefit for the day-to-day operators, which are myself and Pitchfork, frankly. So I come from the venture fund, and I am leading the team everyday and working with the Pitchfork employees, that are now half-time October employees, half-time Pitchfork employees, as well as a handful of people that are unique to the October team. So Pitchfork has been the folks that help us get live, help us run the magazine day-to-day. We are fully integrated into the Condé Nast development infrastructure, ad-operations, things like that.

Condé Nast acquired Pitchfork a year ago. So Pitchfork joined the family. I'm not an expert on the publishing industry, but Condé Nast is certainly one of, if not the biggest, publisher in the world. Everyone from GQ, Bon Appétit, Vogue, Esquire, Condé Nast Traveler, there's Golf Digest, Wired, all of those are part of this family, so we benefit from the infrastructure Condé Nast has and the ability to plug this magazine into their existing day-to-day operations.

It's a really interesting dichotomy. You're running a small start up operation where you're facing a lot of the challenges a small business faces but you do have, in some ways, direct or indirect support of some major companies, right?

Mike Raspatello: Exactly. You described it very well. It is certainly a first of its kind partnership. It's something that we were figuring out as we went. It was working with the partner to understand what would be the right incentive structure to make it worth it to them to engage in this experiment, because ultimately, they're putting their name, credibility, opportunity cost, everything that goes with operating a magazine that has very significant growth objectives in year one, but building a magazine that they barely own. So, they share in the upside, but in the end of the day, the intellectual property and the brand are owned by the venture fund.

So that's a difficult dynamic, because it is very much the work of Pitchfork. It doesn't come to be without their vision, without their creative abilities, without their understanding of the reader, that obviously ZX does not have.

Over time, is that something where you want to develop more into a standalone entity? What's the plan?

Mike Raspatello: You know, at the end of the day, I want to create enough value for everyone involved so that we have options. We have five-year goals and we have very specific quarterly goals in the first year, probably much to my chagrin and the chagrin of my team. But our long term vision is to create the value that we've advertised to investors during the fundraising period, but ultimately, we know that by doing that and the popularity we will have to accrue to get there are going to open so many opportunities to grow the business and evolve the business in ways we haven't thought of.

At this point it is a somewhat simple and straightforward model where we aim to make money four ways: advertisement, digital advertising like any other online magazine. Sponsored content, so the modern step-child of whatever of digital advertising, branded content. Creating content series that run as advertorial on our site and other Condé properties. That somewhat typical digital revenue. Then on the events side, tickets and sponsorships.

What kind of events are you doing?

Mike Raspatello: We have two event series that are released at this point. One is our music and beer series. The idea there is you take an artist that has either opened a brewery or helped develop a beer concept, or done something in the beer industry, that is actually tied to a product or a brewery, and you thrown and event where they perform, the premiere a new beer, they pour the beer they're involved in. It's always gonna be some derivation of that. A concert with a unique beer tie-in.

So the first one we did, is a perfect example that will be hard to replicate, but Run the Jewels, the hip hop group that has obviously gained in popularity in the last three or four years, collaborated with a Brooklyn brewery called Interborough, to release a Run the Jewels themed branded IPA. These were friends of theirs, I believe, and they created Stay Gold IPA, and obviously due to their popularity and due to the credibility of the brewery itself, this was a very hot, limited time product. This concert served as an opportunity to see a Run the Jewels show for the first time in Charlotte for two years, but it also served as an opportunity to tap one of the limited five kegs that town would see. They toured the beer around. The beer is available at very small volumes straight out of the brew pub in Brooklyn and things like that, but you weren't getting it on the road anywhere. So that was the concept, and it went really well.

There will be a major festival we're putting in early September, late August in Brooklyn. It will be a collaboration festival. It will be a collaboration of sorts, playing into the strengths and obviously the unique relationships that Pitchfork has. The fact that they are obviously a major player in the music industry and they have wonderful relationships with artists, journalists, you know, people on the business side as well, and then now are taking that credibility and building their relationships and beer and people are obviously very quick to work with us due to the amazing people on the editorial side.

 

These relationships are leading to our ability to kind of come out with programming that is unique. It would be hard, you know, people say you go to a music festival and there's shitty beer options. You go to a beer fest and there isn't good music. We have the opportunity to live in that middle space. So we're throwing an event that's a collaboration themed, where you'll have a bunch of indie artists playing their sets, but also collaborating with one another on stage. You'll have breweries collaborating with one another for special edition beers or limited time beers at the festival. You'll have things like the Run the Jewels example I just mentioned, where you'll have artists with some beer tie-in.

Is the music connection related to events or is that connected to the magazine as well?

Mike Raspatello: Both. We always saw this as an opportunity to augment what existed online, which was very well-written, but was very jargon-filled and beer industry-focused. Even the best of the best wasn't going to crossover to someone who just likes a Budweiser now and then sitting on the back porch. It was not content for that person. But there are a lot of amazing stories in there, a lot of amazing writers and amazing publishers, one of which is now our executive editor, a guy named Michael Kaiser, who is the best voice online about the beer industry.

Let's talk beer. What's your take on the growth of craft beer over the last 20-30 years? How do you see this going forward? Is this something that's going to plateau? What's your take on the landscape?

Mike Raspatello: Despite having worked at a beer company for five years and now heading a beer publication, I am by no means a historian or expert on the subject. I've watched the movies, I've read the books, I've been in the industry, I read the trades, and I know it to a degree. And I know there was obviously a surge and a fallout previously in the nineties, and then obviously what we all hear about now with the craft beer boom.

There is some concern, we actually published an article about this, there is a lot of alarmism that because the industry's growth is slowing. Now by no means is the growth stopping, it's just slowing from significant double-digit growth every year to closer to right on the edge of single and double-digit growth. So there is definitely panic, some people think the bubble's bursting and there's strong arguments as to why that's not the case, so I think what you're seeing, is obviously there's always going to be fallout amongst businesses that kind of hop on to a trend and just aren't good operators or don't have the right geography, aren't reaching the right consumer, there's always going to be less-than-perfect startups that are shaken out of a situation like this.

So people see the closings and they see things like that, and they immediately think, "okay, that means the growth of the industry is slowing." Well maybe that person just didn't operate their business as well as they could have, and maybe that shake out came from something else. I think the industry is fine, and I think it's fine in a way that it's going to finally reverse the tide of growth in spirits and wine relative to beer. Beer hasn't been as cool relative to those things of late, and I think the way the industry is going now is going to bring it back in the right direction.

One of the things that makes craft beer cool and interesting is the whole independent vibe. How do you see that changing with large conglomerates buying craft breweries?

Mike Raspatello: I think it is a tricky issue and there's too much nuance to it for me to solve it here today. But I will say that acquisition stories can go both the right and wrong direction. If the acquirer does not let that company retain its culture, and starts trying to bastardize the uniqueness or the authenticity that that brand created and grow too quickly or misapply what they're calling best practices to that brewery and their strategy, and obviously can go the wrong way. But I have seen both. I have seen it go very well. Where a company was doing fine at creating demand, it was doing fine at creating culture internally, but it had capacity restraints, and it had distribution constraints. As someone who has no shortage of those two things, the bigger player could come in and make it work.

So I think it could go both ways. I think there have certainly have been companies, you know, breweries that have been acquired and have proven that to the others, and that's why you're seeing more of it, because a lot of people say that, but you also don't hear many stories of those breweries turning down the money when it does come.

]     A lot of people have spoken to their desire to never sell out, and then reconsidered and found a way where selling out isn't the selling out they were afraid of.

So let's talk a little bit about how you handle potential conflicts of interest. If you follow the money, InBev funds ZX Ventures, which funds you, and you are putting out a publication about beer, and you are meant to remain independent, so combine that with the fact that Pitchfork, on the music side, has a reputation for very, to put it kindly, “incisive” reviews on the music front, so how do you retain that independence, and would you ever criticize an InBev product in the publication if you felt it was right?

Mike Raspatello: Yeah. We do and we have. That is a great question and I answer it every day, for all the obvious reasons, exactly what you just laid out. When we pitched this idea, that was literally the first thing we said. "This has to have full editorial independence, anything else will be a breach of contract in whatever relationship is created to create October," I wasn't called October then, but that was paramount to what we were doing from minute one. So anything less than that would have not been acceptable and we would not have even had meeting two within ZX Ventures to discuss this project. It was encouraging that the company would be okay with that day and supportive of that idea, and frankly it makes perfect sense because their objective, obviously is to make money, they're a venture fund, but also in doing so, build the beer industry. It is not their job to, there is a whole organization dedicated to growing Bud Light, and Budweiser and Stella Artois. They got it under control.

The idea of ZX Ventures was to take a chunk of money, make it into more money, and grow interest in beer culture as well. So they can use their own mandate to remind themselves why it's okay. However, we knew that as consumers would immediately sniff this out, so we had to, of course, in our first piece of content in all of the press releases, we were very honest about that dynamic and the fact that contractually, ZX Ventures can never tell the magazine what to talk about, what not to talk about. They speak with their checkbook. At the end of the terms of the contract, they decide if they like this in their portfolio and they make a decision for remain in the portfolio. But in between those decisions, they have no influence and it's contractual. So the way we had to prove that to the consumers is just by living it and by doing it. We're now 75 pieces of content in, we've shat on AB InBev things, I think on Super Bowl Sunday we had a writer write a very, a very well thought out criticism of Budweiser advertising.

Very incisive. Very “Pitchfork-y.” We've said good things about our beers, we've said good things about our competitor beers, and we've shat on our beers, and shat on competitive beers. I have occasionally got ... There was one thing, a colleague, was like, "I know we're not supposed to say this, but come on guys, you gave Blue Moon a good rating?" I'm like, hey that's how this works. This is the independence we have to live everyday.

Pitchfork has a reputation…Have you ever read The Onion thing, "Pitchfork gives music a 6.8?"

Mike Raspatello: We had just moved offices, and I get the honor of working out of the Pitchfork office in launching this. So we've been in this historic space now for five years and two days ago was the last day ever in that office. We're moving into a more combined Condé-Pitchfork environment in merchandise mart. But anyway, hanging above the toilet, at the Pitchfork office, was a blown up front page of The Onion, with that article. "Pitchfork gives music 6.8." It’s full of great quotes in it and the funny thing is the guys quoted are people I now know. So the fake quotes are from the editor-in-chief and the founder.

It's was also as encouraging to walk in there as the new guy, so to speak, and see that they embrace making fun of themselves, that that was hanging in the office. You never know. I didn't know the Pitchfork guy. I was a fan, but I didn't know the staff personally. They can poke fun at themselves as well, so that's always good to know.

Do any wacky, interesting stories come to mind from your time in the beer industry?

Mike Raspatello: I would say one of the trippiest things about the beer industry is the access to cool stuff, because you're Budweiser, Bud Light, you end up in the weirdest, most unexpected side stage with like, Snoop Dogg, your CMO and your CMO's 85 year old cousin or something like that. They throw amazing events. Even the biggest critics of big beer can't deny they know how to involve themselves in a good party.

Getting to go to some of those and just see, just be in this odd places where celebrities you would never expect to see next to each other like getting kind of drunk together and stuff like that. So that's been extremely good.

What are the two most contrasted wackiest celebrities you've ever seen?

Mike Raspatello: Oh man. All right. At a Super Bowl event I had a shot Billy Bush next to having a shot with McLovin. Also Jon Hamm. That's the other cool thing about working for Budweiser, is Jon Hamm, the Mad Men actor is like a St. Louisian and big Budweiser fan, so he's talked at our company events and stuff like that but I'd never met him personally.

I walk up to him at said Super Bowl party, and you know, like every other guy I go to shake his hand, and he doesn't give a shit, obviously. But he's a nice, he's good at it, he's good at being a celebrity, even if he doesn't care about the stranger in front of him. The minute I tipped him off to like, "hey man, I saw you at this, I worked at Budweiser." We were best friends. It was great. It was the greatest example of someone having true St. Louis pride.

I just came from St. Louis. It was cool. But you prefer Chicago?

Mike Raspatello: Yeah. When I was living in St. Louis I was itching for the west coast. Then I was on the west coast, and now I'm excited to be back. I'm ready to be a suburban dad. I am happy to be back in Chicago.

What's it like to do business in Chicago?

Mike Raspatello: It's very comfortable for me in a way because this is where I had two start ups previously, so I had all of my successes and failures, and all of my stupid decisions happened here and it all worked out and I survived. I know quite a few people. It feels good. I grew up here. I grew up six blocks from where we're sitting right here.

Can you tell me about something that went really wrong with October and how did you handle it?

Mike Raspatello: Well I think the main thing, I wouldn't say wrong, but the biggest challenge has been making the partners comfortable with this new structure. It's a unique structure to Condé Nast, and it's a unique deal to ZX Ventures and of course, there's always going to be growing pains with trying to create new structures within an organization that's very good at their existing structures.

That has been the challenge. Teaching the investors how to consider, manage, judge and feel comfortable with a medium event brand, and then also, ensuring that the folks on the October side understand that the balance we have to strike in over-communicating to the people involved. Because that's, to ZX's credit, they took a gigantic leap of faith in investing in something that is so outside their realm of expertise, and admittedly so, and that they realize that this can be a positive value creator for both the industry and themselves as a venture fund is testament to their stated mission and them living that mission. That's very cool and I'm so grateful for that, but it's a challenge because every day, you're teaching one side how to think of the other and vice-versa.

The other challenge, the one more thing I would say, is I was nervous, coming out of the gate, that everyone would dismiss this as some sham by Anheuser-Busch or some quasi-marketing Trojan Horse, and when that date passed, I immediately realized, that even I was underestimate the credibility of Michael Kaiser and Eno Seras, our editors, and then the Pitchfork team and its reputation. People quickly understood that those two writers, and the writers we had at launch, the journalists that were already known as Bon Appétit guys and New York Times guys and people with reputations and followings. That is, as soon as they saw that those people were doing and they saw that Pitchfork was behind it, and they saw that we were very quick to talk positively about AB InBev competitors and maybe not so positively about ourselves, it did so much to make everyday after that easier.

I think I underplayed to folks how worried we all were about that, but it was obviously the biggest concern and once we got over that the scary part was largely over. Now we just need to grow, grow, grow and continue cranking out a good product.

Based on what you're experienced with this and your other businesses you've started, what would you say is your number one lesson learned or piece of advice you have for people who are either currently operating small businesses or interested in starting one?

Mike Raspatello: Yeah, don't be afraid to acknowledge mistakes and redirect and evolve and pivot and all the buzzwords out there.

I think being overly persistent on an uninformed decision where you're learning very quickly might have not been the right decision is, might when you a short term argument with your partners but it's certainly not good for the long term health of the brand.

I certainly have learned that the hard way. We were the dumbest founders in the world, you know, when my first business was some of my buddies. We did some cool things, we had some great ideas, but we also were, made some terrible management decisions.

I was straight out of business school. I was like a 23 year old thinking like, "oh we're not getting in any meetings if that business plan isn't 127 pages and has a perfect font in the index."

Is there anything else you want our audience to know about your business, about October? Where can people find you, what are your social media handles, websites?

Mike Raspatello: Yeah. Well I want you to read it. I want you to tell us what else we should be writing about. We are found at Oct.co, where you can find us. We're pretty good in google results as well, google search results. Our handles are @ReadOctober on all platforms. What we want is for you guys to recommend ideas for events we could throw, people we should be talking to, beers we should be looking at. The content doesn't sprout out of the ground. We have to create high end editorial every single day. More than one piece of it. 52 pieces of content a month. And twenty major events this year. That stuff, don't ever take for granted what it takes to actually come up with good ideas and create stuff and make sure people show up.

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If you have any questions or comments about today's episode, please leave them below.

Topics: small business war stories, podcast

Pablo Fuentes

Written by Pablo Fuentes

Pablo Fuentes is the CEO of Proven. He is a graduate of the Stanford Graduate School of Business and UCLA. He is a Brazilian Jiu-Jitsu practitioner and a blues guitar player and builder.

 

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